Criminal Liability Of Company Directors In Cheque Dishonor

Case title:

VISHAL ARORA v. YES BANK LTD.  

Date of Order:

NOVEMBER 23, 2022

Bench:

HON’BLE JUSTICE SWARANA KANTA SHARMA

Parties:

PETITIONER – VISHAL ARORA 

RESPONDENT – YES BANK LTD. 

SUBJECT:

The case "Vishal Arora vs. Yes Bank Limited" concerns the dishonour of checks written by an accused business-entity and the corresponding legal questions regarding the liability of the people who signed these checks on the entity's behalf. The presumption under Section 139 of the Negotiable Instruments Act, which assumes that a cheque was written to settle a debt or liability, was highlighted by the court. 

It was made clear that even if someone other than the drawer filled out the check's details, it was still valid. The case also dealt with disagreements over the signatories' involvement in the business's operations and the timing of their resignations. Ultimately, the court dismissed the petitions and ordered the case to go to trial so that the facts and evidence could be further examined.

IMPORTANT PROVISIONS:

NEGOTIABLE INSTRUMENT ACT, 1881 – 

1. Section 20 - This section pertains to presenting a cheque to the bank for payment and is relevant to the legal implications of presenting a signed blank cheque.
2. Section 138 - This section addresses the crime of dishonouring a cheque due to insufficient funds or if it exceeds the sum scheduled to be paid by the account of the drawer.
3. Section 139 - This section creates a presumption that when a cheque is written, it was written to pay off a debt or other obligation.

INDIAN EVIDENCE ACT – 

1. Section 118 (a) - This section pertains to the presumption of the authenticity of negotiable instruments like cheques. It establishes a presumption that when a negotiable instrument is produced as evidence, it is presumed to have been made for consideration.

CRIMINAL PROCEDURE CODE, 1973 – 

1. Section 482 – “saving of the High Court's inherent powers.”  Nothing in this Code shall be construed as limiting or affecting the inherent authority of the High Court to issue any orders that may be required to carry out any orders made hereunder, to prevent abuse of any Court's process, or to further the ends of justice.

OVERVIEW:

1. The summoning order dated 24-12-2020 issued by learned Metropolitan Magistrate (NI Act) 3, Rouse Avenue Court, New Delhi; and the present petition pursuant to Section 482 of the Criminal Procedure Code, 1973 seeking quashing of the Criminal Complaint No. 4162 of 2020 titled "Yes Bank Ltd. v. Oscar Investments Ltd."
2. That the respondent/complainant Yes Bank Limited is a business that provides a variety of banking services to its customers. The promoters/directors of the publicly traded company Oscar Investments Limited (Accused 1) are Accused 2 and 3. 
3. The holding company originating from Oscar Investments Ltd./Accused 1 is RHC Holding Pvt. Ltd. The petitioner, Mr. Vishal Arora, also known as Accused 4, worked for RHC Holding Pvt. Ltd. as a Senior Manager of Finance, and the petitioner, Mr. Hemant Dhingra, also known as Accused 5, worked there as Director (Finance). However, neither of the petitioners was a member of the Board of Directors.
4.  The petitioners were designated as the authorised signatories in the bank account of Oscar Investments Limited/Accused 1 for the sake of convenience. The complainant bank provided Accused 1 with a credit facility on December 23, 2016, for a total of Rs 5,65,00,00,000 (five hundred and sixty-five crores). A declaration for the submission of checks towards the discharge of Accused 1's obligation under the credit facility was signed by the petitioners in their capacity as Accused 1's authorised signatories.
5. Additionally, on December 23, 2016, Accused 1 gave the complainant the cheques bearing the numbers 932400 and 932401, both drawn on Yes Bank Ltd. and signed by the petitioners. The first cheque was for Rs 2,00,00,00,000 (rupees two hundred crores), and the second was for Rs 25, 00, 00,000 (rupees twenty five crores). On January 17, 2017, the complainant and Accused 1 entered into a loan agreement, and Accused 2, who is the director of Accused 1, signed a deed of guarantee in the complainant's favour.
6. On January 17, 2017, the complainant and Accused 1 entered into a loan agreement, and Accused 2, who is the director of Accused 1, signed a deed of guarantee in the complainant's favour. 
7. Hemant Dhingra, the petitioner, subsequently tendered his resignation from RHC Holdings Pvt. Ltd. on September 30, 2017, and Vishal Arora, the petitioner, did the same on July 27, 2018. The complainant presented the cheques dated 9-1-2020 issued by Accused 1 for encashment to recover its debts, but the said cheques were returned unpaid/dishonoured via returning memo dated 9-1-2020 with the remarks "funds insufficient." The total amount still owing under the credit facility as of 8-1-2020 was Rs 4,41,72,87,888.67. 
8. The complainant sent the accused Company statutory notice under Section 138 of the Negotiable Instruments Act of 1881 requesting that it make good the amount specified in the cheques. The notice was sent to the company, its directors, and the petitioners listed as authorised signatories. The complainant then went on to file a complaint against the accused Company and its directors and signatories in accordance with Sections 138/141/142 of the Negotiable Instruments Act, 1881. 
9. The learned trial court decided it was appropriate to summon all of the accused people to answer the charge under Section 138 of the NI Act, 1881, after taking into account the evidence already in the record and pre-summoning testimony.

