Renuka Ramanath vs Yes Bank Ltd.

S. Nagamuthu, J.—The petitioner is the fifth accused in C.C. No. 1916 of 2010 on the file of the XIV Metropolitan Magistrate, Egmore,

Chennai. Totally, there are as many as 9 accused in the case. The first accused is, admittedly, a company, known as ""M/s. Subhiksha Trading

Services Ltd."" (hereinafter referred to as, ""the company""). Accused Nos. 2 to 9 are the directors of the first accused-company. In the complaint, it

is alleged that the first accused has committed an offence punishable u/s 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as,

the Act"") and since accused Nos. 2 to 9, being the directors of the company, were involved in the day to day affairs of the company, as provided

in section 141 of the Act, they are also liable for punishment u/s 138 of the Act. Seeking to quash the said proceedings, the petitioner has come up

with this petition. The facts of the case would be as follows :

The first accused ""M/s. Subhiksha Trading Services Ltd."" is a company incorporated under the Companies Act of 1956. The complainant is a

banking company having operations all over India across various segments in the banking sector. The first accused-company was engaged in the

business of running a countrywide chain of retail stores. In and around August, 2007, the second accused, namely, the managing director of the

first accused-company approached the complainant for financial assistance for the purposes of working capital and capital expenditure for the first

accused-company. Accordingly, the complainant-bank extended financial facilities amounting to a total sum of Rs. 50 crores as per the terms of

the financial facilities. But the amount was not repaid promptly. In partial discharge of the amount due to the complainant, on behalf of the first

accused, the third and fourth accused issued a cheque dated January 20, 2009, drawn on the complainant''s bank branch at Nungambakkam,

Chennai for a sum of Rs. 61 lakhs. The said cheque was signed by the first accused-company''s authorised signatories, namely, the third and fourth

accused. The cheque was presented for collection and the same was later on dishonoured for want of sufficient funds.

Thereafter, as required u/s 138 of the Act, individual notices were issued to all the accused demanding payment of Rs. 61 lakhs representing the

cheque amount. Accused Nos. 2 to 5 deliberately evaded the receipt of the notices, it is alleged. The other accused received the notices.

However, the accused 5 (the petitioner herein) and the sixth accused caused a reply notice dated August 24, 2009. In the said reply notice, the

petitioner contended that she was no more a director of the first accused-company on or after January 8, 2009. Precisely, according to the

petitioner, she resigned as a nominee director of the first accused-company as early as on January 8, 2009, by sending a letter of resignation to the

ICICI Venture Funds Management Company Ltd., which had earlier nominated her as a nominee director to the first accused-company. Thus,

according to the petitioner, she was not liable to pay the amount as demanded in the legal notice issued u/s 138 of the Act. Despite the said notice,

prosecution has been launched against all the 9 accused including the petitioner. It is this complaint, which the petitioner wants to quash so far as it

relates to the petitioner.

In this petition, it is stated that the ICICI Venture Funds Management Company Ltd., nominated the petitioner as a ""nominee director"" of the

first accused-company as per clause 12(1) of the shareholders agreement dated December 1, 2004. The said nomination took effect from the date

of her appointment, namely, February 25, 2005. That is how, the petitioner was functioning as a nominee director of the first accused-company.

Thereafter, according to the petitioner, she resigned from the nominee directorship of the first accused-company by sending a letter to the ICICI

Venture Funds Management Company Ltd., on January 8, 2009. It is further contended that based on the said letter of resignation, the ICICI

Venture Funds Management Company Ltd., sent a letter to the first accused-company withdrawing the nomination of the petitioner as a nominee

director of the first accused-company. Thereafter, on January 19, 2009, the ICICI Venture Funds Management Company Ltd., forwarded a letter

to the Registrar of Companies, Chennai, informing that the ICICI Venture Funds Management Company Ltd., had withdrawn the nomination of

the petitioner as a nominee director of the first accused-company with effect from January 8, 2009. The said letter was also received by the

Registrar of Companies, Chennai, Tamil Nadu, on January 21, 2009. Thus, according to the petitioner, on or after January 8, 2009, she had

nothing to do with the affairs of the first accused-company since she was no more a director of the first accused-company.

