The Delhi High Court has clarified that a director cannot be held criminally liable under Section 141 of the Negotiable Instruments Act for a cheque issued after their formal resignation, even if the resignation was not immediately reflected in public records. This judgment reinforces the principle that liability under the NI Act requires active involvement at the time of the offence, not mere association with the company.
Background & Facts
The Dispute
The petitioners, Sandhya Gupta and Abhishek Gupta, were named as accused in four criminal complaints filed under Section 138 of the Negotiable Instruments Act, relating to four cheques issued by SP Contracts Private Limited in May 2014 and dishonoured in July 2014. The complainant, Shri Ganesh Traders, alleged that the cheques were issued in discharge of liabilities for building materials supplied to the petitioners’ company. The complaints named four directors, including the petitioners, asserting that they were "in charge and responsible for the conduct of the business" of the company.
Procedural History
- 2014: Cheques issued and dishonoured for "Debit not allowed"
- 2016: Four criminal complaints filed under Section 138 NI Act
- 2017: Petitioners filed applications under Section 251 CrPC seeking discharge, arguing lack of involvement
- 03.05.2017: Metropolitan Magistrate dismissed discharge applications, relying on Subramanium Sethuraman v. State of Maharashtra
- 2017: Petitioners filed writ petitions under Section 482 CrPC seeking quashing of complaints
Relief Sought
The petitioners sought quashing of the criminal proceedings against them on grounds that: (1) Abhishek Gupta had resigned as director on 01.10.2013, prior to cheque issuance; (2) Sandhya Gupta was a "sleeping director" with no role in daily affairs; and (3) the complaints lacked specific averments linking them to the offence under Section 141 NI Act.
The Legal Issue
The central question was whether a director who formally resigned before the issuance of a dishonoured cheque can be held liable under Section 141 of the Negotiable Instruments Act, and whether mere existence of a director’s name in public records, without formal ROC filing, suffices to establish liability.
Arguments Presented
For the Petitioner
The petitioners relied on N.K. Wahi v. Shekhar Singh and K.S. Mehta v. Morgan Securities, arguing that Section 141 NI Act requires specific averments showing active involvement in the company’s affairs at the time of the offence. They submitted Form-32 and Board minutes proving Abhishek Gupta’s resignation on 01.10.2013, well before the cheques were issued in May 2014. They contended that liability cannot be imputed on a director who had no role in the transaction and whose resignation was duly recorded internally.
For the Respondent
The respondent argued that the resignation was not effective until filed with the Registrar of Companies (ROC), citing Malwa Cotton v. Singh Sidhu. They claimed the Form-32 was filed only in 2018, making it an afterthought. They further asserted that Sandhya Gupta was an authorised signatory on cheques and balance sheets, proving active involvement, and that the payment of Rs. 9 lakh before the Gurgaon Court amounted to an admission of liability.
The Court's Analysis
The Court examined the statutory framework under Section 168 of the Companies Act, 2013, which governs director resignation. It held that while the Companies Act requires intimation to the ROC, the resignation becomes effective upon notice to the company and acceptance by the Board. The Court distinguished between procedural compliance with corporate law and substantive criminal liability under the NI Act.
"The resignation of a director is effective from the date of notice to the company and acceptance by the Board, irrespective of the delay in filing Form-32 with the ROC. The purpose of Section 141 is to hold accountable those who were actively managing the company’s affairs at the time of the offence, not those who had severed their connection."
The Court found that Abhishek Gupta’s resignation was accepted by the Board on 07.10.2013, and the Form-32, though filed belatedly in 2018, corroborated the timeline. The cheques were issued in May 2014, seven months after his resignation. The Court held that no criminal liability can attach to a person who was not a director at the time of the offence, regardless of whether the ROC records were updated promptly.
Regarding Sandhya Gupta, the Court noted her role as an authorised signatory on cheques and balance sheets, and her participation in other transactions with the complainant. The Court held that these facts, not mere allegations, established her active involvement, making the summoning order valid.
The Verdict
The petition was partially allowed. The Court quashed the proceedings against Abhishek Gupta, holding that he could not be held liable under Section 141 NI Act as he had resigned before the cause of action arose. The proceedings against Sandhya Gupta were upheld, as the evidence demonstrated her active role in the company’s affairs.
What This Means For Similar Cases
Resignation Effective Upon Board Acceptance
- Practitioners must now argue that director resignation is effective upon Board acceptance, not upon ROC filing
- Delay in ROC filing does not revive liability for acts occurring post-resignation
- Form-32 filed belatedly can still serve as corroborative evidence if supported by internal records
Specific Averments Required for Director Liability
- Complaints must specify how a director was involved in the transaction
- General allegations like "in charge of day-to-day affairs" are insufficient
- Courts will examine actual conduct - signing cheques, authorising payments, attending board meetings
Documentary Evidence Trumps Oral Claims
- Public documents like Board minutes and Form-32 carry greater weight than oral assertions
- Allegations of forgery must be substantiated with independent evidence
- Petitioners can successfully seek quashing if resignation is proven by contemporaneous records
