TaxTMI 
TaxTMI 
2026 (1) TMI 1507
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.... 5688/2024 titled M/s Progfin Private Limited vs. GBL Chemicals Ltd & Ors. and Complaint Case No. 6285/2024 titled M/s Progfin Private Limited vs. Ganesh Benzoplast Ltd & Ors. respectively under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881. 2. Briefly stated, the case Respondent No. 2/M/s Progfin Private Limited (hereinafter referred to as the 'Complainant'), a Non-Banking Financial Company ('NBFC'), extended a credit facility to Petitioner No. 1 in Crl. M.C. 2155/2025, GBL Chemical Limited (hereinafter referred to as the 'Borrower'). 3. In Crl. M.C. 2156/2025, Petitioner No. 1 Ganesh Benzoplast Limited (hereinafter referred to as the 'Corporate Guarantor'), being the holding Company, stood as a Corporate Guarantor for the said facility. 4. A Facility Agreement dated 26.10.2023 was executed between the parties for a principal amount of Rs. 10,00,00,000/-), which was subsequently enhanced by an Addendum dated 30.01.2024. The Complainant disbursed a total sum of approximately Rs. 21.54 Crores (after margin deductions) to the Borrower. It is alleged by the Complainant that as of 31.03.2024, an amount of Rs. 15,44,80,484/- remained unpaid. To disch....
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....under the Company's standing instructions to its bankers, a valid cheque requires the signatures of two directors, whereas the subject cheques were signed solely by Mr. Ramakant Pilani, without authorization and in violation of the bank mandate. Thus, the Cheques were invalid void ab initio. 12. The Petitioners lodged FIR No. 103/2024 at PS Cuff Parade, Mumbai, and FIR No. 315/2024 at PS Vanrai, Mumbai against Mr. Ramakant Pilani regarding the fraud and forgery. Additionally, the Economic Offences Wing (EOW), Delhi, also registered FIR No. 86/2024 and arrested Mr. Ramakant Pilani, identifying him as the mastermind of the fraud. 13. The Petitioners further contend that since Mr. Ramakant Pilani the signatory of the Cheque has been dropped by the Ld. Trial Court, as he had resigned on 02.04.2024, the other Directors (Petitioner Nos. 2 & 3) cannot be prosecuted vicariously for his fraudulent acts. 14. Petitioner No. 2/Rishi Pilani and Petitioner No. 3/Ramesh Pilani contend they are not signatories to the cheques and had no knowledge of the transaction due to the fraud played by Ramakant Pilani. Reliance is placed on the judgment of the Apex Court in Susela Padmavathi Amma vs ....
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....f Laxmi Dyechem vs. State of Gujarat wherein the Apex Court held that Section 138 NI Act is attracted even when a cheque is dishonored due to signature mismatch, as it is the drawer's responsibility to ensure that the Instrument conforms to the bank's mandate. The Respondent asserts that this is often a deliberate tactic used by drawers to frustrate the realization of payments. 23. It is further submitted that Petitioner Nos. 2 and 3 were the Managing Director and Director, respectively, at the time the debt accrued and the cheques were issued. It is alleged that they were actively involved in the negotiations and were aware of the financial status of the Company. 24. The Respondent submits that the Ld. Trial Court correctly took cognizance against them, based on specific averments in the Complaint that they were "in charge of and responsible for the conduct of the business of the company." 25. Finally, Respondent No. 2 has submitted that the defenses raised, such as the requirement of a "joint signatory," the alleged forgery by Mr. Ramakant Pilani, and the freezing of bank accounts, - are pure questions of fact, which require a full-fledged trial where evidence can be cro....
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....t has failed to provide specific details as to how they were responsible for the day-to-day conduct of business of the Company, in the context of this specific transaction, particularly in light of the documented fraud committed by the CEO. 33. Section 141 of the NI Act deals with offences by companies and stipulates that every person who, at the time the offence was committed, was in charge and responsible for the conduct of the business of the Company, shall be deemed guilty. The law regarding the nature of averments required in a Complaint against the directors, has been settled by the Apex Court, starting from S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla (2005) 8 SCC 89. 34. In the context of a Managing Director/Petitioner No. 2, the Apex Court has held that by virtue of the office, a Managing Director is ex-officio in charge of and responsible for the conduct of the business of the Company. More importantly, the Facility Agreement and Personal Guarantee Deeds bear the signatures of Petitioner No. 2. This creates a direct evidentiary link between the Managing Director and the transaction that led to the issuance of the subject cheques. Therefore, the designation along wit....
