VERY IMPORTANT POINT
A company cannot escape from penal liability under Section 138 of Negotiable Instruments Act on the premise that a petition for winding up of the company has been presented and was pending during the relevant time.

Headnote:Negotiable Instruments Act, 1881 -Section 138 r/w Section 536(2) the Companies Act, 1956 Offence by Company-Company cannot avert its liability on mere ground that winding up petition was presented prior to company being called upon to pay amount of cheque.
       Once a petition for winding up is presented it is not a necessary concomitant that the winding up would follow. This position is made clear in Section 440(2) which says that "the court shall not make a winding up order on a petition presented to it under sub-section (1), unless it is satisfied that the voluntary winding up or winding up subject to the supervision of the Court cannot be continued with due regard to the interests of the creditors or contributories or both." So a judicial exercise is called for to reach the satisfaction of the court that winding up has to be continued with due regard to the interest of the creditors or the contributors. (Paras 11 & 12)
       In the back drop of Sections 439, 440(2), 443 and 450 alone one has to consider the impact of the legislative direction in Section 536(2) that any disposition of the property of the company made after the commencement of the winding up (i.e after the presentation of a petition for winding up) shall be void. There are two important aspects here. First is that the word "void" need not automatically indicate that any disposition should be ab initio void. The legal implication of the word "void" need not necessarily be a stage of nullity in all contingencies. Black s Law Dictionary gives the meaning of the word "void" as having different nuances in different connotations. One of them is of course "null, or having no legal force or binding effect". And the other is "unable in law, to support the purpose for which it was intended". (Para 14)
       For discerning the legislative idea in employing the word "void" in the context set out in Section 536(2) of the Companies Act the second aspect to be noticed is that the provision itself shows that the word void is not employed peremptorily since court has power to order otherwise. The words "unless the court otherwise orders" are capable of diluting the rigor of the word "void" and to choose the alternative meaning attached to that words. (Para 15)
       It is difficult to lay down that all dispositions of property made by a company during the interregnum between the presentation of a petition for winding up and the passing of the order for winding up would be null and void. If such a view is taken the business of the company would be paralysed, for, the company may have to deal with very many day-to-day transactions, make payments of salary to the staff and other employees and meet urgent contingencies. An interpretation which could lead to such a catastrophic situation should be averted. That apart, if any such view is adopted, a fraudulent company can deceive any bona fide person transacting business with the company by stage-managing a petition to be presented for winding up in order to defeat such bona fide customers. If the payment is not ab initio void the company cannot contend that it is legally forbidden from making payment of the cheque amount when notice was issued by the payee regarding dishonour of the cheque. (Paras 20 & 21)
       When a cheque is received by a holder the court has to presume that (1) it is a cheque of the nature referred to in Section 138; and (2) such cheque was received for the discharge of a legally enforceable debt or liability. It is a legislative mandate that the court should proceed with the assumption that such cheque was received for the discharge of a legally enforceable debt or other liability until the drawer proves that it is not so. There is no provision in the Companies Act which prohibits enforcement of the debt due from a company. When a company goes into liquidation, enforcement of debt due from the company is only made subject to the conditions prescribed therein. But that does not mean that the debt has become unenforceable altogether. Perhaps due to want of sufficient assests for the company the realisation of a debt would be difficult. But that is no premise to hold that the debt is legally unenforceable. Enforceability of a debt is not to be tested on the touchstone of the modality or the procedure provided for its realisation or recovery. Hence the contention that the special provision incorporated in the Companies Act regarding the debts and liabilities due from the company will render the debt unenforceable, cannot be accepted. (Paras 25 & 26)
       Even assuming that any disposition of the property made by a company after commencement of the winding up proceedings is null and void, how that is an escape ground from the offence under Section 138 of the NI Act? That section created a statutory offence which on the confluence of the various factors enumerated therein, commencing with the drawing of the cheque and ending with the failure of the drawer of the cheque to pay the amount covered by it within the time stipulated, ripens into a penal liability. (Para 27)
       The words "the drawer of such cheque fails to make the payment" in clause (c) of proviso to Section 138 of NI Act are ostensibly different from saying "the drawer refuses to make payment". Failure to make payment can be due to the reasons beyond the control of the drawer. An illustrative case is, if the drawer is not a company but individual who has become so pauper or so sick as he cannot raise the money to pay the demanded sum. Can he contend that since failure to make payment was on account of such conditions he is entitled to be acquitted? The answer cannot be in the affirmative though the aforeasaid conditions can be putforth while considering the question of sentence. The legislature has thoughtfully used the word "fails" instead of other expressions as failure can be due to variety of reasons including his disability to pay. But the offence would be complete when the drawer "fails" to make payment within the stipulated time, whatever be the cause for such failure. The drawer of the cheque can have different explanations for the failure to pay the amount covered by the cheque. But no such explanations to extricate him from the tentacles of the offence contemplated in the Section. (Paras 29 to 31)
       Therefore, a company cannot avert its liability on the mere ground that such a petition was presented prior to the company being called upon by a notice to pay the amount of the cheque.

