The Delhi High Court on Wednesday (23rd September) ruled that a person, who has retired as the Director of the Company, cannot be said to be in-charge of and responsible for the conduct of the day-to-day affairs of the Company, as contemplated in Section 141 of NI Act for being proceeded against.
The Bench of Justice V. Kameswar Rao was hearing a Plea filed by an ex-Director of the company (Alibaba Nabibasha) praying to quash complaint case nos. 2863 of 2019, 2851 of 2019, 2856 of 2019, 2869 of 2019 and 2873 of 2019 under section 138 of the Negotiable Instruments Act, 1881 pending before the court of Ms. Alka Singh, Metropolitan Magistrate, South Delhi as against the Petitioner.
In short, this petition was filed seeking quashing of five complaint cases initiated by the respondent No.1 against the petitioner herein. These complaint cases were primarily grounded on the return of five cheques which were issued on behalf of the respondent No.2 for a total amount of Rs. 45 Lakhs.
Facts of the Case
The proceedings were initiated by the respondent No.1 (small-farmer agribusiness consortium) against the petitioner (Alibaba Nabibasha) before the learned Metropolitan Magistrate (MM for short) Saket Courts, under Section 138 of the Negotiable Instruments Act, 1881 (NI Act hereinafter) purportedly on the ground that the petitioner was a Director of the respondent No.2.
The cheques in question, all dated December 31, 2018 were issued by the respondent No.2 in favour of respondent No.1 (small-farmer agribusiness consortium) for a total amount of Rs.45 Lakhs and the same were dishonoured due to insufficient funds vide memo dated January 11, 2019.
In fact, respondent No.1 (small-farmer agribusiness consortium) had disbursed Venture Capital Funding of Rs.45 Lakhs to R2 and the cheque in question was drawn in favour of respondent No.1 (small-farmer agribusiness consortium) to discharge the liability of the same.
Arguments Put forth
The petitioner argued that he ceased to be a Director of the respondent No.2 w.e.f. October 27, 2010, at least eight years prior to the issuance of the cheques in question. His resignation was also notified to the Registrar of Companies / Ministry of Company Affairs by the respondent No.2 by filing Form 32 dated January 04, 2011, which is a public document.
It was also submitted that both the events that resulted in the complaints i.e. the agreement and the issuance of the cheques are events, which took place after October 27, 2010 when the petitioner ceased to be a Director of the respondent No.2.
The Counsel for the Petitioner alleged that the legal notice dated January 28, 2019 allegedly sent by the respondent No.1 was never received by the petitioner. Even the averments in the complaints filed by the respondent No.1 are sketchy and in no way demonstrate how the complaints are maintainable against the petitioner.
It was submitted that the essential ingredients for maintaining a complaint under Section 138 of the NI Act are absent with respect to the petitioner. The respondent No.1 has failed to show in what manner and how the petitioner was responsible for the affairs of the respondent No.2.
The case of the respondent No.1 was primarily that the petitioner was involved in the discussion before an agreement was executed between the respondent No.1 and the respondent No.2.
However, he did not dispute the Form 32 annexed by the petitioner which depicted that the petitioner ceased to be the Director of respondent No.2.
Court's Analysis and Decision
The Court took the facts into account and said,
"This factum surely suggests that the petitioner having resigned on October 27, 2010 from the respondent No.2 was not the Director when the agreement dated March 03, 2011 was executed. Even the cheque dated December 31, 2018 was also issued much after petitioner's resignation as the Director of the respondent No.2."
The Court further observed,
"In cases where the accused has resigned from the Company and Form 32 has also been submitted with the Registrar of Companies then in such cases if the cheques are subsequently issued and dishonoured, it cannot be said that such an accused is in-charge of and responsible for the conduct of the day-to-day affairs of the Company, as contemplated in Section 141 of NI Act for being proceeded against."
The Court noted that it was the case of the respondent No.1 that the petitioner was involved in the discussion and represented the respondent No.2 before the agreement was executed on March 03, 2011 but that does not mean even after his resignation he continues to be responsible for the actions of the Company including the issuance of cheques and dishonour of the same which then attracts proceedings under Section 138 of the NI Act against him.
The Court further noted that it was conscious of the settled position of law that the High Court, while entertaining a petition of this nature shall not consider the defence of the accused or conduct a roving inquiry in respect to the merits of the accusation/s.
However, the Court further observed, if the documents filed by the accused / petitioner are beyond suspicion or doubt and upon consideration, demolish the very foundation of the accusation/s levelled against the accused then in such a matter, it is incumbent for the Court to look into the said document/s which are germane even at the initial stage and grant relief to the person concerned under Section 482 CrPC in order to prevent injustice or abuse of process of law.
In Court's opinion the present petition fell within the aforesaid parameters. The Court further referred to the ruling of Apex Court in the Case of Harshendra Kumar D. v. Rebatilata Koley and Others, (2011) 3 SCC 351, wherein it was held,
"A Director, whose resignation has been accepted by the company and that has been duly notified to the Registrar of Companies, cannot be made accountable and fastened with liability for anything done by the company after the acceptance of his resignation. The words "every person who, at the time the offence was committed", occurring in Section 141(1) of the NI Act are not without significance and these words indicate that criminal liability of a Director must be determined on the date the offence is alleged to have been committed."
The Court also cited the Apex Court's ruling in the case of Ashoke Mal Bafna v. Upper India Steel Manufacturing & Engineering Company Limited (2018) 14 SCC 202, wherein the Court had ruled,
"For making a Director of a Company liable for the offences committed by the Company under Section 141 of the Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company."
The Court concluded that mere repetition of the phraseology of Section 141 of NI Act that the accused is in-charge and responsible for the conduct of the day-to-day affairs of the Company may not be sufficient and facts stating as to how the accused was so responsible must be averred.
Lastly, the Court directed that the present petition needs to be allowed and the proceedings initiated by the respondent No.1 against the petitioner through complaint cases Nos. 2863 of 2019, 2851 of 2019, 2856 of 2019, 2869 of 2019 and 2873 of 2019 under Section 138 of the NI Act, pending before the learned Metropolitan Magistrate, Saket Courts, and the resultant proceedings including summons issued thereon be quashed. The petition was thus, disposed of.
Case Title: Alibaba Nabibasha v. Small Farmers Agri-Busines Consortium & Ors.
Case No.: CRL. M.C. 1602/2020, CRL. M.A. 9935/2020
Quorum: Justice V. Kameswar Rao
Appearance: Advocate V. M. Kannan (for the Petitioner); Advocate Punit Gaur (for R-1).
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