2014 (7) TMI 1341 - HC - Indian Laws

Dishonor of Cheque - vicarious liability - Section 138 read with Section 141 of the Negotiable Instruments Act - HELD THAT - In the instant case, there is a clear attempt on the part of the petitioners herein to escape the clutches of law. It appears, in the proceedings before Madras High Court, the same stand was taken as in the present case. The petitioners pleaded resignation from the post of Director without producing the relevant documents to support the same - in the instant case, when this Court went beyond the submission regarding representation that they have tendered their resignation through their venture capital company, it is clearly seen that there is nothing on record to show that their resignation being tendered and accepted. In a public limited company, whenever a person either appointed as a Director or subsequently tender his resignation, the same would be informed to ROC by filing prescribed form, which would indicate the date on which such appointment is made and the date on which resignation is tendered. In the instant case, no such document is produced with regard to tendering of resignation prior to 30.07.2009. On the contrary a letter is sought to be produced to demonstrate that the resignation was much earlier to the date of dishonour of cheques. It is seen that an attempt is being made by the petitioners, their employers, namely M/s. ICICI Venture Funds Management Company Limited, in trying to rescue these two petitioners from facing the criminal trial. The documents which are produced does not either support the stand that they are not involved in day today business of the first accused and that their resignation was much prior to the cheques were dishonoured. This Court find it difficult to accept that the complaint as against them is required to be quashed. In any event, this Court would observe that the petitioners have right to produce all the documents in the trial to be conducted by the learned Magistrate to demonstrate that they were not incharge of the day today affairs of the business and also demonstrate with appropriate documents that as on the date of the dishonour of cheques, they were not on the Board of the Company - Petition dismissed.

Summary

Issues:
Quashing of proceedings under Section 138 of Negotiable Instruments Act based on vicarious liability of Directors.

Analysis:
The judgment dealt with petitions seeking the quashing of proceedings against Accused Nos. 3 and 4 under Section 138 of the Negotiable Instruments Act. The complaint was filed for the dishonour of five cheques issued by the first accused company in favor of the complainant. The key contention was whether the accused Directors were vicariously liable for the company's actions. The petitioners argued that they had resigned before the cheques were dishonored, thus should not be held responsible.

The petitioners relied on various judgments to support their case. The first judgment highlighted the need for specific allegations to hold individuals liable under Section 141(1) of the Act. The court emphasized that mere designation as a Director does not automatically imply liability. The second judgment emphasized the active role of nominated Directors in protecting the interests of the investing company. The third judgment focused on the timing and acceptance of resignations in determining liability.

The court noted that the petitioners failed to provide concrete evidence of their resignations before the cheques were dishonored. The absence of documentation supporting the resignation dates led to the dismissal of the petitions. The court highlighted the importance of producing relevant documents, such as filings with the Registrar of Companies, to establish the timeline of resignations. Without such evidence, the court could not accept the petitioners' claims of non-involvement in the company's affairs.

Ultimately, the court dismissed the petitions, emphasizing that the petitioners had the opportunity to present evidence during the trial to prove their lack of involvement in the company's operations and the timing of their resignations. The judgment underscored the need for concrete documentation to support claims in legal proceedings and the importance of factual evidence in determining liability under the law.