JUDGMENT

Thomas J.-Can a company escape from penal liability under Section 138 of the Negotiable Instruments Act (for sort "the NI Act") on the premise that a petition for winding up of the company has been presented and was pending during the relevant time? A Division Bench of the Bombay High Court held that the company cannot avert its liability on the mere ground that such a petition was presented prior to the company being called upon by a notice to pay the amount of the cheque. By holding so, the Division Bench dismissed a batch of writ petitions filed by different companies challenging the criminal proceedings initiated against them in different criminal courts for the offence under Section 138 of the NI Act. We have now to deal with the same question in this batch of appeals filed by special leave.

2. Though different cases now before us have differing facts we are not bothering ourselves with such differences. The common features in all the appeals, which alone are relevant for dealing with the aforesaid question, can be culled out from one of the appeals. The company involved in the said sample appeal will be referred to as "the Company". The cheque which the company issued bore the date 30.10.1996 and the amount covered by the cheque was Rs. 5,72,432/-. (There is a contention that the cheque was actually drawn much before that date). When the cheque was presented for encashment the drawee bank dishonoured it on 26.12.1996. The payee of the cheque issued a notice to the Company on 21.12.1996 calling upon it to pay the amount. As the Company failed to pay the amount a complaint was filed before the magistrate on 29.1.1997 against the Company and two of its directors for the offence under Section 138 of the N.I. Act.

3. The Magistrate who took cognizance of the offence issued process to all the accused. It was then that the accused challenged the criminal proceedings by means of a writ petition filed before the Bombay High Court, on the premise that a petition for winding up of the Company has been filed on 27.5.1996 before the court concerned and a provisional liquidator was appointed by that court two years later i.e. on 21.4.1998.

4. As the facts stated above were not substantially disputed the Division Bench of the High Court proceeded to hear the writ petition along with the other writ petitions in the batch, on the limited question whether the Company can avert the penal liability on that premise. The main footing on which the Company resisted the prosecution was that under Section 536(2) of the Companies Act any disposition of the property of the Company shall be void if it was made after the commencement of winding up proceedings by the Court. To bolster up the said ground the Company relied on Section 441(2) of the Companies act which says that winding up of a Company by the Court shall be deemed to commence at the time of presentation of the petition for winding up. The Division Bench of the High Court noticed the common features in all the cases in the following sentences :

"In all these matters, a petition for winding up had been filed either before the cheques were issued (in some cases) and in any event before the period of 15 days, after receipt of notice, expired. Thus the question for consideration is whether merely by reason of a winding up petition being presented there was a bar or legal disability in making payment."

5. Learned Judges proceeded to consider the question on the aforesaid admitted premiseand, therefore, examined the contention whether disposition of any property by the company would become "void" immediately or presentation of the petition for winding up, or it would become void only when an order of winding up has been passed, or at least when a provisional liquidator has been appointed. Section 536(2) of the Companies Act was sought to be interpreted in a wide dimension so as to render all transactions void merely because a petition for winding up was presented-whether or not it was succ

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2000 Supreme(SC) 363

VERY IMPORTANT POINTA company cannot escape from penal liability under Section 138 of Negotiable Instruments Act on the premise that a petition for winding up of the company has been presented and was pending during the relevant time.

VERY IMPORTANT POINT
A company cannot escape from penal liability under Section 138 of Negotiable Instruments Act on the premise that a petition for winding up of the company has been presented and was pending during the relevant time.