NI Act | Complainant Can't Seek To Prosecute Company's Former Directors For Cheque Issued To Repay Amount Invested When They Held Office: Karnataka HC

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The Karnataka High Court has quashed the proceedings initiated against two former directors of a company under Section 138 of the Negotiable Instruments Act by the complainant claiming that when he invested the money in the company they were directors.

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single-judge bench of Justice Hemant Chandangoudar allowed the petition filed by Sunita and Vidya and quashed the proceedings pending against them.

A private complaint was filed under Section 200 of the Code of Criminal Procedure, 1973 for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881 (for short, 'the Act'), 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 Act and issued summons to the accused.

The bench said, "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."

It then held, "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 Act is not sustainable."