S. 138 NI Act | Directors Can't Escape Liability For Cheque Dishonour Merely Because Company Is Declared Insolvent: Orissa High Court

The Orissa High Court has recently held that directors of a company cannot be absolved of their liability for the offence of cheque dishonour under Section 138 of the Negotiable Instruments Act, 1881 ('the NI Act') merely because the company was declared insolvent and a Resolution Professional was appointed under the Insolvency and Bankruptcy Code, 2016 ('the IBC').While determining the extent of liability of directors of an insolvent company, the Bench of Justice Chittaranjan Dash held –“In view of the above position of law, there remains no ambiguity with respect to the principle propounded by the Hon'ble Supreme Court, namely, that the matter lying before the Resolution Professional pursuant to the order dated 08.11.2024 of the NCLT would in no manner affect the proceedings arising out of the offence under Section 138 of the N.I. Act.”The petitioner, being the Managing Director of Zenith Mining Pvt. Ltd., persuaded the complainant to extend a friendly loan of Rs.1 crore to the company. The said amount was credited to the petitioner's bank account with an assurance that it would be repaid within one year. When the company defaulted in returning the loan amount, the complainant approached the petitioner who, for himself and on behalf of the accused company, issued a cheque dated 25.06.2021 for Rs.1 crore in favour of the complainant. The complainant presented the said cheque with its banker on the very same day, but it got dishonoured with the endorsement “refer to drawer”.Upon the request of the petitioner, the complainant again deposited the cheque with the Bank but in vain. Thereafter, the complainant issued a statutory notice to the petitioner demanding payment of the dishonoured cheque amount. As the petitioner failed to comply with the said demand, the complainant instituted the complaint before the competent Court under Section 138 of the NI Act. The petitioner promptly filed an application before the trial Court seeking discharge from the prosecution on the ground that the company had already been declared insolvent and a Resolution Professional had been appointed as per Section 7 of the IBC. Thus, he contended that the complainant ought to have approached the Resolution Professional, who alone was competent to represent the accused company in view of Section 32A of the IBC.However, the trial Court did not find any force in the aforesaid argument for which it dismissed the application seeking discharge and proceeded further to prosecute the petitioner. Impugning the said dismissal order, the petition was filed before the High Court.Justice Dash, in order to adjudge the tenability of the dismissal order, relied upon the decision of the Supreme Court in Ajay Kumar Radheshyam Goenka v. Tourism Finance Corporation of India Ltd., 2023 LiveLaw (SC) 195 which held the scope and nature of proceedings under the NI Act and IBC to be quite different. It was of the further view that as per Section 14 (moratorium) of the IBC, the proceedings which have to be kept in abeyance do not include criminal proceedings, such as proceedings under Section 138 of the NI Act.Reliance was further placed upon the following observation from the concurring opinion of Justice JB Pardiwala –“Thus, the upshot of all the decisions referred to above is where the proceedings under Section 138 of the NI Act had already commenced with the Magistrate taking cognizance upon the complaint and during the pendency, the company gets dissolved, the signatories/Directors cannot escape from their penal liability under Section 138 of the NI Act by citing its dissolution. What is dissolved, is only the company, not the personal penal liability of the accused covered under Section 141 of the NI Act.”Having regard for the aforesaid, the High Court came to the conclusion that the matter pending before the Resolution Professional would not affect the proceedings arising out of the offence under Section 138 of the NI Act. Accordingly, the impugned order passed by the trial Court rejecting the discharge application of the petitioner was found to be just and proper. Case Title: Syed Najam Ahmed v. State of Odisha & Anr.Case No: CRLMP No. 837 of 2025Date of Judgment: October 13, 2025Counsel for the Petitioner: Mr. Sidhartha Mishra, AdvocateCounsel for the Opposite Parties: Mr. A.K. Apat, Addl. Public Prosecutor for the State; Mr. S.S. Padhy, Advocate for the Opposite Party No. 2Citation: 2025 LiveLaw (Ori) 133Click Here To Read/Download Order

S. 138 NI Act | Directors Can't Escape Liability For Cheque Dishonour Merely Because Company Is Declared Insolvent: Orissa High Court

Jyoti Prakash Dutta

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