RAKESH RAMAKANTH, vs SOMASHEKARA GOWDA R G
- Court
- Karnataka High Court
1
R
Reserved on : 16.04.2026
Pronounced on : 01.07.2026
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
ST
DATED THIS THE 01 DAY OF JULY, 2026
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
CRIMINAL PETITION No.3024 OF 2024
BETWEEN:
RAKESH RAMAKANTH,
AGED ABOUT 53 YEARS,
S/O RAMAKANTH N.S.,
ST
RESIDING AT:NO.6, 1 CROSS, SRIPURAM
SHESHADRIPURAM
BENGALURU – 560 020.
... PETITIONER
(BY SRI NISHIT KUMAR SHETTY, ADVOCATE)
AND:
SOMASHEKARA GOWDA R.G.,
S/O RAMEGOWDA,
AGED ABOUT 45 YEARS,
OCC.: BUSINESS,
ST
NO.124, 1 B MAIN ROAD,
TH
6 BLOCK, RAJAJINAGAR,
BENGALURU – 560 010.
... RESPONDENT
(BY SRI M.R.BALAKRISHNA, ADVOCATE)
Digitally signed
by PADMAVATHI
B K
Location: High
Court of
Karnataka
2
THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 OF
CR.P.C., PRAYING TO QUASH THE ENTIRE PROCEEDINGS AGAINST
THE PETITIONER IN C.C.NO.263/2018, FOR THE OFFENCES P/U/S
138 OF N.I. ACT, PENDING ON THE FILE OF IV A.S.C.J. AND
A.C.M.M., BENGALURU.
THIS CRIMINAL PETITION HAVING BEEN HEARD AND
RESERVED FOR ORDERS ON 16.04.2026, COMING ON FOR
PRONOUNCEMENT THIS DAY, THE COURT MADE THE FOLLOWING:-
CORAM: THE HON'BLE MR JUSTICE M.NAGAPRASANNA
CAV ORDER
The petitioner/accused No.1 is before this Court calling in
question proceedings in C.C.No.263 of 2018 registered for offences
punishable under Section 138 of the Negotiable Instruments Act,
1881 (hereinafter referred to as ‘the Act’ for short).
2. Heard Sri Nishit Kumar Shetty, learned counsel appearing
for the petitioner and Sri M.R. Balakrishna, learned counsel
appearing for the respondent.
3
3. Facts in brief, germane, are as follows:
3.1. Accused No.2/Giga Networks Private Limited (‘the
Company’) was incorporated under the provisions of the Companies
Act, 1956. The Company was in the business of providing turnkey
services to large companies viz., Reliance, Vodafone, Airtel etc.
Petitioner/accused No.1 is said to be its Director. On 31-10-2010,
an application comes to be submitted to the Registrar of Companies
to close accused No.2/Company. Based on the said application, the
Company is struck off from the array of companies under the
Companies Act, 1956 and is declared as dissolved. On 16-03-2011,
an endorsement is also issued by the Registrar of Companies
striking off accused No.2 Company from the register and bringing it
under the list of dissolved companies.
3.2. In the month of November 2014, accused No.1 is alleged
to have taken a hand loan from the respondent/complainant to an
extent of ₹60/- lakhs on the assurance that it would be paid back
within 30 months. In furtherance of the said transaction, three
years later on 30-07-2017, accused No.2/Company issues a cheque
amounting to ₹60/- lakhs. On 08-08-2017 when the cheque comes
4
to be presented for realization, it is returned with an endorsement
‘account closed’. The respondent complainant initiates statutory
proceedings by issuance of a demand notice seeking payment from
the hands of the Company along with interest. The demand notice
was sent to accused No.2/Company and is said to have demanded
accused No.1 to answer. It is then, the complainant registers a
complaint before the concerned Court invoking Section 200 of the
Cr.P.C., in PCR No.13006 of 2017. Cognizance is taken for the
offence punishable under Section 138 of the Act and is registered as
C.C.No.263 of 2018. Now the petitioner calls in question the entire
proceedings.
4.1. The learned counsel appearing for the petitioner would
vehemently contend that he had approached the respondent/
complainant during the financial crisis in the Company and had
borrowed an amount of Rs.20/- lakhs from him by way of cash.
