While disposing of a case that relates to a cheque that bounced in 2014, the Supreme Court of India has cleared the air about the liability of a director of a company for the company’s actions after he has resigned from his directorship.

Rajesh Viren Shah and Sanjay Babulal Bhutada were directors of Redington, a Chennai-based company engaged in distribution of IT hardware. Both of them had resigned from their directorships – on December 9, 2013 and March 12, 2014.

SC verdict

A bench comprising Justice Sanjay Karol and Justice BR Gavai noted that according to Section 141 of the Negotiable Instruments Act “every person who at the time of the offence was responsible for the affairs/conduct of the business of the company, shall be held liable and proceeded against under Section 138 of the N.I. Act, with exception thereto being that such an act, if done without his knowledge or after him having taken all necessary precautions, would not be held liable.”

“The cheques regarding which the dispute has travelled up the courts have been issued on March 22, 2014. The latter is clearly, after the Appellant(s) have severed their ties with the Respondent- Company and, therefore, can in no way be responsible for the conduct of business at the relevant time. Therefore, they ought to be then entitled to be discharged from prosecution. Accordingly, all criminal proceedings pertaining to the instant Appellants arising out of the complaints filed by the respondent (Redington) herein are quashed,” the judgment said.

“The complainant has not placed any materials on record indicating complicity of the present Appellant(s) in the alleged crime. Particularly, when the Appellant(s) had no role in the issuance of the instrument, nor has the veracity of their resignation is not under dispute. As such, the basis on which liability is sought to be fastened upon the instant Appellant(s) is rendered questionable,” the verdict read.

Published on February 25, 2024