The Delhi High Court ruled that 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.
Resultantly, the Court held that proceedings under Section 138 of the Negotiable Instruments Act, which presuppose a validly issued cheque, cannot be sustained in such circumstances of no valid drawer or account-holder existing in law.
Continuation of the trial would thus serve no legal purpose when the complainant company itself has ceased to exist, as no criminal prosecution can be maintained by or against a dissolved entity, added the Court while quashing the criminal complaints.
The Court found that the cheques in question, the subsequent legal notices, 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 non-existent in law at the time of these transactions and, therefore, could not have validly participated in commercial dealings or maintained bank accounts.
A Single Judge Bench of Justice Arun Monga observed that the accused company has been dissolved in accordance with the law. Reference was made to a Notification dated September 05, 2017, issued by the Finance Ministry, which stated that companies struck off under Section 248(5) of the Companies Act cease to exist in law, their directors become ex-directors, and their bank accounts remain frozen until such companies are restored under Section 252 of the Act.
The Bench highlighted that 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.
Briefly, to discharge its liability, cheques for Rs. 1.93 crores and Rs. 1.76 crores were issued by the second respondent company, which was dishonoured with the remark “Contact Drawer/Drawee Bank and Present Again.” Since payment was not made despite issuing a legal notice, a complaint was filed, and the petitioners, being directors of the second respondent company, were summoned for the discharge of the liability.
The petitioners pleaded that the cheques were security cheques issued way back in 2011 at the start of the transactions between the complainant company and the accused company, and also, the complainant company was struck off and ceased to exist when the complaints were filed in 2020. 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.
The Metropolitan Magistrate (MM), Rouse Avenue Courts, dismissed the application filed by the petitioners, holding that the maintainability of the complaints could not be decided post-cognisance, and directed both complaints to proceed to the stage of framing notice under Section 251 CrPC.
Appearances:
Advocates Kanwal Chaudhary, Dinesh Priani, Ankit Kumar, Komal Priani, and Vatsal Sharma, for the Petitioners
APP Sanjeev Sabharwal, for the Respondent