Accused No.1 had given several bank cheques and promissory
notes to the respondent/complainant over a period of time and has
paid back over ₹80/- lakhs in cash. Notwithstanding the same, the
cheque which was in the custody of the complainant was not
5
presented for a long time, but was done only in the year 2017. The
cheque is returned with an endorsement ‘account closed’. Since the
Company was dissolved in the year 2011, the impugned
proceedings would not be maintainable. He would submit that there
is no legally recoverable debt from the petitioner.
4.2. The learned counsel would submit that the
petitioner/accused No.1 was in Dubai during the time when the
cheque was allegedly issued to the complainant i.e., in July 2017.
Therefore, it could not have been issued by him. He would seek to
place reliance upon the judgment of the Apex Court in the case of
VISHNOO MITTAL v. SHAKTI TRADING COMPANY reported in
(2025) 9 SCC 417 to buttress his submission that proceedings
under the Act, if would commence after dissolution of the Company,
the Directors cannot be made liable for issuance of the said cheque.
If the Company is not liable to pay under the cheque, the Director
cannot be held liable thereto. On these grounds, the petitioner
seeks quashment of entire proceedings.
6
Per contra
5. , the learned counsel appearing for the
respondent/complainant submits that the submissions of the
learned counsel for the petitioner revolve round seriously disputed
questions of fact. The complainant was not aware of the closure of
the Company. The petitioner/accused No.1 cannot escape liability
under the Act even if the Company has been dissolved. The
signature on the cheque is not disputed by the petitioner.
Therefore, accused No.1 can still be held liable in his personal
capacity under Section 141 of the Act. He would place reliance upon
the judgment of the Apex Court in the case of AJAY KUMAR
RADHEYSHYAM GOENKA v. TOURISM FINANCE
CORPORATION OF INDIA LIMITED reported in (2023) 10 SCC
545 to buttress his submission qua the liability of the Director even
in the teeth of closure of the Company.
6. I have given my anxious consideration to the submissions
made by the respective learned counsel and have perused the
material on record.
7
7. The afore-narrated facts are not in dispute. The link in the
chain of events, as narrated hereinabove, is a matter of record.
They would not require reiteration. The Company that stood
established in the year 2003 files an application for its closure. The
closure is accepted and the Company is declared to be dissolved.
The website of the Ministry of Corporate Affairs depicts the
following, showing the Company as dissolved:
“GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
Office of the Registrar of Companies
nd
‘E’ Wing, 2 Floor, Kendriya Sadana, Koramangala,
Bangalore-560 034, Karnataka, INDIA
Date: 16-03-2011
In the matter of the Companies Act, 1956 and of M/s
GIGA NETWORKS PRIVATE LIMITED, U64202KA2001PTC029716
This is with respect to your application (Form EES, 2010)
dated 31-08-2010 vide SRN A92949148. Notice is hereby given
pursuant to sub-section (5) of Section 560 of the Companies
Act, 1956, that the name of GIGA NETWORKS PRIVTE LIMITED
has this day been struck off the Register and the said Company
is dissolved.
T.S.D.PRASADA RAO,
Deputy Registrar of Companies,
Registrar of Companies, Karnataka”
The Company thus gets declared to be dissolved on 16-03-2011.
The cheque is said to have been issued by the Company in the year
2017 for an amount of ₹60/- lakhs drawn on the account of the
8
Company. The cheque and the endorsement of the Bank read as
follows:
The complainant presents the cheque which gets dishonoured,
ostensibly so, by an endorsement ‘Account Closed’. The issue now
would be, even if the cheque has been issued by the Company after
the Company gets closed or dissolved, whether the proceedings for
9
offence punishable under Section 138 of the Negotiable Instruments
Act can spring or otherwise?
8.1. The Apex Court in VISHNOO MITTAL supra considers a
circumstance where proceedings under Section 138 of the Act had
commenced after declaration of moratorium against a company.
The Apex Court has held as follows:
“…. …. ….
12. There is another aspect to this matter. In the present
case, on 25-7-2018, the moratorium was imposed and
management of the corporate debtor was taken over by the
interim resolution professional as per Section 17 IBC. Here, we
would also like to reproduce extracts from Section 17 IBC which
are as follows:
“ 17. Management of affairs of corporate
debtor by interim resolution professional .—(1)
From the date of appointment of the interim resolution
professional—
( a ) the management of the affairs of the corporate
debtor shall vest in the interim resolution
professional;
b
( ) the powers of the Board of Directors or the
partners of the corporate debtor, as the case may
be, shall stand suspended and be exercised by
the interim resolution professional;
( c ) *
( d ) the financial institutions maintaining accounts of
the corporate debtor shall act on the instructions
of the interim resolution professional in relation
to such accounts and furnish all information
10
relating to the corporate debtor available with
them to the interim resolution professional.”
