Raj Kumar Jain vs M/S Shree Balaji Enterprisies And Anr
- Court
- Delhi High Court
$~J-1
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 26.02.2026
Judgment Delivered on: 04.05.2026
+ CRL.M.C. 1665/2023 & CRL.M.A. 6359/2023
RAJ KUMAR JAIN .....Petitioner
Through: Ms. Sangeeta Jain, Advocate.
versus
M/S SHREE BALAJI ENTERPRISIES
AND ANR .....Respondents
Through: Mr. Ram Ekbal Roy, Mr. Aman
Nihal, Mr. Shekhar Jha and Mr. Sunil
Kumar Jha, Advocates.
CORAM:
HON'BLE MR. JUSTICE VIKAS MAHAJAN
JUDGMENT
VIKAS MAHAJAN, J
1. The present petition has been filed under Section 482 CrPC inter alia
praying for quashing of the complaint bearing no. 2712/2012 dated
04.08.2012, under Section 138 of Negotiable Instruments Act, 1881 [in short
„N.I Act‟].
2. The case set out in the present petition is that an order no.
166/PA/DNC/DEMS/2009-10 was passed by the Commissioner of MCD on
26.06.2009 regarding the deployment of Auto Tippers with Hydraulic
Lifting arrangements in each ward of the Shahdara (North) and (South)
Zones for a period of three years.
3. The respondent no. 2/company [M/S PRJ Enterprises Ltd.], who is
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authorized dealers of Bajaj Auto Vehicles, entered into an agreement dated
10.03.2010 with the deputy commissioner, MCD/Shahdara South Zone,
Delhi, according to which the respondent no. 2/company had to arrange 31
Auto Tippers with Hydraulic Lifting facilities, along with one driver and
two Beldars for each Auto Tipper, including T & P fuel lubricants, etc for
deployment in various wards of Shahdara South Zone, Delhi. The petitioner
was the director of respondent no.2/company.
4. On the basis of aforesaid agreement, respondent no. 2/company
induced the complaint/respondent no. 1 to assist in the execution of said
agreement. Pursuant thereto, complainant/respondent no. 1 entered into a
Memorandum of Understanding [in short “MOU”] with the
respondent no. 2/company. Under the terms of the MOU, it was agreed that
complainant/respondent no. 1 would purchase 18 Auto Tippers from
respondent no. 2/company. Pursuant thereto, the
complainant/respondent no.1 paid a total sum of Rs. 45,00,000/- to
respondent no. 2 as an advance, through various cheques and cash payments
on different dates.
5. However, a dispute arose between the respondent no.2/company and
the complainant/respondent no. 1, as a result of which,
complainant/respondent no.1 had asked the petitioner and the
respondent no.2 to return Rs. 45,00,000/- which had been given to them. It is
in this backdrop that the respondent no. 2/company issued following two
cheques to complainant/respondent no.1:
(i) Cheque No.038098 dated 26.12.2011 for an amount of Rs.20,00,000.
(ii) Cheque No.038099 dated 28.12.2011 for an amount of Rs.25,00,000.
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6. The aforesaid two cheques were presented for encashment by
complainant/respondent no.1, but the same were returned unpaid with the
return memo dated 09.01.2012 with the remarks “Funds Insufficient”.
7. Thereafter, respondent no.2/company again issued following two
cheques to respondent no.1, in lieu of the above mentioned cheques:
(i) Cheque No. 038126 dated 20.01.2012 for an amount of Rs. 25,00,000.
(ii) Cheque No. 038127 dated 21.01.2012 for an amount of Rs. 20,00,000.
8. The complainant/respondent no.1, presented the two cheques
mentioned in the foregoing paragraph for clearing, however, the cheques
were again returned unpaid with a return memo dated 18.04.2012,
containing the marks “Funds Insufficient”. Complainant/respondent no.1
again presented the above cheques on 15.06.2012, however, the same got
dishonoured with the remarks “Funds Insufficient”.