The "Vishal Arora vs. Yes Bank Limited" case concerns the dishonour of checks that the petitioners had written on behalf of the defendant business, Yes Bank Limited. The main points of contention were whether the petitioners, who were authorised signatories, were accountable for the returned checks, the legitimacy of the checks, and when they left the accused company. To address these crucial issues, the court looked at a number of legal provisions, including those under the Negotiable Instruments Act, and relied on earlier decisions. Finally, the court dismissed the petitions, stating that its observations applied only to the petition stage, allowing the trial to continue.

ISSUES RAISED: 

Whether the authorized signatories of the accused company, who claimed to have resigned before the dishonor of the cheques, could be held legally liable for the dishonored cheques under the Negotiable Instruments Act? 

ARGUMENTS ADVANCED BY THE APPELLANT:

1. The petitioners claimed that they had left their positions with the accused business before the cheques were dishonoured. They argued that the presumption under Section 139 of the Negotiable Instruments Act shouldn't apply because the checks were undated when they were issued.
2. The petitioners claimed that since the accused company had been informed of their resignations, any actions the company took following their departure should not be blamed on them. They argued that there wasn't enough evidence in the complaint against them to prove they were responsible for the returned checks.
3.  Before presenting the checks for encashment, the petitioners questioned whether the bank had been properly notified of their resignations. Despite the fact that they were no longer involved in the company's operations, they expressed concerns about their vicarious liability for the company's decisions.
4. The petitioners argued that formal channels, such as board resolutions and resignation letters, had been used to announce their resignations. They argued that ending the case against them early would not be just because it would prevent a full investigation of the evidence during the trial.
5.  It was claimed that Accused 5 wrote the Board of Directors of RHC Holdings Pvt. Ltd. on October 6, 2017, informing them that the checks he had signed would no longer be valid and requesting that they exchange them as soon as possible for ones signed by the authorised signatories of the business. As a result, per board resolution dated August 30, 2018, Mr. Sanjeev Kumar Singhal, Mr. Chandra Shekhar Jha, and Mr. Rajendra Kumar were chosen as the new authorised signatories following the resignation of Accused 4 as well. 
6. As a result, the petitioners were not authorised signatories of the accused Company at the time of the offence, and the complainant was aware of this fact both from the board resolution from August 30, 2018, as well as from other publicly available documents, and from the accusation number five's response to the legal notice from March 2, 2020.
7.  Learned counsel states that it is settled law that when a person who had signed the cheque, resigned prior to the dishonour of the said cheque i.e. when the cause of action under Section 138 arose, he cannot be made vicariously liable under Section 141 of the NI Act because he would have no say in seeing that the cheque is not dishonoured. To advance his case, learned Senior Counsel places reliance upon the following judgments: (i) DCM Financial Services Ltd. v. J.N. Sareen 

(ii) Kamal Goyal v. United Phosphorus Ltd.

