Holding

A company cannot escape penal liability under Section 138 of the Negotiable Instruments Act on the ground that a winding‑up petition was pending; the cheque issuance is not a void disposition and the debt remains enforceable.

Summary

The Supreme Court examined whether a company that issued a cheque, which was later dishonoured, could avoid criminal liability under Section 138 of the Negotiable Instruments Act by invoking the provision of the Companies Act that makes any disposition of its property void after a winding‑up petition is presented. The Court held that the issuance of a cheque is not a void disposition under Section 536(2) of the Companies Act, and the debt underlying the cheque remains legally enforceable despite the pending winding‑up petition. Consequently, the company cannot claim exemption from penal liability merely because a winding‑up petition was pending. The Court explained that the word “void” in the Companies Act is not peremptory and can be qualified by the court, and that Section 138 creates a strict offence where the drawer “fails” to pay within fifteen days, irrespective of the reason for failure. The appeals against the High Court’s dismissal of the writ petitions were dismissed.

Issues considered

The effect of Section 536(2) of the Companies Act, 1956 on dispositions of property, including issuance of cheques, when a winding‑up petition is pending.
Whether a cheque issued by a company during winding‑up proceedings constitutes a ‘disposition of property’ that becomes void and can shield the company from liability under Section 138 of the Negotiable Instruments Act.
Whether the debt underlying a cheque remains ‘legally enforceable’ despite the commencement of winding‑up proceedings.
Interpretation of the word ‘void’ in Section 536(2) – whether it renders dispositions ab initio void or merely voidable subject to court order.
Whether the statutory offence under Section 138 NI Act is discharged by any reason for the drawer’s failure to pay, including the existence of a winding‑up petition.

Legislation cited

Companies Act, 1956s. 425, s. 439, s. 440, s. 441(2), s. 443, s. 449, s. 450, s. 536(2)
Negotiable Instruments Act, 1881s. 138, s. 139

Subjects

Section 138 NI Actcheque dishonourcompany winding upCompanies Act 1956penal liabilityvoid dispositiondebt enforceabilitycriminal prosecutionlegal fictioncourt jurisdiction

Judgment

PANKAJ MEHRA AND ANR. E"l'C. A
v.
STATE OF MAHARASHTRA AND ORS.

FEBRUARY 15, 2000

B
[KT. THOMAS AND A.P. MISRA, JJ.]

Negotiable Instruments Act, 1881-Section 138-Di~·honour of cheque
issued by a company-Criminal prosecution under Section 138-Sus-
tainability--Held : company cannot escape from penal liability u/s. 138 on
ground that a petition for winding up of company was pending during the c
relevant tim~-Companies Act, 1956-Sections 441(2), 536(2).

Companies Act, 1956-Sections 441(2), 536(2)-Winding up of a com-
pany-Commencement of-Evidence of trans/ers etc. after commencement of
winding up-Disposing of any property by the company would not become D
'void' immediately on presentation of petition---<:ompany can not also avert
its penal liability under Section 138 of the Negotiable Instruments Act on the
ground that winding up petition was pending during the relevant time-Nego-
tiable instruments Act, 1881-Section 138.

A cheque issued by a company when presented for encashment was E

- dishonoured by the drawee bank on 26.12.1996. The payee of the cheque
issued a notice to the company calling upon it to pay the amount and as
the failed to pay the amount, a criminal complaint was filed on 29.1.1997
against the Company and its directors for the offence under Section 138
of the Negotiable Instruments Act. The Company challenged the criminal F
proceedings by filing a writ petition stating that a petition for winding up
of the company had been filed on 27.5.1996, therefore, any disposition of
the property of the company shall be void if it was made after the com-
mencement of winding up proceedings by the court. Dismissing the writ
petition, the Division Bench of the High Court held that merely because a
petition for winding up has been presented all transactious or disp.ositions G
undertaking during the period cannot become ab initio void as what
Section 536 (2) read with Section 441 (2) of the Companies Act provides
for is to convert what was otherwise valid into void by virtue of the legal
fiction, thus tile voidness to take effect on the passing of the order of
winding up or appointment of provisional liquidator and by virtue of the H
825
826 SL'PREMF COURT Rt.PORTS (2000] 1 S.C.R
A legal faction, in Section 441(2), it then relates back to the date of presen·
tation of the petition for winding up. Therefore it was held that the
company could not avert its liability on the mere ground that such a
petition was presented prior to the company being called upun by a notice
to pay the amount uf the cheque.

