Mr. Sumit Chauhan, Mr. Sushant Kumar, Advocates v. M/S SINGH FINLEASE PVT. LTD. ANR

Through: Mr. Sumit Chauhan, Mr. Sushant Kumar, Advocates. versus M/S SINGH FINLEASE PVT. LTD. .....Respondent Through: Mr. Virat K. Anand, Mr. Kumar Shashank, Mr. Harish Nadda, Mr. Vikalp Singh, Ms. Srishty Kaul, Ms. Swati Kwatra, Advocates. CORAM: HON’BLE MR. JUSTICE SANJEEV NARULA JUDGMENT SANJEEV NARULA, J.:

1. These petitions under Section 528 Bharatiya Nagarik Suraksha Signature Not Verified Dgitally Signed By:ANITA BAITAL Signing Date:25.12.2025 17:12:08 CRL.M.C. 8175/2025 & connected matters Page 2 of 19 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. 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).

3. The loan amounts were to be repaid in equated monthly instalments with interest, in terms of the respective amortisation schedules. The Respondent alleges that the cheques issued towards discharge of these 1 “BNSS” 2 “the NI Act” Signature Not Verified Dgitally Signed By:ANITA BAITAL Signing Date:25.12.2025 17:12:08 CRL.M.C. 8175/2025 & connected matters Page 3 of 19 liabilities were dishonoured on presentation with the remark “funds insufficient”. Statutory demand notices under Section 138 NI Act were issued on 22nd March, 2024 and dispatched on 1st April, 2024. As the borrower companies and the accused persons did not make payment within the statutory period of 15 days, the Respondent instituted the present complaints under Section 138 NI Act against the companies, the Petitioner, and other accused.

4. The Petitioner was a director of the borrower companies when the loan facilities were sanctioned, the documents executed, and the cheques in question issued. He is also the signatory of those cheques. His case, however is that he resigned from the Board of Directors prior to the dates of dishonour, with effect from 1st April, 2023 in respect of South Centre of Academy Pvt. Ltd., and with effect from 1st January, 2024 in respect of Sampoorn Academy Pvt. Ltd. He places reliance on Form DIR-12 and the company master data on the Ministry of Corporate Affairs portal to show that these resignations were duly recorded in the statutory corporate records.

5. The dates of resignation vis-(cid:224)-vis the dates of cheque dishonour in the present batch are broadly as under: “S. No. Item No. Crl.MC. Date of Loan, Loan No. and Loan Amount

1. 62 Crl.MC.- 5

10.06.2022 FWDELBL0037 3 Rs. 50,00,000/- Date of First default Loan 10.09.2 023

2. 63 Crl.MC.- 5

16.07.2022 FWDELBL0037 5

10.04.2 023 Date Resignation the Petitioner Particulars of Cheque Date Dishonour of Cheque

01.04.2023 Resigned director of South Center Academy Private Limited (Annexure A-8 Page No. 71) 01.01.2024 Resigned director Cheque No. 000012 dated 12.03.2024 for Rs. 54,90,827/-

12.03.2024 (Return Memo- Annexure A-6 Page No. 62) Cheque No. 000039 dated 15.03.2024 for

15.03.2024 (Return Memo- Signature Not Verified Dgitally Signed By:ANITA BAITAL Signing Date:25.12.2025 17:12:08 CRL.M.C. 8175/2025 & connected matters Page 4 of 19 Rs. 1,50,00,000/-

3. 64 Crl.MC.- 5

29.11.2022 FWDELBL0038 1 Rs, 1,00,00,000/-

10.04.2 023

4. 65 Crl.MC.- 3

17.08.2021 FWDELBL0036 1 1,50,00,000/-

10.02.2 023 Rs. 1,62,41,182/- Annexure A-6 Page No. 63) Cheque No. 000029 dated 12.03.2024 for Rs. 1,12,06,870/-

12.03.2024 (Return Memo- Annexure A-6 Page No. 62) Cheque No. 000044 dated 12.03.2024 for Rs. 1,63,95,598/-

12.03.2024 (Return Memo- Annexure A-6 Page No. 63)” Sampoorn Academy Private Limited (Annexure A-8 Page No. 73) 01.04.2023 Resigned director of South Center Academy Private Limited (Annexure A-8 Page No. 71) 01.01.2024 Resigned director Sampoorn Academy Private Limited (Annexure A-8 Page No. 73) 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 loan documents or cheques, the position does not change. Once it is shown that he had demitted office prior to the dates of dishonour and notice, he cannot be treated as a person in charge of or responsible for the conduct of the company’s business. The continuation of the proceedings against him is, therefore, unsustainable. Signature Not Verified Dgitally Signed By:ANITA BAITAL Signing Date:25.12.2025 17:12:08 CRL.M.C. 8175/2025 & connected matters Page 5 of 19

7. It is urged that the petitioner’s resignation is borne out from unimpeachable, public records: the resignation letter tendered to the Board, Form DIR-12 filed with the MCA, and the certified MCA portal extracts reflecting cessation of his directorship with effect from that date. Receipts issued by the MCA acknowledging the filing of Form DIR-12 and the certified copy of the master data are relied upon to show that the fact of resignation is a matter of record and not in serious dispute.

