Provisional Liquidator control bars Section 138 liability where cheques are presented without authority and account blockage follows liquidation

After appointment of a Provisional Liquidator, control of the company's affairs and property shifts to the liquidator, and the erstwhile board becomes functus officio. Cheques filled in and presented without the Provisional Liquidator's authority were therefore treated as incapable of fastening criminal liability under Section 138 of the Negotiable Instruments Act, so the complaint was held not maintainable. The return of the cheques as "Account Blocked" also did not satisfy Section 138, because that reason did not establish insufficiency of funds and reflected a statutory restraint arising from liquidation. The dismissal of the complaint and revision was upheld.

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Issues: (i) whether a complaint under Section 138 of the Negotiable Instruments Act, 1881 remained maintainable when the cheques were filled in and presented after appointment of a Provisional Liquidator under the Companies Act, 1956; (ii) whether dishonour of cheques for the reason "Account Blocked" satisfied the ingredients of Section 138 of the Negotiable Instruments Act, 1881.

Issue (i): whether a complaint under Section 138 of the Negotiable Instruments Act, 1881 remained maintainable when the cheques were filled in and presented after appointment of a Provisional Liquidator under the Companies Act, 1956.

Analysis: Once a Provisional Liquidator is appointed, the company does not cease to exist, but the control of its affairs and property shifts to the Provisional Liquidator. The Board and erstwhile management become functus officio in respect of the company's business and assets. In that , cheques issued or presented after the liquidation order, without authority of the Provisional Liquidator, cannot be treated as valid instruments for fastening criminal liability under Section 138. The complaint was therefore examined against the legal effect of the liquidation order and the changed control over the company.

Conclusion: The complaint was not maintainable on the facts, and the dismissal of the complaint and revision was upheld.

Issue (ii): whether dishonour of cheques for the reason "Account Blocked" satisfied the ingredients of Section 138 of the Negotiable Instruments Act, 1881.

Analysis: Liability under Section 138 arises when dishonour occurs for insufficiency of funds or where the cheque exceeds the arrangement with the bank. A return memo showing "Account Blocked" due to winding-up or liquidation proceedings does not, by itself, establish insufficiency of funds. Where the drawer has lost authority and control over the account because of a statutory restraint, the account cannot be treated as being maintained by him for the purpose of Section 138. The ingredient of dishonour attributable to insufficiency of funds was therefore not made out.

Conclusion: Dishonour on the ground of "Account Blocked" did not attract Section 138 of the Negotiable Instruments Act, 1881 on the facts of the case.

Final Conclusion: The criminal petition failed because the cheque dishonour proceedings were barred by the company's liquidation status and the statutory ingredients of the penal provision were not established.

Ratio Decidendi: After appointment of a Provisional Liquidator, cheques presented without authority of the liquidator do not found liability under Section 138 of the Negotiable Instruments Act, 1881, and dishonour for "Account Blocked" caused by liquidation-related statutory restraint is not equivalent to dishonour for insufficiency of funds.

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