9. This was followed by issuance of demand notice dated 02.07.2012 by
complainant/respondent no.1, in terms of Section 138 of N.I. Act, to
respondent no.2/company, as well as, to the petitioner, who is the director of
respondent no.2/company, with regard to the cheques enumerated in
paragraph no. 7 above. After the expiry of notice period, the complaint
bearing no. 2712/2012 came to filed under section 138 of N.I Act on
04.08.2012 by the complainant/respondent no.1 against the
respondent no.2/company as well as the petitioner herein. Further vide order
dated 23.02.2013, summons were issued in the abovementioned complaint
case against the petitioner and respondent no. 2/company.
10. However, vide order dated 23.05.2012 of this court in Company
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Petition 262/2012 titled as Rani Leasing and Finance Pvt. Ltd vs. P.R.J
Enterprises Ltd. and Ors. , a winding up petition filed under Section 433(e)
read with Sections 434 and 439 of the Companies Act, 1956, by Rani
Leasing and Finance Pvt. Ltd, was admitted against the
respondent no. 2/company and notice was also issued in the said petition.
Further, vide same order a Provisional Liquidator was also appointed who
was directed to forthwith take over the assets and records of the
respondent no.2/company. Order dated 23.05.2012 is reproduced herein
below in extenso :
“O R D E R
23.05.2012
Caveat 542/2012 in Co. Pet. 262/2012
Since the caveator has already put in appearance, the caveat
petition stands disposed of.
Co. Pet. 262/2012 and Co. Appls. 1085-1086/2012
Present winding up petition has been filed under Section 433(e)
read with Sections 434 and 439 of the Companies Act, 1956,
stating that respondent is unable to pay its debts allegedly
amounting to Rs.1.43 crores.
It is the petitioner‟s case that it had extended the loan of Rs.1
crore to the respondent on 13th July, 2010 and the same was to be
repaid in nine months along with interest @ 2% per month.
In response to the statutory winding up notice, respondent has
stated as under:-
“We admit and acknowledge our liability in a sum of Rs.1.43
crores as on 1.4.2012 which amount comprises of Rs.1 crore as
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principal loan amount and Rs. 43 lacs on account of interest till
31.3.2012 (calculated @ 2% per month).
We sincerely regret for the inconvenience caused to you all
throughout, but reassert that it was on account of reasons and
circumstances much beyond our control, otherwise we would not
have afforded an opportunity to you to initiate any legal process
against us.
We, however, feel it our abundant duty to appraise you that in the
forthcoming period, we do not foresee any possibility of repaying
any amount either on account of interest or towards principal.
However, we are on our heels to realize our overdue payments
from the Municipal Corporation of Delhi and as and when we are
able to do so, we will definitely repay your debt with folded
hands”
Issue notice .
Mr. J.C. Gupta, learned counsel accepts notice on behalf of the
respondent. He candidly states that the respondent company is in
heavy debt and there is no possibility of the respondent company
being rehabilitated or revived.
In view of the aforesaid, present petition is admitted and the
Official Liquidator attached to this Court is appointed as
Provisional Liquidator of the respondent company and is
directed to forthwith take over the assets and records of the
respondent company. For this purpose, Provisional Liquidator
would be entitled to obtain police aid and the local police is
directed to render all assistance to the Provisional Liquidator.
In the meantime, respondent-company, its Directors, officers,
employers, authorised representatives are restrained from
selling, transferring, alienating, encumbering and parting with
the possession of any movable and immovable assets and funds
of the respondent company. They are also restrained from
withdrawing any money from the accounts of the respondent
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company .
The Directors of the respondent company are directed to forthwith
hand over all the records of the respondent company to the
Provisional Liquidator including its books of account. The
Directors of respondent company are also directed to provide the
statement of affairs and file their statements under Rule 130 within
a period of twenty one days as provided for in the Companies Act,
1956.
Let citations be published in the newspapers, namely, ?The
Statesman (English edition) and ?Veer Arjun? (Hindi edition) as
well as in ?Delhi Gazette?.
Petitioner is directed to deposit a sum of Rs. 50,000/- with the
Official Liquidator for publication of the advertisements within a
period of two weeks.
Accordingly, the Co.Appls. No.1085-1086/2012 stand disposed of.
