Delhi High Court Quashes Complaints Against Directors Following Company's Dissolution

Court rules that complaints under Section 138 of the Negotiable Instruments Act are unsustainable once the complainant company has been legally dissolved.

In a landmark judgment, the Delhi High Court quashed two criminal complaints filed against the directors of Space Services (India) Pvt Ltd in connection with dishonoured cheques amounting to over Rs. 3.69 crore. The court ruled that proceedings under Section 138 of the Negotiable Instruments Act, 1881, could not be sustained as the complainant company, Raghav Aditya Chits Pvt Ltd, had been struck off and ceased to exist as a legal entity.

The judgment, delivered by Justice Arun Monga, addressed petitions filed by Mr. Krishan Lal Gulati and another petitioner, seeking to quash the criminal complaints pending before the trial court. The complaints were initially filed by Raghav Aditya Chits Pvt Ltd against the petitioners, who were directors of Space Services (India) Pvt Ltd, for alleged cheque dishonour. However, it was revealed that the complainant company had been dissolved in 2018, well before the complaints were filed in 2020.

The court emphasized that once a company is struck off the register by the Registrar of Companies, as per Sections 248 and 250 of the Companies Act, 2013, it loses its juristic personality. This dissolution renders any act done on behalf of the dissolved company, including the issuance and presentation of cheques, as void ab initio.

Justice Monga noted that the cheques in question were issued after the company had ceased to exist, and therefore, could not be treated as legally enforceable instruments. The court further observed that the continuation of criminal proceedings in such a scenario would serve no legal purpose and amount to a miscarriage of justice.

The judgment also highlighted the misuse of the legal process by the ex-directors of the dissolved company who continued to operate its bank accounts and initiate legal actions without any legal authority. The court referred to government notifications that restrict the operations of bank accounts of struck-off companies until they are legally restored.

In conclusion, the court exercised its inherent powers under Section 482 of the Criminal Procedure Code to quash the criminal complaints and set aside the trial court's orders. However, it granted liberty to the successors in interest of the complainant to pursue alternative legal remedies against the directors, if permissible under the law.

Bottom Line:

Proceedings under Section 138 of the Negotiable Instruments Act cannot be sustained when the complainant company has been struck off and ceased to exist as a legal entity.

Statutory provision(s): Negotiable Instruments Act, 1881 Section 138, Companies Act, 2013 Sections 248, 250, 252, Criminal Procedure Code, 1973 Section 482

Mr. Krishan Lal Gulati v. State of NCT of Delhi, (Delhi) : Law Finder Doc id # 2801288