Liability of a Dissolved Company for Cheque Dishonour under S.138 of Negotiable Instruments Act, 1881

Liability of a Dissolved Company for Cheque Dishonour under S.138 of Negotiable Instruments Act, 1881 

Section 138 - Complaint for Cheque Dishonour - Impermissible Complaints - Accused company was a dissolved company - Held, "provisions contained in Sections 248(5) and 250 of the Companies Act, 2013, deal with the strike-off and dissolution of companies by the Registrar of Companies. 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. Section 250 further clarifies that once dissolved under Section 248, the company ceases to operate as a legal entity and its certificate of incorporation is deemed cancelled, except for limited purposes such as realizing dues or settling liabilities. Government Notification dated 05.09.2017 issued by the Department of Financial Services, states that companies struck off under Section 248(5) cease to exist in law, their directors become exdirectors, and their bank accounts remain frozen until such companies are restored under Section 252 of the Act. This notification, issued in the context of a large-scale corporate clean-up, reinforces that any transactions or operations by a struck-off company would be legally impermissible until its restoration. 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. Consequently, a cheque issued in the name of or by such a dissolved company cannot be treated as a legally enforceable instrument, since no valid drawer or account-holder exists in law. Proceedings under Section 138 of the Negotiable Instruments Act, which presuppose a validly issued cheque, therefore, cannot be sustained in such circumstances.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." - Krishan Lal Gulati v. State of NCTD [2025] GCtR 1633 (Delhi)