Admittedly, in this case, the cheque in question was issued on January 20, 2009, much later from the date of resignation/withdrawal of the

petitioner from the nominee directorship of the first accused-company on January 8, 2009. After dishonour of the cheque, the legal notice was

issued on August 11, 2009, for which reply was sent on August 24, 2009, wherein the petitioner contended that she was no more a nominee

director of the first accused-company on or after January 8, 2009.

Learned senior counsel appearing for the petitioner, referring to the above documents and the averments made in the petition would submit that

on or after January 8, 2009, the petitioner was no more a nominee director of the first accused-company and therefore, she cannot be held liable

u/s 141 of the Act for the cheque issued on January 20, 2009. Nextly, learned senior counsel would contend that assuming that the petitioner

continued to be a nominee director, even then, the complaint is liable to be quashed for want of sufficient averments in the complaint to make out a

prima facie case that the petitioner was in charge of the day to day affairs of the company. In order to substantiate his contention, learned senior

counsel has relied on a judgment of this court in S.S. Lakshmana Pillai Vs. Registrar of Companies and Another, wherein this court has taken a

view that in so far as a director of the company governed by the Companies Act is concerned, the moment, the resignation letter is sent, the

director is deemed to have resigned from the company. Learned senior counsel has relied on yet another judgment of the High Court of Mother

Care (India) Ltd. Vs. Prof. Ramaswamy P. Aiyar, wherein the Karnataka High Court has also taken the same view that there is no provision in the

Companies Act for the acceptance of the resignation since the appointment of a director is not bilateral in character. The Karnataka High Court

has gone to the extent of saying that the question of acceptance of the request to relinquish the office would not arise and filing of Form 32 in terms

of section 303(2) is only a consequential act to be performed by the company in obedience to the statutory provision. Relying on these two

judgments, learned senior counsel for the petitioner would submit that from January 8, 2009, the petitioner was not a nominee director.

The respondent has filed a counter affidavit, wherein, in paragraphs Nos. 1 and 2, it is stated as follows :

I am the senior vice president of the respondent/complainant Conversant with the facts of the case and acquainting myself with the relevant

records, I am setting forth all true and genuine facts for the benign consideration of this hon''ble court.

I submit that we have done verification about the directors of Subiksha Trading Company P. Ltd., and found that the name of Ms. Renuka

Ramanath, the petitioner herein still reflects as one of the directors of the company. I submit that it is transparently clear that the petitioner herein

continues to be a director of Subiksha Trading Company P. Ltd. This be so, Crl. O.P. No. 19393 of 2010 which has been filed on false

conjectures and surmises knowing them to be false in order to mislead this hon''ble court into passing favourable orders is liable to be dismissed in

limine.

Referring to the same, learned counsel for the respondent would contend that from the verification of the records of the Registrar of Companies,

it has come to light that the petitioner continued to be a nominee director of the company even on the date of issuance of the cheque and on the

subsequent dates. Learned counsel would further submit that the documents dated January 8, 2009, January 19, 2009 and February 5, 2009,

upon which reliance has been made by learned senior counsel for the petitioner, cannot be termed as impeachable documents. Learned counsel

would also submit that there are very serious doubts about the genuineness of these documents. He would further submit that these documents

could have been created for the purposes of this case subsequently. Therefore, the genuineness of these documents are to be tested only by the

trial court. Thus, according to learned counsel for the respondent, no reliance can be made on these documents at this juncture, for want of proof

of genuineness of these documents.

Learned counsel for the respondent would further contend that as per the memorandum of articles of association of the first accused-company,

there has to be at least one nominee director on behalf of the ICICI Venture Funds Management Company Ltd., because ICICI was holding more

than 2 per cent. of the equity shares of the first accused-company. Therefore, the so called withdrawal and the resignation have got no validity in

law. Referring to article 21A of the articles of association, learned counsel would contend that these letters cannot be acted upon and it shall be

deemed that the petitioner continued to be a nominee director of the ICICI Venture Funds Management Company Ltd.

In order to substantiate his contention, learned counsel would rely on a judgment of the hon''ble Supreme Court in Harshendra Kumar D. Vs.

