TaxTMI 
TaxTMI 
2025 (12) TMI 1545
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....struments Act, 1881 ["the NI Act"], instituted by the Respondent, a Non-Banking Financial Company, in relation to loan facilities extended to two private limited companies. The Petitioner, who was a director of the borrower companies at the time of sanction and execution of the loan agreements and related documentation, has been arrayed as an accused in each complaint. He contends that, having resigned from the Board prior to dishonour of the cheques and the alleged commission of the offence under Section 138 NI Act, he cannot be held vicariously liable under Section 141, and that the summoning orders and consequential proceedings against him deserve to be quashed. Factual background 2. The Respondent, a NBFC, is engaged in advancing loans and other financial facilities. It asserts that it sanctioned and disbursed loan facilities to the following borrower companies: (i) South Centre of Academy Pvt. Ltd. (Criminal Complaints No. 1835/2024 and 1834/2024, impugned in CRL.M.C. 8175/2025 and 8177/2025, respectively); and (ii) Sampoorn Academy Pvt. Ltd. (Criminal Complaints No. 1842/2024 and 1843/2024, impugned in CRL.M.C. 8176/2025 and 8178/2025, respectively). ....
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....emy Private Limited (Annexure A-8 Page No. 71) Cheque No. 000029 dated 12.03.2024 for Rs. 1,12,06,870/- 12.03.2024 (Return Memo-Annexure A-6 Page No. 62) 4. 65 Crl.MC.-8178/2023 17.08.2021 FWDELBL00361 1,50,00,000/- 10.02.2023 01.01.2024 Resigned as director of Sampoorn Academy Private Limited (Annexure A-8 Page No. 73) Cheque No. 000044 dated 12.03.2024 for Rs. 1,63,95,598/- 12.03.2024 (Return Memo-Annexure A-6 Page No. 63)" Petitioner's contentions 6. Counsel for the Petitioner submits that the complaints and summoning orders constitute an abuse of process insofar as they implicate him. It is contended that the cheques in question were dishonoured long after he had resigned from the Board of Directors, and that the offence under Section 138 of the NI Act is complete only upon dishonour of the cheque, issuance of statutory notice, and failure to make payment within the prescribed period. His liability under Section 141, it is urged, must therefore be tested with reference to his status at the time when the offence is deemed to have been committed. Even assuming his involvement at the inception of the loan transaction, or his signature on the loa....
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....rom the affairs of the companies and asserts that, notwithstanding the ROC filings, the Petitioner continued to control the borrower entities "from behind the curtain" and remained effectively in charge when the cheques were issued and dishonoured. These facts, taken with the statutory presumptions under Sections 118 and 139 of the NI Act, are sufficient to justify his arraignment and prosecution. 11. It is argued that the genuineness, timing, and legal effect of the alleged resignations are themselves disputed questions of fact. The Petitioner continued to be actively associated with the management of the borrower companies even thereafter. It is emphasised that the presumptions of issuance in discharge of a legally enforceable debt under Sections 118(a) and 139 NI Act cannot be displaced at the threshold merely by producing Form DIR-12 or resignation letters. If the Petitioner wishes to rely on his claimed cessation from the Board to escape vicarious liability, he must rebut the presumptions by leading evidence and demonstrate that he was not in charge of and responsible for the conduct of the business of the accused companies when the offence was committed. 12. Reliance is....
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....iability of directors and signatories: Case Laws 15. 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. The provision thus embodies two distinct though overlapping routes to liability: (a) persons who, at the time the offence was committed, were in charge of and responsible for the conduct of the company's business; and (b) persons whose personal culpability is alleged on the basis of consent, connivance, or neglect in relation to the commission of the offence, irrespective of their role in the day-to-day management of the company. 16. In SMS Pharmaceuticals Ltd. v. Neeta Bhalla and Anr. (2005) 8 SCC 89, a three-Judge Bench held that a bare assertion in the complaint that a person is a director is insufficient to fasten....
