ALIBABA NABIBASHA V. SMALL FARMERS AGRI-BUSINESS CONSORTIUM & ORS.

 

CASE NAME	ALIBABA NABIBASHA V. SMALL FARMERS AGRI-BUSINESS CONSORTIUM & ORS. (DELHI, HC)
CITATION	CRL.MC. 1602/2020
COURT	Delhi High Court
BENCH	Justice V Kameshwar Rao
PETITIONER	Alibaba Nabibasha
RESPONDENT	Small Farmers Agri-Business Consortium & Others.
DECIDED ON	September 23, 2020

INTRODUCTION 

The case of ALIBABA NABIBASHA V. SMALL FARMERS AGRI-BUSINESS CONSORTIUM & ORS. was related to the quashing of complaints that were filed against the petitioner, Alibaba Nabibasha. It serves as an important analysis of the liability of directors after their resignation from the Company. The provisions which were involved in this case were – Section 141 of The Negotiable Instrument Act dealing with procedures related to dishonoring of cheques which the Company drew, Section 13 of the Negotiable Instrument Act stating that no individual can be held liable if he proves his non-involvement in the offense, and Section 168 of Companies Act, 2019 which provides that directors who have already resigned can be held liable for offenses which happened during their tenure. This case also touched upon the principle of vicarious liability which provides that directors are liable for the actions which they took during their directorship.  However, in this case, it was noted that this liability cannot be extended in cases where the Director has already resigned and is no longer involved in the operations carried on by the Company. The Delhi High Court, in this case, cleared questions related to allegations holding individuals liable for actions in the corporate sector and whether liability will arise out of it or not. The understanding of responsibilities and of directors is crucial as businesses operate in complex financial structures. This case helps to clarify the legal duties of directors and the liabilities that they can face because of their participation in the conduction of the affairs of the company. The case of Alibaba Nabibasha v. Small Farmers Agri-Business Consortium & Ors. Contributes to understanding liability in the corporate sector and sets important precedents for cases involving similar legal issues.

FACTS

In this case, the petitioner, Alibaba Nabibasha, served as a Non-Executive Director of the Small Farmers Agri-Business Consortium from October 7, 2009, to October 27, 2010. The Company initiated proceedings against Nabibasha under Section 138 of the Negotiable Instruments Act and blamed him for being responsible for the dishonor of 5 cheques whose combined amount was Rs. 45 Lakhs. These cheques were issued by the respondent company in order to dispense the debt related to the funding of venture capital. The cheques that were dishonored were made because the funds were insufficient. It was argued that Nabibasha was a key player in arranging this venture capital, and he had been part of the meetings that decided the agreement for funding. After the cheques were dishonored, all the directors who were accused were served legal notices, including the petitioner, i.e., Nabibasha. Alibaba Nabibasha filed a petition in the High Court of Delhi and gave the argument that the actions for which he was held liable were carried on after he resigned from the Company and was no longer a part of it. He stated that he was not involved in any financial activities of the Company after his retirement, and the legal notice which was served to him failed to provide specific allegations on whose grounds he could be held liable. They could not prove that he was part of the decisions related to the issuance of the dishonored cheques. This case raised crucial issues related to the liability of a director in corporate governance, especially after his retirement under the Negotiable Instruments Act.

ISSUE RAISED

1. Whether the director who had already retired from his position at the company could be held liable for any checks issued after he retired and was not involved in its functioning.
2.  Whether the complaints that were filed against Nabibasha did not contain proper details and failed to clearly show how Nabibasha was actually involved in the conduct of the Company when the dishonored checks were issued.
3.  The issue of proper legal notice given to Nabibasha regarding the cheques that were dishonored was also raised.

