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2025 (5) TMI 564 - HC - Indian LawsDishonour of Cheque - insufficient funds - vicarious liability of Director under Section 141 N.I. Act - director at the time of issuance of cheque or not. Whether the Petitioner was a Director of the accused Company at the time of issuance of the cheques in question? - HELD THAT - The Apex Court in the case of Adhiraj Singh vs. Yograj Singh and Ors. 2024 (12) TMI 1570 - SUPREME COURT while considering a similar situation wherein post-dated cheques were issued on 12.07.2019 after the resignation of the Director it was held that Once the facts are plain and clear that when the cheques were issued by the Company the appellant had already resigned and was not a director in the Company and was not connected with the company he cannot be held responsible for the affairs of the Company in view of the provisions as contained in Section 141 of the NI Act. In the present case the two cheques bearing No. 521021 and 521020 totalling to Rs. 22, 53, 968 were dated 04.10.2016 and 20.12.2016 respectively while the Petitioner had already resigned as Director on 14.05.2015 i.e. prior to the dates on which the impugned cheques were issued. Further from the perusal of the Complaint it is evident that the Appellant was neither a signatory to the dishonoured cheques nor the promissory note. There are general averments regarding the accused directors who had knowledge of the legally enforceable debt but the Complaint conspicuously lacks any specific averment articulating the precise manner in which the Petitioner bore the responsibility of the two dishonoured cheques - the Petitioner cannot be held vicariously liable under Section 141 N.I. Act. Conclusion - The Petitioner having resigned as Director prior to the issuance of the dishonoured cheques cannot be held liable under Section 141 of the N.I. Act. Petition allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this matter are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Liability of the Petitioner as a Director under Section 141 N.I. Act despite resignation prior to issuance of cheques Relevant legal framework and precedents: Section 141 of the N.I. Act imposes vicarious liability on persons in charge of and responsible to the company for the conduct of its business at the time of issuance of the cheque. The proviso to Section 141(1) requires that the complainant must plead and establish the capacity in which the accused was in charge and responsible for the day-to-day affairs of the company at the relevant time. The Apex Court's recent ruling in a similar matter held that a Director who had resigned prior to issuance of the cheques cannot be held liable under Section 141. Court's interpretation and reasoning: The Court noted that the Petitioner's resignation as Director on 14.05.2015 was undisputed and properly recorded with the Registrar of Companies through Form DIR-11. The dishonoured cheques were dated 04.10.2016 and 20.12.2016, well after the resignation. The Court relied on the Apex Court precedent which held that a person who is not a Director at the time of issuance of the cheque cannot be held responsible under Section 141. Key evidence and findings: The resignation letter dated 14.05.2015, Board approval on 19.05.2015, and Form DIR-11 filed with the Registrar of Companies were accepted as conclusive proof of resignation. The cheques were dated more than a year after the resignation. The Petitioner was neither a signatory to the cheques nor to the promissory note acknowledging the debt. Application of law to facts: Since the Petitioner had ceased to be a Director at the time of issuance of the cheques, he could not be considered as being in charge of or responsible for the conduct of the company's business at that time. The Court held that the vicarious liability under Section 141 cannot be fastened on the Petitioner in these circumstances. Treatment of competing arguments: The Complainant argued that the Petitioner was aware of the company's liabilities and resigned to avoid liability. However, the Court found this to be speculative and not supported by specific pleadings or evidence. The Court emphasized that "merely being a Director doesn't make a person responsible or in control of the Company" and the Complainant failed to specifically aver the Petitioner's responsibility at the relevant time. Conclusions: The Petitioner cannot be held liable under Section 141 N.I. Act for the dishonour of cheques issued after his resignation. Issue 2: Sufficiency of pleadings and proof regarding the Petitioner's responsibility for company's affairs Relevant legal framework and precedents: The proviso to Section 141(1) N.I. Act requires the Complainant to specifically plead and prove that the accused was in charge of and responsible for the conduct of the company's business at the time of the offence. General or vague averments are insufficient. Court's interpretation and reasoning: The Court observed that the Complaint contained only general averments about the accused directors being responsible but lacked any specific pleading as to the Petitioner's role or control at the time the cheques were issued. The Petitioner was not a signatory to the cheques or the promissory note. The Court held that such vague allegations do not meet the threshold required under the N.I. Act. Key evidence and findings: The Complaint acknowledged the debt and promissory note executed by other directors but did not specify the Petitioner's involvement or responsibility at the time of cheque issuance. Application of law to facts: The absence of specific pleadings and evidence about the Petitioner's control or responsibility led the Court to conclude that the Complaint was defective insofar as it sought to fasten liability on the Petitioner. Treatment of competing arguments: The Complainant's contention that the Petitioner was responsible was rejected due to lack of specific averments and supporting evidence. Conclusions: The Complaint against the Petitioner did not satisfy the legal requirements to establish his liability under Section 141 N.I. Act. Issue 3: Effect of resignation and formalities under Companies Act on liability under N.I. Act Relevant legal framework and precedents: Under the Companies Act, 2013, a Director's resignation becomes effective upon its acceptance by the Board and filing of Form DIR-11 with the Registrar of Companies. The N.I. Act's Section 141 liability is linked to the position of the person at the relevant time. Court's interpretation and reasoning: The Court found that the Petitioner's resignation was duly accepted and filed with the Registrar of Companies, confirming that he ceased to be a Director before the cheques were issued. This formal compliance reinforced the conclusion that the Petitioner was not liable under Section 141. Key evidence and findings: The resignation letter, Board resolution, and Form DIR-11 were undisputed and conclusively established the Petitioner's resignation date. Application of law to facts: The Court applied the legal principle that liability under Section 141 attaches only to persons who are Directors at the time of issuance of the cheque. The formal resignation cut off the Petitioner's liability. Treatment of competing arguments: The Complainant's argument that the Petitioner resigned to evade liability was rejected as unsubstantiated and irrelevant to the legal effect of resignation. Conclusions: The Petitioner's formal resignation and its acceptance effectively absolved him from liability under Section 141 for cheques issued thereafter. 3. SIGNIFICANT HOLDINGS "Once the facts are plain and clear that when the cheques were issued by the Company, the appellant had already resigned and was not a director in the Company and was not connected with the company, he cannot be held responsible for the affairs of the Company in view of the provisions as contained in Section 141 of the NI Act." The Court established the core principle that vicarious liability under Section 141 N.I. Act is confined to persons who are in charge of and responsible for the conduct of the company's business at the time of issuance of the cheque. Mere past directorship or general knowledge of company affairs is insufficient. Final determinations:
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