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“resigned Director Legally Responsible For A Dishonored Post-dated Cheque, Indicating That Even After Resignation, The Director Could Still Be Held Liable For Company Financial Obligations”

SUDHANGEE HANDOO ,
  19 September 2023       Share Bookmark

Court :
Calcutta High Court
Brief :

Citation :
CRR 3525 of 2019 with CRAN 2 of 2020 (Old No. CRAN 488 of 2020)

Case title:

VIVEK BHASKARAN vs. STATE OF WEST BENGAL

Date of Order:

18th FEBURARY 2022

Bench:

HON'BLE JUSTICE TIRTHANKAR GHOSH

Parties:

PETITONER – VIVEK BHASKARAN

RESPONDENT - STATE OF WEST BENGAL

SUBJECT:

The case centers on the issue of whether a director who had left a corporation may be held accountable in a case involving a dishonored post-dated check. The first respondent, who had resigned from the company's board of directors, was charged with being in command of the business at the time of the alleged infraction. The Negotiable Instruments Act's Section 141 provisions as well as prior judicial decisions were taken into account by the court. In the end, it was decided that the challenge to the proceedings was premature and that the liability of the resigned director will rely on the circumstances and role performed. As a result, the court upheld the director's culpability in this case.

IMPORTANT PROVISIONS:

NEGOTIABLE INSTRUMENT ACT, 1881 (NI ACT) -

  1. Section 138 - This section deals with the offense of dishonor of a cheque for insufficiency of funds or if it exceeds the amount arranged to be paid by the drawer's account.
  2. Section 141 - This section specifies the liability of a company and its officers, such as directors, in cases where the company commits an offense under Section 138. It addresses the liability of individuals associated with the company.

OVERVIEW:

  1. A post-dated check that was signed on 3-4-1995 but presented for payment in June 1998 is at issue in this case.
  2. Prior to the complaint being filed on or about August 20, 1998, the first respondent, a director of the implicated corporation, resigned from their position.
  3. The first respondent was still listed as an accused in the complaint as a Director in charge of the company's affairs at the time the alleged offense occurred, despite the complainant being aware of the first respondent's resignation.
  4. The question of whether a person who resigned from a corporation might be held accountable for a dishonored check written on the firm's behalf and if this person could be regarded as the person in charge of the company is the subject of legal disputes.
  5. The Negotiable Instruments Act's sections 138 and 141, as well as other pertinent judicial cases, are mentioned.
  6. The petitioner's objection to the procedures is finally rejected by the court, upholding the former director's legal responsibility in the matter.

The case is focused on the responsibility of a resigned director in a case involving a dishonored post-dated check. A post-dated check that was signed in 1995 but submitted for payment in 1998 is involved. Before the case was filed, the first respondent, a director, had resigned. The initial respondent was listed as an accused even after she resigned. Legal disputes center on the director's liability and how Sections 138 and 141 of the Negotiable Instruments Act should be interpreted. In the end, the court affirms the former director's legal responsibility in the matter.

ISSUES RAISED:

Whether a director who had resigned from a company could be held liable under Section 138 of the Negotiable Instruments Act for a dishonored post-dated cheque when the offense occurred after their resignation?

ARGUMENTS ADVANCED BY THE APPELLANT:

  1. The petitioner was represented by the learned counsel, Mr. Abhirup Chakraborty.
  2. Long before the alleged violation, the petitioner resigned from the company's board of directors.
  3. The petitioner's withdrawal from the business was known to the complainant.
  4. The complaint omitted information about the petitioner's precise participation or role in the dishonor of the check.
  5. The petitioner argued that he could not be regarded as the company's manager at the time of the alleged wrongdoing.
  6. Records from the Registrar of Companies were cited to back up the petitioner's assertion of resignation.
  7. The petitioner stated that a resigned director should not be held accountable for the company's decisions made after their resignation in accordance with the law.
  8. It was highlighted that the petitioner's guilt should be determined by the part he performed, not by the fact that he is a director.
  9. The petitioner made the argument that the complaint was untimely and that the court shouldn't get involved in the case at that point.
  10. Citing earlier legal decisions, the petitioner emphasized the idea that the second complaint did not generate a new obligation or duty.
  11. It was contended that it was insufficient to prove liability simply because the corporate seal was used on some documents after the resignation.

ARGUMENTS ADVANCED BY THE RESPONDENT:

  1. The respondent was represented by the learned counsel, Mr. Ayan Bhattacherjee, Mr. Karan Dudhwewala & Mr. Anil Choudhury.
  2. According to the respondent, the former lawsuit was withdrawn on the grounds that the petitioner had signed a settlement agreement that contained post-dated checks.
  3. The petitioner signed the settlement agreement, demonstrating his involvement in the situation.
  4. The respondent asserted that the complaint corporation was not informed of the petitioner's resignation.
  5. It was stated that the petitioner signed the subject matter of the check and that the complaint was brought under Section 138 of the Negotiable Instruments Act.
  6. The respondent highlighted that "every person" is liable under Section 141 of the Negotiable Instruments Act and that "any director" is responsible for permission and connivance.
  7. The petitioner's involvement in signing the settlement agreement and utilizing the business seal on specific papers was mentioned.
  8. The respondent contended that the conduct and role he played in the situation, rather than only his resignation, should determine the petitioner's liability.
  9. It was argued that the effectiveness of Section 138 would be harmed by interpreting the legislation in a way that permits defaulters to settle before quitting the business.
  10. The respondent emphasized that the case was in its early stages and that it was premature to contest the proceedings.
  11. It was emphasized once more that the court shouldn't get involved in the procedures at that point and that the petitioner will have the chance to refute assumptions as the case went on.

JUDGEMENT ANALYSIS:

  1. The main contention in the case concerned whether a director who had left the company could be held accountable for a dishonored post-dated check if the offense took place after their departure.
  2. It was found that the petitioner's withdrawal from the business was known to the complainant.
  3. The petitioner's involvement in the matter was reviewed by the court, including his signing of the settlement agreement and use of the business seal on papers.
  4. The judgment made reference to judicial precedents that underlined the significance of focusing on an individual's role and behavior rather than their title.
  5. The Negotiable Instruments Act's Section 141 was discussed by the court. Under certain conditions, this section makes "every person" and "any director" liable.
  6. The court took into account the complaint's timing and whether it was filed too soon.
  7. The judgment stated that the petitioner may be entitled to an order of acquittal if he can show that the offense was committed without his knowledge or that he used all reasonable efforts to prevent it.
  8. Because the matter was still in its early stages, the court decided not to get involved in the proceedings at that time.
  9. The court's ruling stressed the necessity to interpret the statute in a way that precludes dishonest people from taking advantage of legal quirks to escape Section 138 accountability.
  10. It emphasized the legislative goal of Section 138, which is to uphold trust in cheque-based business transactions.

CONCLUSION:

In this instance, the court upheld the director's liability who had left the company due to a post-dated cheque dishonor issue. The court acknowledged the petitioner's resignation but highlighted the need of taking the person's function and activity rather than just designation into account. It further emphasized how crucial it is to stop anyone from abusing legal quirks to escape responsibility under Section 138 of the Negotiable Instruments Act. At that point, the court decided not to become involved, leaving the matter open for further interpretation and evidence to establish the final result.

 
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