A Person who ceased to be Director cannot be prosecuted under 138 of NI Act, 1881

A person who ceased to be Director cannot be prosecuted under 138 of the NI Act, 1881.

The Karnataka High Court ruled that any person who is not the director of the company on the date of issuance of the cheque is not liable under Section 138 of the Negotiable Instruments Act.

A private complaint was filed under Section 200 of the Code of Criminal Procedure, 1973 for the offense punishable under Section 138 of the Negotiable Instruments Act, 1881, alleging that the cheque, which was issued by the Company in favor of the complainant, when presented for realization was dishonored for want of funds.

The Magistrate, after recording the sworn statement of the complainant, took cognizance of the offense punishable under Section 138 of the Negotiable Instruments Act and issued summons to the named accused in the complaint.

Two of the accused approached the High Court and the Counsel for the petitioner submitted that the petitioners-accused ceased to be the Company Directors with effect from 22.03.2017, which is evident from Form No.DIR-12. Hence, he submitted that the registration of the complaint against the petitioners accused is not sustainable in law.

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

However, the Single Bench of the High Court ruled in favor of the petitioner while observing 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 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 offense punishable under Section 138 of the Negotiable Instruments Act is not sustainable.”