Raj Kumar Jain v. M/S Shree Balaji Enterprises

11. Subsequently, vide order dated 21.01.2020 passed in Company Petition 262/2012, respondent no. 2/company was dissolved.

12. Thereafter, vide impugned order dated 21.12.2022, the learned JMFC, upon hearing application of the petitioner seeking discharge, proceeded with framing of notice in the matter, holding that Magistrate has no power to drop proceedings in a summons case filed on the basis of a complaint and that under Chapter XX of the CrPC there is no provision for discharge of the accused person.

13. Ms. Sangeeta Jain, learned counsel appearing on behalf of the petitioner submits that respondent no.2/company went into liquidation and a Provisional Liquidator was appointed vide order dated 23.05.2012 in Company Petition no. 262/2012 and subsequently by order dated 21.01.2020 respondent no.2/company got dissolved.

14. She submits that by the time demand notice dated 02.07.2012 was issued to respondent no.2 against the cheques that got dishonoured on 15.06.2012, the Directors, officers, employers, authorized representatives including the petitioner, had already been restrained from selling, transferring, alienating, encumbering and parting with the possession of any moveable and immovable assets and funds of the respondent no.2/company by virtue of order dated 23.05.2012, vide which Provisional Liquidator was also appointed.

15. She further submits that the complaint was filed by the complainant/respondent no. 1 on 04.08.2012 i.e much after the winding up petition against respondent no. 2/company was admitted and the restraint order was passed on 23.05.2012. Therefore, the cause of action for filing the complaint under Section 138 NI Act arose after the Provisional Liquidator had been appointed.

16. Furthermore, she submits that as petitioner was not in a position to ensure honouring of the cheques in question when the same were presented, in view of the same, the complaint under Section 138 of the NI Act was not maintainable. To buttress her contention she has placed relied upon the following decisions: (i) R.K. Jain vs. Manju Bajad and Anr. [Criminal MC No. 2278/2021] dated 01.09.2023 (ii) R.K. Jain vs. Vinay Kumar Tyagi And Anr. [Criminal MC No. 2845/2021] dated 01.09.2023 and (iii) M.L Gupta and Anr. vs. Ceat Financial Services Ltd;2006 SCC Online Del

1448.

17. Mr. Ram Ekbal Roy, learned counsel appearing on behalf of the respondent no.1/complainant has not controverted the submissions of Ms. Jain that the cheques in question were dishonoured vide memo dated 15.06.2012 and a demand notice regarding the same was issued on 02.07.2012, which was followed by the filing of complaint under Section 138 of the NI Act, against the petitioner and respondent no. 2/company. Incidentally, no reply to the petition was filed by the complainant/respondent no. 1, therefore, all the averments made in the petition have remained uncontroverted.

18. Further, it is also not in dispute that respondent no. 2/company went into liquidation and a Provisional Liquidator was appointed vide order dated 23.05.2012 in Company Petition no. 262/2012 and subsequently by order dated 21.01.2020 respondent no.2/company got dissolved.

19. I have heard the learned counsels appearing on behalf of both the parties.

20. In the present case, as noted above, the liquidation proceeding was triggered on 23.05.2012, when notice was issued in the Company Petition filed for the winding up of respondent no. 2/company, and the same was admitted and a Provisional Liquidator was appointed. Crucially, this event occurred prior to the dishonour of the cheques in question, which took place on 15.06.2012. Furthermore, the statutory demand notice was issued by complainant/respondent no. 1 only subsequently, on 02.07.2012.

21. To appreciate the controversy involved in the present case, it would be apposite to refer to relevant provisions of the Companies Act, 1956 - “450.

APPOINTMENT AND POWERS OF PROVISIONAL LIQUIDATOR.— (1) At any time after the presentation of a winding up petition and before the making of a winding up order, the Tribunal may appoint the Official Liquidator to be liquidator provisionally. (2) Before appointing a provisional liquidator, the Tribunal shall give notice to the company and give a reasonable opportunity to it to make its representations, if any, unless, for special reasons to be recorded in writing, the Tribunal thinks fit to dispense with such notice. (3) Where a provisional liquidator is appointed by the Tribunal, the Tribunal may limit and restrict his powers by the order appointing him or by a subsequent order; but otherwise he shall have the same powers as a liquidator. (4) The Official Liquidator shall cease to hold office as provisional liquidator and shall become the liquidator, of the company, on a winding up order being made.” “456.

