The Delhi High Court held that a director who is an admitted signatory to a dishonoured cheque cannot seek quashing of NI Act proceedings by merely claiming resignation, especially when the timing and genuineness of resignation are disputed facts.
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NEW DELHI: The Delhi High Court has dismissed petitions filed by a former director seeking quashing of criminal complaints under Section 138 of the Negotiable Instruments Act, 1881, holding that a director who is an admitted signatory to dishonoured cheques cannot evade prosecution at the threshold merely by claiming resignation, especially when the genuineness and timing of such resignation are disputed.
Justice Sanjeev Narula ruled that where disputed questions of fact arise regarding a director’s continued involvement in the company’s affairs, such issues must be tested during trial and cannot be adjudicated in proceedings under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS).
Background of the Case
The complaints were filed by M/s Singh Finlease Pvt. Ltd., a Non-Banking Financial Company (NBFC), against two borrower companies—South Centre of Academy Pvt. Ltd. and Sampoorn Academy Pvt. Ltd., and their directors, including the petitioner Dinesh Kumar Pandey.
The loans were sanctioned with repayment through equated monthly instalments. According to the complainant, cheques issued towards repayment were dishonoured in March 2024 with the endorsement “funds insufficient”, leading to the issuance of statutory demand notices and initiation of proceedings under Sections 138 and 141 of the NI Act.
Arguments Presented
Petitioner’s Arguments
The petitioner contended that the criminal proceedings were an abuse of process as he had resigned from the directorship of the borrower companies before the dishonour of the cheques. 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.
Placing reliance on Form DIR-12 and MCA records, he argued that since he was not a director at the time of dishonour, he could not be held vicariously liable under Section 141 NI Act.
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Respondent’s Submissions
Opposing the petitions, counsel for the NBFC submitted that the petitioner was a key managerial figure who negotiated the loan facilities, executed loan documentation, and—most importantly—signed the dishonoured cheques.
It was further argued that the resignations were strategically timed shortly after the loan accounts went into default and did not reflect genuine disengagement. According to the respondent, the petitioner continued to exercise control over the companies “from behind the curtain.”
Court’s Analysis
Justice Narula examined the scope of vicarious liability under Section 141 NI Act, reiterating that while mere designation as a director may be insufficient, a cheque signatory stands on a different footing.
Relying on the Supreme Court’s decision in SMS Pharmaceuticals Ltd. v. Neeta Bhalla, the Court observed that a signatory to a cheque is “clearly responsible for the incriminating act” and can be prosecuted even in the absence of detailed averments regarding day-to-day management.
The Court distinguished earlier judgments such as Rajesh Viren Shah v. Redington (India) Ltd. and Adhiraj Singh v. Yograj Singh, noting that in those cases, resignations were undisputed and the accused directors were not signatories to the cheques. 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.”
The Court also noted that resignations occurring shortly after initial loan defaults raised serious doubts about their bona fides and required evidentiary examination.
Dismissing the petitions, the High Court held that the complaints disclosed the essential ingredients of the offence under the NI Act against the petitioner, both as a cheque signatory and prima facie as a person in charge of the companies’ affairs. 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.”
However, the Court clarified that the petitioner remains free to raise all his defences, including the validity and effect of his resignation, during the course of the trial, where they can be adjudicated based on evidence.
Case Title:
Dinesh Kumar Pandey v. M/s Singh Finlease Pvt. Ltd. & Anr. (and connected matters)
CRL.M.C. 8175/2025, 8176/2025, 8177/2025 & 8178/2025
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