Company and its Directors cannot escape their criminal liability on ground that company was already wound up.

(Petitions under Section 482 of Criminal Procedure Code praying for issuance of a direction to call for the records in C.C.Nos.250 of 2003 and 5024 of 2002 on the file of the learned XIV Metropolitan Magistrate at Egmore, Chennai and quash all further proceedings.)

Common Order:

These petitions are filed to quash the criminal proceedings in C.C.Nos.250 of 2003 and 5024 of 2002 on the file of the learned XI Metropolitan Magistrate at Egmore, Chennai.

2. The petitioners are the accused in the criminal proceedings initiated by the respondent for the offence under Section 138 of the Negotiable Instruments Act.

3. It has been alleged in the complaint that the complainant-company financed the first accused company for the purchase of plant and machinery and the second accused in his capacity as a Director of the first accused company issued cheques to discharge the liability of the first accused company. It is further alleged in the complaint that when the cheques were presented, the same were returned with the endorsement "Accounts Freezed". After issuing the statutory notice calling upon the first and second accused to pay the cheque amount, the complaints were filed against the first and second accused for the offence under Section 138 of the Negotiable Instruments Act, as there was no positive response from the side of the accused.

4. In these petitions three issues were raised. First contention is that when the entire administration of the company was taken over by the Official Liquidator on winding up of the company, the accused cannot be prosecuted for the offence under Section 138 of the Negotiable Instruments Act. The second contention is that when the cheques were returned with the endorsement "Accounts Freezed", it would not amount to return of the cheques for insufficient funds in the accounts of the accused. Thirdly, it is contended that the statutory notices were not properly served on the accused.

5. Learned counsel for the petitioners/accused would submit that in a case where the winding up proceedings were pending as against the company, there may be some scope for the complainant to invoke the provision under Section 138 of the Negotiable Instruments Act to fasten the criminal liability on the company, which is in the process of winding up. But when the company itself was wound up, no legal proceedings for enforcing the uncompleted liability of the accused would exist.

6. Learned counsel for the respondent/complainant would contend that notices were issued to the registered address of the accused and that therefore the accused cannot have any grievance as regards the issuance of statutory notice. It is his further submission that inasmuch as the Negotiable Instruments Act is a Special Act, which overrides the provisions under the Companies Act, the accused cannot escape from the criminal liability just because the Company was wound up. It is his vehement argument that the complainant had not proceeded against the assets of the company, but against the persons for their criminal liability and that therefore Section 446 of the Companies Act is not a bar to such criminal proceedings.

7. It is found that the statutory notices were issued by the complainant to the registered address of the accused. But it is found that the notices were returned unserved. Therefore the accused cannot validly contend that the statutory notice was not properly given to the accused.

8. Of course, the account of the accused was freezed on account of the winding up proceedings as against the accused-company, but the accused company having issued the cheques for the subsisting liability is bound to see that the cheques are honoured at any cost. The freezing of the account was not on account of the act of the complainant, but it was on account of the act of the accused. The accused company, therefore cannot escape from the criminal liability on the ground that the cheques were returned dishonoured only on account of the freezing of the accou