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Retired Director of a Company is not responsible for conduct of day-to-day affairs of Company: Delhi HC [Read Judgment]

Delhi-High-Court - company - Retired Director - Taxscan

The Delhi High Court said that a person who has retired as the director of the company can not be held liable for the day to day acts of company and cheques issued and dishonoured post-retirement.

The petitioner, Alibaba Nababarsha used to be the director of the respondent company. The small-farmer agribusiness consortium initiated proceedings for Section 138 of the Negotiable Instrument Act in a Delhi Court.

According to him, the cheques in question were issued by the respondent company for Rs.45 Lakhs and the same was dishonored due to insufficient funds.

The small-farmer agribusiness consortium had disbursed Venture Capital Funding of Rs.45 Lakhs to respondent company and the cheque in question was to discharge the liability of the same.

Aggrieved by the summons, the petitioner approached the high court.

The Petitioner contended that he ceased to be a Director of respondent company with effect from October 27, 2010, at least eight years prior to the issuance of the cheques in question. The petitioner served as director for a year and he informed MCA upon his resignation.

According to the petitioner, the data was suppressed by a small-farmer agribusiness consortium and the court in Delhi failed to apply the judicial mind in the case. The aforementioned agreement and issuance took place after the director had retired and moreover no legal notice was received by the petitioner. Contentions were made that all the ingredients under section 138 were not met to convict the petitioner.

However, the respondents contended that upon asking for Venture Capital Assistance, the company provided bio-data of the petitioner, and also the petitioner participated in the meetings leading to the agreement. He stated that when cheques became due, he presented the same in its account in State Bank of India but all the cheques were returned with remarks ‘funds insufficient’.

A notice was sent to all the accused directors but nobody replied to the same. The MM had issued a summons to the petitioner and he had the right to provide his defense. He stated that merely showing the resignation letter of the petitioner from Directorship does not entitle him to an acquittal. The respondent company in its submission stated that Petitioner played an important role in the deal.

The single judge bench of Justice V. Kameshwer Rao held that  the accused can not be held liable for the day to day acts of the company even after he has retired.

“It is the case of the respondent No.1 that the petitioner was involved in the discussion and represented the respondent No.2 before the agreement was executed on March 03, 2011, but that does not mean even after his resignation he continues to be responsible for the actions of the Company including the issuance of cheques and dishonor of the same which then attracts proceedings under Section 138 of the NI Act against him,” the court said.

The court while quashing the summons and complaints noted that Section 141 was not applicable to the retired directors.It was also stated that the summons issued against the petitioner was not justified. The Court further stated that they were aware that they are not supposed to consider the defense of the accused in respect of merits of the accusation but if documents filed are beyond suspicion and demolishes the foundation of the accusation then it is incumbent for the Court to look into the said document and grant relief to prevent abuse of power.

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