The High Court of Karnataka has quashed criminal proceedings initiated under Section 138 of the Negotiable Instruments Act, 1881 (the Act) against a former Director of a company, holding that he cannot be held liable for cheques issued during a period when he was not associated with the company.
Justice M. Nagaprasanna allowed the criminal petition filed by Mr. Sujith Sudhakaran, ruling that continuing the proceedings against him would amount to an abuse of the process of law, as official records demonstrated he was not a Director on the dates the cheques were issued.
Background of the Case
The case arose from a complaint filed by the respondent, Mr. Lalu Jacob Mammen, concerning two cheques dated 27.09.2014 and 29.09.2014. Based on these instruments, a complaint was registered on 29.11.2014, and the trial court subsequently took cognizance of the offence, registering C.C. No. 32008 of 2014.
Mr. Sudhakaran, arraigned as Accused No. 3, approached the High Court seeking to quash the proceedings, contending that he was not a Director or office bearer of the company, M/s Dreamz Infra India Pvt. Ltd., on the dates the cheques were issued.
Arguments of the Parties
Sri. Prakash B. N., learned counsel for the petitioner, submitted that the petitioner was not involved in the affairs of the company in any capacity on 27.09.2014 and 29.09.2014. He argued that “if he was Director, Additional Director and involved in the affairs of the business of the Company, it would have been altogether different circumstance,” but since he held no position on those dates, the proceedings were an abuse of the process of law.
Sri. Nache Gowda B. H., learned counsel for the respondent, opposed the plea, contending that the petitioner was a Director in 2012 and later transposed as an Additional Director. He alleged that the petitioner had been “involved in the affairs of the Company throughout and has hoodwinked several people.” He argued that these were matters for trial and should not be decided in a petition under Section 482 of the Cr.P.C.
Court’s Analysis and Observations
The Court examined the data from the Ministry of Corporate Affairs, which revealed the specific tenure of the petitioner’s association with the company:
- Appointed as Director: 16.01.2012
- Ceased to be Director: 08.04.2013
- Appointed as Additional Director: 14.09.2015
- Ceased to be Additional Director: 22.03.2016
Justice Nagaprasanna observed that there lay a “vacuum” between his exit on 08.04.2013 and his re-entry on 14.09.2015. The subject cheques were issued on 27.09.2014 and 29.09.2014, a period falling squarely within this interregnum.
The Court noted:
“In those dates, the petitioner was not involved in the affairs of the Company even according to the notings in the official website of Ministry of Corporate Affairs… The petitioner admittedly is not the signatory to the cheque, ostensibly so as he could not be the signatory as he was not involved in the affairs of the Company.”
The Court relied on several judgments of the Supreme Court to support its decision:
- Ashoke Mal Bafna v. Upper India Steel Mfg. & Engg. Co. Ltd. (2018): The Apex Court held that a Director who resigned prior to the cause of action could not be held vicariously liable without proof that he was in charge of day-to-day affairs.
- Anil Khadkiwala v. State (NCT of Delhi) (2019): Proceedings were quashed against a Director who had resigned prior to the issuance of cheques.
- Rajesh Viren Shah v. Redington India Ltd. (2024): The Court held that directors who resigned cannot be held responsible for the conduct of business post their resignation.
- Adhiraj Singh v. Yograj Singh (2024): It was reiterated that a resigned director cannot be held liable for cheques issued after his resignation.
- Kamalkishor Shrigopal Taparia v. India Ener-Gen (P) Ltd. (2025): The Court held that liability under Section 141 is contingent upon specific allegations demonstrating active involvement, and a non-executive Director who resigned before the offence cannot be held liable.
Decision
Applying the principles laid down by the Apex Court, the High Court concluded that the petitioner was neither a Director nor involved in the company’s affairs on the relevant dates.
Justice Nagaprasanna stated:
“If the cheques were issued during the period in which the petitioner was the Director or Additional Director of the Company, it would have been a circumstance altogether different. While that not being so, the petition deserves to succeed with the obliteration of the proceedings qua the petitioner-accused No.3.”
Consequently, the Court allowed the criminal petition and quashed the proceedings in C.C. No. 32008 of 2014 pending on the file of the 19th Additional Chief Metropolitan Magistrate, Bengaluru, insofar as it related to the petitioner.
Case Details:
- Case Title: Mr. Sujith Sudhakaran vs. Mr. Lalu Jacob Mammen
- Case No: Criminal Petition No. 10408 of 2023
- Coram: Justice M. Nagaprasanna
- Counsel for Petitioner: Sri. Prakash B. N.
- Counsel for Respondent: Sri. Nache Gowda B. H. for Sri. George Joseph
