The High Court of Himachal Pradesh dismissed a petition seeking to quash a summoning order in a Section 138 NI Act case, holding that the complaint contained sufficient factual allegations to establish the petitioner's liability despite his resignation as director, as the complaint demonstrated his involvement in seeking financial assistance and participation in the transaction documented by signed instruments.
Background & Facts
The Dispute
The complainant, a proprietary concern dealing in mobile phones, alleged that Accused No. 1 (a private limited company) and its directors (Accused Nos. 2 and 4, the petitioner) borrowed ₹30,00,000 in May 2022 with a promise to repay within two years. The complainant transferred the amount in installments to the company's account, but the accused failed to repay the principal or interest. After repeated demands, the accused issued a cheque for ₹30,00,000 towards repayment, which was dishonoured due to insufficient funds. The complainant issued a legal notice demanding payment within 15 days, which went unanswered, leading to the filing of a complaint before the Judicial Magistrate First Class, Nahan, for an offence under Section 138 of the Negotiable Instruments Act, 1881.
Key Facts
- In May 2022, Accused Nos. 2 and 4 (the petitioner) visited the complainant's shop and sought financial assistance of ₹30,00,000 for their business.
- They assured the complainant that the amount would be returned within two years.
- The complainant paid ₹30,00,000 to the accused on different dates by transferring money into their account.
- The accused failed to repay the money or the interest thereon.
- The complainant made repeated demands for the return of the money.
- The accused issued a cheque for ₹30,00,000 towards repayment of the amount.
- The complainant deposited the cheque for encashment, but it was dishonoured with the endorsement "funds insufficient".
- The complainant issued a legal notice to the accused demanding payment within 15 days from the date of receipt of the notice.
- The accused failed to pay the amount despite service of the notice.
- The complainant filed a complaint against the accused before the learned Trial Court for taking action as per law.
- The learned Trial Court found sufficient reasons to summon the accused vide order dated 27.03.2025.
- The petitioner (Accused No. 2) had resigned from the directorship of the company on 17.12.2022 and had duly filed Form DIR-12.
- The petitioner asserted that he had no connection with the company and had not put his signature on the complaint.
Procedural History
- May 2022: Accused Nos. 2 and 4 sought financial assistance of ₹30,00,000 from the complainant.
- Different dates in 2022-2023: Complainant paid ₹30,00,000 by transferring money to the accused's account.
- Date unspecified: Cheque for ₹30,00,000 issued by accused and dishonoured.
- Date unspecified: Legal notice issued by complainant demanding payment within 15 days.
- 27.03.2025: Trial Court passed summoning order against the accused.
- 17.12.2022: Petitioner resigned from directorship of the company and filed Form DIR-12.
- Date of judgment: 149.10.2026 (as stated in the judgment).
Relief Sought
The petitioner prayed that the present petition be allowed and the summoning order passed by the learned Trial Court be quashed and set aside, asserting that only general and vague allegations were made in the legal notice and complaint, the summoning order did not disclose application of mind, and the petitioner had resigned from directorship and had no connection with the company.
The Legal Issue
The central question was whether the summoning order dated 27.03.2025 could be quashed on the ground that the complaint failed to disclose sufficient factual basis to establish the petitioner's liability under Section 141 of the Negotiable Instruments Act, 1881, particularly given his resignation as director on 17.12.2022.
Arguments Presented
For the Petitioner
Mr Munish Dhatwalia, learned counsel for the petitioner/accused, submitted that the learned Trial Court passed a cryptic order while summoning the accused, which is bad in law. The petitioner had resigned from the post of Director in the year 2022 and could not have been held liable for the dishonour of the cheque after his resignation. The continuation of proceedings against him amounts to an abuse of the process of the Court. Therefore, he prayed that the petition be allowed.
For the Respondent
Mr Ashok Kumar Tyagi, learned counsel for the respondent, submitted that the learned Trial Court had rightly summoned the accused. The disputed questions of fact regarding the resignation of the director cannot be decided at this stage. The complaint contains specific averments against the accused. Therefore, he prayed that the present petition be dismissed.
