S. 141 NI Act | Resigned Director Not Liable For Cheque Issued By Company After His Resignation : Supreme Court

The Supreme Court observed that the cheque issued after the retirement of the director of the company would not trigger his liability under Section 141 of the Negotiable Instrument Act, 1882 (“NI Act”). “Once the facts are plain and clear that when the cheques were issued by the Company, the appellant (director) 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 said. The bench comprising Justice JK Maheshwari and Justice Rajesh Bindal was hearing the appeal filed against the Himachal Pradesh High Court's refusal to quash the cheque dishonor case against the Appellant, who had resigned from the company's directorship before the issuance of cheque by the company towards a legally existing debt. Three post-dated cheques dated 17.07.2019, 17.09.2019, and 23.09.2019 were issued by Respondent No. 2 – Company on 12.07.2019. However, the Appellant had resigned from the company's directorship on 21.06.2019, whose resignation was deemed effective from the date of resignation. The Appellant claimed that on the date of issuance of the cheques, he was not the director of the Company and had not signed the cheques. Therefore, he cannot be held responsible for the affairs of the Company. In case any debt existed and the Company, had issued any cheque, the appellant cannot be held liable for offence under Section 138 of the Negotiable Instruments Act, and saddling him to face trial would amount to misuse of process of law. Opposing the Appellant's contention, the Respondents supported the High Court's decision contending that because on the date of debt, the appellant was a director in the Company and therefore, the factual aspect of submission of the resignation before the issuance of cheque and dishonoring is required to be examined during trial, as held in Malva Cotton and Spinning Mills Limited Vs. Virsa Singh Sidhu and Others (2008). Upon hearing the parties, the Court observed that the Appellant cannot be held liable for the company's affairs because he resigned before the issuance of the cheque by the company. It rejected the Respondent's argument that since the company's debt existed during the directorship of the Appellant, hence his liability needed to be examined in the trial. Moreover, the Court found the respondent's reliance on the Malva Cotton's case as misplaced because in Malva Cotton the resignation of the director accused therein was submitted with the Registrar of Companies after the issuance of the cheques therein, while the accused director maintained that he had intimated his resignation to the Company before the issuance of cheques.“On the contrary, as discussed, in the present case, the appellant's resignation dated 21.06.2019 was submitted before the Registrar of Companies on 26.06.2019. Whereas the cheques in question, were issued on 12.07.2019, i.e., after his resignation.”, the Court observed. “In view of the said factual scenario and in absence of any other material brought before us, we are inclined to set aside the common order passed by the High Court and allow the quashing petitions as filed by the appellant before the High Court.” Accordingly, the Appeal was allowed. Case Title: ADHIRAJ SINGH VERSUS YOGRAJ SINGH AND OTHERSCitation : 2025 LiveLaw (SC) 75Click here to read/download the order

S. 141 NI Act | Resigned Director Not Liable For Cheque Issued By Company After His Resignation : Supreme Court

Yash Mittal

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