Cheque Dishonour Proceedings Can Be Sustained Against Directors & Signatories Of Company Even If It Is Declared Insolvent: Orissa High Court

The Orissa High Court, Bench comprising Justice Chittaranjan Dash, has ruled that the proceedings under section 138 of the NI Act will sustain against the directors or signatories of the company even if the entity has been declared insolvent under the IBC, 2016. The complainant extended a loan of Rs. 1 Cr. to Zenith Mining Pvt. Ltd., which remains unpaid. The check issued by the respondent was dishonored twice with the remark 'refer to drawer.' These events led the complainant to file a case under section 138 of the NI Act before the JMFC (LR), Bhubaneshwar. The petitioner before the Hon'ble High Court filed an application before the trial court seeking the discharge from the prosecution, citing that the company has already been declared insolvent and the Resolution Professional was appointed. Therefore, the complainant should have approached the professional. The trial court rejected the petitioner's contention while upholding that the section 138 NI Act proceedings cannot be terminated against the signatories/directors of the company. Thus, the petitioner, the corporate debtor, and its director approached the Hon'ble High Court. The petitioner relied on the ruling of Ajay Kumar Radheshyam Goenka v. Tourism Finance Corporation of India Ltd., (2023) 10 SCC 545, and argued that the Resolution Professional alone was competent to represent the corporate debtor. Per contra, the opposite party also referred to the ruling of Ajay Kumar Radheshyam Goenka (Supra) and contended that the section 138 NI Act proceedings are penal in nature and distinct from the debt recovery under the IBC. It also highlighted that the same ruling asserts that the director cannot escape criminal liability merely because of the insolvency of the company. The Orissa High Court referred to the concurring opinion of HMJ J. B. Pardiwala, in which the judge observed that the mere fact that the matter was lying before the RP in no manner affected the proceedings arising out of the offense under Section 138 of the N.I. Act. “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.” Relying on the above observations, the Hon'ble High Court confirmed the trial court's order as being just and proper. Case Name: Syed Najam Ahmed v. State of Odisha & Anr. Case No.: CRLMP No.837 of 2025 Bench: Hon'ble Mr. Justice Chittaranjan Dash Judgment Date: 13.10.2025Click Here To Read/Download The Order

Cheque Dishonour Proceedings Can Be Sustained Against Directors & Signatories Of Company Even If It Is Declared Insolvent: Orissa High Court

Mohd.Rehan Ali

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