2022 (4) TMI 766 - HC - Indian Laws

Dishonor of Cheque - insufficiency of funds - vicarious liability of directors - requirements of Section 141 of the N.I. Act met or not - HELD THAT - In the first place, the Registration Kit Loan Against Shares placed on the record as Annexure R-2, lists out the Full Time Directors of the Company at page 12 of the e-file and the petitioner has been named as one such Full Time Director. Had he resigned before the execution of the said document, why would his name be included? If the petitioner has an explanation, he can offer it but only at his turn, during trial. The document, it may be noted once again, is signed on 25th June, 2007. It includes details of the petitioner s documents. His shareholding has also been disclosed i.e. that the petitioner is holding 300 shares. It would be for him to prove during trial that such a shareholding did not allow him to conduct the business of the Company or that despite being a Full Time Director, he had no say in the conduct of the Company s business. It is addressed to the Board of Directors. It only bears an endorsement of receipt by some undisclosed person. There is nothing to show that the resignation has been accepted. No Board Resolution has been annexed nor has a certified copy of Form 32 filed with the Registrar of the Companies been placed on the record. Thus, prima-facie without proof that such a letter had been written on the date stated on the letter and in the absence of evidence of statutory compliance for the acceptance of the resignation and change in the constitution of the Board of Directors, no credibility can be attached to this so-called letter of resignation to exonerate the petitioner from criminal liability. Petition dismissed.

Summary

Issues:
Quashing of complaints under Section 138 of Negotiable Instruments Act, 1881; Interpretation of Section 141 of the N.I. Act regarding liability of Directors in cheque bounce cases; Validity of resignation of Director as a defense in criminal proceedings.

Analysis:
The petitions sought quashing of complaints under Section 138 of the N.I. Act related to dishonored cheques. The petitioner argued that as a resigned Director, there was no specific averment justifying his inclusion as an accused under Section 141 of the N.I. Act. Citing relevant case law, the petitioner contended that the role of a Director in the offense must be clearly defined for prosecution. The petitioner emphasized resignation before cheque issuance and loan sanction, asserting lack of involvement. However, the respondent disputed the resignation's validity, presenting the loan agreement and lack of formal acceptance of resignation as evidence against the petitioner.

The court acknowledged the requirement for a Director's clear role in the offense for prosecution but found the petitioner's resignation claim insufficient. The court scrutinized the loan agreement listing the petitioner as a Full-Time Director and his shareholding, questioning the resignation's timing. The court highlighted the resignation letter's lack of acceptance proof, Board Resolution, or Form 32 filing, casting doubt on its credibility. Ultimately, the court dismissed the petitions, imposing costs and emphasizing the need for statutory compliance to support resignation claims in criminal proceedings.

In summary, the judgment delved into the intricacies of Director liability in check bounce cases under Section 138 of the N.I. Act. It emphasized the importance of clear evidence to support resignation claims and highlighted the necessity of statutory compliance for resignation acceptance. The court's decision underscored the need for concrete proof to establish defense in criminal proceedings, ultimately leading to the dismissal of the petitions.