In a recent order that brings clarity on the issue of a director's liability under Section 138 of the Negotiable Instruments Act, the Supreme Court of India has quashed a complaint against Adhiraj Singh, former director of a company, regarding dishonoured post-dated cheques.
The case arose when Singh, who had resigned from his position as director of Respondent No. 2 – Company on June 21, 2019, was linked to the dishonouring of cheques issued on July 12, 2019. Singh had submitted his resignation in compliance with the statutory norms and had officially filed it with the Registrar of Companies by June 26, 2019, thus ceasing to be a director at the time the cheques were issued.
While the respondents in the case argued that Singh should still be held liable due to the company’s debt, the Supreme Court firmly disagreed. In its judgment, the Court noted, “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 High Court of Himachal Pradesh had earlier rejected Singh's petition to quash the complaint, ruling that the factual question of resignation and its effect on liability should be determined during trial. However, the Supreme Court found this position untenable, clarifying that the facts in this case were unequivocal, and the resignation had been acknowledged prior to the issuance of the cheques.
The Court distinguished this case from the earlier ruling in Malwa Cotton and Spinning Mills Limited v. Virsa Singh Sidhu, where the resignation had been submitted after the cheques were issued. The Court emphasized that, in Singh's 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."
In light of these clear facts and the absence of any material that could potentially suggest liability, the Court allowed the appeals, effectively setting aside the High Court’s decision. The quashing petitions filed by Singh under Section 482 of the Cr.P.C. for the quashing of the complaints against him were granted.
The impugned order by the High Court has now been overturned, and the legal proceedings against Adhiraj Singh in connection with the dishonoured cheques have been terminated.
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