CUSTODY OF COMPANY’S PROPERTY.— (1) Where a winding up order has been made or where a provisional liquidator has been appointed, the liquidator or the provisional liquidator, as the case may be, shall take into his custody or under his control, all the property, effects and actionable claims to which the company is or appears to be entitled. (1A) For the purpose of enabling the liquidator or the provisional liquidator, as the case may be, to take into his custody or under his control, any property, effects or actionable claims to which the company is or appears to be entitled, the liquidator or the provisional liquidator, as the case may be, may by writing request the Chief Presidency Magistrate or the District Magistrate within whose jurisdiction such property, effects or actionable claims or any books of account or other documents of the company may be found, to take possession thereof, and the Chief Presidency Magistrate or the District Magistrate may thereupon after such notice as he may think fit to give to any party, take possession of such property, effects, actionable claims, books of account or other documents and deliver possession thereof to the liquidator or the provisional liquidator. (1B) For the purpose of securing compliance with the provisions of sub-section (1A), the Chief Presidency Magistrate or the District Magistrate may take or cause to be taken such steps and use or cause to be used such force as may in his opinion be necessary. (2) All the property and effects of the company shall be deemed to be in the custody of the Tribunal as from the date of the order for the winding up of the company.” “457.

POWERS OF LIQUIDATOR.— (1) The liquidator in a winding up by the Tribunal shall have power, with the sanction of the Tribunal — (a) to institute or defend any suit, prosecution, or other legal proceeding, civil or criminal, in the name and on behalf of the company; (b) to carry on the business of the company so far as may be necessary for the beneficial winding up of the company;

(c) to sell the immovable and movable property and actionable claims of the company by public auction or private contract, with power to transfer the whole thereof to any person or body corporate, or to sell the same in parcels; (ca) to sell whole of the undertaking of the company as a going concern;

(d) to raise on the security of the assets of the company any money requisite;

(e) to do all such other things as may be necessary for winding up the affairs of the company and distributing its assets. (2) The liquidator in a winding up by the Tribunal shall have power—

(i) to do all acts and to execute, in the name and on behalf of the company, all deeds, receipts, and other documents, and for that purpose to use, when necessary, the company's seal; …

(iii) to draw, accept, make and endorse any bill of exchange, hundi or promissory note in the name and on behalf of the company, with the same effect with respect to the liability of the company as if the bill, hundi, or note had been drawn, accepted, made or endorsed by or on behalf of the company in the course of its business;

(iv) to take out, in his official name, letters of administration to any deceased contributory, and to do in his official name any other act necessary for obtaining payment of any money due from a contributory or his estate which cannot be conveniently done in the name of the company, and in all such cases, the money due shall, for the purpose of enabling the liquidator to take out the letters of administration or recover the money, be deemed to be due to the liquidator himself: Provided that nothing herein empowered shall be deemed to affect the rights, duties and privileges of any Administrator- General;

(v) to appoint an agent to do any business which the liquidator is unable to do himself. (2-A) …… (2-B) … …… (2-G) The liquidator appointed shall— (a) maintain a separate bank account for each company under his charge for depositing the sale proceeds of the assets and recovery of debts of each company; (b) maintain proper books of account in respect of all receipts and payments made by him in respect of each company and submit half yearly return of receipts and payments to the Tribunal. (3) The exercise by the liquidator in a winding up by the Tribunal of the powers conferred by this section shall be subject to the control of the Tribunal; and any creditor or contributory may apply to the Tribunal with respect to the exercise or proposed exercise of any of the powers conferred by this section.”

22. A perusal of the above reproduced provisions makes it clear that the appointment of a Provisional Liquidator does not result in the legal dissolution of the company, but rather leads to suspension of the Directors‟ authority, rendering them functus officio. While the company maintains its corporate existence, its internal management is effectively displaced, transitioning its executive power to the Provisional Liquidator. Under this judicial arrangement, the company‟s business operations, the administration of its assets, and the validity of its contractual engagements are contingent upon the oversight and formal authorization of the liquidator, who serves as the custodian of the corporate estate.