13. The bare reading of the above provision shows
that the appellant did not have the capacity to fulfil the
demand raised by the respondent by way of the notice
issued under clause ( c ) of the proviso to Section 138 NI
Act. When the notice was issued to the appellant, he was
not in charge of the corporate debtor as he was
suspended from his position as the Director of the
corporate debtor as soon as IRP was appointed on 25-7-
2018. Therefore, the powers vested with the Board of
Directors were to be exercised by the IRP in accordance
with the provisions of IBC. All the bank accounts of the
corporate debtor were operating under the instructions of
the IRP, hence, it was not possible for the appellant to
repay the amount in light of Section 17 IBC.”
The Apex Court holds that proceedings under Section 138 of the Act
against a Director of a company who has allegedly issued a cheque
after the moratorium period had commenced under Section 14 of
the Insolvency and Bankruptcy Code, 2016 would not be
maintainable, since such a Director would not have the capacity to
fulfil the demand raised by the complainant.
8.2. The High Court of Delhi in KRISHAN LAL GULATI v.
1
STATE OF NCT OF DELHI has held as follows:
“…. …. ….
1
2025 SCC OnLine Del 9658
11
6. First and foremost, before adverting to merits, the
order-sheet of the case file reflects that respondent no. 2 was
being represented through a counsel. However, none appears
today. It so seems that in view of the detailed order dated
13.10.2023 passed by Coordinate Bench of this Court, the
Complainant/Respondent No. 2 has accepted the futility of
the lis as fait accompli . Since the accused company M/s. Raghav
Aditya Chits Pvt. Ltd.
has been dissolved in accordance with law.
After perusal of the case file vis-à-vis the preliminary
observations in the aforesaid order, with which I am in
agreement, that alone suffices for both the present petition to
be allowed.
7. However, adumbrating further, reference may be had
to Sections 248(5), 250 of the Companies Act, 2013 which read
as under:—
“248.(5) At the expiry of the time mentioned in
the notice, the Registrar may, unless cause to the
contrary is shown by the company, strike off its name
from the register of companies, and shall publish notice
thereof in the Official Gazette, and on the publication in
the Official Gazette of this notice, the company shall
stand dissolved.”
“250. Effect of company notified as dissolved.—
Where a company stands dissolved under section
248, it shall on and from the date mentioned in the
notice under sub-section (5) of that section cease to
operate as a company and the Certificate of
Incorporation issued to it shall be deemed to have been
cancelled from such date except for the purpose of
realising the amount due to the company and for the
payment or discharge of the liabilities or obligations of
the company.”
8. To fortify above position in law, a notification dated
05.09.2017 was also issued by the Department of Financial
Services, Ministry of Finance, Union of India reads as under:—
“Government has stepped up decisive action
against companies falling within the ambit of Section
248 of the Companies Act. The names of 2,09,032
12
companies have been struck off from the Register
of Companies under Section 248(5) of the Act. The
existing Directors and Authorized Signatories of
such struck off companies will now become ex
Directors or ex Authorized Signatories. These
individuals will therefore not be able to operate
bank accounts of such companies till such
companies are legally restored under Section 252
of the Companies Act by an order of the National
Company Law Tribunal. The restoration, as and
when it happens shall be reflected by change in
the status of the company from Struck of to Active.
Since such “Struck off” companies have ceased to
exist, action has been initiated to restrict the operation
of Bank accounts of such companies. The Department of
Financial Services has, through the Indian Banks
Association, advised all Banks that they should take
immediate steps to put restrictions on bank accounts of
such struck off companies. A list of such companies,
Registrar of Companies wise, has been published on the
website of the Ministry of Corporate Affairs.
In addition to such struck off companies, Banks
have also been advised to go in for enhanced diligence
while dealing with F companies in general. A company
even having an active status on the website of the
Ministry of Corporate Affairs but 0 defaulting in filing of
its due Financial Statement (s) or Annual Return (s) of
Particular of Charges on its assets on the 11 secured
loan should be seen with suspicion as, prima facie, the
company is not complying with its mandatory statutory
obligations to file this vital information for availability to
its stakeholders.”
