Kerala High Court Allows Continuation of Criminal Proceedings in Liquidation Case
Court rules that Section 138 NI Act proceedings are separate from asset-related litigation under Companies Act.
In a significant ruling, the Kerala High Court has allowed criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881, to continue against M/s Kalpetta Janakshema Maruthi Chits Pvt. Ltd., a company currently in liquidation. The judgment, delivered by Justice Viju Abraham, clarified that such proceedings do not fall under the purview of Section 446 of the Companies Act, 1956, which aims to protect the assets of the company undergoing liquidation from unnecessary legal disputes.
The case emerged from multiple criminal complaints pending before the Chief Judicial Magistrate Court, Kalpetta, against the company. These complaints were filed for dishonored cheques, a criminal offense under Section 138 of the NI Act. The Chief Judicial Magistrate Court had previously directed the company to seek leave from the Tribunal under Section 279 of the Companies Act, 2013, to proceed with these cases. However, the High Court ruled that since the winding-up proceedings are governed by the Companies Act, 1956, and the matter has not been transferred to the National Company Law Tribunal (NCLT), such leave is unnecessary.
Justice Abraham relied on precedents, including the case of Jose Antony v. Official Liquidator, where it was established that criminal proceedings under Section 138 NI Act, which do not concern the assets of the company, fall outside the ambit of Section 446 of the Companies Act. The judgment underscores that Section 446 is designed to prevent wasteful litigation concerning the company's assets in liquidation, whereas Section 138 NI Act aims to uphold the credibility of commercial transactions by imposing personal criminal liability on the drawer of the dishonored cheque.
Furthermore, the court referenced the Bombay High Court's decision in M/s Indorama Synthetics (I) Ltd v. State of Maharashtra, which affirmed that the expression "suit or other proceedings" in Section 446 does not encompass criminal complaints under Section 138 NI Act.
The ruling permits the Official Liquidator to proceed with the pending criminal complaints before the Chief Judicial Magistrate Court without seeking leave from the NCLT, thereby expediting the legal process related to the dishonored cheques. This decision is expected to have significant implications for similar cases where companies under liquidation face criminal charges unrelated to their assets.
Bottom Line:
Proceedings under Section 138 of the Negotiable Instruments Act, 1881, do not fall under the ambit of Section 446 of the Companies Act, 1956, as they do not relate to the assets of the company under liquidation.
Statutory provision(s): Companies Act, 1956 Section 446, Negotiable Instruments Act, 1881 Section 138, Companies Act, 2013 Section 279
