Case Note & Summary
The applicants, Ajay Krishnakant Parikh and another, were accused nos. 4 and 5 in a complaint under Section 138 of the Negotiable Instruments Act, 1881, pending before the Metropolitan Magistrate, 27th Court at Mulund. The complaint arose from the dishonour of a cheque issued by the accused no.1 company, M/s UPA Pharmaceuticals Ltd. The applicants claimed they had resigned as directors of the company on 10 October 2002, well before the cheque transaction in 2008. They filed a criminal application under Section 482 of the Code of Criminal Procedure, 1973, seeking quashing of the prosecution against them. The respondent no.1, the original complainant, opposed the application, arguing that the Form No.32 relied upon by the applicants appeared to be not genuine and that the complaint contained averments showing their involvement. The court examined the complaint and found that the only allegation against the applicants was that statutory records showed them as directors. However, the applicants produced Form No.32 under Section 303 of the Companies Act, 1956, indicating their resignation on 10 October 2002. The court noted that the cheque was issued in 2008, six years after the resignation. The court held that since the applicants were not directors at the time of the offence, they could not be held vicariously liable under Section 138 of the NI Act. The court quashed the prosecution against the applicants, allowing the application.
Headnote
A) Criminal Law - Negotiable Instruments Act - Vicarious Liability of Directors - Section 138 Negotiable Instruments Act, 1881 - Directors who resigned from the company before the cheque was issued cannot be held vicariously liable for the offence under Section 138, as they were not in charge of or responsible for the conduct of the business at the time of the offence. The court quashed the prosecution against the applicants based on Form No.32 showing resignation in 2002, six years before the cheque transaction in 2008. (Paras 2-8)
B) Criminal Procedure Code - Quashing of Proceedings - Section 482 CrPC - Inherent Powers - Where uncontroverted documentary evidence shows that the accused were not directors at the time of the offence, continuation of prosecution would be an abuse of process of law. The High Court exercised its inherent jurisdiction to quash the complaint against the applicants. (Paras 7-8)
Issue of Consideration
Whether directors who had resigned from the company prior to the issuance and dishonour of the cheque can be prosecuted under Section 138 of the Negotiable Instruments Act, 1881.
Final Decision
The court allowed the application and quashed the prosecution against the applicants in C.C.No.452/SS/2008 pending before the Metropolitan Magistrate, 27th Court at Mulund.
Law Points
- Vicarious liability of directors under Section 138 NI Act requires them to be in charge of and responsible for the company's conduct at the time of the offence
- Resignation prior to the transaction negates liability
- Inherent powers under Section 482 CrPC can be invoked to quash proceedings where no prima facie case exists
Case Details
2012 LawText (BOM) (08) 80
Criminal Application No.344 of 2012
Mr. Prakash Naik, Mr. P.D. Sampat, Mr. D.R. More
Ajay Krishnakant Parikh and anr
Anand Jayant Dave and anr
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Nature of Litigation
Criminal application under Section 482 CrPC for quashing of prosecution under Section 138 of the Negotiable Instruments Act.
Remedy Sought
The applicants sought quashing of the criminal complaint C.C.No.452/SS/2008 pending before the Metropolitan Magistrate, 27th Court at Mulund, insofar as it relates to them.
Filing Reason
The applicants claimed they had resigned as directors of the accused company on 10 October 2002, prior to the cheque transaction in 2008, and therefore could not be held vicariously liable for the offence under Section 138 of the NI Act.
Issues
Whether the applicants, who had resigned as directors prior to the cheque transaction, can be prosecuted under Section 138 of the Negotiable Instruments Act, 1881.
Submissions/Arguments
Applicants argued that they resigned as directors on 10 October 2002, as evidenced by Form No.32 under Section 303 of the Companies Act, and thus were not in charge of the company at the time of the offence.
Respondent argued that the Form No.32 appeared not genuine and that the complaint contained averments showing the applicants were directors.
Ratio Decidendi
A director who has resigned prior to the issuance and dishonour of a cheque cannot be held vicariously liable under Section 138 of the Negotiable Instruments Act, 1881, as they are not in charge of or responsible for the conduct of the business at the time of the offence. The inherent powers under Section 482 CrPC can be invoked to quash such proceedings where uncontroverted documentary evidence establishes the resignation.
Judgment Excerpts
The applicants are the accused in C.C.No.452/SS/2008 pending before the Metropolitan Magistrate, 27th Court at Mulund. The said case is in respect of an offence punishable under section 138 of the Negotiable Instruments Act.
According to the applicants, they are not the Directors of the accused no.1 company. According to them, they had resigned from the Directorship of the accused no.1 company, as back as on 10 October 2002.
A perusal of the complaint shows that in paragraph no.4 thereof, the complainant has claimed as follows: 'The statutory records show Accused Nos.2 to 5 as its (of the accused no.1 company) directors.'
The applicants have placed on record a copy of Form No.32, which gives the particulars of appointment of Directors and Manager and changes among them, pursuant to the provisions of section 302 of the Companies Act, 1956. This Form indeed suggests that the applicants have resigned their position as Directors of the accused no.1 company on 10 October 2002.
The cheque in question was issued in the year 2008. The applicants had resigned in the year 2002. They cannot be said to be in charge of or responsible for the conduct of the business of the accused no.1 company at the time when the offence is alleged to have been committed.
The application is allowed. The prosecution against the applicants in C.C.No.452/SS/2008 pending before the Metropolitan Magistrate, 27th Court at Mulund, is quashed.
Procedural History
The applicants filed Criminal Application No.344 of 2012 under Section 482 CrPC before the Bombay High Court seeking quashing of the complaint C.C.No.452/SS/2008 pending before the Metropolitan Magistrate, 27th Court at Mulund, which was filed by the respondent no.1 under Section 138 of the Negotiable Instruments Act. The court heard the parties and passed the order on 1 August 2012.
Acts & Sections
- Negotiable Instruments Act, 1881: 138
- Companies Act, 1956: 303
- Code of Criminal Procedure, 1973: 482
