Safiya Malik

The Supreme Court has set aside a complaint under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), against a former director of a company, ruling that he cannot be held liable for cheques issued after his resignation. The Court held that the appellant was neither a director nor responsible for the company’s affairs at the time the cheques were issued and dishonored.

The appellant sought to quash a complaint filed under Section 138 of the NI Act on the grounds that he had resigned as a director of the respondent company before the issuance of the disputed cheques. Three post-dated cheques, dated July 17, 2019, September 17, 2019, and September 23, 2019, were issued by the respondent company on July 12, 2019.

The appellant’s resignation letter, dated June 21, 2019, was submitted to the Registrar of Companies on June 26, 2019. Both the statutory Form DIR-11 and Form DIR-12, acknowledging the resignation, were filed before the issuance of the cheques.

The respondent argued that the appellant was a director at the time the debt arose and, therefore, could be held liable under Section 138 of the NI Act. They relied on the Supreme Court's decision in Malwa Cotton and Spinning Mills Ltd. v. Virsa Singh Sidhu & Others [(2008) 17 SCC 147], where quashing of a complaint was denied due to disputed facts regarding the director’s resignation.

The Supreme Court examined whether the appellant could be held liable for dishonored cheques issued after his resignation as a director.

The Court stated: “The fact regarding the resignation of the appellant as a director of the company before the issuance of the cheques is not in dispute.” It further noted that the cheques in question were signed by another competent person on behalf of the company.

The Court held: “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, he cannot be held responsible for the affairs of the company in view of the provisions contained in Section 141 of the NI Act.”

The Court distinguished the case from Malwa Cotton and Spinning Mills Ltd. In that matter, the director’s resignation was submitted to the Registrar after the issuance of the cheques, creating factual disputes. The Court observed: “In the present case, the appellant’s resignation was submitted to the Registrar of Companies on June 26, 2019, whereas the cheques in question were issued on July 12, 2019, i.e., after his resignation.”

The Court found no material evidence to suggest that the appellant was involved in the issuance or dishonor of the cheques. It recorded: “In the absence of any material indicating the appellant’s involvement in the affairs of the company at the relevant time, the complaint against him cannot be sustained.”

The Supreme Court allowed the appeals and quashed the complaints against the appellant. It stated: “Accordingly, the appeals are allowed. The impugned order passed by the High Court is set aside. The quashing petitions filed by the appellant under Section 482 of the CrPC for quashing of the complaints qua him stand allowed.”

The appellant was represented by Senior Advocate Rajiv Dutta, while the respondents were represented by Advocate S.K. Sinha.

Case Title: Adhiraj Singh v. Yograj Singh and Others
Case Number: Criminal Appeal Nos. 4926-4927 of 2024
Bench: Justice J.K. Maheshwari and Justice Rajesh Bindal

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