Case: Ashok Kumar Ahluwalia v. M/s Horizon Music & Gift Gallery & Ors. Court: High Court of Himachal Pradesh, Shimla Case No.: Cr. MMO No. 149 of 2026 Neutral Citation: 2026:HHC:44114 Bench: Hon'ble Mr. Justice Rakesh Kainthla Reserved on: 30 September 2026 Decided on: 8 October 2026 Counsel for the Petitioner: Mr. Munish Dhatwalia, Advocate Counsel for the Respondents: Mr. Ashok Kumar Tyagi and Ms. Divya Rajta, Advocates
Introduction
When a cheque issued by a company bounces, who can be dragged into a criminal prosecution? Is it only the signatory, or can every director be summoned? And what happens when a director claims he had already resigned before the offence took place?
These questions came up before the Himachal Pradesh High Court in Ashok Kumar Ahluwalia v. M/s Horizon Music & Gift Gallery & Ors. On 8 October 2026, Justice Rakesh Kainthla dismissed a petition seeking to quash a complaint under Section 138 of the Negotiable Instruments Act, 1881 ("NI Act"). The Court held that the complaint contained a sufficient factual basis against the petitioner, that the High Court cannot hold a mini-trial while exercising its inherent powers, and that a plea of resignation from directorship, backed only by photocopied documents and countered by a rival document, must be tested at trial.
The judgment is a useful restatement of the law on vicarious liability of directors under Section 141 of the NI Act. It also draws on a very recent Supreme Court decision, Mansi Finance (Chennai) Ltd. v. M. Lalitha, 2026 SCC OnLine SC 949, which explains how courts should read complaints that do not mechanically repeat the statutory words.
Factual Background
The complainant, according to the judgment, is a proprietary concern dealing in mobile phones. Accused No. 1 is a private limited company, and Accused Nos. 2 to 4 are its directors, said to be responsible for dealing with the complainant.
The complaint alleged that Accused Nos. 2 and 4 visited the complainant's shop in May 2022 and asked for financial assistance of ₹30,00,000 (Rupees Thirty Lakhs) for their business. They assured the complainant that the money would be returned within two years. The complainant transferred the amount to the accused in instalments, on different dates, into their account.
The accused neither repaid the principal nor paid interest. After repeated demands, a cheque for ₹30,00,000 was issued towards repayment. When the complainant presented it, the cheque was dishonoured with the endorsement "funds insufficient". The complainant then issued a statutory legal notice demanding payment within 15 days. The accused did not pay despite service of the notice, and the complainant filed a complaint under Section 138 of the NI Act before the Judicial Magistrate First Class, Nahan, District Sirmaur, registered as Complaint No. 198 of 2025.
By order dated 27 March 2025, the learned Magistrate found sufficient reason to proceed and summoned the accused.
The Challenge Before the High Court
Accused No. 4, the petitioner Ashok Kumar Ahluwalia, approached the High Court under inherent powers to quash the complaint and the summoning order. His case rested on the following grounds:
- The legal notice and the complaint contained only general and vague allegations.
- The summoning order was cryptic and did not show application of mind.
- He had not signed the complaint and had no connection with the company.
- He had resigned as a director on 17 December 2022, and Form DIR-12 had been filed with the Registrar of Companies.
Mr. Munish Dhatwalia, appearing for the petitioner, argued that the petitioner could not be held liable for the dishonour of a cheque after his resignation, and that continuing the proceedings against him amounted to an abuse of the process of the Court.
Mr. Ashok Kumar Tyagi, appearing for the respondents along with Ms. Divya Rajta, countered that the Magistrate had rightly issued process. The complaint, he submitted, contained specific averments against the accused, and disputed questions of fact such as the alleged resignation could not be decided at the threshold.
The Legal Framework on Quashing
Justice Kainthla began by setting out the settled principles governing quashing of criminal proceedings. The Court referred to the Supreme Court's decisions in B.N. John v. State of U.P., 2025 SCC OnLine SC 7, Ajay Malik v. State of Uttarakhand, 2025 SCC OnLine SC 185, and Rajendra Bihari Lal v. State of U.P., 2025 SCC OnLine SC 2265. These decisions rely on the well-known categories in State of Haryana v. Ch. Bhajan Lal, 1992 Supp (1) SCC 335.
