The Rajasthan High Court has held that a former principal of an educational institution cannot be prosecuted under Section 138 of the Negotiable Instruments Act for a cheque dishonoured after their resignation. Justice Anoop Kumar Dhand quashed the criminal proceedings and cognizance order against 74-year-old Mohan Lal Sharma, ruling that once an individual resigns from their position, the employer-employee relationship comes to an end and they cannot be held responsible for the financial or managerial affairs of the institution.
Background of the Case
The petitioner, Mohan Lal Sharma, served as the Principal of St. Soldier Senior Secondary School in Nainwa, District Bundi. He resigned from his post on March 24, 2017. Subsequently, a cheque dated April 28, 2017, bearing his signature, was presented to the bank on May 10, 2017, by the complainant, Ashok Vardhan Singh. On the same day, the bank dishonoured the cheque with the memo ‘funds insufficient’.
The complainant filed a complaint under Section 138 of the Negotiable Instruments Act naming Sharma (as Ex-Principal), the school through its current Principal Priyanka Sharma, and the school’s Director Rajveer Sualika. On September 1, 2017, the Court of Additional Chief Judicial Magistrate, Nainwa, took cognizance of the offence exclusively against Sharma while no cognizance was taken against the school management or its Director. Aggrieved by this order, Sharma approached the High Court seeking to quash the criminal proceedings.
Arguments of the Parties
Counsel for the petitioner submitted that the cheque in question was originally provided as security and was misused after Sharma had already tendered his resignation on March 24, 2017. It was argued that the complainant explicitly acknowledged Sharma’s resignation in the complaint itself. Counsel emphasized that no vicarious liability could be fastened upon an ex-principal when he had no involvement in the management of the school at the relevant time, and that primary liability rested with the school institution itself.
Conversely, counsel for the complainant contended that because the cheque bore Sharma’s signature and was returned dishonoured due to insufficient funds, a prima facie offence under Section 138 of the Negotiable Instruments Act was made out. It was argued that the trial court’s cognizance order was lawful and required no interference.
Court’s Analysis and Precedents
The High Court observed that the record clearly established that Sharma had resigned on March 24, 2017, whereas the cheque was dated April 28, 2017, and presented in May 2017. Consequently, Sharma was not performing any official duties as Principal on the date the cheque was presented or dishonoured. Expressing concern over the lower court’s decision to proceed against a resigned employee while sparing the management, the High Court remarked:
“Criminal prosecution of any person is a serious matter as it affects the liberty of that person. No greater damage can be done to the reputation of a person than dragging him in a criminal case.”
In analyzing the legal position regarding the liability of officers who have resigned prior to the issuance or dishonour of cheques, the Court relied upon key judicial precedents:
- Adhiraj Singh vs. Yograj Singh and Ors. (2024): The Supreme Court observed: “Having considered the submission made by learned counsel for the parties, we find that in the present case on the date of issuance of the cheques, the appellant had already resigned. The fact regarding resignation is not in dispute. It is also not in dispute that the cheques issued by the Company were signed by another competent person on behalf of the Company. 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 in the Company and was not connected with the company, he cannot be held responsible for the affairs of the Company in view of the provisions as contained in Section 141 of the NI Act.”
- Anita Malhotra vs. Apparel Export Promotion Council and Ors. (2012): The Supreme Court held: “Inasmuch as the certified copy of the annual return dated 30.09.1999 is a public document, more particularly, in view of the provisions of the Companies Act, 1956 read with Section 74(2) of the Indian Evidence Ac,t 1872, we hold that the Appellant has validly resigned from the Directorship of the Company even in the year 1998 and she cannot be held responsible for the dishonor of the cheques issued in the year 2004.”
- K. Sundari vs. C.A.R.P. Mari (2024): The Madras High Court similarly held that criminal proceedings under Section 138 of the NI Act cannot proceed against an authorized signatory who had resigned prior to the filing of the complaint.
Applying these principles, the High Court concluded that:
“petitioner is neither liable nor responsible for the cheque in question issued, if any, under his signatures, after his resignation from the post of Principal of the School.”
Court Decision
The High Court allowed the criminal miscellaneous petition and quashed the impugned cognizance order dated September 1, 2017, passed by the Additional Chief Judicial Magistrate, Nainwa, as far as it pertained to the petitioner. The Court clarified that the complainant remains at liberty to proceed in accordance with law against the actual persons responsible for the institution’s affairs and the alleged offence.
Case Details
Case Title: Mohan Lal Sharma v. Ashok Vardhan Singh & Ors.
Case No.: S.B. Criminal Miscellaneous (Petition) No. 7077/2021
Bench: Justice Anoop Kumar Dhand
Date: 14/07/2026