B These appeals had been filed against the judgment of the High
Court. The question raised for consideration was can a company escape
from penal liability under Section 138 of the Negotiable Instruments Act
on the premise that a petition has been presented and was pending during
the relevant time.
c The appellants submitted that the very issuance of a cheque would
amount to disposition of property and 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 uf winding up proceedings by
the court as per provision of Section 441 (2) of the Companies Act, winding
D up of a company by the court shall be deemed tu commence at the time of
presentation of the petition for winding up; that since one of the conditions
to constitute the offence under Section 138 of the !\regotiable Instruments
Act is that a cheq11e should have been drawn for the discharge of a legally
enforceable 'debt or other liability' no such cheque can possible be con·
E ceived in a situation such as this because the creditor would be disabled
from legally enforcing the debt with the commencement of winding up
proceedings.

Dismissing the appeals, the Court

F HELD : l.l. The word "void" in Section 536(2) of the Companies Act
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. The word void is not employ"d peremptorily
since court has power to order otherwise. The words "unless the court other·
G wise orders" are capable of diluting the rigor of the word "void" and to choose
the alternative meaning attached to that word. (834-B; G]

1.2. It is difficult to lay down that all dispositions of the 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
H void. If such a view is taken the business of the company would be paralysed,
PANKAJ MEHRA v. STATE 827

- 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
A

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. (837-D] B

13. lf the payment is not ab initio void the company cannot contend
that it is legally forbidden from malting payment of the cheque amount when
notice was issued by the payee regarding dishonour of the cheque. [837-F]

1.4. The cheque can be an order on the banker to pay the amount to the
c
holder thereof and no disposition of property would take place until the
payment is made by the banker pursuant thereof. At the most, drawing of a
cheque can be considered as a step towards disposition of property, but that
is insufficient to amount to disposition of property. [838-H; 839-A]
D
1.5. 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 assets for the company the realisation of a debt E
would be difficult. But that is no premises 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. (839-A-B]
F
1.6. Section 138 of the NI Act 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. Legislature has thoughtfully used the word "fails"
instead of other expressions as failure can be due to variety of reasons G
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. [839-D; H; 840-A]

1.7. The drawer of the cheque can have different explanations for the H
828 SliPREME COURT REPORTS [2000] l S.C.R.
A failure to pay the amount covered by the cheque. But no such explanations
would be sufficient to extricate him from the tentacles of the offence
contemplated in the Section. Perhaps some kind of Explanations would be
sufficient to alleviate the rigor of the offence which may be useful to
mitigate the quantum of sentence to be imposed. [840-B-C]

B Chittoor District Co-operative Marketing Society Ltd. v. Mis. Vegetols
Ltd. and Ors., [1987] Suppl. SCC 167, relied on.

Tulsidas Jasraj Parekh v. lndustrial Bank of Western India, AIR (1931)
Born. 2; Gujarat High Court in !Vavjivan Mill:> Ltd., In re, (1986) 59 Company
C Cases 201, affirmed.

Re Grays Inn Constrnction Company Ltd. (1980) 1 All ER 814, distin-
guished.

CRIMINAL APPELLATE JCRISDICTION: Criminal Appeal No.
D 11 of 1999 Etc. Etc.

From the Judgment and Order dated 25/26.6.98 of the Bombay High
Court in Crl.W.P. No. 324 of 1998.

