2000 (10) TMI 904 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the process issued against the petitioner under sections 138 to 142 of the Negotiable Instruments Act, 1881, and section 420 of the Indian Penal Code.
2. Whether the petitioner was a director of the accused company at the time of the alleged offense.
3. Impact of the petitioner's resignation on his liability for the dishonored cheques.
4. Applicability of section 260 of the Companies Act, 1956, regarding the tenure of an Additional Director.

Detailed Analysis:

1. Validity of the Process Issued:
The complaint was filed by the first respondent under sections 138 to 142 of the Negotiable Instruments Act, 1881, and section 420 of the Indian Penal Code against the accused company and its directors, including the petitioner. The Addl. Chief Judicial Magistrate issued process against all accused. The petitioner sought recall of the process, which was rejected, leading to the current writ petition.

2. Petitioner's Directorship at the Time of Alleged Offense:
The petitioner contended that he was co-opted as an Additional Director on 13-4-1992 and resigned on 2-12-1992. He argued that he could not be prosecuted for the dishonor of cheques in 1998 as he was no longer a director. The complainant alleged that the resignation documents were fabricated and that the petitioner had not raised this ground earlier. The court found that the petitioner had indeed resigned on 2-12-1992, as evidenced by Form No. 32, and the complainant did not specifically deny this in their reply.

3. Impact of Resignation on Liability:
The court noted that once the petitioner resigned on 2-12-1992, he ceased to have any control or access to the company and could not be held liable for the dishonored cheques issued in 1997-98. The trial court's expectation for the petitioner to explain the delay in filing his resignation with the Registrar of Companies was deemed unreasonable.

4. Applicability of Section 260 of the Companies Act, 1956:
Even if the petitioner had not resigned, his tenure as an Additional Director would have ended on the last date the first annual general meeting should have been held, i.e., 16-3-1993, as per section 260 of the Companies Act. The court cited precedents, including judgments from the Madras High Court and the Division Bench of the Bombay High Court, affirming that directors vacate their office on the last date the annual general meeting should have been held if not reappointed. Thus, the petitioner ceased to be an Additional Director after 16-3-1993, and could not be prosecuted for the cheques dishonored in 1997-98.

Conclusion:
The criminal writ petition was allowed, and the order dated 25-1-2000, issued by the Addl. Chief Metropolitan Magistrate, was quashed. The petitioner's application for recall of process was granted, and the complaint against him was dismissed. The complaint would proceed against the other accused persons.