9. Thus, the provisions contained in Sections 248(5)
and 250 of the Companies Act, 2013, deal with the strike-
off and dissolution of companies by the Registrar of
Companies. Under Section 248(5), the Registrar may
strike off a company's name from the register if no cause
is shown, and upon publication of such notice in the
Official Gazette, the company stands dissolved. Section
250 further clarifies that once dissolved under Section
248, the company ceases to operate as a legal entity and
its certificate of incorporation is deemed cancelled,
13
except for limited purposes such as realizing dues or
settling liabilities.
10. As already noted, supra, Government
Notification dated 05.09.2017 issued by the Department
of Financial Services, states that companies struck off
under Section 248(5) cease to exist in law, their directors
become exdirectors, and their bank accounts remain
frozen until such companies are restored under Section
252 of the Act. This notification, issued in the context of a
large-scale corporate clean-up, reinforces that any
transactions or operations by a struck-off company would
be legally impermissible until its restoration.
11. The cheques in question, dated 10.11.2019 in
CC No. 2619/2020 and 10.10.2019 in CC No. 4753/2020,
the subsequent legal notices, both dated 23.12.2019, and
the complaints filed under Section 138 of the Negotiable
Instruments Act, 1881, are all actions that occurred after
the company's dissolution. This sequence clearly
indicates that the company was nonexistent in law at the
time of these transactions and, therefore, could not have
validly participated in commercial dealings or maintained
bank accounts.
12. Once a company is struck off and stands
dissolved, it loses its juristic personality, rendering any
act done on its behalf void ab initio unless the company is
restored under Section 252 of the Companies Act.
Consequently, a cheque issued in the name of or by such
a dissolved company cannot be treated as a legally
enforceable instrument, since no valid drawer or account-
holder exists in law. Proceedings under Section 138 of
the Negotiable Instruments Act, which presuppose a
validly issued cheque, therefore, cannot be sustained in
such circumstances.
13. Continuation of the trial would thus serve no legal
purpose when the complainant company itself has ceased to
exist. Criminal prosecution cannot be maintained by or against a
dissolved entity.”
14
The High Court of Delhi holds that a complaint under Section 138 of
the Act would not be maintainable if the cheque is issued after the
company is struck off. Once the company is struck off and stands
dissolved, it loses its juristic personality, rendering any act done on
behalf of the company void ab initio , unless the company is
restored under Section 252 of the Companies Act, 2013. The High
Court of Delhi would further hold that the cheque issued in the
name of or by such a dissolved company cannot be treated as a
legally enforceable instrument.
8.3. The High Court of Delhi, again in RAJ KUMAR JAIN v.
2
SHREE BALAJI ENTERPRISES , holds as follows:
“…. …. ….
20. In the present case, as noted above, the liquidation
proceeding was triggered on 23-5-2012, when notice was issued
in the Company Petition filed for the winding up of Respondent
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
15-6-2012. Furthermore, the statutory demand notice was
issued by complainant/Respondent 1 only subsequently, on 2-7-
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:
2
2026 SCC OnLine Del.2599
15
“
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 company may be found, to take possession thereof,
16
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 —
17
(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
18
yearly return of receipts and payments to the
Tribunal.
(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 Pec Ltd. v. Sabari Exim Pvt Ltd. ,
dated 22-8-2025, 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. Para 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 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
19
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 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 v. State (NCT of Delhi) , 2006 SCC OnLine Del
1442. The said decisions also discusses the legal position
regarding the maintainability of a complaint under
Section 138 of the 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
20
demand notice. The relevant paragraphs from PEC Ltd. .
