Quashing under Section 528 BNSS in Section 138 NI Act cases: No parallel revision/quashing; “signature differs”, joint-signatory mandate and alleged internal fraud are triable—Company and continuing directors can be tried even if the signatory is dropped

1. Introduction

The Delhi High Court (Neena Bansal Krishna, J.) decided two connected quashing petitions arising from cheque-dishonour complaints filed by Respondent No. 2, M/s Progfin Private Limited (an NBFC lender), against (i) GBL Chemicals Limited (borrower) and (ii) Ganesh Benzoplast Limited (corporate guarantor), along with their senior officers/directors.

The lending transaction was documented through a Facility Agreement dated 26.10.2023 and an Addendum dated 30.01.2024. Two cheques were central: one cheque allegedly returned for “Drawer’s signature differs” and another returned for “Funds Insufficient”. The petitioners’ core defence was that the transaction and bank accounts were part of an internal fraud allegedly masterminded by an erstwhile director/CEO, and that the cheques were invalid because the company’s bank mandate required joint signatures.

A further procedural complication existed: Petitioner No. 1 had already invoked a revision against the summoning order before the Sessions Court (later withdrawn), prompting an objection of suppression and forum shopping when the High Court’s inherent jurisdiction was simultaneously invoked for quashing.

Key issues

• Whether pursuing/initiating quashing under Section 528 BNSS while a revision is/was filed amounts to abuse/forum shopping (and the effect of suppression).
• Whether directors (MD and CFO/director) were properly summoned under Section 141 NI Act on the pleadings and documents.
• Whether dropping the cheque signatory (due to resignation prior to presentation/dishonour) collapses prosecution against the company and other directors.
• Whether alleged internal fraud, unauthorized signing, “joint signatory” bank mandate, and “security cheque” defences justify quashing at the threshold.
• Whether dishonour for “Drawer’s signature differs” can fall within Section 138 NI Act.

2. Summary of the Judgment

The High Court dismissed both petitions and refused to quash the summoning orders. It held that the petitioners’ contentions—fraud by an erstwhile director, opening of a sham account, siphoning of funds, and issuance of cheques without authority or contrary to bank mandate—are factual defences that require evidence and cannot be adjudicated in quashing proceedings.

On director liability, the Court held that the Managing Director’s position and his signatures on the Facility Agreement/guarantee documents created a direct link with the transaction; and that the Director/CFO’s role was prima facie implicated given the nature of multi-crore financial arrangements and the complaint’s averments.

Crucially, the Court held that dropping the cheque signatory (on resignation timing) does not exonerate the company as drawer or continuing persons in charge; the offence under Section 138 was treated as a composite offence culminating in failure to pay after notice.

