NI Act | Dropping Cheque Signatory From Accused List Does Not Bar Prosecution Against Company And Directors; Vicarious Liability And Presumptions To Be Decided At Trial: Delhi High Court
Safiya Malik
The High Court of Delhi Single Bench of Justice Neena Bansal Krishna dismissed petitions seeking to quash criminal proceedings arising from alleged cheque dishonour, allowing the prosecution to continue against the accused companies and their serving directors under the Negotiable Instruments Act, 1881. The complaints, filed by a lending NBFC, allege that cheques issued towards repayment of credit facilities and guarantees were returned unpaid, including on grounds such as signature mismatch and insufficiency of funds. The Court held that removal of the cheque signatory from the array of accused, including due to resignation-related reasons, does not by itself defeat the case against the corporate drawer and other directors, and that statutory presumptions and corporate vicarious liability issues must be tested at trial.
The petitions arose from complaints filed by a Non-Banking Financial Company alleging dishonour of cheques issued by a borrowing company and its corporate guarantor towards discharge of liabilities under a credit facility agreement. The lender extended financial assistance under a Facility Agreement dated 26.10.2023, subsequently enhanced by an Addendum dated 30.01.2024. It alleged disbursement of approximately Rs. 21.54 crores, with a substantial outstanding amount remaining unpaid. Cheques issued towards repayment were dishonoured with remarks including “Drawer’s signature differs” and “Funds Insufficient.”
The petitioners sought quashing of summoning orders issued under Section 138 read with Section 141 of the Negotiable Instruments Act. They contended that the loan was diverted to a fraudulent bank account opened by a former director using forged documents, that the cheques were signed without proper authority and in violation of bank mandate, and that no legally enforceable debt existed. FIRs were lodged against the former director. The complainant opposed the petitions, asserting existence of a legally enforceable debt, execution of guarantees, and applicability of statutory presumptions under the Act.
On the preliminary objection, the Court observed, “It is a settled principle of law that a litigant cannot pursue parallel remedies for the same relief in different forums.” It recorded that filing a revision before the Sessions Court and a quashing petition simultaneously “does create an anomalous situation, with a likelihood of different decisions against the same Orders.”
On vicarious liability, the Court stated that Section 141 provides that “every person who, at the time the offence was committed, was in charge and responsible for the conduct of the business of the Company, shall be deemed guilty.” It recorded that for a Managing Director, “by virtue of the office, a Managing Director is ex-officio in charge of and responsible for the conduct of the business of the Company.” The Court further noted, “If the Complaint contains the basic factual foundation that the Directors were in charge of the business, and the Company is also arrayed as an accused, the requirement of Section 141 is satisfied.”
On dropping of the signatory, the Court stated, “Under Section 138 NI Act; the primary liability is that of the ‘Drawer’ of the cheque.” It clarified that the drawer in the present case was the company and not the individual signatory. It recorded, “The reverse, however, is not applicable - the presence of the specific signatory is not a condition precedent for the prosecution of the Company or its other Directors.”
On the alleged fraud, the Court observed, “Any internal mismanagement or fraud committed by the Director of the Petitioner Company, is an inter-se dispute between the Company and its officials, which does not extinguish the Accused Company’s liability toward the Complainant.”
Regarding dishonour for signature mismatch, it quoted, “The dishonour of a cheque on the ground that the signatures of the drawer do not match the specimen signatures available with the bank would, therefore, constitute an offence under Section 138.”
On security cheques and statutory presumptions, it recorded, “Section 139 of the Act is an example of a reverse onus clause... however, at the stage of summoning, the Court is only concerned with whether the averments in the complaint, taken at face value, satisfy the ingredients of the offence.”
The Court stated, “At the stage of summoning, the Ld. Magistrate is only required to see if a prima facie case is made out.” It further observed that the defence sought evaluation of disputed questions of fact requiring evidence at trial.
The Court directed, “Consequently, the Petitions, CRL. M.C. NO. 2155/2025 and CRL. M.C. NO. 2156/2025 are dismissed. Any observations made herein are prima facie in nature and shall not influence the merits of the trial or the Revision proceedings pending before the Ld. Sessions Court. Pending Applications, if any, also stand disposed of.”
Advocates Representing the Parties
For the Petitioners: Mr. Mohit Mathur, Senior Advocate with Mr. Puneet Sharma, Mr. Ashwani Kumar, Ms. Iti Sharma, Mr. Vignesh and Mr. Aditya Joshi, Advocates
For the Respondents: Ms. Richa Dhawan, APP for the State
Case Title: GBL Chemicals Limited & Ors. v. State.
Neutral Citation: 2026: DHC:711
Case Number: CRL.M.C. 2155/2025 and CRL.M.C. 2156/2025
Bench: Justice Neena Bansal Krishna
