Top Court discharges Directors from prosecution in NI Act case as they resigned from Company before issuance of cheques
Justices B.R. Gavai & Sanjay Karol [14-02-2024]

Read Order: RAJESH VIREN SHAH v. REDINGTON (INDIA) LIMITED [SC-CRIMINAL APPEAL NO. 888 2024]

LE Correspondent

New Delhi, February 15, 2024: The Supreme Court has allowed the appeals of the Directors of a Company in a cheque bounce case as they were in no way responsible for the conduct of business at the time when cheques were issued.

The appellants in both the appeals were Directors in the Respondent-Company and had resigned from such Directorship respectively. Form 32 in accordance with Sections 303(2), 264(2), 266(1)(a), and 266(1)(b)(iii) of the Companies Act, 1956, in respect thereof stood accepted respectively.

The appellants, namely, Rajesh Viren Shah and Sanjay Babulal Bhutada were arrayed as accused in a complaint filed under Section 138 of the Negotiable Instruments Act, 1881 (N.I.Act) in relation to three cheques for Rs 10,00,000, by the Company respondent herein against M/s MIEL e-Security Private Limited and its Directors, with one Mr. Narayanan Kutty Nair, Managing Director, being arrayed as A-2, and A-3 to A-7 being its Directors, including the appellants who were arrayed as A-4 and A-6 respectively.

With the dishonouring of the cheque on presentation on account of insufficient funds the complainant-respondent after serving statutory notice preferred a complaint under Sections 200 and 191A Code of Criminal Procedure, 1973 read with Section 144 of the N.I. Act, seeking quashing of such an action initiated by the respondent herein, the appellants preferred a petition under Section 482 of the CrPC which stands dismissed by the impugned order.

The Division Bench of Justice B.R. Gavai & Justice Sanjay Karol observed that 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. Reliance was placed upon Section 141 of the N.I. Act, which 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.

The Bench also referred to Monaben Ketanbhai Shah v. State of Gujarat [LQ/SC/2004/843] and S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr. [LQ/SC/2005/943]. It has been observed in S.M.S. Pharmaceuticals Ltd. (Supra) that in regards to the exercise of the inherent powers under Section 482 CrPC, 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 Bench found that the High Court, in the impugned order to have elaborately discussed the principles of law in regard to the quashing of such proceedings but, however, not dealt with the factual matrix. The Top Court was also of the opinion that the complainant had not placed any materials on record indicating complicity of the present appellants in the alleged crime. “Particularly, when the appellant(s) had no role in the issuance of the instrument, which is evident from Form 32 (Exh.P.59) issued much prior to the date on which the cheque was drawn and presented for realisation”, it said.

Moreover, the basis on which liability was sought to be fastened upon the instant appellants was rendered questionable as the veracity of Form-32 had neither been disputed by the Respondent nor had the act of resignation simpliciter been questioned.

“The record reveals the resignations to have taken place on 9 th December 2013 and 12th March 2014. Equally, we find 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, we have no hesitation in holding that they ought to be then entitled to be discharged from prosecution”, the Bench clarified.

Accordingly, the Bench quashed all criminal proceedings pertaining to the instant appellants arising out of the complaints filed by the respondent herein are quashed.