Quashing Jurisdiction Cannot Be Invoked To Adjudicate Factual Disputes Over Director’s Resignation In Cheque Bounce Cases: Delhi High Court
The court held that whether the Petitioner succeeds in rebutting those presumptions on the standard of preponderance of probability is a matter for the trial court and is not possible under Section 528 BNSS.
Justice Sanjeev Narula, Delhi High Court
The Delhi High Court observed that when a director is a signatory to a dishonoured cheque, their liability cannot be quashed at the threshold by simply claiming they resigned before the cheque was dishonoured, as the timing and genuineness of such a resignation are matters of evidence to be tested at trial.
The Bench of Justice Sanjeev Narula observed, “There is also no dispute that the Petitioner signed the cheques in question. He does not allege that the cheques were issued by any other officer or that his signatures were forged. 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.”
Advocate Sumit Chauhan appeared on behalf of the Petitioner, whereas Advocate Virat K. Anand appeared for the Respondents.
Facts of the case
A few petitions were filed under Section 528 Bharatiya Nagarik Suraksha Sanhita, 20231 impugn the complaints under Sections 138 and 141 of the Negotiable Instruments Act, 1881,2 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.
Contentions of the parties
The Petitioner contended 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.
On the other hand, the Respondent relied on the chronology emerging from the record. It is pointed out that the loan facilities were sanctioned between August, 2021 and November, 2022, when the Petitioner was admittedly a director of the borrowing companies and had executed the loan documentation on their behalf. It was urged that the timing of the resignations, following the onset of default but preceding dishonour of the cheques, is not coincidental.
Observations of the Court
The Court observed, “There is an equally clear line of authorities holding that, where the timing or genuineness of resignation is itself in dispute, and the accused is alleged to have been responsible for the company’s affairs at a legally relevant stage of the transaction, the High Court should be slow to exercise its inherent jurisdiction to quash proceedings.”
It was also held that once execution of the cheques is shown, the presumptions under Sections 118 and 139 of the NI Act operate in favour of the complainant. 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, the Court added.
“In this backdrop, accepting the Petitioner’s plea at this stage would require the Court to enter into a factual adjudication on controverted issues and to treat contested material as conclusive in his favour. That is not the remit of the Court while exercising jurisdiction under Section 528 BNSS in matters arising under Sections 138 and 141 NI Act. The appropriate course is to leave these issues to be tested at trial, where the Petitioner will be at liberty to lead evidence in support of his defence.”, the Court held.
Conclusion
The Court concluded, “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. The trial court shall consider such material, if proved, in accordance with law, uninfluenced by any observation on the merits in this order.”
Accordingly, the Court dismissed the petition.
Cause Title: Dinesh Kumar Pandey v. M/s Singh Finlease Pvt. Ltd. &Anr. [Neutral Citation: 2025:DHC:11999]
Appearances:
Appellant: Advocates Sumit Chauhan and Sushant Kumar
Respondents: Advocates Virat K. Anand, Kumar Shashank, Harish Nadda, Vikalp Singh, Srishty Kaul and Swati Kwatra