Gujarat High Court Quashes Cheque Dishonour Cases, Stresses Protection Against Harassment

Gujarat High Court Quashes Cheque Dishonour Cases, Stresses Protection Against Harassment

Based on the determination that the applicants had resigned from their positions prior to the relevant transactions, the Gujarat High Court delivered a favourable ruling by invalidating the criminal complaints filed against them under Section 138 of the Negotiable Instrument Act (NI Act), 1881.

Justice Sandeep N. Bhatt, presiding over the Single Judge Bench, expressed the opinion that allowing further proceedings would inflict significant hardships on the individuals involved and serve no productive purpose. The Court emphasised the need to prevent the misuse of criminal prosecution as a means of harassment or personal vendetta, with the underlying motive to coerce the accused into settling disputes.

The present case involved seven criminal miscellaneous applications filed under Section 482 of the Code of Criminal Procedure, 1973. These applications aimed to quash the criminal complaints lodged against the applicants under Section 138 of the Negotiable Instrument Act pertaining to the dishonour of cheques.

The applicants put forth their argument claiming that the complaints filed against them were not valid since they had resigned from their positions as directors of the accused company well before the cheques in question were issued. They supported their stance by presenting documents that demonstrated their resignations in 1996 and 2006 respectively. As the cheques were issued, deposited, and subsequently dishonoured in 2007, the applicants contended that they should not bear vicarious liability, as they had already resigned from their positions long before the cheques were issued.

The complainants contended that the applicants, being directors at the relevant time, held responsibility for the company's business affairs. They argued that the issue of the applicants' resignation should be determined during the trial proceedings, and the Court should not consider the submitted documents at this stage.

Upon careful examination of the arguments and facts presented, the Court acknowledged that the applicants had indeed resigned from their positions before the cheques were issued, as supported by the submitted documents. Additionally, the Court observed that the company in question was still in existence and capable of pursuing the recovery of any outstanding dues from the complainant.

After a thorough analysis of the available evidence, including a detailed review of the documents, specifically Form No. 32 filed before the Registrar of Companies, the Court stated that it becomes evident that the applicants had indeed resigned as directors of the company before the issuance of the bounced cheques.

The Court further observed that upon scrutiny of the complaint itself, it is apparent that there were no specific allegations made against the applicants regarding their involvement in the issuance or handling of the post-dated cheques, nor are they implicated in the day-to-day operations of the company.

“It is an undisputed fact that the resignation is given by the present applicants as per the record available on this petition on 18.1.2006, 24.4.2006 and 17.9.1996 respectively and the cheques were issued on 3.3.2007 and deposited and bounced on 30.3.2007, which is much subsequent to the resignation given by the present applicants. It is also the fact that the company is still existing and available for recovery of the dues, if any, of the complainant. Further, the documents produced on record by the applicants in these applications remained uncontroverted and as such, these documents pertain to government record and found acceptable in the eye of law,” the Court said.

The Bench held the view that the allegations presented in the complaint should be specific and clearly indicate the responsibility of the directors for the day-to-day affairs of the company. In the present case, the Court noted that there were no specific allegations made against the applicants, further emphasising the absence of any direct implication of the applicants based on the complaint.

“In view of the above settled legal position, though huge amount is involved and the applicants might be involved in many such other transactions with other persons also, the applicants cannot be arraigned as accused as they have already resigned as directors much prior to the alleged transaction, therefore, the ingredients of Sections 138 and 141 of the NI Act are not satisfied against the present applicants and this is a fit case to exercise the inherent powers under Section 482 of the Code. However, it is open for the complainant to avail remedies whichever is permissible under criminal as well as civil laws against the applicants,” Justice Bhatt stated.

Based on the observation that the applicants had resigned from their positions before the alleged transactions, the Court concluded that vicarious liability could not be imposed upon them. Consequently, the Court allowed all the applications and quashed the criminal complaints filed against the applicants. However, the Court made it clear that the complainant still had the option to pursue remedies under civil laws for any outstanding matters.