P. Chidambaram, T.R. Andhyarujina, Ashok H. Desai, M.S. Gane5h,
E M.N. Rao, T.L.V. Iyer, Dushyant A. Dave, C N. Bachawat, D.A. Dive, F.S.
Nariman, Kapil Sib a!, Harish )IL Salve, J .S. Goswami, Ms. Bina Gupta,
Prashyant Naik, Ms. Rckha Ray, Mrs. Urmila Sirur, Nikhil Nayar, C.L.
Sareen, Rajiv Dutta, Ms. Enakshi Kulshrcstha, Cday Kumar, Kapil Sharma,
H.P. Sharma, G. Sridhar, Y. Raja Gopala Rao, Ranjit Kumar, Ms. Anu
F Mohla, P.K. Mullicak, R.N. Keshwani, V.J. Francis, N.S. Tambwekar, G.B.
Sathe, Nitin Tamswekar, Alok Sen Gupta, Ranjan Narian, Ms. Dcepa Das,
Ms. Lavanya, Ms. Vivck Zutshi, S. Sukumaran, U.U. Lalit, Ms. H. Wahi,
Ms. Anu Sawhni:y, Ashok Gupta, R. Sasiprabhu, A.P. Vinod, Manoj
Prasad, Mohit Mathur, Ms. Astha Tyagi, S. Prasad, V.A. Rana, Rajesh
Nair, E.R. Kumar, R. Ncdumaran, Pavan Kumar, Kailash Vasdcv, R
G Rahim, V.B. Joshi, Ms. Swcta Sharama, G. Prabhakar, Ms. T. Anamika,
Krishnamurthi Swami, S.S. Rana, Mrs. Bindra Rana, Vikrant Rana, K.
Maruthi Rao, Mrs, K. Radha, D. Mahesh Babu, P.S. Narasimha, Ms.
Bharati B., P. Sridhar, V.G. Pragasam, Sanjc;ev Sen, R.N. Karanjawala, Ms.
Nandini Gore, Arunabha Choudhary, Ms. Manik Karanjawala, Ramesh
H Singh, Naris Beerani, P. Niroop, B.P. Paddy, Pavan Kumar, C.S. Sareen,
PA."lKAJ MEHRA v. STATE (THOMAS, J.j 829

Manish Garg, S. Pnisad, D.M. Nargolkar, Ghandra Bhushan A.N. Khan- A
wilkar, Ms. Rakhl Roy, M.K. Singh, Satu Bhalla and Meenakshi Kulshresh-
tha for the appearing parties.

The Judgment of the Court was ddiven:d by

THOMAS, J. Can a company escape from penal liability under B
Section 138 of tht: Negotiable Instruments Act (for short "the NI Act") on
the premise taat a petition for winding up of the company has been
presented and was pending during the relevant time'! A Divi;ion Bt:nch of
tht: Bombay High Court held that tht: company cannot avert its liability on
the mere ground that such petition was presentt:d prior to the company C
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. D

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 relt:vant for dt:aling with the aforesaid question,
can be culled out from om.: of the appeals. The company involved in the E
said sample appeal will be rt:ferred to as ;'the Company'. The cheque which
the company issued bore the date 30.10.1996 and the arno1.mt cowred by
the cheque was Rs. 5,72,432. (There is a contention that the cheque was
actually drawn much before that date). When the chequt: was presented
for encashmcnt tht: drawee bank dishonoured it on 26.12.1996. Tht: payee
F
of tht: cheque issued a notice to the Company on 21.12.1996 caning upon
it to pay the amount. As tht: Company failed to pay tht: amount a complaint
was filt::d bt:fon: the magistralt: on 29.Ll 997 against tht: Company and two
'· of its directors for the offence under Section 138 of the NI Act.

The magistrate who took cognizance of the offence issued process to G
all the accused. lt was that the accused challenged the criminal proceedings
by means of a writ petition filed before the Bombay High Court, on the
prembe that a petition for winding up of the Company has bt:en filed on
27.5.1996 bdun: the court concerned and a provisional liquidator was
appointed by that court two years later i.e. on 21.4.1998. H
830 SUPREME COURT REPORTS !2000] l S.C.R.
A As the facts stated above were not substantially disputed the Division
Bench of the High Court proceeded to hcar the writ pttition 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
B 536(2) of the Companies Act any disposition of the property of the Com-
pany shall be void if it was made after tht: 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 deem1:d to commence at the time of
presentation of the petition for winding up. The Division Bench of the High
C 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 tht period of 15 days, after receipt of notice, expired. Thus
D
the question for consideration ts whether merely by reason of a
winding up petition being prest:nted there was a bar or legal
disability in making payment."