(supra) where said decisions have been referred read as
follows:
37. In the case of M.L. Gupta v. Ceat Financial
Services Ltd., (2008) 145 Comp Cas 837 : 2006 SCC
OnLine Del 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
v. 2006 SCC OnLine Del
Garera State (NCT of Delhi),
1442 the Supreme 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 1-9-2023, one of the partyi.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
present petitioner. The relevant paragraphs from Manju
Bajad (supra) are reproduced herein:
“8. In the present case, admittedly, Respondent
2 was in liquidation vide order dated 23-5-2012 passed
in Co. Pet. 262/2012 titled Rani Leasing and Finance
Pvt. Ltd v. P.R.J. Enterprises Ltd. seeking winding up of
Respondent 2, wherein a Provisional Liquidator was
21
appointed and Respondent 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 2 and were also restrained
from withdrawing any money from the accounts of
Respondent 2. As on date, vide a subsequent order
dated 21-1-2020 Respondent 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 21-5-2012 and the Legal Notice
dated 4-6-2012 was subsequently sent by speed
post dated 6-6-2012, meaning thereby that the 15
days for making payment after receipt of the Legal
Notice expired on 21-6-2012. Thus as evident from
the aforesaid, the cause of action for filing the
complaint under Section 138 of NI Act arose after
Respondent 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.
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
22
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
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., v. Pennar
Peterson Securities Ltd., (2000) 2 SCC 745: 2000
SCC (Cri) 546: (2000) 100 COMP CAS 755 (SC).
That was a case where reference in respect of the
company was pending before the Board of
23
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 23-5-2012
directing Respondent 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
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 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 v. P.R.J. Enterprises Ltd. filed under
Sections 138/141/142 of the Negotiable Instruments
Act, 1881 and all proceedings emanating therefrom,
including the order dated 9-1-2020 passed by the
learned Metropolitan Magistrate-2, Shahdara,
Karkardooma Court, New Delhi, qua the petitioner, are
quashed.
24
14. The petition, along with 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 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 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—
25
(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
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.
26
30. This position is supported by the observations of a
coordinate bench of this court in Best BuildwellPvt. Ltd. v. 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
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)
27
31. In view of the settled legal position as rendered
in 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.”
The High Court of Delhi holds that proceedings for the offence
punishable under Section 138 of the Act would not be maintainable
if the cheque is issued after proceedings for liquidation of the
company is initiated.
9. On a blend of the judgments rendered by the Apex Court
and that of the High Court of Delhi, what would unmistakably
emerge is that, a cheque allegedly issued in the name of the
company, after dissolution of the company, would not become a
legally enforceable instrument, it would be void ab initio . It would
be an altogether different circumstance if the cheque is issued and
28
during the proceedings, the company would cease to exist. Then
the Directors are to be held liable for fulfilling the legally
enforceable instrument. This is what is declared by the Apex Court
3
in BHARAT MITTAL v. STATE OF RAJASTHAN in the following
paragraphs:
“…. …. ….
II. PROSECUTION CANNOT BE MAINTAINED AGAINST A
DIRECTOR OR CHEQUE SIGNATORY ALONE WITHOUT
MAKING THE COMPANY AN ACCUSED, EXCEPT IN ONE
SITUATION - A LEGAL IMPEDIMENT (LEGAL SNAG).”
15. This Court, in AneetaHada v. Godfather Travels
& Tours Pvt. Ltd ., laid down the law that criminal
prosecution against ‘every person who, at the time the
offence was committed, was in charge of and responsible
to the company for the conduct of its business,’ as
contemplated under Section 141 of the Act, cannot be
maintained unless the company itself is arraigned as an
accused in a complaint filed under Section 138 read with
Section 141 of the Act.
16. In Aneeta Hada , this Court undertook an examination
of the correctness of certain earlier pronouncements which had
taken the view that prosecution could be maintained against a
director or the signatory of the cheque even in the absence of
the company being arraigned as an accused. One such decision
was Anil Hada v. Indian Acrylic Ltd . In Anil Hada , the Court was
dealing with a situation wherein the complaint had been
instituted only against the directors of M/s Indo Flogate
Industries Ltd., the company not having been impleaded on
account of it being under liquidation. In those circumstances,
this Court proceeded to hold as follows:
3
2025 SCC OnLine SC 2856
29
“10. Three categories of persons can be
discerned from the said provision who are brought
within the purview of the penal liability through the legal
fiction envisaged in the section. They are : (1) The
company which committed the offence, (2) Everyone
who was in charge of and was responsible for the
business of the company, (3) any other person who is a
director or a manager or a secretary or officer of the
company, with whose connivance or due to whose
neglect the company has committed the offence.
