JSA successfully defended Daimler India Commercial Vehicles Private Limited (“DICV”) in proceedings before the Supreme Court as also the Madras High Court, arising from a challenge to a complaint filed by DICV under Sections 138 and 141 of the Negotiable Instruments Act.
Daimler India Commercial Vehicles Private Limited ("DICV") executed a Dealer Agreement dated 30 August 2021 ("Dealer Agreement") with a company ("Company"), appointing it as a "non-exclusive dealer" for the sale and service of "Contract Goods", including BharatBenz trucks and buses, in Ladakh, Jammu and Kashmir. The Company furnished an undated blank cheque as security in discharge of its legally enforceable debts and liabilities arising under the Dealer Agreement.
Around August 2024, the Company started defaulting on its payment obligations. Despite DICV extending additional credit from time to time, the Company repeatedly failed to comply with the terms and conditions of the Dealer Agreement and did not discharge its debt.
Accordingly, DICV presented the cheque, which was returned dishonoured with the remark "payment stopped by drawer." Resultantly, DICV initiated proceedings under Sections 138 and 141 of the Negotiable Instruments Act, 1881 ("NI Act") before the Metropolitan Magistrate, Saidapet, Chennai ("Section 138 Complaint") against the Company and its directors/promoters.
One of the promoters (also a former director, and hereinafter "Accused"), holding 34.615% shareholding in the Company, filed a petition under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 ("Quashing Petition") before the Hon'ble Madras High Court seeking quashing of the Section 138 Complaint.
The Accused argued, inter alia, that she had resigned as a director on 1 July 2024 before the cheque was presented, and that the complaint did not contain any specific averment regarding the Accused's involvement in the day-to-day affairs of the Company.
The Hon'ble Madras High Court, dismissed the Quashing Petition and made the following significant observations:
- The Accused is a promoter as well as the director of the Company.
- Though the Accused resigned from directorship on 1 July 2024, she has not been relieved as a promoter of the Company, since she holds 34.615% shares in the Company.
- The Accused is also in charge of and responsible for the conduct of the Company's day-to-day business and operation at the time of the offence, i.e., issuance of the cheque.
- Further, the Accused had absolute knowledge of the transaction between DICV and the Company.
- In any event, there are specific averments and allegations in relation to the Accused to attract the offence under Section 138 read with Sections 141 and 142 of the NI Act.
The Accused then filed a petition for special leave to appeal ("SLP") before the Hon'ble Supreme Court. The Hon'ble Supreme Court dismissed the SLP filed by the Accused promoter and upheld the Madras High Court's refusal to quash the proceedings. The Hon'ble Supreme Court thus endorsed the view that resignation as a director does not, by itself, absolve a promoter of liability where there is continued shareholding, knowledge of the underlying transactions, and specific allegations regarding responsibility for the company's affairs. This decision serves as an important reaffirmation of promoter accountability and corporate governance principles in cheque dishonour prosecutions.
JSA Disputes Team comprised Sidharth Sethi, Lead Partner; Shreya Sircar, Partner; Deepank Anand, Senior Associate; Riya Singh, Associate and Mohit Kandpal, Associate.
The matter was argued before the Hon'ble Supreme Court by Mr. Siddharth Aggarwal, Senior Advocate and before the Hon'ble Madras High Court by Mr. P. Giridharan, Advocate, who were assisted by JSA team.