Provisional liquidator appointment can defeat Section 138 liability when directors lose control before cheque dishonour and notice.

Appointment of a provisional liquidator under the Companies Act, 1956 divests the directors of control over the company's affairs, bank accounts and financial instruments, with the liquidator assuming custody and control. Where that appointment precedes dishonour of the cheque and service of the statutory notice, the drawer may lack effective authority to operate the account or make payment after notice. In that situation, the statutory conditions for liability under Section 138 of the Negotiable Instruments Act, 1881 are not satisfied, because the cheque is not effectively attributable to a person capable of complying with the demand.

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Issues: Whether a complaint under Section 138 of the Negotiable Instruments Act, 1881 was maintainable against the petitioner after a provisional liquidator had been appointed in winding-up proceedings before dishonour of the cheques and issuance of the statutory notice.

Analysis: Appointment of a provisional liquidator under the Companies Act, 1956 displaces the directors' control over the company's affairs and bank accounts, with the liquidator assuming custody and control of the company's property and the power to deal with its financial instruments. On the facts, the winding-up proceedings and appointment of the provisional liquidator preceded the dishonour of the cheques and the demand notice. In that , the petitioner had no effective authority to operate the account or ensure payment, and the statutory requirement that the cheque be drawn on an account maintained by the accused and that the drawer be capable of making payment after notice was not satisfied.

Conclusion: The complaint under Section 138 of the Negotiable Instruments Act, 1881 was not maintainable against the petitioner and the proceedings against him were liable to be quashed.

Ratio Decidendi: Where a provisional liquidator is appointed before dishonour of the cheque and before service of the statutory notice, the company's directors lose control over the account and cannot be fastened with liability under Section 138 of the Negotiable Instruments Act, 1881.

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