In Alibaba Nabibshah v. Small Farmers Agri-Busineaa Consortium & Ors, the Delhi High Court ruled that a director of a corporation who has resigned is no longer responsible for the day-to-day operations of the firm or checks issued and dishonoured after retirement.
In the instant case titled Alibaba Nabibshah v. Small Farmers Agri-Busineaa Consortium & Ors., the issue raised for clarification before the Delhi High Court was:
Whether the Director can be held responsible for daily affairs of the Company after resignation?
With regard to this issue, the Delhi High Court held that it cannot be argued that an accused is in-charge of and responsible for the conduct of the day-to-day business of the Company, as contemplated in Section 141 of the Negotiable Instruments (NI) Act, in circumstances when the accused has resigned from the Company and it has also been filed with the Registrar of Companies.
Therefore, following his retirement, the Petitioner is no longer liable for the Company's acts, including the issuing of checks and their dishonour. Thus, complaints brought against the petitioner under Section 138 of the NI Act are dismissed. The retired directors were exempt from the provisions of Section 141. Additionally, it was stated that the summons sent to the petitioner was unjustified. The Court went on to say that while they are aware that they are not permitted to take the merits of the accusation into account when weighing an accused person's defence, they must look into any documents filed that cast doubt on the validity of the accusation and undermine its basis in order to prevent abuse of power. Thus, the summons and allegations were dismissed.
The Court categorically held that,
“The magistrate has to clearly scrutinise the evidence brought on record and may even himself put questions to the complainant and his witness to elicit answers to find out the truthfulness of tire allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused".
Hence, the Director cannot be held vicariously accountable for the offence committed by the corporation on the basis of bald assertions. when the check is presented for encashment but before it is known that he has resigned from the directorship. It must be demonstrated that he maintained control over the firm's affairs even after stepping down as a director, making him the organisation's person in charge and accountable to the company for the management of its affairs.