Liquidation and loss of control over company assets justified quashing of criminal prosecution for non-payment of matured deposits.

The HC quashed the cognizance order and criminal proceeding against the petitioners where the company had already entered liquidation and a provisional liquidator had been appointed before the fixed deposits matured. Once control over the company's assets and records had passed to the liquidator, the petitioners were no longer in a position to refund the deposits when they fell due. Because the complaint omitted this material fact, the Magistrate was not shown the true position, and continuation of the prosecution for alleged offences under Sections 120B, 406 and 420 IPC was held to amount to an abuse of process.

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Issues: Whether the criminal proceeding and order taking cognizance for offences under Sections 120B, 406 and 420 of the Indian Penal Code, 1860 were liable to be quashed under Section 482 of the Code of Criminal Procedure, 1973 in view of the company having already been placed under liquidation and a provisional liquidator having been appointed before the complainant's deposits matured.

Analysis: The company's liquidation proceedings had commenced before the date on which the fixed deposits matured, and a provisional liquidator had been appointed by the Delhi High Court with authority to take over the company's assets, records and control. On those facts, the petitioners had been divested of control over the company and could not be said to have had the ability to refund the deposits when they matured. The complaint had not disclosed this material development, and had that fact been placed before the Magistrate, the complaint could have been rejected. In these circumstances, continuation of the prosecution would amount to an abuse of the process of court.

Conclusion: The order taking cognizance and the entire criminal proceeding, insofar as they related to the petitioners, were liable to be quashed.

Ratio Decidendi: Where the accused are shown to have been divested of control over the company by a prior liquidation order and provisional liquidator's appointment, non-payment of deposits, without more, does not justify criminal prosecution and the proceeding may be quashed as an abuse of process.

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