Rebatilata Koley Etc., wherein the hon''ble Supreme Court has reiterated the legal position that in a proceeding u/s 482 of the Code of Criminal

Procedure, 1973, the High Court cannot make an oral enquiry and try to resolve the disputed question of facts. In other words, according to

learned counsel, this court can rely only on unimpeachable documents. Learned counsel has also relied on yet another judgment of the hon''ble

Supreme Court in N. Rangachari Vs. Bharat Sanchar Nigam Ltd., , to substantiate his contention that it is sufficient, if it is stated in the complaint

that the accused, being a director, was in charge of the day to day affairs of the company. Learned counsel would further submit that a person

normally having business or commercial dealings with a company, would satisfy himself about its creditworthiness and reliability by looking at the

promoters and board of directors and the nature and extent of its business and its memorandum of articles of association and it may not be

possible for him to personally know about the affairs of the company. Relying on the said observation of the hon''ble Supreme Court, learned

counsel for the respondent would submit that in the case on hand, more particularly, in the records of the Registrar of Companies, the petitioner

has been shown as a director and since there are sufficient averments in the complaint to the effect that she was participating in the day to day

affairs of the company, the complaint in this case cannot be quashed and thus, the petition is liable to be dismissed.

I have, considered the above submissions made on either side and also perused the materials available on record.

At the outset, I have to state that undoubtedly, it is the law that while exercising the inherent power u/s 482 of the Cr.P.C., this court is

required to refer only to undisputed and impeachable documents. If any document is disputed, then the matter should be left open to the parties to

agitate only before the trial court. But in a case where the documents are not unimpeachable inasmuch as the dispute raised by the adverse party

has got some basis, then, this court cannot rely on those documents. For any reason, if the court finds that the dispute in respect of a document is

raised by the adverse party, without there being any supporting material even to support remottedly, such a dispute, then the court cannot decline

to look into the said document. With this legal background, let me now go into the arguments advanced by learned senior counsel for the petitioner

that the petitioner was no more a nominee director of the company on or after January 8, 2009.

Admittedly, the petitioner is not a director of the company on account of any election or on account of her having personal shareholdings of the

first accused-company. Undisputedly, she was only a nominee director. The shareholdings of the first accused-company were held only by another

company known as ""the ICICI Venture Funds Management Company Ltd."". Admittedly, the said company was holding more than 2 per cent. of

the equity share capital of the first accused-company. Therefore, as per article 21A of the memorandum of articles of association of the first

accused-company, the ICICI Venture Funds Management Company Ltd., has got the right to nominate more than one director known as

nominee director"" for the first accused-company. For better understanding, let me now reproduce article 21A of the memorandum of articles of

association of the first accused-company which reads as follows :

21A. (1) Till such time the VC Investors hold at least 2 per cent. of the equity share capital of the company, the VC Investor shall have a right to

appoint and remove from time to time, such number of directors proportionate to their shareholding in the company, subject to a minimum of one

director on the board of directors of the company (such directors are hereinafter referred to as ''nominee directors'').

It is, in tune with the said article and an agreement entered into between the ICICI and the first accused-company on December 1, 2004, the

petitioner and another were nominated by the ICICI as nominee directors of the first accused-company. That is how, the petitioner was functioning

as a nominee director of the first accused-company.

Now, it is the contention of learned senior counsel for the petitioner that she resigned from the nominee directorship of the first accused-

company with effect from January 8, 2009. At page 2 of the typed set of papers, learned senior counsel for the petitioner has produced a letter of

resignation of the petitioner submitted to ICICI Venture Funds Management Ltd., resigning from the nominee directorship of the first accused-

company. Following this letter, letter of withdrawal dated January 8, 2009, was sent by ICICI Venture Funds Management Ltd., to the first

accused-company withdrawing the nomination of the petitioner from the nominee directorship forthwith. Of course, there is no document even to

show that this letter was received by the first accused-company. To this extent, it may appear that the respondent has a case. But, if we look into

the next document, this impression will disappear. In page 3 of the typed set of papers, learned senior counsel for the petitioner has produced

another letter dated January 19, 2009, which was submitted by the ICICI Venture Funds Management Company Ltd., to the Registrar of

Companies for inspection of the court. A copy of the said letter along with the seal of the Registrar of Companies showing acknowledgment of the

same on January 19, 2009, has been produced. The said letter reads as follows :

This is to inform you that we have by our letter dated January 8, 2009 (copy attached) withdrawn the nomination of Ms. Renuka Ramanath and

Mr. Rajeev Bakshi from the board of Subhiksha Trading Services Ltd., with immediate effect. In this regard, two other directors, namely, Mr.

