2002 (8) TMI 589 - HC - Companies Law

Summary

Issues Involved:
1. Liability of directors for dishonoured cheques after their removal.
2. Authority of the Company Law Board to cancel cheques.
3. Applicability of Section 138 of the Negotiable Instruments Act despite Company Law Board orders.
4. Timing of the offence under Section 138 of the Negotiable Instruments Act.

Issue-wise Detailed Analysis:

1. Liability of directors for dishonoured cheques after their removal:
The petitioners, former directors of RBF Nidhi, argued that they were not liable for the dishonoured cheques as they were removed from their positions by the Company Law Board on 18-1-2000. They contended that the cheques were issued for payment between 21-12-1999 and 21-1-2000, but were presented and dishonoured after their removal. The court noted that the offence under Section 138 of the Negotiable Instruments Act was committed after their removal, thus they were not responsible for the dishonoured cheques.

2. Authority of the Company Law Board to cancel cheques:
The petitioners claimed that the Company Law Board had cancelled all cheques issued after 1-11-1999, thus nullifying their liability. However, the court ruled that the Company Law Board's order, dated 11-4-2000, could not retroactively affect the cheques issued and dishonoured before that date. The court emphasized that only Parliament or Legislative Assembly could enact retrospective laws, not the Company Law Board.

3. Applicability of Section 138 of the Negotiable Instruments Act despite Company Law Board orders:
The respondents argued that the offence under Section 138 was complete once the cheque was dishonoured and the statutory notice was issued. The court supported this view, citing Supreme Court precedents that even winding-up proceedings or insolvency declarations do not absolve liability under Section 138. Therefore, the Company Law Board's order did not nullify the offence already committed.

4. Timing of the offence under Section 138 of the Negotiable Instruments Act:
The court determined that the offence was complete upon the expiry of the notice period demanding payment after the cheque was dishonoured. In this case, the statutory notice was issued on 5-2-2000, received on 11-2-2000, and the offence was complete on 26-2-2000. Since the petitioners were removed as directors on 18-1-2000, they were not liable for the offence committed after their removal.

Conclusion:
The court concluded that while the complaint against the company was maintainable, it was not maintainable against the petitioners as they were not directors at the time the offence was committed. Therefore, the complaints against the petitioners were quashed. The proceedings in C.C. Nos. 3845 to 3848 of 2000 were quashed insofar as they related to the petitioners.