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....y of cases. 20. In a recent decision, the Supreme Court in Adhiraj Singh v. Yograj Singh & Others 2024 SCC OnLine SC 5558, where the Court was dealing with a director who had admittedly resigned prior to the issuance of the cheques in question. The factum and timing of his resignation were not in dispute, and the cheques were signed by another authorised signatory on behalf of the company. On those admitted facts, the Supreme Court held that, at the time the offence under Section 138 NI Act was committed, the appellant was no longer connected with the company's affairs and could not, therefore, be treated as a person in charge of and responsible for the conduct of its business so as to attract Section 141. The quashing of proceedings in that case thus turned on a clear and undisputed record of complete disengagement before the very inception of the cheque transactions. 21. In Rajesh Viren Shah v. Redington (India) Ltd. 2024 INSC 111 the same principle was applied in favour of former directors who had resigned long before issuance of the cheques. Their resignations stood recorded in Form 32, the statutory records of the company had been duly updated, and, significantly, the co....
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....25. In Nishant Mukul v. Nischal Aggarwal 2025 SCC OnLine Del 6432, this Court declined to quash complaints under Sections 138 and 141 of the NI Act where the petitioner-director relied on subsequent resignation and corporate filings, but the record disclosed that he was a director at the time of issuance of cheques and the material regarding resignation was not unimpeachable. The Court held that questions concerning the effect of resignation, petitioner's responsibility for the conduct of the company's affairs, and applicability of Section 141 involved disputed questions of fact which ought to be examined at trial and not adjudicated in proceedings under Section 482 CrPC. 26. In N. Rangachari v. Bharat Sanchar Nigam Ltd. N. Rangachari v. BSNL, (2007) 5 SCC 108, the Supreme Court clarified that while vicarious liability under Section 141 NI Act must be strictly construed, the provision is not to be read so narrowly as to defeat its object. Where the complaint contains the requisite averments that the accused was in charge of and responsible for the conduct of the company's business, and the accused is shown to have been a director who participated in the transaction in question, ....
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.... towards repayment. On this basis, vicarious liability is sought to be fastened under Section 141 NI Act. These pleadings meet the basic requirement identified in SMS Pharmaceuticals and National Small Industries Corporation, and the Petitioner does not contend that the complaints are defective on this score or that the companies have not been arraigned as accused. 31. The Petitioner's defence rests essentially on his claimed resignations and the corresponding filings in Form DIR-12 and MCA extracts. He contends that by the time the cheques were dishonoured and the cause of action under Section 138 crystallised, he had demitted office and ceased to be responsible for the affairs of the borrower companies. He also relies on decisions such as Rajesh Viren Shah and Adhiraj Singh to argue that such documentary material amounts to unimpeachable evidence warranting quashing at the threshold. 32. The present record does not, however, place the case in the narrow category where such relief is ordinarily granted. The chronology is important. In two of the loan accounts, the first defaults are reflected in February and April 2023. The Petitioner's resignations from the related borrower....
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....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. 36. Further, once execution of the cheques is shown, the presumptions under Sections 118 and 139 NI Act operate in favour of the complainant. As explained in Kalamani Tex, these presumptions extend not only to consideration but also to the existence of a legally enforceable debt or liability. Whether the Petitioner succeeds in rebutting those presumptions on the standard of preponderance of probability is a matter for the trial court after both sides have led evidence. It is not possible, in a petition under Section 528 BNSS, to pre-judge that contest. 37. Lastly, as clarified in S.P. Mani & Mohan Dairy, the offence under Section 138 is a composite one, consisting of several steps from drawing of the cheque up to the failure to pay after notice. For the purposes of Section 141, responsibility is not frozen to the precise date of dishonour alone. Persons who were in charge of and responsible for the conduct of the company's business at different legally relevant stages of the transaction may be proceeded against. ....