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2023 (4) TMI 1009 - HC - Indian LawsDishonour of Cheque - directors on the date when cheque was issued or not - vicarious liability of Director - section 141 of NI Act - HELD THAT - Diamond Shipping Limited has not come forward seeking encashment of the criminal proceeding instituted against it. The petitioners were erstwhile directors of the company who retired from the post of directors of the said company with effect from 10th June, 2014. Therefore, the factual circumstance is similar to the facts and circumstance of HARSHENDRA KUMAR D. VERSUS REBATILATA KOLEY 2011 (2) TMI 1278 - SUPREME COURT wherein the Hon ble Supreme Court was pleased to hold that on the date the offence was committed under Section 138 of the N.I Act by the company the appellant was not the director; he had nothing to do with the affairs of the company. Thus, it was held by the Hon ble Supreme Court that in such view of the matter, if the criminal complaints are alleged to proceed against the appellant, it would result in gross injustice to the appellant and tantamount to an abuse of the process of the court. In the instant case similar is the situation. The petitioners were not directors of the company on the date when the cheques were issued. It is not the case of the opposite party No. 2/complainant that they were the signatories of the cheques. The criminal proceedings against the present petitioners quashed - revision allowed.
Issues involved:
The issues involved in this judgment include the quashing of a complaint registered under Section 138 read with Section 141 of the Negotiable Instruments Act, based on the resignation of directors before the issuance of cheques and the freezing of the company's bank account by a government authority. Details of the Judgment: Issue 1: Quashing of complaint based on resignation of directors In CRR 2639 of 2022, the petitioners sought to quash a complaint registered against them after resigning from the post of Directors of a company. The petitioners argued that they had resigned before the issuance of cheques that were later dishonored, citing a Supreme Court decision emphasizing that directors who resign before the issuance of cheques cannot be prosecuted for dishonor. The petitioners also highlighted a previous decision of the High Court supporting this stance. Issue 2: Effect of freezing of company's bank account The petitioners further argued that the freezing of the company's bank account by a government authority disabled the company from operating the account, leading to the dishonor of cheques. They contended that under such circumstances, the company cannot be held liable for dishonor of cheques under Section 138 of the Negotiable Instruments Act. This argument was supported by a Delhi High Court decision cited by the petitioners. Opposing Argument The opposite party contended that even if the directors had resigned and the account was frozen, the company issuing the cheques was still responsible for ensuring their honor. They argued that the company cannot escape criminal liability due to the freezing of the accounts, as the legal liability under the Negotiable Instruments Act overrides provisions of the Companies Act. Judgment After considering the arguments from both parties and examining the facts, the court noted that the company did not seek to quash the criminal proceedings against it. The court found that the petitioners had resigned before the issuance of cheques and were not signatories, similar to a previous Supreme Court decision. Therefore, the court concluded that the criminal proceedings against the petitioners should be quashed based on the resignation of directors before the issuance of cheques, in line with the legal precedent. Conclusion The court allowed the revision petition, quashing the criminal proceedings against the petitioners.
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