………
13. If the offence was committed by a company it
can be punished only if the company is prosecuted. But
instead of prosecuting the company if a payee opts to
prosecute only the persons falling within the second or
third category the payee can succeed in the case only if
he succeeds in showing that the offence was actually
committed by the company. In such a prosecution the
accused can show that the company has not committed
the offence, though such company is not made an
accused, and hence the prosecuted accused is not liable
to be punished. The provisions do not contain a
condition that prosecution of the company is sine
qua non for prosecution of the other persons who
fall within the second and the third categories
mentioned above. No doubt a finding that the
offence was committed by the company is sine qua
non for convicting those other persons. But if a
company is not prosecuted due to any legal snag
or otherwise, the other prosecuted persons
cannot, on that score alone, escape from the penal
liability created through the legal fiction envisaged
in Section 141 of the Act.
(Emphasis supplied)
17. Aneeta Hada partially overruled the ratio of Anil
Hada to the extent that it had permitted prosecution of category
of persons without arraigning the company as an
accused. Aneeta Hada clarified that a complaint under
Section 138 read with Section 141 of the Act cannot be
maintained against the ‘category of persons’ alone unless
the company is also made an accused. However, it upheld
the only exception recognized in Anil Hada namely, that
where the company cannot be prosecuted due to a legal
30
impediment, proceedings may validly continue against
the ‘category of persons’ alone.
18. From the above analysis, the following
conclusions emerge:
i. The ‘category of persons’ referred to in Section 141
of the Act cannot be prosecuted in a complaint
under Section 138 read with Section 141 unless the
company is also arrayed as an accused.
ii. The only exception arises where, due to a legal
impediment, the company cannot be prosecuted, in
such circumstances, the prosecution may proceed
solely against the ‘category of persons’.
iii. Where a complaint has been properly filed against
both the company and the ‘category of persons’, but
during the pendency of the proceedings the
company goes into liquidation, winding-up, or faces
any other legal snag, the prosecution will continue
only against the ‘category of persons’ and not
against the company.
19. This position of law is important for us to
reiterate for the simple reason that when a prosecution
proceeded just against the managerial persons or the
category of persons and not against the company
because of some legal snag, as is in the present case,
such managerial persons can be convicted of the offences
under Section 138 r/w Section 141. A person who has
been convicted can maintain an appeal against his
conviction.”
(Emphasis supplied at each instance)
The Apex Court holds that Directors can face conviction for offence
under Section 138 of the Act if there is a legal snag, by virtue of
which the company cannot be drawn in as an accused. Where a
31
complaint has been properly filed both against the company and the
category of persons – Directors or otherwise, but during the
pendency of the proceedings, the company goes into liquidation or
winding up or faces any other legal snag, the prosecution will
continue only against the category of persons referred to under
Section 141 of the Act and not against the company.
10. In the case at hand, the proceedings are initiated by the
complainant by issuing a legal notice on 06-09-2017 and registering
a complaint on 13-10-2017, while it is an admitted fact that the
Company stood dissolved with effect from 16-03-2011. Therefore,
the cheque itself is allegedly issued in the name of the Company
after dissolution of the Company. Therefore, the petitioner, a
former Director of the said Company cannot be held liable for a
cheque that is issued after dissolution of the Company.
11. The learned counsel for the respondent/complainant
would vehemently contend that these are disputed questions of fact
and as such further proceedings must be permitted to be continued.
32
Therefore, it becomes necessary to notice what is the averment in
the complaint. The complaint reads as follows:
“ COMPLAINT UNDER SECTION 200 Cr.P.C. R/W
SECTIONS 138 AND 142 OF THE NEGOTIABLE
INSTRUMENTS ACT.
The complainant respectfully submits as follows:-
1. The address of the complainant for the purpose of the
service of notice, summons etc., from this Hon’ble Court is as
shown in the cause title and the complainant may also be
served through his Advocates Sri Ganapathi S.Shastri & Veena
th
C.G., No.281, 20 Main, Vijayanagar, Bengaluru-560 040.
2. The address of the accused for the above said purpose
is as shown in the cause title.
3. The complainant is businessman and he knows the
accused No.1 since many years. The accused No.2 is
represented by accused No.1. In the month of November, 2014,
the accused No.1 requested the complainant to given a hand
loan of ₹60,00,000 (Rupees Sixty lakhs only) for business
purpose and the accused No.1 assured the complainant that the
said amount will be repaid within thirty months.
