Proceedings U/S 138 NI Act Are Not Sustainable For Dishonour Of Cheques Presented On Behalf Of Dissolved Company: Delhi High Court

The Delhi High Court has made it clear that a party cannot be sued under Section 138 of the Negotiable Instruments Act, 1881 for dishonor of cheques issued by it, if presented by a dissolved company.Justice Arun Monga 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 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 observations were made while allowing two petitions filed by directors of a company, booked for dishonour of cheques issued by their company to the complainant company/ Respondent.Petitioners argued that the complainant company was struck off from the Register of Companies by the ROC in 2018 and hence ceased to exist when the complaints were filed in 2020.It was contended that the Complainant company was neither a juristic person nor a legal entity at the time of filing the complaints under Section 138 of the NI Act in 2020 and thus, the complaints under Section 138 NI Act were legally untenable, having been filed by a non-existent entity.Petitioners cited Section 2(20) of the Companies Act to argue that only a company registered under the Act qualifies as a legal entity and since Respondent had ceased to exist by 2018, it lacked legal capacity to institute any complaint.It was further contended that upon dissolution, all assets, bank accounts, and properties of the complainant company automatically vested in the Government by way of escheat. Hence, its ex-directors had no right to file complaints.Agreeing with the Petitioners, the High Court observed that presentation of cheques, subsequent issuance of legal notices and the complaints filed under Section 138 NI Act 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,” it said.Reliance was also placed on a Government Notification dated 05.09.2017 issued by the Department of Financial Services, which states that companies struck off under Section 248(5) 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. “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,” the Court said.It thus quashed the complaints pending against the Petitioners.Appearance: Mr. Kanwal Chaudhary, Mr. Dinesh Priani, Mr. Ankit Kumar, Mr. Komal Priani and Mr. Vatsal Sharma, Advocates for Petitioners; Mr. Sanjeev Sabharwal, APP for the State. None for complainant/ respondent no. 2.Case title: Mr Krishan Lal Gulati & Anr. v. State Of Nct Of Delhi & Anr.Citation: 2025 LiveLaw (Del) 1399Case no.: CRL.M.C. 7534/2023Click here to read order

Proceedings U/S 138 NI Act Are Not Sustainable For Dishonour Of Cheques Presented On Behalf Of Dissolved Company: Delhi High Court

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