Proceedings U/s. 138 NI Act Not Sustainable For Cheque Drawn By A Dissolved Company: Delhi High Court

The Delhi High Court has held that proceedings for dishonour of cheque under Section 138 Negotiable Instrument Act cannot be sustained for cheque drawn by a dissolved company.

The Court was considering a Petition seeking quashing of two pending criminal complaint cases filed under Section 138 of the NI Act.

The Bench of Justice Arun Monga observed, "Once a company is struck off and stands dissolved, it loses its juristicpersonality, 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."

The Petitioner was represented by Advocate Kanwal Chaudhary, while the Respondent was represented by Additional Public Prosecutor Sanjeev Sabharwal.

Facts of the Case 

To discharge its liability, a Cheque was issued by Respondent No.2 Company, which was dishonoured with the remark “Contact Drawer/Drawee Bank and Present Again.” A legal notice was issued, but payment was not made, leading to the filing of the complaint. The Petitioners were directors of the Accused Company. After filing of the Complaint, the Complainant Company was wound up in accordance with law.

It was the Petitioner's contention that the cheques were security cheques issued in 2011 at the start of the transactions between the complainant company and the accused company and were never meant for presentation. The complainant allegedly misused them by inserting new dates and inflated amounts. 

It was contended that despite the dissolution of the complainant company, the ex-directors continued operating its bank account and presented the cheques in the name of a non-existent company, amounting to abuse of process.

The Counsel argued that Complaints under Section 138 of the NI Act were legally untenable, having been filed by a non-existent entity through unauthorised persons. Referring to Sections 248(5), 248(6), and 250 of the Companies Act, it was contended that only the Registrar of Companies has authority to operate accounts or realise dues of a dissolved company and since no such supervision or authorisation existed, the ex-directors’ actions were without legal authority.

It was submitted that the alleged debt was time-barred, as the transaction took place between April 2011 and April 2014, making the 2020 complaints legally untenable.

Reasoning By Court 

The Court found merit in the submission of Counsel for Petitioner and held, "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."

The Petitions were accordingly allowed.

Cause Title: Mr. Krishan Lal Gulati & Anr. v. State of NCT of Delhi & Anr. 2025:DHC:9339

Appearances:

Petitioners- Advocates Kanwal Chaudhary, Dinesh Priani, Ankit Kumar, Komal Priani and Vatsal Sharma.

Respondents- Additional Public Prosecutor Sanjeev Sabharwal 

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