3. Analysis

3.1 Precedents Cited (and their influence)

• Krishnan v. Krishnaveni (1997) 4 SCC 241
  Role in this judgment: Used to reinforce that the High Court’s inherent power (Section 482 CrPC / Section 528 BNSS) is wide but must be exercised sparingly, especially where a statutory revision remedy is invoked, and to discourage parallel pursuit of remedies likely to yield inconsistent outcomes.
• Tejram Mahadeorao Gaikwad v. Smt. Sunanda Tejram Gaikwad, 1996 Cri. L.J. 172
  Role in this judgment: Cited for the practice/discipline that a litigant should ordinarily approach the first revisional court before invoking the High Court’s extraordinary/inherent jurisdiction, supporting the forum-shopping objection and the Court’s emphasis on procedural propriety.
• Rathish Babu Unnikrishnan v. State (Govt. of NCT of Delhi) (2022 SCC OnLine SC 513)
  Role in this judgment: Relied upon for the proposition that pre-trial quashing should not be used to stifle legitimate prosecution; plausible defences belong to trial. This case underpinned the Court’s refusal to test the petitioners’ fraud/authorization narrative at the summoning/quashing stage.
• S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (2005) 8 SCC 89
  Role in this judgment: Treated as the doctrinal starting point on what averments are necessary to fasten vicarious liability under Section 141 NI Act. The Court used this line of authority to justify summoning where basic foundational averments exist and where the MD’s role is presumptively in-charge.
• National Small Industries Corporation Limited v. Harmeet Singh Paintal and Another, (2010) 3 SCC 330
  Role in this judgment: Quoted for principles on Section 141 pleadings and when specific averments may not be necessary (especially where the accused signed the cheque), and more broadly to validate the sufficiency of the complaint’s foundational assertions at the summoning stage.
• Kamalkishor Shrigopal Taparia vs. India Ener-gen Private Limited & Anr., 2025 INSC 223
  Role in this judgment: Noted as a recent reiteration of the approach to Section 141 liability and pleading sufficiency, supporting the Court’s refusal to demand “role-play” micro-particulars at summoning.
• HDFC Bank Ltd. v. State of Maharashtra and Anr., 2025 INSC 759
  Role in this judgment: Used to emphasize substance over form: complaints need not reproduce Section 141 verbatim if the essence indicates active involvement/in-charge responsibility. This supported sustaining summons against the MD and CFO/director on the pleaded narrative.
• Aneeta Hada v. Godfather Travels & Tours (P) Ltd. (2012) 5 SCC 661
  Role in this judgment: Anchored the “principal offender” concept: the company is the primary accused for Section 138 read with Section 141, while directors are vicariously liable. The Court leveraged this to reject the argument that absence/dropping of the signatory defeats the prosecution against the company/other directors.
• Laxmi Dyechem v. State of Gujarat (2012) 13 SCC 375
  Role in this judgment: Central to the “signature differs” issue. The Court applied the liberal interpretation that dishonour reasons beyond “funds insufficient” (including signature mismatch) can still attract Section 138 when attributable to the drawer’s default/omission.
• Rajeshbhai Muljibhai Patel v. State of Gujarat (2020) 3 SCC 794
  Role in this judgment: Cited to hold that disputes about authorization/signature issues are ordinarily triable and should not be resolved at the threshold in Section 482/528 proceedings.
• Rangappa v. Sri Mohan (2010) 11 SCC 441
  Role in this judgment: Used for statutory presumptions under Sections 118(a) and 139 NI Act, including presumption of legally enforceable debt, and that rebuttal is on preponderance of probabilities—typically at trial, not at summoning/quashing.
• I.C.D.S. Ltd v. Beena Shabeer (2002) 2 SCC 426 and Sunil Todi v. State of Gujarat (2021) SCC OnLine SC 1174
  Role in this judgment: Applied to the “security cheque” defence: even a security cheque can trigger Section 138 if liability crystallises by the time of presentation.
• HMT Watches Ltd. v. Abida (2015) 11 SCC 776
  Role in this judgment: Relied on to caution High Courts against accepting disputed factual defences in quashing jurisdiction in Section 138 prosecutions.
• Susela Padmavathi Amma vs M/s Bharti Airtel Limited
  Role in this judgment: Cited by the petitioners for the proposition that non-signatory directors lacking knowledge should not be prosecuted; however, the Court ultimately preferred the trial-first approach given the complaint’s averments and documentary linkages, treating the petitioners’ plea as defensive and factual.

3.2 Legal Reasoning

(A) Procedural discipline: parallel remedies, suppression, and “forum shopping”

The Court foregrounded that parallel pursuit of revision and inherent-quashing against the same summoning order risks inconsistent outcomes and constitutes abuse. Relying on Krishnan v. Krishnaveni (1997) 4 SCC 241 and Tejram Mahadeorao Gaikwad v. Smt. Sunanda Tejram Gaikwad, 1996 Cri. L.J. 172, it treated nondisclosure of the revision as indicative of lack of bona fides. Although the petitions were dismissed primarily on merits (triable issues), this procedural context strengthened the Court’s reluctance to interfere under Section 528 BNSS.

(B) Section 141 NI Act: threshold for summoning MD and CFO/director

The judgment applies settled Section 141 doctrine: a managing director is, by virtue of office, presumed to be in charge of and responsible for the conduct of business. Additionally, the Court treated the MD’s signatures on the Facility Agreement and Personal Guarantee documents as a “direct evidentiary link” with the transaction.

For the Director/CFO, the Court reasoned that a multi-crore borrowing and issuance of security cheques/guarantees is inherently within the financial oversight domain, making the CFO designation a prima facie indicator of involvement; coupled with complaint averments of responsibility and negotiations, this was sufficient for summoning. The Court emphasized that the summoning stage does not require a “roving inquiry” into internal board dynamics.

(C) Dropping the cheque signatory does not immunize the company and continuing directors

A key clarification is the distinction between the drawer and the human signatory: the company is the drawer. The Court held that even if the signatory is dropped because he resigned before presentation/dishonour, the company’s liability and that of continuing “persons in charge” does not automatically fall. Invoking Aneeta Hada v. Godfather Travels & Tours (P) Ltd. (2012) 5 SCC 661, the Court reaffirmed the company as principal offender.

The Court also conceptualised Section 138 as a composite offence completed upon failure to pay within 15 days of demand notice after dishonour. Therefore, resignation timing of a particular signatory may affect his personal arraignment, but does not extinguish corporate liability or liability of those responsible during the relevant composite timeline.

