2006 (3) TMI 806 - HC - Indian Laws

Accused can face prosecution post-company winding up despite frozen accounts; personal liability emphasized.

Counter Point Advt. P. Ltd. Versus Harita Finance Limited

The court held that the accused could still be prosecuted under Section 138 of the Negotiable Instruments Act even after the winding up of the company. ... - Issues:1. Prosecution of accused under Section 138 of the Negotiable Instruments Act after winding up of the company.2. Effect of cheques returned with 'Accounts Freezed' endorsement on criminal liability.3. Validity of statutory notices served on the accused.Analysis:1. The first issue raised was whether the accused could be prosecuted under Section 138 of the Negotiable Instruments Act after the winding up of the company. The defense argued that once the company was wound up, no legal proceedings could enforce the liability of the accused. However, the court held that even after winding up, the accused could still be held criminally liable for their actions, as the freezing of accounts was due to the accused's actions, not the complainant's.2. The second issue focused on the significance of cheques being returned with the endorsement 'Accounts Freezed' on the criminal liability of the accused. The defense contended that this did not amount to insufficient funds. The court clarified that despite the freezing of accounts during winding up, the accused company was obligated to ensure the cheques were honored. The freezing was a result of winding up proceedings, and the accused could not evade liability based on this ground.3. The final issue revolved around the service of statutory notices on the accused. The defense claimed that the notices were not properly served. The court found that while the notices were issued to the registered address of the accused, they were returned unserved. Consequently, the accused could not argue that the statutory notice was not properly given to them.4. The judgment referenced legal precedents to support its decision. It cited the case of J.K. LTD vs. KAISER SPG. CO. to establish that once winding-up proceedings were completed, no new rights could be created. Additionally, the Division Bench of the Kerala High Court in Jose Antony Kakkad v. Official Liquidator clarified that criminal proceedings under Section 138 of the Negotiable Instruments Act were not in respect of the assets of the company and thus could not be stayed under Section 446 of the Companies Act.5. Ultimately, the court concluded that the accused could not escape their criminal liability under the Negotiable Instruments Act, even if the company was wound up and the Official Liquidator had taken control. The court emphasized that the personal criminal liability of the company and its directors was being enforced, and the accused could not evade responsibility on the basis of the company's winding up. Consequently, the criminal original petitions and connected miscellaneous petitions were dismissed.