Kannan Srinivasan and Ms. Rama Bijapurkar have by their letters dated December 26, 2008 and January 9, 2009 (copies enclosed) also resigned

from the board of the company with immediate effect.

We request you to take on record the said withdrawal/resignation of directors with immediate effect and acknowledge receipt of the said

withdrawal/resignation letters.

According to learned counsel for the respondent, this letter could have been created for the purposes of this case. But, I find no force in the

said argument for the simple reason that in the original, I find the signature of the Registrar of Companies, Chennai, Tamil Nadu, acknowledging the

receipt of the same on January 19, 2009. The Registrar of Companies, being a public authority, cannot be doubted. I have to presume that the said

letter was received by the Registrar of Companies on January 19, 2009 and such presumption is based on the seal and signature of the Registrar of

Companies. The signature and seal found in the said document alone make this document believable and impeachable. From these facts, it is very

clear that the nomination of the petitioner was withdrawn with effect from January 8, 2009.

Thereafter, on February 5, 2009, the petitioner herself has sent a letter to the board of directors of the first accused-company wherein also she

has reiterated the above. The said letter reads as follows :

I have resigned from the board of Subhiksha Trading Services Ltd. (Subhiksha) with effect from January 8, 2009. This fact has also been intimated

to the board of directors of Subhiksha by ICICI Venture Funds Management Company Ltd., vide their letter dated January 8, 2009, withdrawing

my nomination from the board of Subhiksha with immediate effect, a copy of same is enclosed.

From these three letters, it is crystal clear that the nomination was withdrawn on January 8, 2009 and thereafter, the petitioner ceased to be a

nominee director.

But learned counsel for the respondent would submit that as per clause 21A of the memorandum of articles of association, there has to be at

least one nominee director on behalf of the ICICI Venture Funds Management Company Ltd. In this case, since there was no other nominee

director on behalf of the ICICI company, the so called withdrawal of the petitioner is not valid, he contended. But a perusal and a close reading of

article 21A would go to show that it gives only a right to the venture company, viz., the ICICI Venture Funds Management Company Ltd., to have

a minimum of one nominee director and subject to a maximum number of directors which shall be proportionate to the shareholdings. But it does

not create any liability on the part of the the ICICI Venture Funds Management Company Ltd., to have at least one nominee director. To repeat, I

have to state that it is only the right of the ICICI Venture Funds Management Company Ltd., to have a director and there is no compulsion to have

directors in the first accused-company. Therefore, this contention of learned counsel for the respondent is rejected.

Now coming to the judgments upon which reliance has been made by learned counsel on either side, let me now first refer to S.S. Lakshmana

Pillai Vs. Registrar of Companies and Another, In that case, the foremost question which came up for consideration before this court was as to

whether the resignation of a director of a company governed by the Companies Act requires any acceptance and whether it would take effect from

the date of resignation or from the date of acceptance. Hon''ble Justice Ratnavel Pandian (as he then was) had to elaborately go into various

provisions, more particularly, sections 283 and 284 of the Companies Act as well as the scheme of the Act. At last, his Lordship has found that the

Companies Act is very silent about the resignation of any director. His Lordship has held that because there is no provision governing the

resignation of a director from the board of directors of the company, the resignation is governed by common law principles. In paragraph 28 of the

said judgment, his Lordship has held as follows (page 661):

This letter was acknowledged by the first respondent on June 28, 1973, whereby the first respondent wanted further information as to whether the

resignation has been accepted by the company. Admittedly there is no provision in the memorandum or articles prescribing any condition that the

resignation tendered by a director of a company will take effect after its acceptance by the company or the board of directors. For the above

stated reasons and in the absence of any provision either in the Act or in the memorandum or articles, I am of the view that the director who had

submitted his resignation would be deemed to have resigned from his office from the date of the submission of his resignation, when his intention is

unequivocally expressed either orally or by a letter. A fortiori, in the instant case, the petitioner by his letter dated December 4, 1972, has tendered

his letter of resignation, resigning his directorship from the evening of December 4, 1972, and the said letter has been acknowledged by the first

respondent, the Registrar of Companies and, therefore, I hold that the resignation had taken effect from December 4, 1972 and consequently the

petitioner has ceased to hold the office from the evening of December 4, 1972.