23. Reference in this regard may be had to a recent decision of the coordinate bench of this court in CRL.M.C. 4123/2017 titled as M/S Pec Ltd. vs. M/S Sabari Exim Pvt Ltd & Ors., dated 22.08.2025, wherein an identical issue with regard to maintainability of complaint under Section 138 of NI Act against the directors and the company qua which the Provisional Liquidator had been appointed prior to dishonouring of a cheque, was involved. Paragraph 33 of the said decision encapsulates the primary contention raised by the petitioner/complainant therein which reads as under: “33. Firstly, the Petitioner has argued that the liability of the Company and its Directors does not extinguish merely as the appointment of Official Liquidator under Section 450 of the Companies Act is only provisional and the erstwhile Directors continue to perform their functions in the Company except dealing with the assets of the Company which come under the exclusive domain of the Official Liquidator appointed for the said function.”

24. The court while dealing with above contention, examined the relevant provisions of the companies Act, 1956, and held as under: “35. Thus, it is evident that when a Court appoints an Official Liquidator as Provisional Liquidator under Section 450, the Company does not cease to exist; rather the said Company’s Board of Directors become functus officio. All the business operations, asset management, and contractual dealings are conducted under the supervision and with the authorization of the Provisional Liquidator.

36. The contention of Petitioner that the erstwhile Directors continue to perform their functions in the Company, even after the Official Liquidator has been appointed, is misfounded and is not tenable in law. It is only the Provisional Liquidator, as per Section 457, who is empowered under Section 457(2)(iii) “to draw, accept, make and endorse any bill of exchange, hundi or promissory note in the name and on behalf of the company, with the same effect with respect to the liability of the company as if the bill, hundi, or note had been drawn, accepted, made or endorsed by or on behalf of the company in the course of its business.”

25. In M/S PEC Ltd. (Supra), reliance was placed upon the decisions rendered by other Coordinate Benches of this Court in M.L. Gupta (Supra) and Ratan Lal Garera & Ors. v. State (NCT of Delhi) & Anr., 2006 SCC OnLine Del 1442. The said decisions also discusses the legal position regarding the maintainability of a complaint under Section 138 of the Negotiable Instruments Act, 1881, particularly when filed after the initiation of liquidation proceedings against a corporate entity and the appointment of a liquidator, specifically in circumstances where such appointment preceded both, the dishonour of the cheques as well as the issuance of the statutory demand notice. The relevant paragraphs from M/s PEC Ltd. (supra) where said decisions have been referred read as follows:

37. In the case of M.L. Gupta vs. Ceat Financial Services Ltd., 2006 SCC OnLine 1448 while holding that a Complaint would not be maintainable when the cheque is presented after the Company has already been ordered to be wound up, observed that when the company goes into liquidation and the cheque is presented thereafter, it cannot be said that the company has committed the offence as it is because of legal bar that it is precluded from making the payment. Once dishonour of the cheque by the Bank and failure to make payment of amount by the company is beyond its control, the Directors (who are in fact ex-Directors) can also not be held liable.

38. Similarly, in the case of Ratan Lal Garera & Ors. vs. State (NCT of Delhi) & Anr., 2006 SCC OnLine Del 1442 the Apex Court relied on the case of M.L. Gupta, (supra) and held that as the winding-up orders have been passed and the Official Liquidator was appointed as on the date when the cheque was presented and dishonoured, the case would not fall within the parameters of Section 138 N.I. Act.

26. Likewise, in Manju Bajad (Supra) and Vinay Kumar Tyagi (Supra) both rendered on 01.09.2023, one of the party i.e the present petitioner was same. Even the facts involved were identical. In the said two cases, the court allowed the petition of the petitioner, thereby quashing the complaint filed under Sections 138/141/142 of the N.I Act against the director i.e. the present petitioner. The relevant paragraphs from Manju Bajad (supra) are reproduced herein:

11. The facts of the present case clearly reveal that pursuant to order dated 23.05.2012 directing the respondent no.2 to be wound up, the directors and all other persons attached to the company including the petitioner herein were restrained from utlilizing the assets of respondent no.2 and hence no payment could be made by the petitioner herein as he ceased to be in control of the day to day affairs of respondent no.2 which stood transferred to the Provisional Liquidator.

