Former Directors cannot be prosecuted on Cheque issued to repay amount invested on term of their office: Karnataka HC [Read Judgment]

The Karnataka High Court ruled that Any person who is not director of the company on the date of issuance of the cheque is not liable under Section 138 of the Negotiable Instruments Act. The petitioners in the present appeal are Sunita and Vidya.

A private complaint is filed under Section 200 of the Code of Criminal Procedure, 1973 for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881, alleging that the cheque, which was issued by the Company in favour of the complainant, when presented for realisation was dishonoured for want of funds. The Magistrate, after recording the sworn statement of the complainant, took cognizance of the offence punishable under Section 138 of the Negotiable Instruments Act and issued summons to the accused.

The Counsel for the petitioner submitted that petitioners-accused Nos.5 and 6 ceased to be the Directors of the Company with effectfrom 22.03.2017, which is evident from Form No.DIR-12. Hence, he submits that the registration of the complaint against the petitioners-accused Nos.5 and 6 is not sustainable in law.

The Counsel appearing for the respondent or complainant submits that the petitioner or accused were directors on the date when the complainant invested the money with the petitioner or the accused company and cheque which was issued by the company was for repaying of amount invested by the respondent or complaint and hence learned Magistrate has rightly taken cognizance and the same does not warrant any interference.

Allowing the criminal petition, a Single Bench consisting of Justice Hemant Chandragoudar observed that “The cheque in question was issued on 01.08.2019. The petitioners, who were the Directors of the Company, ceased to be the Directors of the Company with effect from 22.03.2017 which is evident from the Form No.DIR-12 issued by Registrar of the Companies and the same has remained uncontroverted.”

“Hence, it implies that the petitioners ceased to be the Directors of the Companies as on the date of issuance of the cheque. Hence, registration of the complaint against the petitioners for the offence punishable under Section 138 of the Negotiable Instruments Act is not sustainable.”

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