The core message is familiar. Inherent powers exist to prevent abuse of the process of court and to secure the ends of justice. But they must be used sparingly, and a complaint can be quashed at the threshold only where, taken at face value, it makes out no offence, or where it is manifestly mala fide or inherently improbable.
Section 141 NI Act: Who Is Liable When a Company's Cheque Bounces?
The heart of the judgment is its discussion of Section 141 of the NI Act, which fixes vicarious liability on persons connected with a company. Because the principal accused in such cases is the company itself, liability of directors is a legal fiction, and penal statutes creating vicarious liability are construed strictly.
The Court reproduced extensively from the Supreme Court's precedents, including Pawan Kumar Goel v. State of U.P., 2022 SCC OnLine SC 1598, Rajesh Viren Shah v. Redington India Ltd., (2024) 4 SCC 305, Susela Padmavathy Amma v. Bharti Airtel Ltd., 2024 SCC OnLine SC 311, Siby Thomas v. Somany Ceramics Ltd., (2024) 1 SCC 348, and K.S. Mehta v. Morgan Securities & Credits (P) Ltd., 2025 SCC OnLine SC 492. The principles drawn from these authorities can be summarised as follows:
- Mere directorship is not enough. A person is liable under Section 141(1) only if, at the time of the offence, he was in charge of and responsible to the company for the conduct of its business. Every person connected with the company does not fall within the provision, as held in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89.
- The primary burden is on the complainant. The complainant must make specific averments in the complaint to fasten vicarious liability. There is no presumption that every director knows about every transaction.
- Bald assertions do not suffice. A bare statement that a director is in charge of and responsible for the business, without anything on his role, is inadequate, as held in National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330.
- Different categories of persons. A Managing Director or Joint Managing Director, and a director who signed the cheque, stand on a different footing, and a specific averment of being in charge is not strictly necessary in their case. A non-executive or independent director, however, is liable only where specific allegations show direct involvement in the company's affairs.
- Sub-section (2). A director or officer not in charge of the business can still be liable if the offence was committed with his consent or connivance, or was attributable to his negligence, and the complaint must say so.
- Role over designation. Liability depends on the role a person plays in the company's affairs and not on his designation or status. Even a non-director can be liable if he in fact ran the business.
The Court also noted the Supreme Court's observation in Hitesh Verma v. Health Care At Home India Pvt. Ltd. that where there is no assertion in the complaint that the accused was in charge of the business at the time of the offence, he cannot be prosecuted under Section 141(1).
The Court's Analysis: Substance Over Form
Despite this strict line of authority, the High Court found that the present complaint stood on firm ground. The reasoning turned on what the complaint actually said about the petitioner.
The complaint did not merely describe the petitioner as a director. It stated that Accused Nos. 2 and 4, the petitioner being No. 4, personally visited the complainant's shop in May 2022 and asked for ₹30,00,000 for their business. It further stated that they were the directors responsible for dealing with the complainant. In other words, the petitioner was alleged to have been the very person who negotiated and obtained the loan that later led to the dishonoured cheque.
Here the Court relied on Mansi Finance (Chennai) Ltd. v. M. Lalitha, 2026 SCC OnLine SC 949. In that case the Supreme Court, referring to HDFC Bank Limited v. State of Maharashtra, (2025) 9 SCC 653, clarified that a complaint need not mechanically reproduce the phraseology of Section 141 if its substance, read as a whole, discloses the factual basis for liability. The emphasis is on substance rather than form. At the same time, liability under Section 141 is person-specific and cannot be imposed by mere association, so the complaint must disclose a sufficient factual foundation for each accused and the role of each must be independently discernible.
In Mansi Finance, the Supreme Court also noted that participation in the transaction giving rise to the debt, such as signing the antecedent documents, is a relevant and proximate circumstance when deciding whether a person was in charge of and responsible for the affairs of the entity. Such material is not a matter of mere designation but prima facie links the person to the underlying transaction.
Applying this reasoning, Justice Kainthla held that since the complaint specifically stated that the petitioner had borrowed money from the complainant and promised to repay it, there was a factual basis for summoning him. This was enough at the stage of issuing process.
Falsity of Allegations Cannot Be Decided in Quashing Proceedings
The petitioner also argued that the allegations in the complaint were false. The Court rejected this plea, reiterating that a court exercising inherent jurisdiction must treat the allegations in the complaint as true and correct. It relied on Punit Beriwala v. State (NCT of Delhi), 2025 SCC OnLine SC 983, and Maneesha Yadav v. State of U.P., 2024 SCC OnLine SC 643, which hold that the court cannot go into the truthfulness or genuineness of allegations at this stage.
