Security cheque defence cannot quash a cheque-bounce complaint, but non-executive directors need day-to-day control to be prosecuted.

A complaint under section 138 of the Negotiable Instruments Act could not be quashed at the threshold on the defence that the cheque was issued only as security and liability was disputed, because those are contested factual issues requiring evidence. A parallel civil dispute did not by itself justify quashing where the complaint disclosed an offence. However, prosecution against a nominee director and a lady non-executive director was quashed because the material did not show that they were in charge of, or responsible for, the company's day-to-day affairs. The proceedings continued only against the remaining accused.

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Issues: (i) whether the complaint under section 138 of the Negotiable Instruments Act, 1881 could be quashed at the threshold on the defence that the cheque was issued only as security and that the liability was disputed; (ii) whether the complaint could be quashed qua a nominee director and a lady non-executive director who were not shown to be in charge of the day-to-day affairs of the company.

Issue (i): whether the complaint under section 138 of the Negotiable Instruments Act, 1881 could be quashed at the threshold on the defence that the cheque was issued only as security and that the liability was disputed.

Analysis: The Court reiterated that in proceedings under section 482 of the Code of Criminal Procedure, 1973, disputed factual defences ordinarily cannot be adjudicated at the threshold. Whether the cheque was issued as security, whether there was a subsisting liability, and whether contractual breaches affected the monetary claim were matters requiring evidence. The existence of a possible civil dispute or parallel proceedings did not by itself justify quashing where the complaint disclosed an offence and the defence rested on contested facts.

Conclusion: The complaint could not be quashed on the basis of the security-cheque and disputed-liability defence as against the petitioners who were required to face trial.

Issue (ii): whether the complaint could be quashed qua a nominee director and a lady non-executive director who were not shown to be in charge of the day-to-day affairs of the company.

Analysis: The Court applied the settled principle that criminal liability of directors in a prosecution under section 138 of the Negotiable Instruments Act, 1881 depends on their role in the conduct of the business of the company and their responsibility for its day-to-day affairs. On the admitted and supported material, the petitioner in Special Criminal Application No. 351 of 2018 was a nominee director who had ceased to function in that capacity, and petitioner No. 5 in Special Criminal Application No. 9754 of 2017 was a lady non-executive director not shown to be in charge of the company's daily operations. In such circumstances, continuation of the prosecution against them was unwarranted.

Conclusion: The complaint was quashed qua the nominee director and qua the lady non-executive director.

Final Conclusion: The proceedings were sustained against the remaining accused, but the complaint and all consequential proceedings were set aside for the two directors who were not shown to be responsible for the company's day-to-day management.

Ratio Decidendi: In a prosecution under section 138 of the Negotiable Instruments Act, 1881, disputed factual defences such as the plea that a cheque was issued only as security are not to be decided in quashing proceedings, but directors who are not shown to be in charge of the company's day-to-day affairs cannot be proceeded against merely by virtue of their designation.

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