Director's Liability U/S 141 NI Act A Matter For Trial, Can't Be Quashed U/S 482 CrPC When Allegations Exist: Karnataka High Court - 2025-09-23

Director's Role in Cheque Bounce Case is a Matter for Trial, Not Quashing: Karnataka High Court

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Bengaluru: The Karnataka High Court, in a significant ruling, has dismissed petitions filed by a director of M/s Cox and Kings Ltd. seeking to quash criminal proceedings initiated against him for cheque dishonour under Section 138 of the Negotiable Instruments Act, 1881. The bench, presided over by Hon'ble Mr. Justice S.R. Krishna Kumar , held that the question of a director's liability and their role in the company's affairs is a triable issue that cannot be summarily dismissed in a petition under Section 482 of the Criminal Procedure Code, especially when the complaint contains specific allegations.

Case Background

The case involves two criminal petitions filed by Mr. Pesi Savak Patel, a 72-year-old director (arraigned as Accused No. 5) of M/s Cox and Kings Ltd. The proceedings were initiated by M/s Kurlon Enterprises Ltd. following the dishonour of multiple cheques amounting to crores of rupees.

Kurlon Enterprises Ltd. had provided a short-term loan of approximately ₹20 crores to Cox and Kings Ltd. in June 2019. In discharge of this liability, Cox and Kings issued several post-dated cheques. When presented in September 2019, these cheques were returned unpaid with the endorsement "refer to drawer." Consequently, Kurlon filed private complaints against the company, its directors, including Mr. Patel, and other key officials, alleging an offence under Section 138 of the Negotiable Instruments Act.

Arguments of the Petitioner and Respondent

Petitioner's Stance: Mr. Patel’s counsel argued for the quashing of the proceedings against him on the grounds that he was an Independent Director. It was contended that he was neither in charge of nor responsible for the day-to-day business of the company. Furthermore, he was not a signatory to the dishonoured cheques. To support this claim, documents such as Form DIR-12 from the Registrar of Companies and company annual reports were presented to the court.

Respondent's Counter-Arguments: Counsel for Kurlon Enterprises Ltd. vehemently opposed the plea, pointing to specific averments in the complaint. They highlighted paragraphs 4 and 17 of the complaint, which explicitly stated: "The Accused No. 2 to 9 are actively involved in the management as well as day to day affairs of the company" and are "incharge and responsible for conduct of the business of the 1st Accused company."

The respondent argued that these allegations, in line with Section 141 of the N.I. Act (Offences by companies), establish a prima facie case against the director. They asserted that the documents produced by the petitioner were disputed and their authenticity could only be determined during a full-fledged trial. Reliance was placed on the Supreme Court's judgment in S.V. Muzumdar and others vs. Gujarat State Fertilizer Co., Ltd., (2005) , which established that such questions must be adjudicated at trial.

Court's Rationale and Legal Principles

Justice S.R. Krishna Kumar, after careful consideration of the rival submissions, sided with the respondent. The court emphasized that Section 141 of the N.I. Act creates a vicarious liability for every person who was in charge of and responsible for the conduct of the company's business at the time the offence was committed.

The judgment quoted the complaint's allegations to underscore that the complainant had made the necessary averments to implicate the directors. The court observed:

"If the impugned complaint, in particular, paragraphs 4 and 17 are examined, bearing in mind Section 141(2) of N.I. Act and the judgment of the Apex court... it is clear that necessary ingredients constituting the alleged offence have been made out by the respondent – complainant who has made specific allegations in this regard."

The court further noted that the petitioner's defence—that he was an Independent Director—involved disputed questions of fact. The validity and veracity of the documents he produced could not be accepted at face value in a quashing petition.

"The said disputed documents cannot be relied upon by the petitioner in support of his contentions and consequently, this contention urged on behalf of the petitioner cannot be accepted."

Final Decision and Its Implications

The High Court concluded that this was not a fit case to exercise its inherent jurisdiction under Section 482 Cr.P.C. to quash the proceedings. It held that the petitioner’s contentions involved mixed questions of law and fact that warrant adjudication only after a trial.

Dismissing both petitions, the court clarified that it was not expressing any opinion on the merits of the case and left all contentions open to be decided by the trial court. This ruling reaffirms the principle that directors cannot easily escape liability in cheque bounce cases at a preliminary stage by merely claiming non-involvement, particularly when the complaint contains specific allegations of their role in the company's affairs.