Learned Judges proceeded to consider the question on the aforesaid
E admitted premise and, therefore, examined the contention whether disposi-
tion of any property by the company would become wvoid'' immediately on
presentation of the petition for winding up, or it would become void only
when an order of winding up had b.:en passed, or at least when a
provisional liquidator has been appointed. Section 536(2) of the Companies
p 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 succeeded by an order of winding up or appoint-
ment of a provisional liquidator. The Division Bench of the High Court
repelled the said contention on the following reasoning :

G 'If this argument is accepted, persons who purchased shares in the
open market through the Stock Exchange without any knowledge
of a petition for winding up having been presented, would also get
affected as all such transactions would be void. Therefore, if this
wide propositions were to be dCcepted then once a petition for
H winding up is presented, even without an order for winding up,
PANKAJ MEHRA v. STATE [THOMAS, J.) 831

there would be for all practical purposes closure of the company. A
All activities of the company would have to a standstill. If this were
the law then unscrupulous parties could blackmail/pressurise all
companies to succumb to unjustified demands by merely threaten-
ing to or presenting petitions for winding up. Conversely un-
scrupulous companies could avoid payment/discharge of its
liabilities by having their own parties present bogus petitions for
B
winding up. After one is dismissed another could be filed. In this
manner, the company could avoid discharging its liabilities in-
definitely if not permanently. If the law was that merely on the
filing of a petition for winding up all dispositions were void, it
would lead to absurd or catastrophic results. In our view that can c
never be the legal position."

It was then argued before the Division Bench that the words "in the
winding up'' appearing in Section 536(2) of the Companies Act should
mean "during winding· up proceedings". Reliance was placed on the D
decision in Kamani Mata/lie Oxides Ltd. v. Kamani Tubes Ltd., (1984)
Company Cases Page 19, wherein it was held that the words ''in the winding
up" do not mean "afkr or upon the passing of the winding up order".
Learned Judge of the Division Bench of the High Court pointed out the
distinguishing context in the said case in which such a view was taken
and then expressed the view that merely because a petition for winding E
up has been presented all transactions or dispositions undertaken
during the period cannot become ab initio void. The following reasoning
of the Division Bench for repelling the said contention is worthy to be
extracted:
F
"If they were to be void ab initio i.e. inunediately on their being
entered into, then on the petition being withdrawn or dismissed,
they would not revive. It is clear that if the petition is withdrawn
or dismissed then the transactions would never have been void.
This clearly shows that the transactions/dispositions are not void
ab initio but become void on the passing of an order for winding G
up or on appointment of a Provisional Liquidator. What Section
536(2) read with Section 441(2) provides for is to convert what was
otherwise valid into void by virtue or the legal fiction. Thus the
voidness taken effect on the passing of the order of winding up or
appointment of Provisional Liquidator. By virtue of the legal fie- H
832 SUPREME COURT Rf.PORTS [2000) 1 S.C.R.
A tion, in Section 441(2), it then relates back to the date of presen- ...
tation of the petition for winding up."

We will presently consider the effect of Section 536(2) of the Com-
panies Act. The entire Section is quuted bduw :

B "Avoidance of transfers, etc., after commencemmt of winding up. -
(1) In the case of a voluntary winding up, any transfor of shares in
the company, not bemg a transfer made to or with the sanction of
the liquidator, and any alteration in the status of the members of
the company, made after the commencement of the winding up,
c shall be void.

(2) In the case of a winding up by or subject to the supervision of
the Court, any disposition of tht: property (including actionable
claims) of the company, and any transfer of shares in the company
or alteration in the status of its members, made after the commen-
D cement of the winding up, shall, unless the Court otherwise orders,
be void."

Contextually Section 441(2) of the Companies Act is very relevant
and hence that is also extracted here :
E "441. Commencerr.ent of winding up by Court. - Where, before the
presentation of a petition for tht: winding up of a company by the
court, a rt:solution has been passed by the company for voluntary
winding up, the winding up of the company ;hall be deemed to
haw commenced at the time of the passing of the resolution, and
F unless the Court on proof of fraud or mistake, thinks fit to direct
otherwise, all proceedings taken in the voluntary winding up shall
be deemed to have been validly taken.

(2) In any other case, the winding up of a company by the Court
shall be deemed to commence at the time of the presentation of
G the petition for the winding up.··

Three modes of winding up have been prescribed in Part VII of the
Companies Act, (vide Section 425). First is, winding up by the court, next
is voluntary winding up and the third i~ winding up by subjecting to the
H supervision of the court.
PANKAI MEHRAv. STATE [THOMAS.J.J 833

We need not bother ourselws with the first sub-section of Section A
536 of the Companies Act as it deals with a case of voluntarily winding up
of the company, because none of the companies in the present batch of
appeals is involved in such a contingency. Sub-section (2) deals with the
other two t)l't:S of winding up. Section 439 of the Companies Act con-
ttmplates an application to the court for the winding up of the company.
It can be done by presenting a pdition by any one of the persons
B
enumerated in sub-section (1) of Section 439. Such persons include any
creditor, including any prospective creditor.

