2024 (2) TMI 765 - SC - Indian Laws

Dishonour of Cheque - vicarious liability of the director - Whether a Director who has resigned from such position and which fact stands recorded in the books as per the relevant rules and statutory provisions, can be held liable for certain negotiable instruments, failing realization? - HELD THAT - The veracity of Form-32 has neither been disputed by the Respondent nor has the act of resignation simpliciter been questioned. As such, the basis on which liability is sought to be fastened upon the instant appellant(s) is rendered questionable. The record reveals the resignations to have taken place on 9th December 2013 and 12th March 2014. Equally, it is found that the cheques regarding which the dispute has travelled up the courts to have been issued on 22nd March 2014. The latter is clearly, after the appellant(s) have severed their ties with the Respondent- Company and, therefore, can in no way be responsible for the conduct of business at the relevant time. Therefore, there are no hesitation in holding that they ought to be then entitled to be discharged from prosecution. All criminal proceedings pertaining to the instant appellant(s) arising out of the complaints filed by the respondent herein are quashed - Appeal allowed.

Summary

Issues involved:
Whether a Director who has resigned can be held liable for negotiable instruments failing realization.

Facts and Adjudication:
The appellants were Directors in the Respondent-Company and had resigned as per relevant rules. They were accused in a complaint under Section 138 of the Negotiable Instruments Act for dishonored cheques. The complainant sought quashing of the action, which was dismissed. The statutory provision Section 141 of the N.I. Act holds persons responsible for company affairs liable unless proven otherwise.

Judicial Position:
The court referred to previous judgments emphasizing the necessity of necessary averments in complaints to establish liability. It was noted that interference in cases involving negotiable instruments is not warranted without clear evidence beyond doubt. The High Court discussed legal principles but failed to address the lack of evidence indicating the appellants' complicity in the alleged crime.

Decision:
The resignations of the appellants preceded the issuance of the disputed cheques, absolving them of responsibility. The court held that the appellants should be discharged from prosecution, and quashed all criminal proceedings against them. The judgments of the High Court were set aside, and the appeals were allowed.

Conclusion:
The Supreme Court ruled in favor of the appellants, discharging them from prosecution due to their resignations preceding the issuance of the disputed cheques, thereby quashing all criminal proceedings against them.