Title:RAJESH VIREN SHAH VERSUS REDINGTON (INDIA) LIMITED
CRIMINAL APPEAL NO…………….2024
(Arising out of Special Leave Petition(Crl.) No.6905 of 2022)
Date of Judgment: 14th February, 2024
CORAM: Justice B.R. Gavai, Justice Sanjay Karol
Facts of the case:
The case began with the appellants, who were former directors of the respondent company, being accused in a complaint under Section 138 of the Negotiable Instruments Act, 1881. The complaint was filed by the company in relation to three dishonored cheques. The appellants had resigned from their directorship positions on December 9, 2013, and March 12, 2014, respectively, with the relevant records being updated accordingly.
Following the dishonor of the cheques due to insufficient funds, the respondent company filed a complaint against the appellants and others, including the managing director and other directors of the company. The complaint was lodged under Sections 200 and 191A of the Code of Criminal Procedure, 1973, along with Section 144 of the Negotiable Instruments Act, 1881.
In response, the appellants filed a petition under Section 482 of the Criminal Procedure Code seeking the quashing of the complaint. However, this petition was dismissed by the trial court. Dissatisfied with the trial court’s decision, the appellants pursued appeals to higher courts.
Upon appeal to the High Court, the appellants contested the trial court’s decision, arguing that as they had resigned from their directorship positions before the issuance of the cheques, they should not be held liable for the dishonor of the negotiable instruments. However, the High Court upheld the trial court’s decision, prompting the appellants to escalate the matter further.
Consequently, the appellants filed Special Leave Petitions (SLPs) before the Supreme Court challenging the decisions of the trial court and the High Court. The central issue to be determined by the Supreme Court was whether a director who had resigned from their position, with such resignation duly recorded, could be held liable for dishonored negotiable instruments.
The appellants argued that their resignations had been properly recorded in accordance with the relevant statutory provisions, and therefore, they should not be held responsible for the financial transactions that occurred after their resignation. The Supreme Court agreed to hear the appeal to address this specific legal question.
Laws Involved:
- Section 138 of the Negotiable Instruments Act, 1881
- Sections 200 and 191A of the Code of Criminal Procedure, 1973
Issues framed by the court:
Whether a director who has resigned from such position and which fact stands recorded in the books as per the relevant rules and statutory provisions, can be held liable for certain negotiable instruments, failing realization?
Courts Judgment and Analysis:
The court extensively analyzed several legal points pertaining to the liability of directors in cases involving non-realization of cheques under Section 138 of the Negotiable Instruments Act (N.I. Act). They first highlighted the statutory provision of Section 141 of the N.I. Act, which establishes liability for persons responsible for the conduct of a company’s business, with exceptions if actions were taken without their knowledge or after necessary precautions were taken. Moreover, if any act of the company is done with the connivance or consent of a director, manager, secretary, or other officer, they are deemed guilty and can be proceeded against accordingly.
The court then referred to judicial precedents, emphasizing the necessity for complainants to make specific averments in their complaints to establish vicarious liability. They underscored that there should be a clear case against the accused in the complaint, and the requirements of Section 141 of the N.I. Act must be met. The court also referenced cases where interference under Section 482 of the Criminal Procedure Code (CrPC) is warranted only if there is unimpeachable evidence indicating the director’s lack of involvement.
In the case at hand, the court observed that the complainant failed to provide any evidence implicating the appellants in the alleged crime. Notably, the appellants had resigned from their positions prior to the issuance of the cheques in question, as evidenced by Form 32. The court found no dispute regarding the authenticity of Form 32 or the resignations. Consequently, the court concluded that since the appellants had severed ties with the company before the issuance of the cheques, they could not be held responsible for the company’s conduct at that time.
Based on this analysis, the court held that the judgments of the High Court of Judicature at Madras were to be set aside. They quashed all criminal proceedings against the appellants arising from complaints filed by the respondent and allowed the appeals accordingly.
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Written by- Aditi