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.... Act, even if the statutory expression "in charge of and responsible for the conduct of the business" is not quoted verbatim. 41. The roles of Petitioner Nos. 2 and 3 are sufficiently clearly defined within the statutory framework of Section 141, to warrant a trial. II. Dropping the Signatory, but Summoning the Company: 42. The Petitioners have next asserted that the proceedings against Mr. Ramakant Pilani, the sole signatory and alleged mastermind, has been dropped on the technical ground that he had resigned prior to the presentation of the cheques. It is claimed that if the person who actually signed the cheque is not being prosecuted, then the Company/Accused No. 1 and the other Directors, Accused Nos. 3 & 4, cannot be held vicariously liable. 43. This contention is completely flawed as under Section 138 NI Act; the primary liability is that of the 'Drawer' of the cheque. In the present case, the 'Drawer' is not Mr. Ramakant Pilani in his individual capacity, but the Petitioner Companies (GBL Chemical Limited and Ganesh Benzoplast Limited). The Companies are distinct legal entities that act through their agents/Directors. 44. The Apex Court in the landmark judgme....
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....kant Shankarmal Pilani (Accused No. 2 in the Complaint). He, by using forged Board Resolutions and identity documents, opened a 'sham' Bank Account in the name of GBL Chemical Limited with the State Bank of India (SBI), in which the entire Loan amount was received and the funds were allegedly siphoned off by Mr. Ramakant Pilani for personal gain. No amount came to the account of the Petitioner Company. The Petitioners have thus, sought to avoid their liability by labeling Mr. Ramakant Pilani as the sole 'mastermind', who has cheated the Complainant Company. 53. It has been rightly asserted by the Complainant that any internal mismanagement or fraud committed by the Director of the Petitioner Company, is an inter-se dispute between the Company and its officials, which does not extinguish the Accused Company's liability toward the Complainant. The Petitioners' argument that they were misled or kept in the dark by the CEO/Mr. Ramakant Pilani, is a defense that falls under the Proviso to Section 141(1). 54. Moreover, all these allegations regarding the opening of a 'sham' account at SBI, the forgery of Board Resolutions and the siphoning of funds, are factual defenses which are r....
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....e cheque is returned due to the default of the drawer, in maintaining the account mandate. The Court held: "The dishonour of a cheque on the ground that the signatures of the drawer do not match the specimen signatures available with the bank would, therefore, constitute an offence under Section 138... the drawer cannot by his own omission or commission, such as changing the signature or not matching it, escape the rigors of Section 138." 62. The cheques accepted by the Complainant Company in good faith, believing the signatory who was the CEO and a signatory to the Facility Agreements, cannot be overlooked at this stage of summoning. The Instructions relied upon by the Petitioner, is a document which can be considered only at the stage of evidence. 63. The drawer of the cheque is the Company. Under Section 141 of the NI Act, every person who was in charge of the Company at the time of the offence is deemed guilty. The internal dispute regarding whether Mr. Ramakant Pilani exceeded his authority, is a matter for the Company to settle through its own civil or criminal remedies against him, for which it has already got the FIRs registered, but it does not extinguish th....
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....dated 26.10.2023 and an Addendum dated 30.01.2024, which documents the contractual basis of the debt. They have also provided evidence of disbursement of over Rs 21.54 Crores. The Petitioners' argument that they did not benefit from this disbursement because of internal siphoning, is a matter of corporate audit and criminal investigation by the EOW, but it does not ipso facto invalidate the lender's claim against the Petitioners, at the threshold. 70. The Petitioners also contend that the cheques were issued as "security" and not for a present debt. 71. In I.C.D.S. Ltd vs. Beena Shabeer (2002) 2 SCC 426 and more recently in Sunil Todi vs. State of Gujarat (2021) SCC OnLine SC 1174, the Apex Court clarified that a cheque issued as security, is also covered under Section 138 if the debt becomes due at the time of the cheque's presentation. 72. Therefore, labeling the instrument a "security cheque," does not provide a ground for quashing of the Complaint. 73. As held in HMT Watches Ltd. vs. Abida (2015) 11 SCC 776, the High Court should not express any opinion on the disputed question of whether the debt was legally enforceable or not, in a Petition under Section 482 CrPC,....