12. In light of the settled legal position and the factual matrix involved, as discussed hereinabove, the complaint as well as summoning orders passed by the learned MM are bad in law and are liable to be set aside.

13. In view of the aforesaid, the petition is allowed and the Complaint Case Misc. Crl. 1419/2016 titled Manju Bajad vs. M/s P.R.J. Enterprises Ltd. and Anr. filed under Sections 138/141/142 of the Negotiable Instruments Act, 1881 and all proceedings emanating therefrom, including the order dated 09.01.2020 passed by the learned Metropolitan Magistrate-2, Shahdara, Karkardooma Court, New Delhi, qua the petitioner, are quashed.

14. The petition, alongwith the pending application, stands disposed of.”

27. In view of the aforesaid statutory mandate, factual chronology and decisions referred above, it is clear that once the powers vested in the petitioner (in his capacity as a director) stood transferred to the Provisional Liquidator by operation of law, the petitioner was legally and practically rendered incapable of controlling the bank accounts of respondent no. 2/company. Ergo, it cannot be said that the petitioner was in a position to ensure the encashment of the cheque or to honour the demand notice, as the authority to operate the said accounts rested solely with the liquidator.

28. The use of expression “an account maintained by him” in section 138 NI Act also suggests one of the prerequisite ingredient for constituting an offence thereunder is that accused must have control over the account. At this juncture, it would be apposite to refer to Section 138 of the NI Act, which is reproduced below in extenso:

29. It thus, appears that to legally maintain a bank account, the holder must exercise continuous authority, keeping the account in an active, operational, and functional state while actively preserving it from lapse or cessation. This continuous preservation serves as the bedrock of the drawerbanker relationship, placing the legal emphasis not merely on the opening of an account, but on the ongoing affirmative act of keeping it in proper condition. This expression cannot be construed so narrowly as to mean that the mere ownership of an account by the accused satisfies the necessary legal ingredients. Rather, the requirement that an account be “maintained” necessarily implies that it is alive and operative, ensuring the account holder remains capable of executing commands to govern financial transactions, such as the clearance of cheques. Ultimately, the authority and control of the account holder must exist on the effective date when the cheque becomes valid for presentation at the bank.

30. This position is supported by the observations of a coordinate bench of this court in Best Buildwell Pvt. Ltd. and Others vs. R.D. Sales (2025 SCC OnLine Del 4267), wherein it was noted that -

31. In view of the settled legal position as rendered in M/S PEC LTD (Supra) and M.L Gupta (Supra) the appointment of a Provisional Liquidator, occurring prior to the dishonour of the cheques and the issuance of the demand notice, effectively divested the petitioner of his managerial authority and control over the company‟s bank accounts. Since the statutory mandate of Section 138 of the N.I. Act requires the account to be “maintained” by the accused at the time of the offence, the transition of executive power to the Provisional Liquidator created a legal and practical impossibility for the petitioner to satisfy the demand or operate the accounts. Concomitantly, as the petitioner was neither in charge of the company‟s affairs nor capable of ensuring the encashment of the cheques on the date the cause of action crystallized, therefore, the essential ingredients of the offence are not met, and the complaint against the petitioner is held to be legally non-maintainable.

32. Therefore, as per the above discussion, the present petition is allowed. Consequently, the complaint case bearing no.2712/2022 titled as, M/s Shree Balaji Enterprises v. M/s PRJ Enterprises Ltd. & Anr. which is stated to be pending before the Court of Judicial Magistrate First Class (JMFC), Shahdara, KKD, Delhi and all proceedings emanating therefrom in respect of the petitioner herein, are quashed.

33. Consequently, the pending application also stands disposed of.

VIKAS MAHAJAN, J MAY 04, 2026 N.S. ASWAL