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Issues: (i) Whether a complaint under Section 138 of the Negotiable Instruments Act, 1881 against a company in liquidation required leave of the Company Court under Section 446(1) of the Companies Act, 1956; (ii) Whether the winding up of the company pursuant to default under consent terms barred prosecution under Section 138 of the Negotiable Instruments Act, 1881; (iii) Whether the alleged procedural irregularity in issuance of process before recording verification vitiated the complaint.
Issue (i): Whether a complaint under Section 138 of the Negotiable Instruments Act, 1881 against a company in liquidation required leave of the Company Court under Section 446(1) of the Companies Act, 1956.
Analysis: The legal position, as settled by binding precedent, was that the expression "suit or other proceedings" in Section 446(1) of the Companies Act, 1956 does not extend to criminal complaints under Section 138 of the Negotiable Instruments Act, 1881. Criminal prosecution for dishonour of cheque does not fall within proceedings that are directed to realization of assets or discharge of liabilities in the winding up process.
Conclusion: Leave of the Company Court was not necessary, and the objection based on Section 446(1) failed.
Issue (ii): Whether the winding up of the company pursuant to default under consent terms barred prosecution under Section 138 of the Negotiable Instruments Act, 1881.
Analysis: The Court held that liability under Section 138 depends on the confluence of statutory ingredients, including drawing of the cheque, dishonour, notice, and failure to pay within the stipulated period. Winding up does not, by itself, extinguish the debt or automatically immunize the company or its directors from prosecution. The effect of winding up depends on the facts, and a company cannot use its own default under consent terms to defeat criminal liability arising from cheques issued in discharge of an existing obligation. The distinction between a winding up order on merits and a winding up consequence triggered by consent terms was treated as material.
Conclusion: The prosecution under Section 138 was maintainable notwithstanding the winding up consequence under the consent terms, and the challenge to the complaints failed.
Issue (iii): Whether the alleged procedural irregularity in issuance of process before recording verification vitiated the complaint.
Analysis: The record showed that the apparent discrepancy in dates was an inadvertent error, and the verification statement and process order were in fact recorded on the same day. No real procedural irregularity survived on the materials.
Conclusion: The challenge based on procedural irregularity was rejected.
Final Conclusion: The inherent jurisdiction was not exercised to quash the complaints, and the complaints were directed to proceed on their merits with the defence on the effect of winding up left open before the Magistrate.
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