The Karnataka High Court has ruled that criminal proceedings for cheque dishonour under Section 138 of the Negotiable Instruments Act, 1881 cannot be maintained against a former director if the cheque was issued after the company was dissolved. Justice M. Nagaprasanna allowed the criminal petition filed by Rakesh Ramakanth, quashing the entire proceedings pending before the IV Additional Senior Civil Judge and Additional Chief Metropolitan Magistrate, Bengaluru. The court observed that a cheque issued in the name of a dissolved company cannot be treated as a legally enforceable instrument.
Background of the Case
The case involves Accused No. 2, Giga Networks Private Limited, which was incorporated in the year 2003. On October 31, 2010, the company submitted an application to the Registrar of Companies to close its operations. Based on this application, the company was struck off the register and declared dissolved on March 16, 2011.
In November 2014, the petitioner, Rakesh Ramakanth (Accused No. 1), allegedly took a hand loan of Rs. 60 lakhs in cash from the respondent, Somashekara Gowda R.G., on the assurance that it would be repaid within 30 months. In July 2017, a cheque of Rs. 60 lakhs drawn on HDFC Bank was issued to the respondent under the name of the company. Upon presentation on August 8, 2017, the cheque was returned with the bank’s endorsement stating “account closed.”
The respondent initiated statutory proceedings by issuing a demand notice and subsequently registering a complaint under Section 200 of the Cr.P.C. in PCR No. 13006 of 2017. Cognizance of the offence was taken, and the case was registered as C.C. No. 263 of 2018. The petitioner subsequently approached the High Court seeking to quash the entire proceedings.
Arguments of the Parties
The counsel for the petitioner contended that Rakesh Ramakanth had only borrowed Rs. 20 lakhs in cash during a financial crisis and had already paid back over Rs. 80 lakhs. He argued that because the company was dissolved in 2011, the cheque issued in 2017 could not be treated as a legally recoverable debt, making the proceedings non-maintainable. Additionally, the petitioner claimed he was in Dubai in July 2017 when the cheque was allegedly issued. He relied on the Supreme Court judgment in Vishnoo Mittal v. Shakti Trading Company to argue that directors cannot be held liable for cheques issued after a company’s dissolution.
Conversely, the counsel for the respondent argued that the petitioner’s contentions revolved around heavily disputed questions of fact that must be decided during a trial. He submitted that the complainant was unaware of the company’s closure. Since the petitioner did not dispute his signature on the cheque, the respondent argued that the petitioner could still be held liable in his personal capacity under Section 141 of the Negotiable Instruments Act, placing reliance on the Supreme Court judgment in Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Limited.
The Court’s Analysis
The High Court observed that Giga Networks Private Limited was officially dissolved on March 16, 2011, whereas the cheque in question was issued in July 2017—six years after the dissolution.
To determine whether proceedings under Section 138 of the Act can be sustained after a company gets closed or dissolved, the court examined several precedents. It highlighted the Delhi High Court’s ruling in Krishan Lal Gulati v. State of NCT of Delhi, which established that:
“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.”
The court also cited Raj Kumar Jain v. Shree Balaji Enterprises, noting that for an offence under Section 138 to be made out, the bank account must be “maintained” by the accused at the time of the offence, meaning they must possess continuous authority and control over it.
The High Court distinguished the respondent’s reliance on Ajay Kumar Radheyshyam Goenka, pointing out that the apex court in that case was dealing with situations where winding up or liquidation proceedings began after the issuance of the cheque. In the present case, the company stood closed years before the cheque was even drawn.
Referencing the Supreme Court ruling in Bharat Mittal v. State of Rajasthan, the court clarified that directors continue to face prosecution only if the company goes into liquidation during the pendency of the proceedings, which acts as a “legal snag” preventing the company’s prosecution while keeping the directors’ liability intact.
Applying these legal principles to the current case, the court observed:
“Therefore, the cheque itself is allegedly issued in the name of the Company after dissolution of the Company. Therefore, the petitioner, a former Director of the said Company cannot be held liable for a cheque that is issued after dissolution of the Company.”
Furthermore, the court noted that the complaint only described the petitioner as a “representative” of the company and lacked any specific averment that he was a director in-charge of its day-to-day affairs at the relevant time. Therefore, the court held that the proceedings could not be permitted to continue on both factual and jurisdictional grounds.
Decision of the Court
The High Court allowed the criminal petition and quashed the entire proceedings in C.C. No. 263 of 2018 pending before the IV Additional Senior Civil Judge & Additional Chief Metropolitan Magistrate, Bengaluru. The court also disposed of the pending interlocutory application (I.A. No. 2 of 2024), adding that the complainant remains at liberty to seek any other legal remedy available under the law.
Case Details
Case Title: Rakesh Ramakanth v. Somashekara Gowda R.G.
Case No.: Criminal Petition No. 3024 of 2024
Bench: Justice M. Nagaprasanna
Date: 01.07.2026