The Court's Analysis
The Court examined the law relating to quashing of criminal cases as explained by the Hon’ble Supreme Court in B.N. John v. State of U.P., 2025 SCC OnLine SC 7, which adopted the principles from State of Haryana v. Ch. Bhajan Lal, 1992 Supp (1) SCC 335. The Court identified that clauses (1), (4), and (6) of the Bhajan Lal criteria were relevant: (1) where allegations do not prima facie constitute any offence; (4) where allegations in the FIR do not constitute a cognizable offence; and (6) where there is an express legal bar in the provisions.
The Court emphasized that for fastening vicarious liability under Section 141 of the NI Act, specific averments are required showing how and in what manner the accused was in charge of and responsible for the conduct of the company's business at the time of the offence. It cited Mansi Finance (Chennai) Ltd. v. M. Lalitha, 2026 SCC OnLine SC 949, which held that if the complaint discloses the factual basis of the liability, the person can be held liable even if it was not specifically stated that he is in charge and responsible for the affairs of the company.
The Court noted that the complaint specifically mentioned that the petitioner (Accused No. 2) came to the complainant's shop and sought financial assistance of ₹30,00,000, and was responsible for dealing with the complainant. Furthermore, the documentary evidence showed that the petitioner was a signatory to the dishonoured cheque and participated in antecedent financial documents such as promissory notes and the MoU, which bore his signature. The Court held that merely being described as a director in a company is not sufficient to satisfy the requirement of Section 141; the complaint must spell out how and in what manner the accused was in charge of or responsible for the company's business.
The Court rejected the petitioner's argument that his resignation as director on 17.12.2022 automatically absolved him of liability, stating that the authenticity of documents showing cessation of directorship could not be ascertained at the quashing stage and was a matter for trial. The Court held that it is impermissible to conduct a mini-trial to determine the truthfulness of allegations at the quashing stage; the Court must only consider whether sufficient foundational material exists to proceed against the accused.
"It was laid down by the Hon’ble Supreme Court in Mansi Finance (Chennai) Ltd. v. M. Lalitha, 2026 SCC OnLine SC 949, that if the complaint discloses the factual basis of the liability, the person can be held liable even if it was not specifically stated that he is in charge and responsible for the affairs of the company."
The Court concluded that the complaint disclosed sufficient factual foundation to establish the petitioner's involvement in the transaction, and thus the petition could not be quashed on the averment that the petitioner had ceased to be a director.
The Verdict
The petition to quash the summoning order dated 27.03.2025 was dismissed. The Court held that the complaint contained specific factual allegations showing the petitioner's involvement in seeking financial assistance and participation in the transaction documented by signed instruments, including the dishonoured cheque bearing his signature. Mere resignation as director on 17.12.2022 does not automatically prevent liability where evidence shows involvement in the underlying transaction. No monetary relief was granted as the petition sought only quashing of proceedings.
What This Means For Similar Cases
Specific Factual Averments Are Mandatory
Practitioners must ensure that complaints under Section 138 NI Act read with Section 141 contain specific factual allegations demonstrating how the accused director was in charge of and responsible for the company's business at the time of the offence. Mere allegations of directorship or bald statements that the accused was "in charge and responsible" without factual support are insufficient to attract liability. The complaint must independently discernible role attribution for each accused.
Resignation Does Not Automatically Negate Liability
A director's resignation prior to the offence does not ipso facto absolve liability under Section 141 NI Act if the complaint discloses factual basis showing the director's involvement in the transaction leading to the offence. Courts will not entertain resignation as a ground for quashing at the threshold stage without trial-level verification of documents, as authenticity disputes require evidentiary appraisal.
Documentary Evidence Supports Factual Foundation
Participation in antecedent transactions evidenced by signed documents (such as promissory notes, MoUs, or the dishonoured cheque itself) constitutes relevant and proximate circumstance for establishing that the accused was in charge of and responsible for the company's business. Such material linking the accused to the underlying debt satisfies the foundational material requirement for proceeding under Section 482 CrPC at the quashing stage.
No Mini-Trial at Quashing Stage
Courts exercising inherent jurisdiction under Section 482 CrPC to quash proceedings must not conduct a mini-trial to assess the truthfulness or genuineness of allegations. The inquiry is limited to whether sufficient foundational material exists to proceed against the accused; questions of fact regarding involvement or resignation are reserved for trial.