Once a petitton for winding up is presented it is not a necessary
concomitant that the winding up would follow. This position is made ckar c
in Section 440(2) which says that "'the court shall not make a winding up
order on a petition presented lo it under sub-section (1), unless it is
satisfied that the voluntary winding up or winding up subject to the super-
vbion of the Court cannot be continued with due regard to the interests of
the creditors or contributories or both."
D
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. Section 443 of the Companies Act is
important in this context. Sub-section (1) of that Section says that on
hearing a petition for winding up the court may t:ither (I) dismiss the E
petition or (2) make any interim order as it thinks fit or (3) make an order
for a winding up. Sub-section (2) says that 'where the petition is presented
on the ground that it is just and equitablt: that the company ~hould be
wound up, the Court may n.:fu,e to llldke an uHler or winding up, if it is
of opinion that some other remedy is availahle lo th~ pditioners and that
F
they are acting unreasonably in seeking to have the company wound up
instead of pursuing that other remedy '

Two more provisions are relevant in this context. Section 450 says :
"At any time after the presentation of a winding up petition and before the
making of a winding up order, the Court may appoint the Officer Liquida- G
tor to be liquidator provisionally". Before appointing a provisional liquida-
tor the court has to give notice to the company and reasonable opportunity
to make his representation. Section 449 enjoins that ''on a winding up order
being made in respect of a company the Official Liquidator shall, by virtue
of his office, become the liquidator of the company." H
834 SUPREME COURT REPORTS [2000) 1 S.C.R.

A In the above backdrop alone wc can 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
B indicate that any disposition should be ab initio void. Thc ltgal implication
of the word ''void" need not necessarily bc a stage of nullity in all contin-
gencies. Black's Law Dictionary gives the meaning of the word ''void" as
having different nuances in different connotations. Once 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". After
C referring to the nuances between void and voidablt the Lexicographer
pointed out the following :

"The word 'void' in its strictest sense, means that which has no
force and effect, is without legal efficacy, is incapable of being
enforced by law, or has no legal or binding force, but frequently
D
the word is used an construed as having the more liberal meaning
of 'voidable. The word 'void' is used in statutes in the sense of
utterly void so as to be incapable of ratification, and also in the
sense of voidable and resort must be had to the rules of construc-
tion in many cases to determine in which sense the Legislature
E intended to use it. An act or contract neither wrong in itself nor
against public policy, which has been declared void by statute for
the protection or benefit of a ccrtain party, or class of parties, is
voidable only."

F For dim:rning the legislative idt.a in employing the word "void" in
the context set out in Sedan 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 order" are capable of diluting the rigor
of the word "void" and to choose the alternative meaning attached to that
G word.

In Chittoor District Co-operative Marketing Society Ltd. v. M/s.
Vegetols Ltd. and Ors., (1987) Suppl. SCC 167 a two Judge Bench of this
Court considered a plea for validation of payments made by a company
H after presentation of a petition for winding up. One set of payments were
PA.'/KAI MbHRA v. STATE [ll!OMAS, J ] 835
made before the passing of the winding up order and the other set of A
payments were made thereafter. This Court declined to validate such
payments on the ground that "there is no evidence to show that those
payments were made either under compulsion of circumstances in order
to save or protect the property of the company or that there was any
commercial compulsion to enable it to run its business". The decision only
indicates that such payments could have been made valid if evidence was
B
adduced to show that there was compulsion of circumstances. ln facts, this
decision lands support to the interpretation that the payments which were
made after the commencement of winding up proceedings, would not
become ab initio void.
c
An early decision of a Division Bench of the Bombay High Court in
Tulsidas Jasraj Parekh v. Industrial Bank of Western India, AlR (1931)
Bombay 2 was sought to be relied on by most of the learned counsel who
argued for different appellant. The question which the Court considered
therein pertained to Section 227(2) of the old Companies Act, 1913 which D
was identical to Section 536(2) of the present Act. Certain payments made
by a company after commencement of the winding up proceedings were
questioned and the Division Bench considered the scope of the sub-section
and noticed that the principle had been borrowed from the English Com-
panies Act. Hence some of the English authorities were also referred to
by Marten C.J., who spoke for the Division Bench. Learned Judges stated E
thus:

"Now here as regard' S 227(2) the C<1ur• lias to steer a middle
course between two extn;mes. On the 0n.: hand the words of rhe
section are wide enough to include any sale or payment that a F
company may make after the date of the winding-up petition. On
that basis any business would practically have to he stopped if a
petition was presented, because it would be unsafe to dispose of
any of the company's assets. For instance, a mill company might
not be able to buy a ton of coal for the use of its furnaces or, on
the other hand, it might not be able to sell any of its goods in the G
ordinary course of business. Consequently, the Court has very
properly laid down that, speaking generally, any bona fide trans-
action carried out and completed in the ordinary course of current
business will be sanctioned by the Court under S . 227(2). On the
other hand it will not allow the assets to be disposed of at the mere H
836 SUPRfl,fF COURT RJ-<.PORTS [2CCOJ 1 S.C.R.
A pleasure of the company, and thus cause the fundamental principle ..
'•
-
of equality amongst creditors le' be violated. To do so would in
effect be to add to the preferential debts enumerated in s. 230 a
further category of all debts which the company might choose to
pay wholly or in part."

B It is useful to refer to the reasoning adopted by a Division Bench of
the Gujarat High Court in Navjiva11 Mil/1 Ltd., bi It! ( 1986) 59 Company
Cases 201 in favour of adopting a pragmatic attitude when a Company
Court was approached fur approval of c1.:rtain dispositioru, which a com- "
pany made after pn:sentation of d petition for winding-up. A clear distinc-
C tion was drawn by the Division Bench b<.:tween the period till tht passing
of the order for winding-up and thereafter, so far as dispositions are
concerned. The following reasoning is useful for consideration of the issues
involved:

"The court can exercise the jurisdiction under section 536(2) of the
D
Companies Act, 1956, of giving directions validating proposed
transactions pending a petition for winding up but before the
winding up order is made for the obvious reason that unless these
transactions are saved from the consequence which may ensue, if
at all, on an order of winding up being made, the company might
E find it difficult to keep itself going and its business might be
paralysed. The purpose underlying tht: inwstment of the power in
court is for the bent:fit and the interest of the company so as to
ensure that a company which is made the subjcct of a winding-up
petition may nevcrthdes' obtain tht: money necessary for carrying
F out its business and so as to avmd ib business being paraly<:ed. If
that is the purpose and object of the section, it would hardly be
proper and just to stultify the power and restrict its operation since
otherwise it is bound to be counter-productive in the sense that
the very purpose of keeping the company as a going concern so as
to ensure the interest of the shareholders and creditors would be
G defeated.'

In Re Grays !1111 Constrnctio11 Company ltd. (1980) 1 All E.R. 814
the Court of Appeal (Civil Division) considered the principle on which
discretion of the court to validate the di~positions of property made by a
H company, during the interregnum between presentation of a winding up
PANKAJ MbHRA v. STATE '.THOMAS, J.] 837

petition and the passing of the order for winding up, has been dealt with. A
Section 227 of the English Companies Act, 1948 is almost the same as
Section 536(2) of the Indian Compames Act Dispositions which could be
·alidated are mentioned in the decision. The said decision was cited bdore
us in order to emphasise the point that courts would be very circumspect
in the matter of validating the paymrnts and the interest of the cn;ditors
B
as wdl as the company would be kept uppermost in consideration. Be that
so, the said decision is not sufficient to support the contention that disposi-
tion during the interregnum would bt irretrievably void.

It is difficult to lay down that all dispositions of property made by a
company during the intt:rregnum between the presentation of a petition for c
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 D
catastrophic situation should be averted. That apart, if any such view is
adopted, a fraudulent company can deceive any bona fide person transact-
ing business with the company by stage-managing a petition to be presented
for winding up in order tu defeat such bona fide customers. This conse-
quence has bet:n corrt:ctly voict:d by the Division Bench in the impugned
judgmt:nt. E

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 issut.:d by the payee regarding dishonour of the eht:que. Tu
circumvent this hurdle an endeavour was made by some of the appellants' F
counsd to show that tht.: very issuance of a cht:que would amount to
disposition of property. We are unable to accept the said contention
particularly in view of the definition of 'cheque" in the NI Act. "A Cheque
is a bill of exchange drawn on a specified banker and not expressed to be
payable otherwise than on demand."
G
Bill of exchange is "an instrument in writing containing an uncondi-
tional order, signed by the maker, directing certain person to pay a certain
sum of money only to, or tu the order of a certain person or tJ the bearer
of the instrument". The cheque, therefore, can be an order on the banker
tu pay the amount to the holder thereof and no disposition of property. H
838 SCPREME COURT REPORTS [200011 S.C.R.
A would take place until the payment is made by the banker pursuant thereto.
At the most, drawing of a cheque can be considered as a step towards
disposition of propcrty, but that is insufficient to amount disposition of
property.

