Resigned Directors Not Liable for Post-Resignation Offenses in Cheque Dishonor Cases U/S 138 N.I. Act – P&H HC

In a significant legal ruling, the court has underscored that individuals who have resigned from directorship positions in companies cannot be held criminally liable for offenses occurring after their resignation. This landmark judgment sheds light on the interpretation of Sections 138 and 141 of the Negotiable Instruments Act, 1881, in cases of cheque dishonor.

The case revolved around a petitioner who had served as a Director of the accused firms until August 20, 2013. The petitioner faced allegations of cheque dishonor related to a cheque issued on January 20, 2018. The pivotal issue was whether the petitioner could be held liable for offenses that took place after her resignation.

The court examined crucial documents, including Form-32 and annual returns, which clearly indicated the petitioner's resignation from the directorship. Notably, there was no substantive evidence provided to dispute the authenticity of these documents.

The judgment emphasized that "merely because the accused did not reply to the legal notice denying her Directorship, no adverse inference can be drawn against the petitioner." The court held that liability could not be affixed upon the petitioner for events occurring after her resignation as Director.

Consequently, the court quashed the complaint, orders of summoning, and all subsequent proceedings against the petitioner alone. However, proceedings would continue against other accused parties, including the Company.

This judgment offers clarity on the issue of vicarious liability for directors who have resigned from their positions, setting a significant legal precedent. It reaffirms the principle that individuals who have severed their ties with a company cannot be held criminally responsible for the company's actions post-resignation.

Legal experts have hailed this judgment as a crucial step in safeguarding the rights and legal standing of former directors, protecting them from unwarranted criminal proceedings based on post-resignation activities of the company.

Date of Decision: 26 September 2023

BHUPINDER KAUR vs M/S SOHAN LAL MOHAN LAL AND ANR