2025 (3) TMI 736 - HC - Indian Laws

Dishonour of cheque - vicarious liability of Petitioner as a signatory to the cheques and a former director of the company - framing of notice under Section 251 CrPC against the Petitioner - HELD THAT - The incontrovertible facts emerging from this case are that the Petitioner was serving as a whole-time director of Accused No. 1 at the time these cheques were issued and was also one of the signatories of the cheques. Further the Petitioner concededly resigned from Accused No. 1 subsequent to the issuance of the cheques. In fact the Petitioner s resignation is just one day after the issuance of cheques dated 14th May 2012. The Petitioner s argument that his resignation on 15th May 2012 prior to the presentation of the cheques is sufficient for quashing the summoning order is wholly untenable. In this regard the Petitioner s reliance on Kamal Goyal is misplaced as in that case the petitioner had resigned from the accused company prior to the issuance of the cheques and had also filed Form No. 32 with the Registrar of Companies prior to the issuance. Based on these facts this Court had concluded that since the petitioner had resigned well in advance of the cheques being issued he could not be held liable under Section 138 of the NI Act. However in the present case it is undisputed that the Petitioner s resignation occurred after the cheques in question were issued with both his resignation and Form No. 32 bearing the date of 15th May 2012 which is subsequent to the issuance of the cheques dated 12th May 2012 and 14th May 2012. The Petitioner who is concededly the signatory of the disputed cheques is liable for the actions of Accused No. 1 under Section 138 read with Section 141 of the NI Act. Conclusion - The Petitioner is admittedly a signatory to the cheques issued to the Respondent for the discharge of Accused No. 1 s liability. He was serving as a full-time director of Accused No. 1 at the time of issuance of the cheques in question; and resigned from the company only subsequent to the date of the cheques. There are specific averments regarding the Petitioner s role as the director of Accused No. 1 in the complaint lodged by the Respondent. Therefore there is indeed sufficient basis to proceed with the prosecution of the Petitioner under Section 138 of the NI Act. The Court finds no infirmity in the impugned order - petition disposed off.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether the Petitioner, as a signatory to the cheques and a former director of the company, can be held liable under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 (NI Act) despite having resigned before the cheques were presented for encashment.
• Whether the trial court's decision to summon the Petitioner and frame notice under Section 251 of the Code of Criminal Procedure, 1973 (CrPC) was legally justified.
• Whether the Petitioner's resignation and subsequent filing of Form No. 32 before the presentation of the cheques absolve him from liability under the NI Act.
• The applicability of precedents concerning the liability of directors and signatories under the NI Act.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents

The legal framework revolves around Section 138 of the NI Act, which penalizes the dishonour of cheques, and Section 141, which extends liability to directors and officers of the company. The Court referenced precedents such as S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Ashutosh Ashok Parasrampuriya v. Gharrkul Industries Pvt. Ltd. to elucidate the liability of directors and signatories.

Court's interpretation and reasoning

The Court emphasized that the Petitioner was a whole-time director and a signatory to the cheques at the time of their issuance. The Court noted that the Petitioner's resignation occurred after the cheques were issued, making him liable under Section 138 read with Section 141 of the NI Act. The Court distinguished the facts of the present case from precedents cited by the Petitioner, such as Kamal Goyal v. United Phosphorus Ltd., where the resignation occurred before the issuance of cheques.

Key evidence and findings

The key evidence included the cheques dated 12th and 14th May 2012, the Petitioner's resignation letter dated 15th May 2012, and Form No. 32. The Court found that the Petitioner was a signatory to the cheques and held a directorial position at the time of issuance, which was crucial in determining his liability.

Application of law to facts

The Court applied the principles from S.M.S. Pharmaceuticals Ltd., highlighting that a signatory to a dishonoured cheque is liable under Section 141 of the NI Act. The Court concluded that the Petitioner, being a signatory and director at the time of issuance, could not escape liability merely due to his subsequent resignation.

Treatment of competing arguments

The Petitioner argued that his resignation and the subsequent filing of Form No. 32 absolved him of liability. However, the Court rejected this argument, noting that the resignation occurred after the issuance of the cheques. The Court also dismissed the reliance on Bijay Agarwal, as it dealt with different legal issues.

Conclusions

The Court concluded that the Petitioner could be summoned and tried for the offence under Section 138 read with Section 141 of the NI Act, as he was a signatory to the cheques and held a directorial position at the time of their issuance.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning

The Court held: "The question notes that the Managing Director or Joint Managing Director would be admittedly in charge of the company and responsible to the company for conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act... So far as signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141."

Core principles established

• A director who is a signatory to a dishonoured cheque is liable under Section 138 read with Section 141 of the NI Act, irrespective of subsequent resignation.
• The timing of resignation relative to the issuance and presentation of the cheque is crucial in determining liability.
• Section 482 CrPC cannot be invoked to quash proceedings unless there is incontrovertible evidence that absolves the accused.

Final determinations on each issue

The Court determined that the Petitioner's challenge to the summoning order and framing of notice under Section 251 CrPC was unfounded. The Petitioner's role as a signatory and director at the time of cheque issuance justified the continuation of proceedings under the NI Act.