Let a fresh status report be filed by the Official Liquidator before
the next date of hearing.
List the matter on 16th July, 2012.
Order dasti under signatures of the Court Master.”
(emphasis supplied)
11. Subsequently, vide order dated 21.01.2020 passed in Company
Petition 262/2012, respondent no. 2/company was dissolved.
12. Thereafter, vide impugned order dated 21.12.2022, the learned JMFC,
upon hearing application of the petitioner seeking discharge, proceeded with
framing of notice in the matter, holding that Magistrate has no power to drop
proceedings in a summons case filed on the basis of a complaint and that
under Chapter XX of the CrPC there is no provision for discharge of the
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accused person.
13. Ms. Sangeeta Jain, learned counsel appearing on behalf of the
petitioner submits that respondent no.2/company went into liquidation and a
Provisional Liquidator was appointed vide order dated 23.05.2012 in
Company Petition no. 262/2012 and subsequently by order dated 21.01.2020
respondent no.2/company got dissolved.
14. She submits that by the time demand notice dated 02.07.2012 was
issued to respondent no.2 against the cheques that got dishonoured on
15.06.2012, the Directors, officers, employers, authorized representatives
including the petitioner, had already been restrained from selling,
transferring, alienating, encumbering and parting with the possession of any
moveable and immovable assets and funds of the respondent no.2/company
by virtue of order dated 23.05.2012, vide which Provisional Liquidator was
also appointed.
15. She further submits that the complaint was filed by the
complainant/respondent no. 1 on 04.08.2012 i.e much after the winding up
petition against respondent no. 2/company was admitted and the restraint
order was passed on 23.05.2012. Therefore, the cause of action for filing the
complaint under Section 138 NI Act arose after the Provisional Liquidator
had been appointed.
16. Furthermore, she submits that as petitioner was not in a position to
ensure honouring of the cheques in question when the same were presented,
in view of the same, the complaint under Section 138 of the NI Act was not
maintainable. To buttress her contention she has placed relied upon the
following decisions: (i) R.K. Jain vs. Manju Bajad and Anr. [Criminal MC
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No. 2278/2021] dated 01.09.2023 (ii) R.K. Jain vs. Vinay Kumar Tyagi
And Anr. [Criminal MC No. 2845/2021] dated 01.09.2023 and (iii) M.L
Gupta and Anr. vs. Ceat Financial Services Ltd ; 2006 SCC Online Del
1448.
17. Mr. Ram Ekbal Roy, learned counsel appearing on behalf of the
respondent no.1/complainant has not controverted the submissions of Ms.
Jain that the cheques in question were dishonoured vide memo dated
15.06.2012 and a demand notice regarding the same was issued on
02.07.2012, which was followed by the filing of complaint under Section
138 of the NI Act, against the petitioner and respondent no. 2/company.
Incidentally, no reply to the petition was filed by the
complainant/respondent no. 1, therefore, all the averments made in the
petition have remained uncontroverted.
18. Further, it is also not in dispute that respondent no. 2/company went
into liquidation and a Provisional Liquidator was appointed vide order dated
23.05.2012 in Company Petition no. 262/2012 and subsequently by order
dated 21.01.2020 respondent no.2/company got dissolved.
19. I have heard the learned counsels appearing on behalf of both the
parties.
20. In the present case, as noted above, the liquidation proceeding was
triggered on 23.05.2012, when notice was issued in the Company Petition
filed for the winding up of respondent no. 2/company, and the same was
admitted and a Provisional Liquidator was appointed. Crucially, this event
occurred prior to the dishonour of the cheques in question, which took place
on 15.06.2012. Furthermore, the statutory demand notice was issued by
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complainant/respondent no. 1 only subsequently, on 02.07.2012.
21. To appreciate the controversy involved in the present case, it would
be apposite to refer to relevant provisions of the Companies Act, 1956 -
“ 450. APPOINTMENT AND POWERS OF PROVISIONAL
LIQUIDATOR .—
(1) At any time after the presentation of a winding up petition
and before the making of a winding up order, the Tribunal may
appoint the Official Liquidator to be liquidator provisionally.
