Company In Liquidation Cannot Always Avoid Proceedings U/S 138 NI Act, Its Conduct Can Be Weighed In: Bombay High Court

"If the submission on behalf of the applicants is readily acceded to, then M/s. Rangara would get a long leash to avoid the liability by taking undue advantage of its own default", the court observed.

Justice NJ Jamadar dismissed five applications under section 482 CrPC for quashing of complaints under section 138 NI Act against a company in liquidation.

In the present matter, the applicants are directors of M/s. Rangara Industries Private Limited (M/s. Rangara) which is in liquidation. M/s. Rangara owed a certain liability towards M/s. Surajbhan Rajkumar Private Limited (M/s. Surajbhan). Alleging that M/s. Rangara could not repay the debt, M/s. Surajbhan filed a Company Petition for winding up of M/s. Rangara.

M/s. Rangara and M/s. Surajbhan entered into a settlement which included a schedule for payment in monthly instalments from 15.06.2015 to 15.11.2017. The parties agreed that the Company Petition would stand allowed in case of default in payment. M/s. Rangara defaulted in payments according to the settlement. M/s. Surajbhan deposited the cheques given by M/s. Rangara which were dishonoured. M/s. Surajbhan lodged five complaints under section 138 read with 141 of the NI Act. The applicants approached the High Court under section 482 of Cr.P.C. praying for quashing of the complaints.

Advocate Ramprakash Pandey for the applicants submitted that M/s. Rangara automatically stood wound up after the default in payment as per the settlement terms. After M/s. Rangara was ordered to be wound up, there was no cause or occasion for the complainant to present the cheques for encashment. Once a company is wound up, a prosecution for offence punishable under section 138 of the NI Act, against such company (in liquidation) is legally untenable. Further, without impleading the Official Liquidator, the complaint could not have been proceeded with.

Advocate Jatin Premji Shah for the respondent submitted that leave of the Company Court under section 446 of the Companies Act, 1956 is not required to institute a complaint against a Company under section 138 of the NI Act. The company and its directors are liable for the cheques which were drawn in discharge of legally enforceable debt incurred before the company stood wound up. Further, the trial court proceedings are at an advanced stage and the delay in the present application is nothing but abuse of process of court.

The court relied on Firth (India) Steel Co. Ltd. v. Bombay Leasing Company Pvt Ltd., and held that leave of the company court under section 446 is not required to institute a complaint under section 138 of NI Act.

On the question of whether the complaint under section 138 can be entertained when the company is in the process of winding up, the court relied on Apex Court judgments in Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd. and Pankaj Mehra v. State of Maharashtra. The court concluded that it needs to be determined based on the fact and circumstance of each case. The question cannot be considered without the facts especially to "insulate a company and its ex-directors from the rigors of law where it appears that they profess to take advantage of their own wrong".

It observed,

"An order of winding-up which automatically comes into force upon a default in compliance with the consent terms executed on behalf of the company, and its directors cannot be placed on the same pedestal as an order passed on merits, especially in a case like the one at hand where it appears to be in the nature of a device to obviate the liability at that moment...conduct of the applicants deserves to be taken into account."

Further, the court noted that the trial has commenced and two of the complaints are at the stage of recording the cross examination of the complainant's witnesses. The court dismissed the applications on account of the facts of the case and the advanced stage of the trial.

Case no. – Criminal Application Nos. 589, 590, 591, 592, and 593 of 2019

Case title – Nizar Noorali Rangara and Anr. v. State of Maharashtra and Ors.

Coram – Justice N. J. Jamadar