In a recent legal precedent, the Supreme Court has delivered a significant ruling asserting that former directors of a company cannot be held accountable for the dishonor of a cheque issued post their resignation, unless concrete evidence implicates them.
Overturning the decision of the High Court which denied quashing criminal proceedings against the accused director, the Supreme Court, led by Justices B.R. Gavai and Sanjay Karol, emphasized that attributing liability to a director for post-resignation company actions necessitates substantial proof of their involvement.
The court underscored Section 141 of the N.I. Act, stipulating that individuals responsible for a company’s affairs at the time of an offense can face liability under Section 138 of the Act, barring instances where their actions occurred without their knowledge or after adequate precautions were taken. Notably, if any company act is proven to involve a director’s connivance or consent, they can be deemed culpable.
The case originated from a complaint under the Negotiable Instruments Act, wherein the accused director sought to quash the proceedings at the High Court, to no avail. Subsequently, the matter was elevated to the Supreme Court.
The pivotal inquiry before the apex court centered on the liability of ex-directors for certain negotiable instruments following their resignation. In a resolute negative response, the court scrutinized the timeline, highlighting that the cheques in question were issued subsequent to the directors’ departure from the company. Hence, absolving them of any responsibility.
Moreover, the court stressed the absence of credible evidence linking the accused directors to the alleged offense, citing the provisions of Section 141 and relevant legal precedents. It emphasized that calling directors to trial without substantial evidence would constitute an abuse of the judicial process.
In light of these considerations, the Supreme Court granted the appeal of the accused director, quashing the ongoing criminal proceedings against them.
This verdict sets a precedent safeguarding ex-directors from unwarranted legal entanglements, ensuring accountability aligns with tangible evidence rather than speculative allegations.
For the Petitioner(s), legal representatives included Mr. Sumeer Sodhi, Mr. Chander Uday Singh, Mr. Siddharth Mehta, Mr. Sidharth Puttur, Ms. Shreya Singh, Mr. K. Parameshwar, Ms. Arti Gupta, Ms. Kanti, and Mr. Chinmay Kalgaonkar.
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