(2) Before appointing a provisional liquidator, the Tribunal
shall give notice to the company and give a reasonable
opportunity to it to make its representations, if any, unless, for
special reasons to be recorded in writing, the Tribunal thinks fit to
dispense with such notice.
(3) Where a provisional liquidator is appointed by the
Tribunal, the Tribunal may limit and restrict his powers by the
order appointing him or by a subsequent order; but otherwise he
shall have the same powers as a liquidator.
(4) The Official Liquidator shall cease to hold office as
provisional liquidator and shall become the liquidator, of the
company, on a winding up order being made .”
“ 456. CUSTODY OF COMPANY’S PROPERTY .—
(1) Where a winding up order has been made or where a
provisional liquidator has been appointed, the liquidator or the
provisional liquidator, as the case may be, shall take into his
custody or under his control, all the property, effects and
actionable claims to which the company is or appears to be
entitled.
(1A) For the purpose of enabling the liquidator or the
provisional liquidator, as the case may be, to take into his custody
or under his control, any property, effects or actionable claims to
which the company is or appears to be entitled, the liquidator or
the provisional liquidator, as the case may be, may by writing
request the Chief Presidency Magistrate or the District Magistrate
within whose jurisdiction such property, effects or actionable
claims or any books of account or other documents of the
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company may be found, to take possession thereof, and the Chief
Presidency Magistrate or the District Magistrate may thereupon
after such notice as he may think fit to give to any party, take
possession of such property, effects, actionable claims, books of
account or other documents and deliver possession thereof to the
liquidator or the provisional liquidator.
(1B) For the purpose of securing compliance with the provisions
of sub-section (1A), the Chief Presidency Magistrate or the
District Magistrate may take or cause to be taken such steps and
use or cause to be used such force as may in his opinion be
necessary.
(2) All the property and effects of the company shall be
deemed to be in the custody of the Tribunal as from the date of
the order for the winding up of the company .”
“ 457. POWERS OF LIQUIDATOR.—
(1) The liquidator in a winding up by the Tribunal shall have
power, with the sanction of the Tribunal —
(a) to institute or defend any suit, prosecution, or other
legal proceeding, civil or criminal, in the name and
on behalf of the company;
(b) to carry on the business of the company so far as may
be necessary for the beneficial winding up of the
company;
(c) to sell the immovable and movable property and
actionable claims of the company by public auction
or private contract, with power to transfer the whole
thereof to any person or body corporate, or to sell the
same in parcels; (ca) to sell whole of the undertaking
of the company as a going concern;
(d) to raise on the security of the assets of the company
any money requisite;
(e) to do all such other things as may be necessary for
winding up the affairs of the company and
distributing its assets.
(2) The liquidator in a winding up by the Tribunal shall have
power —
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(i) to do all acts and to execute, in the name and on
behalf of the company, all deeds, receipts, and other
documents, and for that purpose to use, when
necessary, the company's seal;
…
(iii) to draw, accept, make and endorse any bill of
exchange, hundi or promissory note in the name
and on behalf of the company, with the same effect
with respect to the liability of the company as if the
bill, hundi, or note had been drawn, accepted, made
or endorsed by or on behalf of the company in the
course of its business ;
(iv) to take out, in his official name, letters of
administration to any deceased contributory, and to
do in his official name any other act necessary for
obtaining payment of any money due from a
contributory or his estate which cannot be
conveniently done in the name of the company, and in
all such cases, the money due shall, for the purpose
of enabling the liquidator to take out the letters of
administration or recover the money, be deemed to be
due to the liquidator himself: Provided that nothing
herein empowered shall be deemed to affect the
rights, duties and privileges of any Administrator-
General;
(v) to appoint an agent to do any business which the
liquidator is unable to do himself.
(2-A) ……
(2-B) … ……
(2-G) The liquidator appointed shall—
(a) maintain a separate bank account for each company
under his charge for depositing the sale proceeds of the
assets and recovery of debts of each company;
(b) maintain proper books of account in respect of all
receipts and payments made by him in respect of each
company and submit half yearly return of receipts and
payments to the Tribunal.
