The High Court of Kerala has clarified that resignation from a corporate position does not automatically extinguish criminal liability for offences committed during the period of tenure. This ruling reinforces the principle that directors cannot evade accountability by stepping down after illicit conduct, particularly in regulated financial activities.
Background & Facts
The Dispute
The revision petitioner, Jayakumar P., was the seventh accused in a criminal case arising from the operations of Golden Valley Chits (India) Ltd., a registered chit fund company. The company allegedly collected 128 signed blank cheques from chitty subscribers as security without holding a valid licence under the Kerala Money Lenders Act. The prosecution alleged that these acts constituted cheating under Section 420 IPC, criminal conspiracy under Section 149 IPC, and violations of the Kerala Prohibition of Charging Exorbitant Interest Act, 2012.
Procedural History
- 2014: Criminal Case No. 3743 of 2014 filed against nine accused, including Jayakumar, for offences under Section 420 r/w 149 IPC and relevant provisions of the Money Lenders Act.
- 2013: Jayakumar resigned from the company on 28.09.2013.
- 2020: Jayakumar filed an application under Section 239 Cr.P.C. seeking discharge, arguing that all alleged offences occurred after his resignation.
- 21.08.2020: Trial Court dismissed the discharge application, holding that a prima facie case existed against him for acts committed prior to his resignation.
- 2020: Revision petition filed before the High Court challenging the dismissal order.
Relief Sought
The revision petitioner sought discharge under Section 239 Cr.P.C., contending that no prima facie case existed against him since he had resigned before the alleged offences were committed.
The Legal Issue
The central question was whether a director who resigns from a company can be held criminally liable under Section 149 IPC for offences committed by the company after his resignation, or whether liability extends only to acts occurring during his tenure.
Arguments Presented
For the Appellant/Petitioner
The petitioner’s counsel argued that since he resigned on 28.09.2013, and the alleged offences occurred between 06.08.2013 and 07.06.2014, he could not be held liable for acts committed after his resignation. Reliance was placed on State of Haryana v. Bhajan Lal to argue that mere association with a company does not attract criminal liability without active participation or mens rea. It was contended that the prosecution failed to establish his involvement in post-resignation acts.
For the Respondent/State
The Public Prosecutor countered that the offences were ongoing and commenced before the petitioner’s resignation. The prosecution alleged that the company’s practice of collecting blank cheques began prior to 28.09.2013 and continued thereafter. The state argued that as a director during the initial phase of the illegal scheme, the petitioner was part of a common intention under Section 149 IPC, and his resignation did not sever his liability for acts initiated during his tenure.
The Court's Analysis
The Court examined the scope of Section 149 IPC and the nature of the alleged offences. It emphasized that for liability under Section 149 IPC, it is not necessary to prove active participation in every act, but rather that the accused was a member of an unlawful assembly with a common object, and the offence was committed in prosecution of that object.
"It cannot be held that the charge against the petitioner who was one among the Directors of the company till 28.9.2013, is groundless."
The Court noted that the company’s illegal conduct - collecting blank cheques without a licence - began on 06.08.2013, well before the petitioner’s resignation on 28.09.2013. The prosecution established a prima facie case that the petitioner, as a director during this period, was part of the corporate structure that initiated the unlawful scheme. His resignation did not negate his role in the formation of the common object or the initial execution of the illegal acts.
The Court further held that the standard for discharge under Section 239 Cr.P.C. is not whether the accused will ultimately be convicted, but whether a prima facie case exists. The trial court correctly applied this test, finding sufficient material to suggest the petitioner’s involvement in the inception of the criminal enterprise.
The Court rejected the argument that resignation automatically absolves liability, stating that such a rule would permit directors to evade accountability by timing their exit strategically.
The Verdict
The revision petition was dismissed. The Court held that resignation from a corporate position does not automatically extinguish criminal liability for offences committed during the period of tenure, particularly where the illegal conduct was initiated and sustained under the accused’s directorship. A prima facie case under Section 149 IPC was established against the petitioner.
What This Means For Similar Cases
Liability Extends to Pre-Resignation Conduct
- Practitioners must assess whether the accused’s actions during tenure contributed to the formation of a common criminal object under Section 149 IPC.
- Resignation alone is insufficient to secure discharge; the timing and nature of the accused’s involvement must be scrutinized.
- Prosecutors may rely on pre-resignation conduct to establish liability even if the full extent of the offence occurred later.
Corporate Structure Does Not Shield Directors
- Directors cannot claim insulation from liability by arguing they were not involved in post-resignation acts if they helped establish the illegal framework.
- Evidence of participation in policy-making, authorizing financial practices, or signing documents during tenure will be decisive.
- Legal advisors must advise clients to document resignation procedures clearly and sever all operational ties to mitigate future liability.
Prima Facie Standard Is Low but Meaningful
- The threshold for discharge under Section 239 Cr.P.C. remains low, but courts will not permit evasion of liability through procedural timing.
- Defence counsel must focus on disproving the existence of a common object during the accused’s tenure, not merely on post-resignation timelines.
- Courts will examine the continuity of the illegal scheme and the accused’s role in its inception.
