In a ruling that should help stem the flow of cheque bouncing cases that flood India’s courts, the Supreme Court held that a former director of a company cannot be prosecuted in a cheque-bouncing case, if he or she had resigned the directorship before the cheque was issued.
The 8 February ruling also included a re-iteration of the legal position concerning the vicarious liability of a director in a company who along with the company is being prosecuted under section 138 of The Negotiable Instruments Act, 1881.
Harshendra Kumar D v Rebatilata Koley Etc was an appeal against an order passed by Calcutta High Court dismissing attempts to quash proceedings initiated by a magistrate in West Bengal, in a cheque bouncing case against Rifa Health care India and its directors. Challenging the proceedings Kumar D had stated he was not liable as he had resigned his directorship in Rifa on 2 March 2004 (the Registrar of Companies had been told of this two days later) and Rifa issued the dishonoured cheques on 30 April 2004.
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However, Calcutta High Court had held the fact of his resignation was his defence, which was a matter for the trial court to consider and not for consideration as part of a revisional application.
Allowing the appeal the Supreme Court held that the “high court fell into a grave error” in not considering public documents or materials that are beyond suspicion relating to Kumar D’s resignation. Holding that in “such a matter, for promotion of justice or to prevent injustice or abuse of process, the High Court may look into the materials which have significant bearing on the matter at prima facie stage,” the court said that if the criminal complaint was allowed to proceed, it would result in gross injustice to Kumar D.
The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
