Dissolved Company Lacks Locus to File Section 138 NI Act Complaints: Delhi High Court

Introduction

The Delhi High Court has quashed two criminal complaints under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), ruling that a dissolved company cannot initiate such proceedings as it ceases to exist as a legal entity. The decision, delivered by Hon'ble Mr. Justice Arun Monga on October 8, 2025, in CRL.M.C. 7534/2023 and CRL.M.C. 7559/2023, involved petitioners Krishan Lal Gulati and another, who were directors of Space Services (India) Pvt Ltd., facing complaints filed by the now-dissolved Raghav Aditya Chits Pvt Ltd. The court exercised its inherent powers under Section 482 of the Code of Criminal Procedure (CrPC) to prevent abuse of process, highlighting the complainant's lack of legal standing post-dissolution in 2018.

Case Background

The dispute arose from two cheque bounce incidents involving cheques issued by Space Services (India) Pvt Ltd. to Raghav Aditya Chits Pvt Ltd., a chit fund company. In the first instance, Cheque No. 033217 dated November 10, 2019, for ₹1,93,00,000 was dishonored on November 27, 2019, with the remark "Contact Drawer/Drawee Bank and Present Again." A legal notice was issued on December 23, 2019, but payment was not made, leading to Complaint Case No. 2619/2020 filed in 2020. Petitioners Gulati and another, as directors, were summoned as Accused Nos. 2 and 3 on December 21, 2020.

Similarly, Cheque No. 033216 dated October 10, 2019, for ₹1,76,00,000 was dishonored on December 6, 2019, with the same remark. Following a notice on December 23, 2019, Complaint Case No. 4735/2020 was filed, and the petitioners were summoned on October 5, 2021. The underlying transactions dated back to 2011-2014, allegedly involving chit fund services.

Raghav Aditya Chits Pvt Ltd. had been struck off the Register of Companies by the Registrar of Companies (ROC), Delhi & Haryana, on August 8, 2018, under Section 248 of the Companies Act, 2013, rendering it dissolved. Despite this, ex-directors operated its bank account to present the cheques. The petitioners sought quashing before the trial court, which rejected their applications on December 22, 2022, leading to these High Court petitions filed in 2023.

The main legal questions were: Can a dissolved company maintain criminal complaints under Section 138 NI Act? Do ex-directors have authority to pursue such actions post-dissolution? And do the proceedings constitute an abuse of process?

Arguments Presented

The petitioners, represented by Advocates Kanwal Chaudhary and others, argued that Raghav Aditya Chits Pvt Ltd. ceased to be a juristic person under Section 2(20) of the Companies Act after its 2018 dissolution, lacking capacity to file complaints in 2020. They claimed the cheques were security instruments issued in 2011, not intended for presentation, and were misused by inserting new dates and amounts post-dissolution. The petitioners highlighted concealment of dissolution by ex-directors, who fabricated documents like board resolutions despite disqualification under Section 164. They invoked Sections 248(5), 248(6), and 250, asserting that only the ROC could realize dues, and post-dissolution assets vested as bona vacantia in the government per Ministry of Finance and MCA notifications dated September 5 and 6, 2017. The alleged debt was time-barred, and Petitioner No. 2 had no role in operations or cheque signing. Continuing proceedings would abuse the legal process.

No arguments were presented by the State (through APP Sanjeev Sabharwal) or the complainant, as no one appeared for respondent No. 2, implying acceptance of the dissolution's impact.

Legal Analysis

Justice Monga analyzed the interplay between the Companies Act, 2013, and NI Act, emphasizing that a dissolved company under Section 248(5) stands dissolved upon Gazette publication and ceases operations per Section 250, except for limited purposes like settling liabilities. The Certificate of Incorporation is deemed cancelled, stripping juristic personality. The 2017 Department of Financial Services notification reinforced this by freezing bank accounts of struck-off companies and disqualifying ex-directors until restoration under Section 252, which did not occur here.

The court distinguished that post-dissolution actions, including issuing cheques in 2019 and filing complaints in 2020, were void ab initio, as no valid entity existed to draw or present them. Section 138 NI Act proceedings require a legally enforceable instrument from a subsisting drawer, which was absent. The trial court's error in deferring maintainability post-cognizance under Section 256 CrPC was noted as irregular. No precedents were directly cited beyond statutory provisions, but the ruling aligns with principles preventing prosecution by non-entities, distinguishing quashing for lack of locus from mere procedural lapses. The court clarified that dissolution nullifies unauthorized acts by ex-directors, treating them as illegal under the corporate clean-up drive.

Key Observations

• "Under Section 248(5), the Registrar may strike off a company’s name from the register if no cause is shown, and upon publication of such notice in the Official Gazette, the company stands dissolved."
• "Once a company is struck off and stands dissolved, it loses its juristic personality, rendering any act done on its behalf void ab initio unless the company is restored under Section 252 of the Companies Act."
• "The cheques in question... and the complaints filed under Section 138 of the Negotiable Instruments Act, 1881, are all actions that occurred after the company’s dissolution. This sequence clearly indicates that the company was non-existent in law at the time of these transactions."
• "Continuation of the trial would thus serve no legal purpose when the complainant company itself has ceased to exist. Criminal prosecution cannot be maintained by or against a dissolved entity."
• "Accordingly, it is a fit case to exercise inherent powers to prevent a miscarriage of justice."

Court's Decision

The Delhi High Court allowed both petitions, quashing Complaint Cases Nos. 2619/2020 and 4735/2020, and set aside the trial court's order dated December 22, 2022. The summons orders of December 21, 2020, and October 5, 2021, were rendered ineffective.

This ruling implies that dissolved entities cannot sustain NI Act prosecutions, protecting against frivolous litigation by non-existent firms and curbing misuse by ex-directors. It may prompt stricter scrutiny of corporate status in cheque bounce cases, potentially increasing ROC verifications and restoration applications under Section 252. Successors of the dissolved company may pursue civil remedies against the petitioners if permissible, but criminal proceedings are barred, promoting efficient judicial resource use and deterring post-dissolution abuses in future disputes.