The Court further cited Dharambeer Kumar Singh v. State of Jharkhand, (2025) 1 SCC 392, CBI v. Aryan Singh, (2023) 18 SCC 399, and Muskan v. Ishaan Khan (Sataniya), 2025 SCC OnLine SC 2355, for the principle that a High Court is not supposed to conduct a mini-trial under its inherent jurisdiction. It need only consider whether sufficient material exists to proceed against the accused. Mansi Finance made the same point: whether the accused were in fact in charge of and responsible for the affairs of the entity is ultimately a matter of evidence at trial, and what matters at the quashing stage is the existence of foundational material, not its sufficiency.
The Resignation Plea
The most practically significant part of the judgment is its treatment of the petitioner's claim that he ceased to be a director on 17 December 2022.
The petitioner placed photocopies of documents on record to show that his directorship ended on that date. The complainant, in response, filed a document indicating that the petitioner was still a director of Dynamic Mega Mart Private Limited. The Court observed that the authenticity of these documents could not be ascertained at that stage and that the question was one for trial. It therefore held that the complaint could not be quashed on the ground that the petitioner had ceased to be a director.
This approach is consistent with the Supreme Court's caution in Rajesh Viren Shah, which noted that interference under inherent powers in NI Act matters is warranted only on "unimpeachable, incontrovertible evidence" showing that the director could not have been concerned with the issuance of the cheque. A resignation claimed through photocopies, and disputed by contrary documentary material, does not meet that standard.
For practitioners, the lesson is clear. A resignation plea, even if accompanied by a filed Form DIR-12, is not an automatic passport out of a Section 138 prosecution. The accused must be able to place before the court material of an unimpeachable character. It should be authenticated, undisputed, and show clearly that the accused could have had no role in the transaction or the cheque. Further, where the complaint alleges that the accused personally took the loan, as it did here, the resignation date may be of limited relevance, because the liability alleged flows from the transaction itself and not merely from the office held when the cheque bounced. That, however, is a matter the trial court will examine on evidence.
Summoning Order Not Interfered With
The petitioner had also contended that the Magistrate's summoning order was cryptic and did not reflect application of mind. The High Court did not find this to be a ground for quashing, and the thrust of its reasoning was that the complaint itself disclosed a prima facie case. The Court ultimately concluded that the petition failed and dismissed it. It clarified that its observations were confined to the disposal of the petition and would have no bearing on the merits of the case, leaving the petitioner free to establish his defence at trial.
Key Takeaways
- Specific role matters. A complaint under Section 138 read with Section 141 must show a factual basis for treating each director as in charge of and responsible for the company's business. Naming someone merely as a director is risky for the complainant.
- Substance prevails over form. Following Mansi Finance and HDFC Bank, the absence of the exact statutory words is not fatal if the complaint's factual narrative, such as personally negotiating and receiving the loan, discloses the accused's role.
- Personal involvement in the transaction is significant. Allegations that the accused sought and received the money, and promised repayment, provide a strong factual foundation for summoning.
- No mini-trial under inherent powers. High Courts will take the complaint's averments as correct and will not weigh the truth of the allegations at the quashing stage.
- Resignation is a defence to be proved. Photocopied material, disputed by contrary documents, cannot justify quashing. The accused must prove his defence at trial unless he has unimpeachable evidence.
Editorial Note
The judgment refers to the inherent powers of the High Court under Section 482 of the Code of Criminal Procedure, 1973, as did the Supreme Court decisions it relies on. Readers should note that the corresponding provision in the Bharatiya Nagarik Suraksha Sanhita, 2023 is Section 528. The principles discussed remain equally relevant.
Conclusion
Ashok Kumar Ahluwalia v. M/s Horizon Music & Gift Gallery does not break new ground, but it applies recent Supreme Court guidance in a clear and practical way. For complainants, it confirms that a well-pleaded factual account of the accused's role in the underlying transaction can sustain proceedings even without verbatim recital of Section 141. For directors facing Section 138 complaints, it is a reminder that resignation and denial of involvement are matters of defence and proof, and that the High Court's inherent jurisdiction is not a shortcut to avoid trial.
This article is for general information and does not constitute legal advice. Readers should consult the full text of the judgment (2026:HHC:44114) before relying on it.