Former directors are not vicariously liable absent responsibility for company affairs at the relevant time.

Respondent No. 1 filed a complaint under Section 200 of the Code of Criminal Procedure alleging an offence under Section 138 of the Negotiable Instruments Act after a cheque for ₹3,00,000 issued by respondent No. 2 was dishonoured for insufficient funds.

The petitioner was arrayed as accused No. 2 and summoned by the Magistrate.

She sought quashing under Section 482 CrPC, contending that she had not signed the cheque, had retired from the company in 2015, and was not involved in its affairs when the cheque was issued in 2018.

The High Court examined the cheque and retirement deed.

1. Whether the proceedings under Section 138 of the Negotiable Instruments Act could continue against the petitioner, who was not the cheque’s signatory and had retired from the company before the cheque was issued.

2. Whether continuation of the proceedings against the petitioner amounted to an abuse of the process of the court warranting relief under Section 482 CrPC.

Section 138 of the Negotiable Instruments Act concerns the offence of dishonour of a cheque.

Under Section 141, where the offence is committed by a company, a person is not liable merely by virtue of holding a designation; the person must have been in charge of, and responsible to the company for, the conduct of its business at the relevant time.

The Court relied on S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89, for this requirement.

The Court relied on K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48, for the requirement that the person be both legally responsible to the company and factually in charge of its business.

The Court considered the petition under Section 482 CrPC, which empowers the High Court to prevent abuse of the process of court.

The cheque was issued by respondent No. 2 in his individual capacity, and the petitioner was not its signatory.

The retirement deed showed that she had left the company in 2015, before the cheque was issued in 2018; the Court therefore found that she was neither a director nor actively involved in the company’s affairs at the relevant time.

Applying the principles in S.M.S. Pharmaceuticals and K.K. Ahuja, the Court held that the petitioner could not be held vicariously liable without the required connection to the company’s business when the alleged offence occurred.

It concluded that continuing the proceedings against her would amount to an abuse of process.