Directors’ denial of company involvement remains a matter for trial where necessary liability averments exist.

The petitioners, arrayed as accused Nos. 5 and 6, challenged the order issuing summons in a prosecution under Section 138 of the Negotiable Instruments Act, 1881.

They argued that the complaint did not allege their responsibility for the company’s day-to-day affairs; that the company had entered liquidation; and that the second petitioner was neither a director nor a cheque signatory.

The High Court gave the petitioners time to produce the company’s Memorandum and Articles of Association to support their claimed lack of involvement, but they did not do so.

They sought to quash the summoning order and complaint under Articles 226 and 227 of the Constitution and Section 482 of the Code of Criminal Procedure, 1973.

1. Whether the summoning order could be quashed on the ground that the petitioners were not alleged to be responsible for the company’s day-to-day affairs.

2. Whether the petitioners’ contentions concerning liquidation, their alleged lack of involvement, and the second petitioner’s status as a non-director and non-signatory justified quashing the proceedings at this stage.

Section 138 of the Negotiable Instruments Act provides for an offence relating to dishonour of a cheque, while Section 141 governs the vicarious liability of persons in charge of and responsible for a company’s business; the Court stated that directors cannot be prosecuted without the requisite connection to the company’s affairs.

It referred to S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, S.P. Mani and Mohan Dairy v. Dr. Snehalatha Elangovan, Ashok Shewakramani v. State of Andhra Pradesh, and Hitesh Verma v. Health Care at Home India Private Limited as authorities for that principle.

The Court also noted the respondent’s reliance on the presumption under Section 139 of the Act.

In exercising its jurisdiction under Articles 226 and 227 and Section 482 CrPC, the Court considered whether the challenge warranted quashing before the petitioners appeared before the trial court.

The Court accepted the general principle that a person must have the requisite responsibility for the company’s affairs to face prosecution under Section 138 read with Section 141.

However, it noted that the legal notice contained necessary averments concerning the petitioners and treated their assertion that they had no connection with the company as a matter they could raise in the trial.

The petitioners had been given an opportunity to produce the Memorandum and Articles of Association but failed to do so; the Court considered that the documents could have been obtained from the Registrar of Companies and drew an adverse inference, for the time being, from their failure.

It therefore declined to quash the summons, while leaving the petitioners’ defences open for the trial.

The dismissal was without prejudice to the petitioners’ right to raise their contentions before the trial court in accordance with law.