Recently, the Delhi High Court quashed two criminal complaints filed under Section 138 of the Negotiable Instruments Act, holding that proceedings initiated by a company that had already been dissolved under the Companies Act were legally unsustainable. The Court observed that once a company is struck off and ceases to exist, it loses its juristic personality, and any act done on its behalf is void ab initio.
Brief Facts:
The matter arose from two criminal complaints filed by Raghav Aditya Chits Pvt. Ltd. against Space Services (India) Pvt. Ltd. and its directors for alleged dishonour of cheques. The complainant company claimed that cheques issued by the accused company towards repayment of liabilities were dishonoured due to insufficient funds.
However, it was later revealed that Raghav Aditya Chits Pvt. Ltd. had been struck off from the Register of Companies by the Registrar of Companies, Delhi and Haryana, much before the filing of these complaints. Despite its dissolution, the ex-directors of the struck-off company continued operating its bank account and filed the present complaints in its name.
Contentions of the Petitioners:
The counsel for the petitioners contended that the complainant company had ceased to be a legal entity after being struck off on 08.08.2018, and therefore lacked the capacity to initiate proceedings under the NI Act in 2020. It was argued that under Sections 248(5) and 250 of the Companies Act, 2013, a dissolved company stands legally non-existent and its certificate of incorporation is deemed cancelled.
The petitioners further argued that the cheques in question were old security cheques issued in 2011, which were never meant for presentation and were later misused by the ex-directors of the dissolved company. They also submitted that the trial court erred in law by refusing to dismiss the complaints despite clear evidence of the company’s dissolution.
Observations of the Court:
The Delhi High Court found merit in the petitioners’ submissions and relied upon the statutory framework under the Companies Act, 2013 and government notifications clarifying the effect of dissolution. Referring to Sections 248(5) and 250 of the Act, the Court observed, “Where a company stands dissolved under Section 248, it shall cease to operate as a company and the certificate of incorporation issued to it shall be deemed to have been cancelled from such date, except for the purpose of realising the amount due to the company and for the payment or discharge of the liabilities or obligations of the company.”
The Court also cited a Government notification dated 05.09.2017 issued by the Ministry of Finance, which restricts the operation of bank accounts of struck-off companies and prohibits their directors from continuing any business activities until such companies are legally restored under Section 252 of the Companies Act.
Taking note of the sequence of events, the Court held that the cheques in question, the statutory notices, and the complaints were all issued after the complainant company’s dissolution, and therefore no valid cause of action could arise. The Court observed, “Once a company is struck off and stands dissolved, it loses its juristic personality, rendering any act done on its behalf void ab initio. Consequently, a cheque issued in the name of or by such a dissolved company cannot be treated as a legally enforceable instrument.”
The Bench emphasized that criminal prosecution under Section 138 of the NI Act presupposes a validly issued cheque by an existing entity. Hence, proceedings initiated by a non-existent company cannot be sustained in law.
The decision of the Court:
Allowing the petitions, the Court quashed both criminal complaints titled “Raghav Aditya Chits Pvt. Ltd. vs Space Services (India) Pvt. Ltd. & Ors.” along with the trial court’s order dated 22.12.2022. The Court concluded that continuation of proceedings by or against a dissolved company would amount to a miscarriage of justice. However, it clarified that successors in interest of the complainant company, if any, are at liberty to seek other remedies available under law.
Case Title: Mr Krishan Lal Gulati & Anr. vs. State of Nct of Delhi & Anr.
Case No.: CRL.M.C. 7534/2023
Coram: Justice Arun Monga
Advocate for Petitioner: Adv. Kanwal Chaudhary, Dinesh Priani, Ankit Kumar, Komal Priani, Vatsal Sharma
Advocate for Respondent: Adv. Sanjeev Sabharwal (APP)
Read Judgment @Latestlaws.com
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