PETITIONER'S ARGUMENTS (Alibaba Nabibasha)

• The plaintiff argued that he retired from his position as director of the Company on 27th October 2020, 8 years before the issuance of the dishonored cheques in question. Thus, he argued that he was not part of the company’s activities and, according to the established legal principles, a retired director could not be held liable for the dishonor of a cheque. 
• The plaintiff contended that the complaints that were made against him did not have enough details and lacked specific allegations. It contained only general statements, which were not enough to make him liable under Section 141 of the Negotiable Instruments Act.
• The plaintiff maintained that several Supreme Court rulings clarified that being a director in a Company does not automatically make someone liable for actions of the company unless it is proved that there is specific involvement of that individual.

RESPONDENT'S ARGUMENTS (Small Farmers Agri-Business Consortium)

1. The defendants argued that Nabibasha was involved in bringing capital funding for the company was also involved in discussions related to financial liabilities and agreements. This shows that he was related to transactions related to issuing the cheques.
2. The defendants asserted that Section 141 of the Negotiable Instruments Act provides that the director, i.e., Nabibasha, can be held vicariously liable for acts of the Company as his previous position made him accountable for the actions taken when he was part of the Company.
3. The defendants also stated that if Nabibasha is allowed to escape liability, the accountability standards associated with the directors of the Company will be seriously impacted.

JUDGEMENT

The judgement in this case was delivered by the Delhi High Court on September 23, 2020. Key issues related to the liability of a director who is no longer part of the company were examined under the Negotiable Instrument Act of 1881. Justice V. Kameshwar Rao, who presided over the court, gave the decision in favor of the petitioner, Alibaba Nabibasha, and ordered the quashing of the complaints that were filed against him under Section138 in relation to the dishonor of the cheques issued to the Company. The court put emphasis on the fact that Alibaba Nabibasha had already resigned from his position as a Non-Executive Director of the company before the issuance of the cheques. His resignation was due to his following all the rules and regulations and being duly notified. It ruled that it would be unfair to make him liable because he was not part of the financial activities incurred by the company after his resignation. The complaints made against him also failed to clearly state what offenses he had done or how he was part of the process related to the dishonored cheques. Thus, no evidence was provided that proves that Alibaba Nabibasha, in his position as Non-Executive Director of the Company, was related to the dishonored cheques after his retirement. The court also went on to highlight that only the fact that Alibaba Nabibasha was an ex-director of the company was not enough to establish his liability in the case of the dishonored cheques issued after his retirement. The judgment made in this case highlighted the importance of backing up the complaints with concrete details and evidence in order to hold someone accountable under the law and establish his liability.   CONCLUSION   The case of Alibaba Nabibasha v. Small Farmers Agri-Business Consortium & Ors. serves as an important precedent which clarifies queries related to the legal responsibilities of the Directors and liabilities arising out of it under the Negotiable Instruments Act,1881. The Delhi High Court, in this judgement, underscored the fact that a director who has already formally resigned from a Company and is no longer part of its day to day functioning, cannot be held liable for the actions carried on by the Company after his retirement because he does not has any accountability for actions of which he was not a part. This was important as it will maintain the fairness in governance of corporate sector and also protect individuals from unnecessary legal repercussions for acts in which they were not involved.   The Court also made it clear that only statement that an individual is involved in financial affairs of a Company is not sufficient to establish his liability under Section 141 of the Negotiable Instrument Act. There should be presence of specific allegations backed by substantial evidence explaining how that individual was part of or responsible for conduct of the Company’s business at time of occurrence of the offence. Concrete evidence must be provided in order to hold someone accountable and reliance on mere assertions cannot sustain because legal actions require facts and proof.   This case is a reminder of the importance of following the due process in corporate law in order to protect the directors from being framed in unnecessary financial misconduct after they have retired and are no longer a part of the Company. Quashing of the complaints against Nabibasha saved him from unfair legal troubles and also set a precedent which would influence similar issues related to liability of directors. The discourse in accountability in corporate sector is clarified in this case while a just and transparent framework, to determine the extent of liability the directors will have to bear in relation to financial operations of a Company, is established.