Supreme Court

Rajesh Viren Shah Vs. Redington (India) Limited (Neutral Citation: 2024 INSC 111)

MANU/SC/0108/2024

14.02.2024

Banking

Director who has resigned from the position cannot be held liable for negotiable instruments issued or for the business conducted after his resignation

The Appellants in both the appeals were Directors in the Respondent- Company and had resigned from such Directorship on 9th December, 2013 and 12th March, 2014 respectively. The Appellants, were arrayed as Accused in a complaint filed under Section 138 of the Negotiable Instruments Act, 1881.

In present case question raised is 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?

The position of law as to the liability that can be fastened upon a Director for non-realisation of a cheque is no longer res integra. Section 141 of the N.I. Act, states that every person who at the time of the offence was responsible for the affairs/conduct of the business of the company, shall be held liable and proceeded against under Section 138 of the N.I. Act, with exception thereto being that such an act, if done without his knowledge or after him having taken all necessary precautions, would not be held liable. However, if it is proved that any act of a company is proved to have been done with the connivance or consent or may be attributable to (i) a director; (ii) a manager; (iii) a secretary; or (iv) any other officer - they shall be deemed to be guilty of that offence and shall be proceeded against accordingly.

In cases involving negotiable instruments that interference would not be called for, in the absence of "some unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that the Director could not have been concerned with the issuance of cheques and asking him to stand the trial would be abuse of process of Court.

The complainant has not placed any materials on record indicating complicity of the present Appellant(s) in the alleged crime. Particularly, when the Appellant(s) had no role in the issuance of the instrument, which is evident from Form 32 issued much prior to the date on which the cheque was drawn and presented for realisation. 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. The cheques regarding which the dispute has travelled up the courts 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, they ought to be then entitled to be discharged from prosecution. Accordingly, all criminal proceedings pertaining to the instant Appellants arising out of the complaints filed by the Respondent herein are quashed. Appeal allowed.

Tags : Director Resignation Liability

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