LI Network
Published on: February 15, 2024 at 15:40 IST
The Supreme Court has determined that a director who resigned from a company before the issuance of a cheque cannot be held accountable for cheque bouncing offenses under Sections 138 and 141 of the Negotiable Instruments Act.
The case involved a director who had resigned following the procedures outlined in the Companies Act, 1956, with the acceptance of Form 32. The necessary records were corrected, reflecting the changes resulting from the resignation.
Despite this, the director faced accusations in a complaint under Section 138 of the Negotiable Instruments Act for a bounced cheque due to insufficient funds.
Justices B.R. Gavai and Sanjay Karol noted that the resignations occurred on 9th December 2013 and 12th March 2014, while the disputed cheques were issued on 22nd March 2014.
The Court emphasized that, having severed ties with the company before the cheque issuance, the director could not be held responsible for the business’s conduct at that time.
The Court pointed out that the complainant failed to provide evidence indicating the director’s involvement in the alleged offense.
Referring to Form 32, the court concluded that the director played no role in the issuance of the instrument, having resigned prior to the cheque’s draw and presentation for realization.
The ruling clarified that if any act of a company is proven to be done with the connivance or consent of a director, manager, secretary, or other officer, they would be deemed guilty of the offense.
However, in this case, the court highlighted that the veracity of Form 32 was undisputed, and the act of resignation was not questioned, rendering the basis for imposing liability on the director questionable.
Case title: Rajesh Viren Shah v. Redington (India) Limited