Directors cannot be held responsible after resignation- Delhi High Court

Provision Involved:

Section 141 of Negotiable Instruments Act, 1881 (NI Act) state the offences by companies. It deals with dishonouring of cheques drawn by the company. This section extends the liability to every individual responsible for the conduct of business which also extends towards the key managerial personnel like that of the Director.
To attract the provision contained in section 141 of NI Act, the offence of Section 138 shall have been committed as the principal offence. But it is also provided that no individual or person shall be held liable if that individual is able to prove the fact that the offence was committed without his knowledege on his part and all the reasonable and necessary steps were taken by him that a prudent man would have taken to prevent the happening of the offence.
Section 168 of Companies Act 2013 provides the director who has resigned shall be liable even after his
resignation for the offences which occurred during his tenure.

Facts of the case

• The Petitioner was a director of a company. The company has issued certain cheques to the Respondents, and the cheques have been dishonored and hence the respondent company has filed case.
• This case has been filed this petition against the cases filed contended that he was not the Director when the underlying contract was executed, nor when the cheques were issued and when they were presented and that he has resigned 8 years prior to the issuance of cheques, and the resignation has been duly filed with ROC as well.
• According to the Respondent company, the Petitioner was involved in the discussion before an agreement was executed. Further, the Petitioner had participated in meetings and assisted the officials of the Respondent who had visited for verification of its financial and physical status

Decision

HC held that after resignation, Director cannot be held responsible for daily affairs of Company including
Cheques issued and dishonored.

Reason

Delhi High Court held that, in cases where the accused has resigned from the Company and it has also been filed with the ROC then in such cases if the cheques are issued and dishonoured, it cannot be said that such an accused is responsible for the conduct of the day-to-day affairs of the Company, as contemplated in Section 141 of the NI Act.
Petitioner after his resignation cannot continue to be held responsible for the actions of the Company including the issuance of cheques and dishonour of the same. Hence, complaint cases filed under Section 138 of the NI Act, against the petitioner are quashed.

Sahil Goyal, Audit Associate, SW India