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(3) The exercise by the liquidator in a winding up by the Tribunal
of the powers conferred by this section shall be subject to the
control of the Tribunal; and any creditor or contributory may
apply to the Tribunal with respect to the exercise or proposed
exercise of any of the powers conferred by this section.”
22. A perusal of the above reproduced provisions makes it clear that the
appointment of a Provisional Liquidator does not result in the legal
dissolution of the company, but rather leads to suspension of the Directors‟
authority, rendering them functus officio . While the company maintains its
corporate existence, its internal management is effectively displaced,
transitioning its executive power to the Provisional Liquidator. Under this
judicial arrangement, the company‟s business operations, the administration
of its assets, and the validity of its contractual engagements are contingent
upon the oversight and formal authorization of the liquidator, who serves as
the custodian of the corporate estate.
23. Reference in this regard may be had to a recent decision of the
coordinate bench of this court in CRL.M.C. 4123/2017 titled as M/S Pec
Ltd. vs. M/S Sabari Exim Pvt Ltd & Ors. , dated 22.08.2025, wherein an
identical issue with regard to maintainability of complaint under Section 138
of NI Act against the directors and the company qua which the Provisional
Liquidator had been appointed prior to dishonouring of a cheque, was
involved. Paragraph 33 of the said decision encapsulates the primary
contention raised by the petitioner/complainant therein which reads as
under:
“ 33. Firstly, the Petitioner has argued that the liability of the
Company and its Directors does not extinguish merely as the
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appointment of Official Liquidator under Section 450 of the
Companies Act is only provisional and the erstwhile Directors
continue to perform their functions in the Company except
dealing with the assets of the Company which come under the
exclusive domain of the Official Liquidator appointed for the said
function.”
(emphasis supplied)
24. The court while dealing with above contention, examined the relevant
provisions of the companies Act, 1956, and held as under:
“35. Thus, it is evident that when a Court appoints an Official
Liquidator as Provisional Liquidator under Section 450, the
Company does not cease to exist; rather the said Company’s
Board of Directors become functus officio. All the business
operations, asset management, and contractual dealings are
conducted under the supervision and with the authorization of
the Provisional Liquidator .
36. The contention of Petitioner that the erstwhile Directors
continue to perform their functions in the Company, even after the
Official Liquidator has been appointed, is misfounded and is not
tenable in law . It is only the Provisional Liquidator, as per Section
457, who is empowered under Section 457(2)(iii) “to draw,
accept, make and endorse any bill of exchange, hundi or
promissory note in the name and on behalf of the company, with
the same effect with respect to the liability of the company as if
the bill, hundi, or note had been drawn, accepted, made or
endorsed by or on behalf of the company in the course of its
business.”
(emphasis supplied)
25. In M/S PEC Ltd. (Supra), reliance was placed upon the decisions
rendered by other Coordinate Benches of this Court in M.L. Gupta (Supra)
and Ratan Lal Garera & Ors. v. State (NCT of Delhi) & Anr. , 2006 SCC
OnLine Del 1442 . The said decisions also discusses the legal position
regarding the maintainability of a complaint under Section 138 of the
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Negotiable Instruments Act, 1881, particularly when filed after the initiation
of liquidation proceedings against a corporate entity and the appointment of
a liquidator, specifically in circumstances where such appointment preceded
both, the dishonour of the cheques as well as the issuance of the statutory
demand notice. The relevant paragraphs from M/s PEC Ltd . (supra) where
said decisions have been referred read as follows:
37. In the case of M.L. Gupta vs. Ceat Financial Services Ltd.,
2006 SCC OnLine 1448 while holding that a Complaint would
not be maintainable when the cheque is presented after the
Company has already been ordered to be wound up, observed
that when the company goes into liquidation and the cheque is
presented thereafter, it cannot be said that the company has
committed the offence as it is because of legal bar that it is
precluded from making the payment. Once dishonour of the
cheque by the Bank and failure to make payment of amount by
the company is beyond its control, the Directors (who are in fact
ex-Directors) can also not be held liable.
