Post-liquidation cheque dishonour proceedings cannot sustain Section 138 or derivative director liability under the Negotiable Instruments Act

A complaint under Section 138 of the Negotiable Instruments Act was treated as not maintainable where the cheque was presented and the statutory notice was issued only after the company had already been ordered to be wound up and placed under liquidation. Once the Official Liquidator had taken over, the directors were no longer in control of the company's affairs, so the statutory steps under Section 138 could not found ordinary criminal liability. Derivative liability under Section 141 also could not be fastened on the ex-directors in these circumstances, and the complaint was set aside.

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Issues: Whether a complaint under Section 138 of the Negotiable Instruments Act, 1881 is maintainable when the cheque is presented and the statutory notice is issued after the company has already been ordered to be wound up and brought under liquidation.

Analysis: The complaint was founded on dishonour of a cheque issued by the company, but by the time the statutory notice was issued, the company had already been ordered to be wound up and the Official Liquidator had taken over its affairs. Once the company was in liquidation, the directors had ceased to be in control of its day-to-day business, and the statutory steps under Section 138 had occurred after the winding up order. In that situation, the offence could not be treated as having been committed in the ordinary manner contemplated by Section 138, and the derivative liability of directors under Section 141 could not be fastened. The restraint flowing from the winding up proceedings was treated as legally material, and the complaint was held not to survive against the company or its ex-directors.

Conclusion: The complaint under Section 138 of the Negotiable Instruments Act, 1881 was held to be not maintainable and the summoning order was quashed in favour of the applicants.

Final Conclusion: Criminal prosecution based on the post-liquidation dishonour proceedings could not be sustained, and the complaint was set aside.

Ratio Decidendi: Where the cheque and statutory notice under Section 138 of the Negotiable Instruments Act, 1881 are acted upon after the company has already been ordered to be wound up, criminal liability under Section 138 and derivative liability under Section 141 cannot be fastened because the company is no longer in control of its affairs.

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