(D) Alleged “mastermind” fraud and diverted disbursement: defence under trial, not quashing

The petitioners’ claim that the loan was siphoned into a sham account opened via forged board resolutions and identity documents was treated as a quintessential factual defence. The Court accepted the complainant’s framing that internal mismanagement/fraud by an officer is an inter se issue between company and its officials, not a threshold bar to Section 138 proceedings. Such pleas were treated as falling within the defensive space (including the proviso to Section 141(1)), requiring evidence.

(E) “Signature differs” and “joint signatory mandate”: Section 138 can still apply; authorization disputes are triable

For the cheque dishonoured with “Drawer’s signature differs,” the Court applied Laxmi Dyechem v. State of Gujarat (2012) 13 SCC 375 to hold that signature mismatch can attract Section 138; drawers cannot escape by omission/commission relating to signature conformity.

On the “joint signatory” mandate argument, the Court treated bank mandate as a contractual instruction between customer and bank, not automatically enforceable as a shield against a third-party holder, especially where the signatory was the CEO/director with apparent authority. Whether mandate was violated and what legal effect that has in the specific factual matrix was held to be a trial issue, supported by Rajeshbhai Muljibhai Patel v. State of Gujarat (2020) 3 SCC 794.

(F) Presumption of debt; “security cheque” does not negate Section 138 at threshold

The Court applied Sections 118(a) and 139 NI Act presumptions (as explained in Rangappa v. Sri Mohan (2010) 11 SCC 441) that the cheque is for consideration and for discharge of debt/liability. Rebuttal, on preponderance, is for trial.

Similarly, the “security cheque” label was rejected as a quashing ground, relying on I.C.D.S. Ltd v. Beena Shabeer (2002) 2 SCC 426 and Sunil Todi v. State of Gujarat (2021) SCC OnLine SC 1174: if liability is due at presentation, Section 138 may be attracted.

3.3 Impact

• Stronger barrier against pre-trial quashing in cheque cases where defence is factual: Allegations of internal fraud, unauthorized signing, forged resolutions, or diverted disbursement are likely to be treated as matters for evidence, not Section 528 BNSS quashing.
• Clarification on “dropped signatory” situations: The prosecution can proceed against the company and continuing responsible officers even if the signatory is not before the court due to resignation timing; resignation may be relevant to the individual’s liability, not to corporate drawer liability.
• Expanded operational comfort for lenders/holders: Reinforces that “signature differs” and bank-mandate related dishonours cannot, by themselves, be used as a threshold escape route; authorization disputes will often go to trial.
• Procedural discipline signal: The Court’s discussion of revision + quashing and suppression operates as a caution against parallel forum invocation in summoning-order challenges.

4. Complex Concepts Simplified

• Section 528 BNSS / Section 482 CrPC (inherent powers): A High Court’s extraordinary power to prevent abuse of process or secure justice. It is not meant to decide disputed facts like a trial.
• Section 138 NI Act (“cheque bounce”): A criminal offence where a cheque is dishonoured and the drawer fails to pay within the statutory time after receiving a demand notice.
• Composite offence (as used by the Court): The offence is not complete merely on signing or even dishonour; it completes after dishonour + valid notice + failure to pay within the stipulated period.
• Section 141 NI Act (vicarious liability in company cases): Persons who were “in charge of and responsible for” company business at the relevant time can be prosecuted along with the company.
• “Drawer” vs “signatory”: In company cheques, the company is the legal drawer; the signatory is an agent who signs on the company’s behalf.
• Presumptions under Sections 118(a) and 139 NI Act: The law presumes the cheque was for consideration and for a legally enforceable debt. The accused can rebut, but typically through trial evidence.
• “Holder in due course”: A bona fide holder of a negotiable instrument, generally protected against certain internal disputes of the drawer.
• Bank mandate / joint signatory requirement: Internal instruction between company and bank about how cheques should be signed. Breach may have consequences, but whether it defeats Section 138 liability is usually fact-dependent.

5. Conclusion

This judgment reinforces a pragmatic, trial-oriented approach to Section 138/141 prosecutions: where foundational ingredients are pleaded and documents support the transaction, the High Court will not conduct a “mini-trial” under Section 528 BNSS to test defences of internal fraud, unauthorized signatures, or bank-mandate violations. It further clarifies that dropping the individual signatory (for resignation-timing reasons) does not, by itself, collapse proceedings against the corporate drawer and continuing directors/officers. In doing so, the Delhi High Court aligns the quashing standard with Supreme Court authority discouraging premature termination of cheque-dishonour prosecutions in the face of disputed facts.