2019 (9) TMI 1540 - HC - Indian Laws

Dishonor of Cheque - issuance of notice to applicant who resigned from his post and ceased to be Director - HELD THAT - The NI Act draw a succinct distinction between the provisions of Section 138 and Section 141. Merely because a Director of a Company can be vicariously held liable for the offence committed by the Company by relying on Section 141 of the Act, the plain reading of Section 138 and sub-Sections (b) and (c) appended to the proviso do not admit of a situation where it is a requirement of drawee issuing a notice to every Director of the Company who was in carge and responsible to the Company for conduct of its business. This requirement of issuance of notice to an individual Director in terms of sub-clause (b) of proviso to Section 138 cannot be read into the said provision. Merely on an assumption that when a notice is issued to the Director and then the Director would necessarily inform the Company of such a notice being received, do not make it imperative for a drawer to issue a notice to any other person other than the drawer of the cheque. It is settled position of law that when a statute requires a particular thing to be done in a particular manner, then that must be performed in the same manner and not in any other manner. In such circumstances, in the absence of the notice being issued to the Company, which is the drawer of the cheque in question, the invocation of proceedings under Section 138 of the NI Act must necessarily fail in the absence of the statutory compliance of sub-clause (b) of the proviso appended to Section 138. In any contingency, the Applicant is also entitled to avail the benefit under Section 141 of the NI Act since it is an admitted position that he was not a Director, and, therefore, not in control of the affairs of the Company on the date when the cheque was presented i.e. on 31/01/2017 and on the said date, he had already ceased to be the Director of the Drawer Company. In the absence of the drawer i.e. the Company being issued with a notice as contemplated in Clause (b) of proviso to Section 138 before initiation of complaint under Section 138, the impugned order cannot be sustained. Application allowed.

Summary

Issues Involved:
1. Issuance of process against the Applicant.
2. Compliance with Section 138 of the Negotiable Instruments Act (NI Act).
3. Applicant's resignation from the directorship.
4. Liability under Section 141 of the NI Act.
5. Requirement of notice to the drawer under Section 138 of the NI Act.

Detailed Analysis:

1. Issuance of Process Against the Applicant:
The Applicant, a former Director of Landmark Real Estate Developers Limited, challenged the issuance of process against him by the Metropolitan Magistrate, which was upheld by the Appellate Court. The process was issued under Sections 138 and 142 of the NI Act due to the dishonor of a cheque.

2. Compliance with Section 138 of the NI Act:
The Complainant issued notices to three individuals, including the Applicant, but not to the Company, which was the drawer of the cheque. The Court emphasized that Section 138(b) of the NI Act mandates that the notice must be addressed to the drawer of the cheque. The failure to issue a notice to the Company, which was the drawer, rendered the process non-compliant with Section 138, thereby invalidating the proceedings.

3. Applicant's Resignation from the Directorship:
The Applicant resigned from his directorship on 28/12/2016, and this resignation was accepted and recorded officially. Since the cheque was dishonored on 31/01/2017, after the Applicant had ceased to be a Director, he could not be held liable under Section 141 of the NI Act, which imposes vicarious liability on those in charge of the Company at the time of the offence.

4. Liability Under Section 141 of the NI Act:
Section 141 of the NI Act holds that every person in charge of and responsible to the Company at the time of the offence is liable. However, since the Applicant had resigned before the cheque was dishonored, he was not responsible for the Company’s affairs at that time. Therefore, vicarious liability under Section 141 could not be imposed on him.

5. Requirement of Notice to the Drawer Under Section 138 of the NI Act:
The Court underscored that Section 138 requires the notice to be given to the drawer of the cheque. The Supreme Court in Krishna Texport and Capital Markets Limited v. ILA A. Agrawal & Others clarified that the notice must be issued to the drawer, and not to individual Directors. The absence of a notice to the Company, which was the drawer, meant that the statutory requirement was not met, leading to the failure of the proceedings under Section 138.

Conclusion:
The High Court quashed the impugned order due to non-compliance with Section 138(b) of the NI Act and the fact that the Applicant was not a Director at the time of the cheque's dishonor. The Court allowed the Application, setting aside the issuance of process against the Applicant.