38. Similarly, in the case of Ratan Lal Garera & Ors. vs. State
(NCT of Delhi) & Anr., 2006 SCC OnLine Del 1442 the Apex
Court relied on the case of M.L. Gupta, (supra) and held that as
the winding-up orders have been passed and the Official
Liquidator was appointed as on the date when the cheque was
presented and dishonoured, the case would not fall within the
parameters of Section 138 N.I. Act.
(emphasis supplied)
26. Likewise, in Manju Bajad (Supra) and Vinay Kumar Tyagi (Supra)
both rendered on 01.09.2023, one of the party i.e the present petitioner was
same. Even the facts involved were identical. In the said two cases, the court
allowed the petition of the petitioner, thereby quashing the complaint filed
under Sections 138/141/142 of the N.I Act against the director i.e. the
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present petitioner. The relevant paragraphs from Manju Bajad (supra) are
reproduced herein:
“8. In the present case, admittedly, the respondent no.2 was in
liquidation vide order dated 23.05.2012 passed in Co. Pet.
262/2012 titled Rani Leasing and Finance Pvt. Ltd vs. P.R.J.
Enterprises Ltd. and Ors. seeking winding up of the respondent
no.2, wherein a Provisional Liquidator was appointed and the
respondent no.2, its Directors, officers, employers, authorised
representatives including the petitioner herein were restrained
from selling, transferring, alienating, encumbering and parting
with the possession of any movable and immovable assets and
funds of respondent no.2 and were also restrained from
withdrawing any money from the accounts of respondent no.2. As
on date, vide a subsequent order dated 21.01.2020 the respondent
no.2 i.e., P.R.J. Enterprises Ltd. has already been dissolved.
9 . It is also the admitted position that the cheques in question in
the present case were dishonoured on 21.05.2012 and the Legal
Notice dated 04.06.2012 was subsequently sent by speed post
dated 06.06.2012, meaning thereby that the 15 days for making
payment after receipt of the Legal Notice expired on 21.06.2012.
Thus as evident from the aforesaid, the cause of action for filing
the complaint under Section 138 of NI Act arose after the
respondent no.2 company went into liquidation.
10. It is trite law that a complaint under Section 138 of the NI Act
is not maintainable if filed after the Company has already been
directed to be wound up. The said position of law has been
explained in M.L. Gupta(supra) wherein it has been observed as
under :-
8. We are, however, concerned with the position where cheque
presented is dishonoured and complaint is filed under Section
138 of the Negotiable Instruments Act against the company
and the Directors after the company has already been ordered
to be wound up. Whether such a complaint would be
maintainable is the question and the legal position on this
aspect is what needs to be determined.
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9. To answer this question, we may have first to take note of
the necessary legal consequences of the winding up of a
company and orders of appointment of Official
Liquidator/Liquidator. By operation of law, i.e. by virtue of the
Companies Act, it would result in discharge of all the
employees and the Officers from the service of the company
including Board of Directors. Affairs of such a company are
taken over by the Official Liquidator and the Official
Liquidator has to disburse the payment in accordance with the
Companies Act. Section 536 of the Companies Act now comes
into play fully and disbursement of any amount would be void.
If the cheque is presented at this stage, payment thereof is
legally barred. Bank, on which cheque is issued is precluded
from honouring the cheque. In the instant case itself, account
was closed by the Official Liquidator and that was the reason
for dishonour of cheque. It is also to be borne in kind that after
the winding up orders and the taking of over the affairs of the
company by the Official Liquidator since erstwhile Directors
seize to be the Directors as on the date of presentation of the
cheque, they are not incharge of day to day affairs of the
company. Offence is committed under Section 138 of the Act
only on the dishonour of the cheque and issuance of notice for
demand to pay the amount. As on that date, no such notice
could be issued to the company which was in liquidation and
the creditors are now to be paid as per the scheme of the
Companies Act. Therefore, liability on them also cannot be
fastened under Section 141 of the Negotiable Instruments Act.
