Director’s Involvement In Company Affairs A Disputed Fact; High Court Cannot Conduct ‘Mini-Trial’ To Quash Section 138 NI Act Complaint: Punjab & Haryana HC

"Whether the petitioner was actually involved in the affairs of the company or whether the cheque was issued merely as a conditional security cheque are disputed questions of fact which cannot be conclusively adjudicated upon in proceedings under Section 528 of BNSS." Punjab & Haryana High Court, in a significant ruling, held that the High Court cannot conduct a mini-trial or meticulously examine the defense of an accused director while exercising inherent jurisdiction to quash a complaint under Section 138 of the Negotiable Instruments Act.

A bench of Justice Manisha Batra observed that once foundational averments regarding a director's responsibility are present in a complaint, the proceedings cannot be scuttled at the threshold based on disputed facts. The Court emphasized that the inherent powers under Section 528 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), 2023, must be exercised sparingly.

The petitioner, a Director of Kartarz Alloys Private Limited, sought the quashing of a Section 138 NI Act complaint involving a dishonoured cheque of ₹2.05 Crores issued during One Time Settlement (OTS) negotiations with an asset reconstruction company. The petitioner contended that he was falsely implicated as the cheque was signed only by the Managing Director and was intended merely as a "conditional security" for an OTS proposal that was ultimately rejected. The matter reached the High Court after the Trial Court issued a summoning order against the petitioner and other accused on January 12, 2026.

The primary question before the court was whether a complaint under Section 138 of the NI Act can be quashed against a Director who claims non-involvement in day-to-day affairs despite the existence of specific allegations in the complaint. The court was also called upon to determine if the nature of a cheque as a "security cheque" can be adjudicated in a quashing petition under Section 528 of BNSS.

High Court Cannot Conduct Mini-Trial Under Section 528 BNSS

Justice Manisha Batra noted that the scope of Section 528 of the BNSS (the successor to Section 482 of the CrPC) is restricted to preventing the abuse of the process of law. The Court emphasized that while exercising inherent jurisdiction, it "is not expected to conduct a mini-trial or meticulously examine the defence sought to be raised by the accused." The bench clarified that such jurisdiction is to be invoked only when no offence is disclosed even if the allegations in the complaint are taken at face value.

Foundational Averments In Complaint Sufficient To Proceed

Upon perusal of the complaint, the Court found that the respondent-complainant had levelled specific allegations against the petitioner, asserting his responsibility for the conduct and affairs of the company at the relevant time. The Court remarked that "merely because the petitioner alleges that he was not responsible for day-to-day affairs of the company would not ipso facto entitle him to quashing of the complaint." The bench held that since the complainant alleged active participation by the petitioner, the matter must proceed to trial.

"When basic averments exist in the complaint, the proceedings ought not to be scuttled at the threshold merely because the accused raises a probable defence."

Disputed Nature Of Cheque As 'Security' Requires Evidence

Addressing the petitioner’s argument that the cheque was a conditional security issued for an OTS proposal, the Court relied on the precedent set in HMT Watches Ltd. vs. M.A. Abida (2015). The bench observed that issues such as the existence of a legally enforceable debt, the nature of the transaction, and the specific defense of the accused are matters of evidence. The Court stated that "the authenticity, effect and legal consequences of the documents relied upon by the petitioner can appropriately be examined only during trial."

Defense Evidence Must Be Unimpeachable To Warrant Quashing

The Court placed heavy reliance on the Supreme Court's judgment in S.P. Mani and Mohan Dairy vs. Dr. Snehalatha Elangovan (2023). It reiterated that a High Court should not interfere at the instance of the accused unless the accused places on record "unimpeachable and incontrovertible evidence completely ruling out his involvement in the transaction." In the present case, the Court found that the petitioner’s pleas were essentially a defense requiring the appreciation of facts which cannot be recorded definitively at the preliminary stage.

Disputed Questions Of Fact Must Be Left For Trial Adjudication

Citing Rathish Babu Unnikrishnan vs. State (2022), the Court highlighted that quashing proceedings at a preliminary stage results in finality without giving parties an opportunity to adduce evidence. The bench concluded that since no patent illegality or jurisdictional error was found in the summoning order passed by the Trial Court, there was no ground to invoke extraordinary jurisdiction. The petition was dismissed, leaving the petitioner to raise his grievances during the trial.

The High Court dismissed the petition, ruling that the determination of a Director's actual involvement and the nature of the dishonoured cheque are triable issues. The Court affirmed that the Trial Court had sufficient grounds to summon the petitioner based on the preliminary evidence and the foundational averments in the complaint.

Date of Decision: 18 May 2026