The Delhi High Court has dismissed a batch of petitions filed by a former director seeking to quash criminal complaints instituted against him under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). The Court held that where a director is an admitted signatory to the dishonoured cheques and the genuineness or effect of his resignation is disputed, the proceedings cannot be interdicted at the threshold under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS).
Justice Sanjeev Narula presided over the case regarding complaints filed by M/s Singh Finlease Pvt. Ltd., a Non-Banking Financial Company (NBFC), against two borrower companies and their directors. The Petitioner, Dinesh Kumar Pandey, sought the quashing of the summoning orders, contending that he had resigned from the directorship of the borrower companies prior to the dishonour of the cheques. The High Court rejected this plea, observing that the Petitioner was a signatory to the cheques and his resignation timing vis-à-vis the loan defaults raised disputed questions of fact that must be tested at trial.
Background of the Case
The Respondent, M/s Singh Finlease Pvt. Ltd., had extended loan facilities to two companies: South Centre of Academy Pvt. Ltd. and Sampoorn Academy Pvt. Ltd. The loans were to be repaid in equated monthly instalments. The Respondent alleged that the cheques issued towards the discharge of these liabilities were dishonoured upon presentation in March 2024 with the remark “funds insufficient.”
Consequently, the Respondent issued statutory demand notices and subsequently filed complaints under Section 138 read with Section 141 of the NI Act. The Petitioner, who was a director at the time of the loan sanction and execution of documents, was arrayed as an accused.
Arguments of the Parties
The Petitioner contended that the complaints were an abuse of process as the cheques were dishonoured long after he had resigned from the Board of Directors. He claimed to have resigned from South Centre of Academy Pvt. Ltd. on April 1, 2023, and from Sampoorn Academy Pvt. Ltd. on January 1, 2024. Relying on Form DIR-12 and Ministry of Corporate Affairs (MCA) records, he argued that since he had demitted office before the cheques were dishonoured in March 2024, he could not be held vicariously liable under Section 141 of the NI Act.
Conversely, the Counsel for the Respondent argued that the Petitioner was a key director who negotiated the facilities and signed the loan documents. Crucially, it was pointed out that the Petitioner was the signatory of the cheques in question. The Respondent highlighted that the alleged resignations occurred shortly after the loan accounts first went into default in early 2023, suggesting that the resignations were not genuine disengagements but an attempt to escape liability while continuing to control the companies “from behind the curtain.”
Court’s Analysis
The Court examined the scope of Section 141 of the NI Act, which fastens vicarious liability on persons in charge of and responsible for the conduct of the company’s business. Justice Narula observed that while a bare assertion of directorship is often insufficient, a person who signs a cheque on behalf of a company occupies a “distinct position.”
Referring to the Supreme Court’s decision in SMS Pharmaceuticals Ltd. v. Neeta Bhalla, the Court noted that a signatory “is clearly responsible for the incriminating act” and can be prosecuted even without detailed averments regarding day-to-day control.
The Court distinguished the present case from precedents like Rajesh Viren Shah v. Redington (India) Limited and Adhiraj Singh v. Yograj Singh, where proceedings were quashed because the resignations were undisputed and the directors were not signatories.
Justice Narula observed:
“The Petitioner’s admitted role in negotiating the loans, executing the documentation and signing the cheques, coupled with the disputed nature and timing of his resignations, takes the matter outside the narrow class of cases where quashing has been permitted on the strength of unimpeachable exculpatory material.”
The Court found that the timing of the resignations—occurring shortly after the initial defaults—raised questions about their bona fides. The judgment stated that whether the resignations reflected a genuine disengagement or a “self-serving attempt to insulate the Petitioner” is a live factual issue.
The Court further held:
“A director who is a signatory to the cheque occupies a distinct position and the extent of his continuing association with the company’s business when the underlying transactions were carried out is a matter of evidence. Those issues cannot be adjudicated in proceedings invoking the Court’s quashing jurisdiction.”
Decision
The High Court concluded that the complaints disclosed the basic ingredients of the offence against the Petitioner, both as a signatory to the cheques and prima facie as a person in charge of the companies’ affairs.
Dismissing the petitions, the Court ruled:
“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 Court clarified that the Petitioner is at liberty to raise his defences regarding his resignation and lack of control over the company during the trial, where they can be tested on the basis of evidence.
Case Details:
- Case Title: Dinesh Kumar Pandey v. M/s Singh Finlease Pvt. Ltd. & Anr. (and connected matters)
- Case Number: CRL.M.C. 8175/2025, 8176/2025, 8177/2025 & 8178/2025
- Coram: Justice Sanjeev Narula
- Counsel for Petitioner: Mr. Sumit Chauhan, Mr. Sushant Kumar, Advocates.
- Counsel for Respondents: Mr. Virat K. Anand, Mr. Kumar Shashank, Mr. Harish Nadda, Mr. Vikalp Singh, Ms. Srishty Kaul, Ms. Swati Kwatra, Advocates.