xxx xxx xxx
16. Thus, what is emphasized is that actual offence has to be
committed by the company and then alone the Directors can
become liable for the offence. When the company goes into
liquidation and the cheque is presented thereafter, it cannot be
said that the company has committed the offence as it is
because of legal bar that it is precluded from making the
payment. Once dishonour of the cheque by the Bank and
failure to make payment of amount by the company is beyond
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its control, the Directors (who are in fact ex-Directors) can
also not be held liable. Sustenance for this proposition can be
drawn from another judgment of the Supreme Court in the
case of Kusum Ingots & Alloys Ltd., etc. v. Pennar Peterson
Securities Ltd., [2000] 100 Company Cases 755 (SC). That
was a case where reference in respect of the company was
pending before the Board of Industrial and Financial
Reconstruction (for short „BIFR‟) under the Sick Industrial
Companies (Special Provisions) Act, 1985 (SICA). The Court
held that mere registering the reference would not be sufficient
to bar the proceedings under Section 138 of the N.I. Act even
by virtue of Section 22 of SICA as Section 22 which provided
that no proceedings would be instituted against the company
related to only to civil proceedings and does not include
criminal proceedings. However, the Court further held that
position would be different if order is passed by the BIFR
under Section 22A of SICA restraining the company or its
Directors from disposing of the assets of the company.....”
The said position of law has also been reiterated and followed by
this Court in Vijay Steel Tubes & Fittings Pvt. Ltd.(supra).
11. The facts of the present case clearly reveal that pursuant to
order dated 23.05.2012 directing the respondent no.2 to be
wound up, the directors and all other persons attached to the
company including the petitioner herein were restrained from
utlilizing the assets of respondent no.2 and hence no payment
could be made by the petitioner herein as he ceased to be in
control of the day to day affairs of respondent no.2 which stood
transferred to the Provisional Liquidator.
12. In light of the settled legal position and the factual matrix
involved, as discussed hereinabove, the complaint as well as
summoning orders passed by the learned MM are bad in law and
are liable to be set aside.
13. In view of the aforesaid, the petition is allowed and the
Complaint Case Misc. Crl. 1419/2016 titled Manju Bajad vs. M/s
P.R.J. Enterprises Ltd. and Anr. filed under Sections 138/141/142
of the Negotiable Instruments Act, 1881 and all proceedings
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emanating therefrom, including the order dated 09.01.2020 passed
by the learned Metropolitan Magistrate-2, Shahdara,
Karkardooma Court, New Delhi, qua the petitioner, are quashed.
14. The petition, alongwith the pending application, stands
disposed of.”
(emphasis supplied)
27. In view of the aforesaid statutory mandate, factual chronology and
decisions referred above, it is clear that once the powers vested in the
petitioner (in his capacity as a director) stood transferred to the Provisional
Liquidator by operation of law, the petitioner was legally and practically
rendered incapable of controlling the bank accounts of
respondent no. 2/company. Ergo, it cannot be said that the petitioner was in
a position to ensure the encashment of the cheque or to honour the demand
notice, as the authority to operate the said accounts rested solely with the
liquidator.
28. The use of expression “an account maintained by him” in section 138
NI Act also suggests one of the prerequisite ingredient for constituting an
offence thereunder is that accused must have control over the account. At
this juncture, it would be apposite to refer to Section 138 of the NI Act,
which is reproduced below in extenso:
“138. Dishonour of cheque for insufficiency, etc., of funds in the
account.—
Where any cheque drawn by a person on an account maintained
by him with a banker for payment of any amount of money to
another person from out of that account for the discharge, in
whole or in part, of any debt or other liability, is returned by the
bank unpaid, either because of the amount of money standing to
the credit of that account is insufficient to honour the cheque or
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that it exceeds the amount arranged to be paid from that account
by an agreement made with that bank, such person shall be
deemed to have committed an offence and shall, without prejudice
to any other provisions of this Act, be punished with imprisonment
for a term which may be extended to two years, or with fine which
may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply
unless—
(a) the cheque has been presented to the bank within a period
of six months from the date on which it is drawn or within
the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the
case may be, makes a demand for the payment of the said
amount of money by giving a notice in writing, to the
drawer of the cheque, [within thirty days of the receipt of
information by him from the bank regarding the return of
the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the
said amount of money to the payee or, as the case may be,
to the holder in due course of the cheque, within fifteen days
of the receipt of the said notice.
