Cheque Bounce Case: Supreme Court Quashes Proceedings Against Ex-Director

The case of Anil Khadkiwala vs. State (Govt. of NCT of Delhi) revolved around a cheque bounce dispute under the Negotiable Instruments Act, 1881, where the Supreme Court had to decide whether criminal proceedings could be quashed against a former company director. The core issue was whether a person who had resigned as a director before the issuance of the cheques could still be held liable under Section 138 of the Act.

The appellant, Anil Khadkiwala, was a former director of M/s ETI Projects Ltd. The company issued two cheques dated 15.02.2001 and 28.02.2001, which were dishonored upon presentation. Respondent No.2, the complainant, filed a case against the appellant under Section 142 read with Section 138 of the Negotiable Instruments Act. However, the appellant contended that he had already resigned from the company before the cheques were issued and should not be held liable.

Arguments of the Petitioner

The appellant, represented by his legal counsel, contended:

“I had resigned from the company on 20.01.2001, and my resignation was duly accepted before the issuance of the cheques. Therefore, I cannot be held liable for a transaction I was not a part of.”

The petitioners further argued:

• The resignation was duly recorded with the Registrar of Companies through Form 32, proving that he had ceased to be a director before the cheques were issued.
• The first application under Section 482 CrPC for quashing the complaint was dismissed because the High Court did not consider Form 32 at that time.
• The second application was justified since it introduced new evidence—Form 32—proving the appellant’s resignation.

Arguments of the Respondent

The State and the complainant opposed the quashing of the case, arguing:

“The cheques were issued under the signature of the appellant, and he was a director of the company at the time. His resignation does not absolve him of liability.”

The respondent further contended:

• The cheques were post-dated, and even if the resignation had taken effect, the appellant could still be held responsible for transactions initiated while he was a director.
• The High Court had already dismissed the first quashing application, and a second application should not have been entertained.

Supreme Court’s Verdict

The Supreme Court, with Justices Ashok Bhushan and Navin Sinha presiding, ruled in favor of the appellant, stating that he could not be held liable for cheques issued after his resignation. The Court observed:

“The factum of resignation is not disputed, and Form 32 issued by the Registrar of Companies proves that the appellant was not a director at the time the cheques were issued. A person cannot be held liable for company transactions once they have legally resigned.”

The Court ruled:

• The second application under Section 482 CrPC was maintainable as it introduced new material (Form 32) that was not considered in the first application.
• Criminal liability under Section 138 of the Negotiable Instruments Act applies only to those who were in charge of the company at the time of the transaction.
• The proceedings against the appellant alone were quashed, while the case against the company and other directors remained unaffected.

Key Takeaways from the Judgment

• A director cannot be held liable under the Negotiable Instruments Act for transactions that took place after their resignation.
• Form 32 from the Registrar of Companies is crucial evidence in proving resignation and must be considered by courts.
• A second quashing petition under Section 482 CrPC is maintainable if it introduces new, relevant evidence that was not considered earlier.
• Criminal liability in cheque bounce cases is limited to persons in charge of the company at the time of the transaction.

This ruling reinforces the principle that individuals should not be subjected to criminal prosecution for corporate transactions they had no involvement in, ensuring fairness in business liability cases.

Petitioner Name: Anil Khadkiwala.
Respondent Name: State (Govt. of NCT of Delhi) & Another.
Judgment By: Justice Ashok Bhushan, Justice Navin Sinha.
Place Of Incident: New Delhi.
Judgment Date: 30-07-2019.

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