2025 (12) TMI 1545 - HC - Indian Laws

Resigned director's role in company cheques: basic 'in charge' averments or signatory status kept dishonour case alive

Liability of a resigned director for cheque dishonour under ss. 138/141 NI Act was considered, including whether proceedings could be interdicted at the ... Dishonour of Cheque - vicarious liability of the director of the borrower companies, who has resigned prior to the date of offence - power to interdict proceedings - HELD THAT:- Section 141 NI Act deals with offences by companies. Sub-section (1) fastens liability on “every person who, at the time the offence was committed, was in charge of, and responsible to, the company for the conduct of its business”, in addition to the company itself. Sub-section (2) further provides that where the offence is committed with the consent or connivance of, or due to negligence by, any director, manager, secretary or other officer of the company, such person is deemed to be guilty. In SMS Pharmaceuticals Ltd. v. Neeta Bhalla and Anr. [2005 (9) TMI 304 - SUPREME COURT], a three-Judge Bench held that a bare assertion in the complaint that a person is a director is insufficient to fasten liability under Section 141(1) NI Act. The complaint must contain basic averments that, at the time of commission of the offence, such person was in charge of and responsible for the conduct of the company’s business. At the same time, the Court clarified that no elaborate particulars are needed where the accused is a managing director or joint managing director, since their very office carries a presumption of responsibility. It was further observed that the signatory of the cheque “is clearly responsible for the incriminating act” and can be prosecuted even without detailed averments as to day-to-day control. In such cases, the statutory presumptions under Sections 118 and 139 NI Act operate in favour of the complainant, leaving it to the accused to rebut them at trial. Quashing complaints under Section 141 - unimpeachable evidence standard - HELD THAT:- In Gunmala Sales (P) Ltd. v. Anu Mehta [2014 (12) TMI 1116 - SUPREME COURT], the Supreme Court held that where the complaint contains the basic averment that an accused director was in charge of and responsible for the conduct of the company’s business, the proceedings ought not to be quashed at the threshold. An exception was recognised where the director places on record unimpeachable and incontrovertible material showing that he could not have had any role in the conduct of the company’s business at the relevant time. Even then, such power is to be exercised with caution and in a narrow category of cases. It also emerges from the record, as noticed by the courts below, that the Petitioner has not taken a consistent stand regarding the issuance of the cheques, while at the same time relying on his resignation and corporate filings to avoid liability. The circumstances in which the cheques were issued, the nature of his role when the credit facilities were availed and when the cheques were drawn, and the degree of his continuing involvement in the companies’ affairs are all fact-intensive questions that must be tested in evidence - Further, once execution of the cheques is shown, the presumptions under Sections 118 and 139 NI Act operate in favour of the complainant. The impugned complaints and summoning orders disclose the basic ingredients of an offence under Section 138 read with Section 141 NI Act against the Petitioner, both as a signatory to the cheques and prima facie as a person alleged to have been in charge of the companies’ affairs at the relevant time. The material relied upon by the Petitioner does not meet the exacting threshold required to invoke the extraordinary jurisdiction under Section 528 BNSS to scuttle the prosecution at its very inception. The Petitioner will remain at liberty to demonstrate that he had genuinely stepped out of the management, that his signatures were obtained in circumstances disentitling the complainant from invoking Section 141 against him, or that he otherwise discharges the burden cast upon him by the statutory presumptions. Petition dismissed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether proceedings under Sections 138 and 141 of the Negotiable Instruments Act, 1881 could be quashed at the threshold under Section 528 BNSS on the ground that the accused director had resigned before dishonour of the cheques and issuance of statutory notice. (ii) Whether Form DIR-12/MCA master data reflecting cessation of directorship constituted 'unimpeachable, incontrovertible material' sufficient to dislodge the complaints' foundation, where the complainant disputed the genuineness/effect of resignation and alleged continued control, and the accused was the signatory of the cheques. (iii) Whether, on the pleadings and admitted signing of the cheques, the complaints and summoning orders disclosed the basic ingredients of an offence under Section 138 read with Section 141 NI Act against the accused, such that disputed factual questions had to be left for trial in view of statutory presumptions under Sections 118 and 139 NI Act. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Quashing at threshold on the basis of resignation prior to dishonour/notice Legal framework: The Court stated that at the quashing stage it may interdict proceedings only where, even accepting the complaint averments in full, the basic ingredients are not disclosed, or where 'unimpeachable, incontrovertible' material completely dislodges the accusation. It reiterated that Section 138 comprises a sequence of acts (drawing, presentation, dishonour, notice, and non-payment), and that Section 141 fastens liability on persons who, at the time the offence was committed, were in charge of and responsible for the company's business, and also separately on those whose consent/connivance/neglect is alleged. Interpretation and reasoning: The Court held that responsibility for Section 141 purposes is not to be 'frozen' only to the date of dishonour, because Section 138 is a composite offence involving multiple legally relevant stages. The Court found that deciding whether resignation insulated the accused would require adjudicating contested facts about the timing, bona fides, and effect of resignation, and about continued involvement in the companies' affairs-matters not suitable for determination in Section 528 BNSS proceedings. Conclusion: The Court refused to quash on the resignation plea, holding that the case did not fall within the narrow category where threshold quashing is warranted on clear, undisputed disengagement. Issue (ii): Whether DIR-12/MCA records were unimpeachable exculpatory material in the present facts Legal framework: The Court applied the 'unimpeachable and incontrovertible material' standard for quashing, emphasizing that competing versions are not to be weighed and evidence is not to be evaluated as at trial. Interpretation and reasoning: While acknowledging that DIR-12/MCA extracts may be genuine corporate records, the Court noted that the complainant disputed their timing and legal effect and alleged the accused continued to control/influence the borrower entities 'from behind the curtain.' The Court also relied on the chronology: defaults arose before/around the recorded resignations, with one resignation being very close to the first default date, supporting the complainant's contention that the resignations could be a device after the accounts slipped into default. Because these aspects directly affected whether the accused was 'in charge of and responsible' during the relevant period (issuance/presentation/dishonour/non-payment), the Court held the material could not be treated as unimpeachable exculpatory evidence at the threshold. Conclusion: DIR-12/MCA filings, in the face of a live dispute on bona fides/effect and alleged continued control, did not satisfy the exacting standard required to quash the prosecution at inception. Issue (iii): Sufficiency of complaint averments and effect of cheque-signatory status and statutory presumptions Legal framework: The Court noted that for Section 141(1) the complaint must contain basic averments that the accused was in charge of and responsible for the conduct of business at the relevant time; and that a cheque signatory occupies a distinct position. The Court further held that once execution of cheques is shown, presumptions under Sections 118 and 139 NI Act operate in favour of the complainant, and rebuttal on a preponderance of probability is a matter for trial. Interpretation and reasoning: The Court found the complaints specifically attributed to the accused (a) being in charge/responsible for the companies' business, (b) negotiating loan facilities, (c) executing documents, and (d) signing the cheques. It emphasized there was no dispute that the accused signed the cheques and did not allege forgery or signing by another. Given these pleadings and the cheque-signatory role, the complaints disclosed the basic ingredients of offences under Section 138 read with Section 141. The Court held that the accused's defence (resignation and lack of responsibility; circumstances of issuance; alleged inconsistency regarding issuance) was fact-intensive and could only be tested through evidence, especially in light of the statutory presumptions. Conclusion: The Court upheld the summoning/orders and declined quashing, holding that the complaints disclosed the requisite ingredients against the accused as cheque signatory and as a person alleged to be responsible at relevant stages; rebuttal and factual determination were left to trial.