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Director of company can’t held liable for dishonor of cheque, subsequent his retirement: Delhi HC



ALIBABA NABIBASHA v. SMALL FARMERS AGRI-BUSINESS CONSORTIUM & ORS

CRL. M.C. 1602/2020, CRL. M.A. 9935/2020

Decided On: 23rd September, 2020


The Single Bench comprising of Hon’ble Mr. Justice v. Kameshwar Rao, held Director liable for dishonoring of cheques, subsequent to his retirement under Section 141 of Negotiable Instruments Act.


The petitioner ( Alibaba Nabibasha) , who is the ex-director of the Respondent Company (R2). The petitioner has resigned from the company and the resignation of the petitioner was also notified to the Registrar of the Companies/ Ministry of Company Affairs (MCA) by the respondent 2 by filing Form 32 dated January 4, 2011 which is a public document. The small-farmer agribusiness consortium (R1) initiated proceedings under Section 138 of the N.I Act in a Delhi Court against the petitioner. According to Respondent 1, the cheques in question were issued by Respondent 2 for Rs.45 Lakhs and the same was dishonored due to insufficient funds. He also averted that the petitioner has participated in the meetings and assisted the officials of the Respondent 1 who has visited the Respondent 2 for verification of its financial and physical status. Respondent 1 has paid out the Venture Capital Funding of Rs.45 Lakhs to Respondent 2 and the cheque in question was to discharge the liability of the same. Aggrieved by the summons, the petitioner approached the High Court. The petition has been filed seeking quashing of five complaint cases initiated by the respondent 1 against the petitioner.


The learned counsel of the Respondent 1 has averted that the petitioner was the director of the company and the cheque which has been dishonored due to insufficient funds was under his Directorship though he has resigned from the company. The counsel for respondent has suppressed the publicly available documents against the petitioner.


Based on the basis of bald averments, the Director cannot be held vicariously liable for the offence committed by the company. When it is known that he has resigned from the Directorship much prior to even presentation of the cheque for encashment. It has to be shown that even after resigning from directorship, he continued to control the affairs of the company and therefore continued to be person in charge of and responsible to the company for the conduct of its business.


The magistrate has to clearly scrutinize the evidence brought on record and may even himself put questions to the complainant and his witness to elicit answers to find out the truthfulness of tire allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused. (para 26)

The law laid down by the Court in Ashoke Mal Bafna(supra) is that 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. (para 27)

The present petition has been 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 Negotiable Instruments Act, pending before the learned Metropolitan Magistrate, Saket Courts, and the resultant proceedings including summons issued thereon are quashed. The petition is disposed of.


-Aanchal Tawry


View/Download Judgment:

CRL. M.C. 1602 of 2020, CRL. M.A
. 9935 o
Download 9935 O • 250KB

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