Explanation.—For the purposes of this section, “debt or other
liability” means a legally enforceable debt or other liability.]”
(emphasis supplied)
29. It thus, appears that to legally maintain a bank account, the holder
must exercise continuous authority, keeping the account in an active,
operational, and functional state while actively preserving it from lapse or
cessation. This continuous preservation serves as the bedrock of the drawer-
banker relationship, placing the legal emphasis not merely on the opening of
an account, but on the ongoing affirmative act of keeping it in proper
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condition. This expression cannot be construed so narrowly as to mean that
the mere ownership of an account by the accused satisfies the necessary
legal ingredients. Rather, the requirement that an account be “maintained”
necessarily implies that it is alive and operative, ensuring the account holder
remains capable of executing commands to govern financial transactions,
such as the clearance of cheques. Ultimately, the authority and control of the
account holder must exist on the effective date when the cheque becomes
valid for presentation at the bank.
30. This position is supported by the observations of a coordinate bench
of this court in Best Buildwell Pvt. Ltd. and Others vs. R.D. Sales (2025
SCC OnLine Del 4267) , wherein it was noted that -
“14. Under Section 138 of the NI Act, an offence is committed
when a cheque is drawn from an account maintained by the
drawer and it is returned unpaid due to insufficient funds. Even
though the cheque return memo may mention its reason for
dishonor as “insufficient funds”, the fact remains that, the
petitioners' account was frozen by the CGST Department, and
thus, it could not be said to be “maintained” by them at the
relevant time. Since the petitioners were unable to operate the
account or issue valid instructions to the bank due to the
attachment, the essential ingredients of Section 138 are not
fulfilled. Even if the funds in the account were insufficient at the
time of presentation of the cheques, the account having been
frozen by the CGST, it would not have been possible for the
petitioner to maintain sufficiency of funds in his account for the
cheques to be honoured. This position finds support in Vijay
Chaudhary v. Gyan Chand Jain, 2008 SCC OnLine Del 554,
where it was inter alia held as under;
“xxx
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23. … For an account to be maintained by an account holder, it
is essential that he is in a position to operate the said account by
either depositing monies therein or by withdrawing money
therefrom. He should be in a position to give effective
instructions to his banker with whom the account is
maintained. However, in the present case, once the account has
been attached by an order of the Court, the said account could
not be operated by the petitioner. He could not have issued any
binding instructions to his banker, and the banker was not
obliged to honour any of his instructions in relation to the said
account, so long as the attachment under the court orders
continued .”
(emphasis supplied)
31. In view of the settled legal position as rendered in M/S PEC LTD
(Supra) and M.L Gupta (Supra) the appointment of a Provisional Liquidator,
occurring prior to the dishonour of the cheques and the issuance of the
demand notice, effectively divested the petitioner of his managerial
authority and control over the company‟s bank accounts. Since the statutory
mandate of Section 138 of the N.I. Act requires the account to be
“maintained” by the accused at the time of the offence, the transition of
executive power to the Provisional Liquidator created a legal and practical
impossibility for the petitioner to satisfy the demand or operate the accounts.
Concomitantly, as the petitioner was neither in charge of the company‟s
affairs nor capable of ensuring the encashment of the cheques on the date the
cause of action crystallized, therefore, the essential ingredients of the
offence are not met, and the complaint against the petitioner is held to be
legally non-maintainable.
32. Therefore, as per the above discussion, the present petition is allowed.
Consequently, the complaint case bearing no.2712/2022 titled as , M/s Shree
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Balaji Enterprises v. M/s PRJ Enterprises Ltd. & Anr. which is stated to be
pending before the Court of Judicial Magistrate First Class (JMFC),
Shahdara, KKD, Delhi and all proceedings emanating therefrom in respect
of the petitioner herein, are quashed.
33. Consequently, the pending application also stands disposed of.
VIKAS MAHAJAN, J
MAY 04, 2026
N.S. ASWAL
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