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Rajesh Viren Shah vs. Redington (India) Limited

Not available · 2024 INSC 111Decided 14 Feb 2024
Not available
Justice B.R. Gavai · Justice Sanjay Karol

Background

The appellants had resigned as Directors of a company (with their resignations duly recorded via statutory Form 32 filings) before certain cheques (issued by a different company, M/s MIEL e-Security Private Limited, to Redington (India) Limited) were dishonoured for insufficient funds. Despite having resigned before the cheques were even issued, the appellants were arrayed as accused in a criminal complaint under Section 138 of the Negotiable Instruments Act. Their petitions to quash the criminal proceedings against them were dismissed by the Madras High Court.

Decision Breakdown

The Supreme Court reiterated settled law that under Section 141 of the NI Act, a person can be held liable for a company's dishonoured cheque only if they were actually in charge of and responsible for the conduct of the company's business at the relevant time, and that a complainant must make specific averments establishing this. Here, the appellants' resignations (via Form 32) had been accepted and recorded well before the cheques in question were even drawn, and their resignations were never disputed by the complainant. Since they had already severed all ties with the company by the time of the alleged offence, they could not be held responsible for its conduct. The Court quashed the criminal proceedings against both appellants.

Lesson Learnt

A former director who has genuinely and verifiably resigned before the disputed transaction took place cannot be prosecuted for the company's later financial defaults. The prosecution must show the accused was actually in charge of the business at the time of the offence, not merely that they once held a directorship.

Official source (sci.gov.in)View Judgment (PDF)

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