(iii) Nikhil P. Gandhi v. State of Gujarat.

ARGUMENTS ADVANCED BY THE RESPONDENT:

1.  The respondent's learned counsel claimed that once a check is tendered as payment for a debt and as fulfilment of an obligation, its dishonour makes the signatory liable for prosecution. The rulings in Rajeshbhai Muljibhai Patel v. State of Gujarat and Bhupesh Rathod v. Dayashankar Prasad Chaurasia have been cited in this regard. According to the Negotiable Instruments Act, 1881's provisions and the ruling in Mojj Engg. Systems Ltd. v. A.B. Sugars Ltd., it is asserted that the petitioners' claims that they had rendered the cheque undated are misguided and legally untenable. 
2. It is further stated that the petitioners had the proper authority to act on behalf of the accused Company when they issued checks to the respondent Bank to pay off their uncontested obligations related to the credit facility.
3. The complaint contains specific accusations and averments against the petitioners, and the learned trial court has summoned the suspects after due deliberation and consideration of all the evidence. The petitioners' claims are asserted to be triable issues, and it is argued that because of this, no mini-trial is currently being considered, especially in cases where the complaint clearly reveals the commission of an offence.

JUDGEMENT ANALYSIS:

1. The court emphasised that under Section 139 of the NI Act, a presumption arises in favour of the holder of the cheque when the issuance of the cheque is admitted or established. Until the accused successfully refutes it with evidence, this presumption stands.
2.  The petitioners' resignations from their positions with the accused company were at the centre of the main argument. The petitioners argued that at the time of the dishonour, they had left the company and were no longer actively involved in its operations.
3. The petitioners' resignation and subsequent release from responsibility for the returned checks were issues of fact that needed to be resolved during the trial, the court emphasised. It declared that the bank should be permitted to offer proof to back up its claims.
4.  The court rejected the idea of early dismissal of the petitioners' case, stating that doing so would prevent a full investigation of the evidence during the trial. It deemed this to be improper, especially in light of the sizeable sum of public funds at stake.
5. The court addressed the question of vicarious liability, stating that absent strong evidence to the contrary, the petitioners' purported resignation did not automatically release them from responsibility for the company's actions.
6. In the end, the decision upheld the necessity of holding a trial to determine whether the petitioners' assertions about their resignations and responsibility for the returned checks were true. It emphasised the need for a careful review of the evidence during the trial stage and stressed how the presumption under Section 139 NI Act should not be lightly dismissed.

CONCLUSION:

The petitioners were employees of the holding company of Accused 1 and were its authorised signatories when the credit facility was obtained from the respondent Bank. They did not inform the respondent Bank about their resignations, but rather asked the accused company to do so. The respondent Bank was only informed about the factum of resignations through a reply to legal notice under Section 138 of the NI Act, 1888, dated 3-2-2020 by petitioner Hemant Dhingra. The amount in dispute is Rs. 25 crores of public money, and the petitioners are the signatories to the dishonoured cheques. The liability of the accused Company is not disputed by the petitioners. Statutory legal notices sent by the complainant were also addressed to the petitioner. Specific averments have been made against the petitioners in the complaint. If the petitioners' plea is accepted, it would amount to snatching away the right of the respondent Bank to examine the signatories of the cheques before the trial court. It would be prudent to permit the respondent Bank to lead evidence in support of its claim, and dropping proceedings against both signatories at the initial stage would amount to throttling the trial.