Thus, it is crystal clear that the resignation will take effect from the moment, the resignation letter is sent and the same is later on acknowledged

by the company. Similar view has been taken by the Karnataka High Court as well in Mother Care (India) Ltd. Vs. Prof. Ramaswamy P. Aiyar, .

In paragraph 12 of the said judgment, while considering a similar question, the learned single judge has held as follows (page 249 of 51 SCL) :

As the appointment of a director is not a bilateral character, the question of acceptance of the request to relinquish the office would not arise. Filing

of Form 32 in terms of section 303(2) of the Act is only a consequential act to be performed by the company in obedience to the statutory

provision. If such a form is filed with the Registrar of Companies it is proof of a director ceasing to be a director. But, it is not an act to be

complied with in order to make a resignation valid. Therefore, as the resignation by a director relinquishing his office as such director is of an

unilateral character it comes into effect when the act of such resignation to relinquish the office is communicated to the Board. In law, the Board to

whom the act of relinquishment is communicated is not required to take any action by way of accepting resignation and, therefore, the

relinquishment takes effect from the date of such communication where the resignation is intended to operate in praesenti. In order to make the said

resignation effective, it is not necessary that the Board should accept it. Whether the Board accepts the resignation or not if the resignation is

intended to operate in praesenti the resignation comes into effect when such intention to relinquish the office is communicated to the Board. In that

view of the matter, once a resignation letter is submitted to the Board, the date of which the intention to relinquish is communicated to the Board,

that is the date from which the director ceases to be a director of the company.

From these two judgments, it is very clear that for want of a provision in the Companies Act governing the resignation of a director, it should

be held that the resignation takes effect the moment, the letter of resignation is submitted. Here in this case, a distinction is sought to be made by

learned counsel for the respondent that no resignation letter was sent by the petitioner to the first accused-company. In other words, learned

counsel would contend that the letter dated January 19, 2009, cannot be considered because there is no proof that it was submitted to the first

accused-company. This argument is not acceptable to this court for more than one reason. First of all, the question of resigning from the

directorship will arise, only if, the petitioner happens to be a director and not a nominee director. If he is a nominee director, he is primarily

responsible for the company which nominated him. He may send his resignation to the company which nominated him and even without any such

resignation letter, the company which nominated him will be at liberty to withdraw his nomination. In either event, if a resignation letter is submitted

by a nominee director to the company which nominated him, thereafter it is for that company to act upon the same and to withdraw the nomination

of the nominee director. As there is no provision for resignation by the director, there is no provision for withdrawal also in the Companies Act.

But such withdrawal is governed, in the instant case, by the memorandum and articles of association.

As I have referred to above, under article 21A of the memorandum of articles of association, the ICICI Venture Funds Management

Company Ltd., has got the right to withdraw. The moment, it is withdrawn, as has been held by this court as well as by the Karnataka High Court,

it takes effect forthwith. Thereafter, the nominee director has got no right to insist that he will continue to be the nominee director. The continuance

of his nomination is subject to the pleasure of the company which nominated him. The moment, the pleasure is lost and withdrawal is made by the

company which nominated him, thereafter, he ceases to be a nominee director of that company. In this case, from the letter of withdrawal sent to

the first accused-company and the letter of information sent to the Registrar of Companies, it has been prima facie proved by means of

impeachable documents that the petitioner was not a nominee director of the first accused-company on or after January 8, 2009. Therefore, she is

not liable for punishment u/s 138 of the Act for the alleged offence said to have been committed by the first accused-company subsequent to

January 8, 2009.

Coming to the second ground raised by learned senior counsel for the petitioner that there are no averments in the complaint that the petitioner

was responsible for the day to day affairs of the company, I feel that I need not go deeply into the said question because I am inclined to quash the

proceedings against the petitioner on the first ground itself. In the result, the criminal original petition is allowed and the case in C.C. No. 1916 of

2010 pending on the file of the learned XIV Metropolitan Magistrate, Egmore, Chennai, is hereby quashed in so far as the petitioner alone is

concerned. The trial court is at liberty to proceed with the trial as against the other accused. Consequently, connected miscellaneous petitions are

closed.