Section 138 NI Act Proceedings Are Inadmissible Against Directors for Cheques Issued After Company Dissolution

The Petitioner (Accused No. 1) was a Director of Giga Networks Private Limited (Accused No. 2), a company incorporated in 2003

On 16-03-2011, the Registrar of Companies officially struck off and dissolved the Company

In November 2014, the Petitioner allegedly took a hand loan of ₹60 lakhs from the Respondent (Complainant)

On 30-07-2017 (six years after the company was dissolved), a cheque for ₹60 lakhs was issued from the defunct Company's account to the Respondent

The cheque was dishonoured on 08-08-2017 with the remark "Account Closed"

The Respondent initiated proceedings under Section 138 of the Negotiable Instruments (NI) Act, which the Petitioner challenged before the High Court seeking quashment

1. Whether criminal proceedings for an offence punishable under Section 138 of the NI Act can be maintained when the cheque in question was issued in the name of a company that had been dissolved several years prior to the issuance

The Court primarily applied Section 138 of the Negotiable Instruments Act, 1881, which requires that a cheque be drawn on an "account maintained" by the drawer

It relied on the Supreme Court precedent in Vishnoo Mittal v. Shakti Trading Company (2025), which held that directors are not liable if they lack the legal capacity to fulfill a demand due to a moratorium

It further applied the principle from Delhi High Court in Krishan Lal Gulati v. State of NCT of Delhi (2025) and Raj Kumar Jain v. Shree Balaji Enterprises (2026), establishing that once a company is dissolved, it loses juristic personality and any act done on its behalf is void ab initio

Finally, it distinguished Bharat Mittal v. State of Rajasthan (2025) regarding "legal snags," noting that while directors can be held liable if a company goes into liquidation during proceedings, they are not liable if the company was non-existent at the time of issuance

The Court reasoned that for Section 138 to apply, the cheque must be a "legally enforceable instrument" drawn on an account "maintained" by the drawer

Since Giga Networks Private Limited was dissolved in 2011, its certificate of incorporation was cancelled and it ceased to exist as a juristic person long before the cheque was issued in 2017

Consequently, the company could not have validly participated in commercial dealings or maintained an operational bank account

The Court emphasized that "maintaining" an account implies a continuous authority to operate it, which is legally impossible for a dissolved entity

Unlike cases where a company enters liquidation after a valid cheque is issued, here the cheque itself was void from inception because the drawer (the company) did not exist

Furthermore, the complaint failed to aver that the Petitioner was in charge of the company’s day-to-day affairs at the relevant time, merely labeling him a "representative"

The Court allowed the petition and quashed the proceedings in C.C.No.263 of 2018 pending before the IV Additional Senior Civil Judge & ACMM, Bengaluru

The Respondent was granted liberty to seek other remedies available in law