4. Out of friendship, the complainant gave a hand loan of
₹60,00,000 (Rupees Sixty lakhs only) to the accused No.1 in the
third week of November, 2014 by way of cash. At the time of
receiving the said amount the accused No.1 had promised the
complainant that the said amount will be repaid within thirty
months. As the accused No.1 failed to repay the said amount as
promised, in the second seek of July, 2017 the complainant
asked the accused No.1 to repay the said amount. Then the
accused No.1 issued a cheque bearing No.153060 dated 30-07-
2017 for ₹60,00,000 (Rupees Sixty lakhs only) drawn on HDFC
Bank Limited, Seshadripuram, Bengaluru to the complainant for
discharging his liability and requested the complainant to
present the said cheque to the Bank after a week. The accused
No.1 had assured the complainant that the said cheque will be
honoured on it’s presentation to the Bank.
33
5. The complainant presented the said cheque to Karur
Vysya Bank Ltd., Rajajinagar, Bengaluru. But, to shock of the
complainant, the said cheque was returned on 8-8-2017 by the
Bank for the reason that “Account closed”. While issuing the
cheque, the accused No.1 was fully aware that he had no
sufficient funds in his bank account and that the said cheque will
be bounced. The accused No.1 has issued the said cheque to
deceive/cheat the complainant. Hence, the accused No.1 has
committed an offence punishable under provisions of the
Negotiable Instruments Act.
6. From the endorsement of the Bank, it is evident that
the accused No.1 has not made any arrangement for honouring
the said cheque issued by him to the complainant. The
complainant after receiving the Bank endorsement, got issued a
legal notice dated 6-9-2017 through registered post calling upon
the accused to pay the said cheque amount of ₹60,00,000
(Rupees Sixty lakhs only) together with Interest at the rate of
18% per annum along with cost within fifteen days from the
receipt of the said notice. The accused No.1 was aware that the
complainant will issue demand notice, hence he managed that
the said notices are retuned to sender on 8-9-2017. The copies
of cheque, Bank endorsement, registered notice, postal receipt,
returned cover are herewith produced. The accused No.1 has
not paid any amount to the complainant.
7. The accused has failed to repay the said amount
demanded by the complainant. Hence, the accused is liable to
be prosecuted under the provisions of the Negotiable
Instruments Act.
8. The cause of action for this complaint arose on
22.09.2017 and subsequently thereafter at Rajajinagar Police
Station, which comes under the Jurisdiction of this Hon’ble
Court.
9. The complainant begs to rely on the documents
produced along with the complaint.
10. This complaint is preferred being aggrieved by the
dishonest and illegal intention of the accused to cheat and
defraud the complainant.
WHEREFORE, the complainant respectfully prays that this
Hon’ble Court be pleased to-
34
Secure the presence of the accused by issuing notice and
punish him in accordance with the law and act.
Pass any other order in the circumstances of the case in
the interest of justice and equity.
Sd/- Sd/-
Advocate for Complainant Complainant
Bengaluru
Date: 13-10-2017.”
The cheque is drawn on the account of the Company – accused
No.2. There is no averment in the complaint that the petitioner was
the Director at the relevant point in time and was in-charge of day-
to-day affairs of the Company. The only averment is that accused
No.2 is the Company and that the petitioner is the representative of
the Company and is liable to honour the instrument. Even on this
score, the matter need not be directed to be tried. Therefore, on
both counts viz., factual aspect as well as the jurisdictional issue of
the proceedings having sprung after the Company gets dissolved,
further proceedings cannot be permitted to be continued. However,
if the complainant has any other remedy in law, he would be at
liberty to avail of it.
35
12. The judgment relied on by the learned counsel for the
respondent/complainant would not become applicable to the facts
obtaining in the case at hand, as the Apex Court was considering a
circumstance where after issuance of the cheque one of the
proceedings began - either for winding up under the Insolvency and
Bankruptcy Code, 2016 or its closure. In the case at hand, the
Company stood closed 6 years prior to issuance of the cheque.
13. For the aforesaid reasons, the following:
O R D E R
(i) Criminal Petition is allowed.
(ii) Proceedings in C.C.No.263 of 2018 pending before the
IV Additional Senior Civil Judge & Additional Chief
Metropolitan Magistrate, Bengaluru stand quashed.
Consequently, pending I.A.No.2 of 2024 also stands disposed.
Sd-/
(M.NAGAPRASANNA)
JUDGE
Bkp
CT:MJ