8. In support, reliance is placed on the decision of the Supreme Court in Rajesh Viren Shah v. Redington (India) Limited,3 where the Court, on broadly similar facts, quashed proceedings against a former director whose resignation had preceded the date of the alleged Section 138 offence, holding that the sine qua non for vicarious liability under Section 141 is that the accused must be in charge of and responsible for the conduct of the business at the time the offence is committed. Respondent’s contentions

9. On the other hand, counsel for the Respondent relies 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. The first defaults occurred in early 2023. The resignations now relied upon, as reflected in Form DIR- 12, took effect only with effect from 1st April, 2023 or 1st January, 2024, whereas the cheques towards repayment, bearing dates in March, 2024, were subsequently presented and dishonoured.

10. On this basis, it is urged that the timing of the resignations, following Signature Not Verified Dgitally Signed By:ANITA BAITAL Signing Date:25.12.2025 17:12:08 CRL.M.C. 8175/2025 & connected matters Page 6 of 19 the onset of default but preceding dishonour of the cheques, is not coincidental. The Petitioner has been a key director of group companies with common directors, who negotiated the facilities, signed the loan documents, and is one of the signatories to the cheques issued towards discharge of liability. There is no genuine disengagement from 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 placed on the judgment of this Court in Vishal Arora v. Yes Bank Limited,4 where a similar plea of resignation was rejected at the 3 2024 INSC 111 4 (2023) 21 Comp Cas-OL 65 Signature Not Verified Dgitally Signed By:ANITA BAITAL Signing Date:25.12.2025 17:12:08 CRL.M.C. 8175/2025 & connected matters Page 7 of 19 quashing stage, and it was held that disputes regarding the authenticity and effect of resignation, in the face of statutory presumptions, ought to be left to be tested at trial. It is pointed out that the said decision has not been interfered with by the Supreme Court in SLP (Crl.) No. 2302/2023, which was dismissed on 27th February, 2023. Reliance is also placed on Kalamani Tex & Anr. v. P. Balasubramanian,5 to emphasize that the presumptions under Sections 118 and 139 NI Act are robust; once the issuance of the cheque is admitted or established, the burden squarely shifts to the accused, and self-serving material, without substantive evidence, is insufficient to rebut the presumption. In these circumstances, it is contended that the Petitioner’s plea of resignation and lack of responsibility cannot be accepted on affidavit at the Section 528 BNSS stage, and that the alleged resignations must be tested in evidence before the Trial Court. Analysis

13. In respect of complaints under Sections 138 and 141 NI Act, the power to interdict proceedings at the threshold is narrowly confined. It may be exercised where, even if the averments in the complaint are accepted in full, the basic ingredients of the offence are not disclosed against the accused, or where unimpeachable, incontrovertible material placed on record completely dislodges the factual foundation of the accusation. It is not a stage at which competing versions are weighed on probabilities or evidence is examined as in a trial. Section 138: essential ingredients

14. Section 138 NI Act creates a specific offence where a cheque drawn by a person on an account maintained by him is returned unpaid for 5 (2021) 5 SCC 283 Signature Not Verified Dgitally Signed By:ANITA BAITAL Signing Date:25.12.2025 17:12:08 CRL.M.C. 8175/2025 & connected matters Page 8 of 19 insufficiency of funds or because it exceeds the arrangement, and the drawer fails to pay within the stipulated period after statutory notice. The offence comprises five components: (i) drawing of the cheque; (ii) presentation of the cheque to the bank; (iii) return of the cheque unpaid; (iv) issuing a notice in writing demanding payment within the prescribed time; and (v) failure of the drawer to make payment within fifteen days of receipt of such notice. Section 141 - vicarious liability 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.,6 a three- Judge Bench held that a bare assertion in the complaint that a person is a director is insufficient to fasten liability under Section 141(1) NI Act. The complaint must contain basic averments that, at the time of commission of the offence, such person was in charge of and responsible for the conduct of Signature Not Verified Dgitally Signed By:ANITA BAITAL Signing Date:25.12.2025 17:12:08 CRL.M.C. 8175/2025 & connected matters Page 9 of 19 the company’s business. At the same time, the Court clarified that no elaborate particulars are needed where the accused is a managing director or joint managing director, since their very office carries a presumption of responsibility. It was further observed that the signatory of the cheque “is clearly responsible for the incriminating act” and can be prosecuted even without detailed averments as to day-to-day control. In such cases, the statutory presumptions under Sections 118 and 139 NI Act operate in favour of the complainant, leaving it to the accused to rebut them at trial.

17. In National Small Industries Corporation Ltd. v. Harmeet Singh Paintal,7 the Supreme Court reiterated that Section 141, being a provision on vicarious liability, must be strictly construed. Mere designation as a director, in the absence of specific allegations about role and responsibility, is not enough. Directors who are neither managing directors nor signatories, and against whom no role in day-to-day affairs is pleaded, cannot be impleaded on the strength of omnibus assertions. By contrast, a person who signs the cheque on behalf of the company occupies a distinct position. Such a signatory is directly involved in the act that leads to dishonour, and his role, in principle, falls within the sweep of Section 141, subject to any defence he may establish at trial. Quashing complaints under Section 141: “unimpeachable evidence” standard

18. Against this statutory backdrop, the contours of when quashing is permissible have been clarified in a line of decisions of the Supreme Court.