It was next contt:nded that since one of the conditions to constitute
B the offence of Section 138 of the N1 Act is rhat a cheque should have been
drawn for the discharge of a legally enforceable ··debt or other liability' no
such cheque can possibly be conceived in a situation such as this because
the creditor would be disabled from kgally enforcing tht: debt with the
commencement of winding up proceedings. Section 138 of the NI Act, no
C doubt, contemplates only when the chequt is drawn by a person "for the
discharge, in whole or in part, of any debt or other liability". Explanation
to Section 138 says that ''for the purposes of this Section 'debt or other
liability' means a lt:gally enforceable debt or liability". Therefore, the first
limb of the contention is forceful that fur the offonce under Section 138
the cheque should have been drawn fur discharging a legally enforceable
D debt or other :iability But thl second limb of the contention is tenuous as
the debt would nut cease tu be legally enturceable merely because some
body has filed a petition for winding up.

In this context a reference to Section 139 of the NI Act is indispen-
E sable. It reads thus :
"139. Presumption in favour of holder. - It shall be presumed, unless
the contrary is proved, that the holder of a cheque received the
cheque, of the nature referred to in Secti0n 138 for che discharge,
in whole: nr in part, c1f an) deht or other liabilicy:·
F
Thus, when a cheque is n:ceived 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 lt:gislative mandate that the court should proceed with the
assumption that such cheque was received for the discharge of a legally
G enforceable debt or other liability until the drawer proves that it is not so.
Learned counsel contended that fae burden of proof cast on the drawer
of the cheque would stand discharged and the presumption would stand
rebutted when it is ;hown thar the company has been brought into winding
up proceedings, as then no debt can be legally enforced against the
H company.
PANKAJ MEHRA v. STATE (THUMAS,J.] 839

There is no provision in the Companies Act which prohibits enfor- A
cement 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 altogt:ther. Perhaps due to want of
sufficient assets for the company the realisation of a debt would be difficult.
But that is no premise to hold that the debt is legally unenforceable.
B
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. c
The alternative approach is this : 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, D
commencing with the drawing of the cheque and eni:ling 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.

The last factor for constituting the offence under Section 138 of the E
NI Act is formulakd in clause ;:;; of the proviso to the Section which reads
thus : "the drawer of such cheque fails to make the payment of the said
amount of money tu the payee or as the case may be, to the holder in
due course of the cheque within fifteen days of the receipt of the said
notice."
F
The words "the drawer of such cheque fails to make the payment"
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 G
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 aforesaid
conditions can be put forth while considering the question of sentence.

We therefore feel that legislature has thoughtfully used the word H
840 Sl:PREME CUL:RT REPORTS [20001 l S.C.R.
A "fails" instead of other expressions as failun:: can be due to variety of
reasons including his disability to pay. But the offence would be complete
when the drawer "fails'' to make paymt:nt within the stipulated time,
whatever be the cause for such failure.

The drawer of the cheque can have diffor.:nt explanations for the
B failure to pay the amount covered by the ch..:qm:. But no such explanations
would be sufficient to extricate him from tht: kntades of the ofknce
contemplated in thL Section. Perhaps same kind of explanations would be
sufficient to al!t:viak the rigor of the otfonce which may be useful to
mitigate the quantum of sentence to be imposed. But that is no ground for
C consideration at this stage.

For all the above reasons, we an: not mclincd to inkrfcre with
impugned judgment of the Bombay High lourt. However, lt:arm:d counsel
who argued for one of the appellants in this batch of appeals (M;s. Atash
Industries (India) Ltd.) poinkd out that an observation made by the
D Division Bench in the impugm:d judgmt:nt would cause pn:judice to that
company when the case proceeds to the trial. Wt noticed that the following
observation in paragraph 59 of the impugned judgment has the potency
of creating a prejudice against them .

'The conduct of Atash Industries (India) Limited in supp1~,smg
E
facts and obtaining orders from Courts without pointmg out cor-
rect facts must be depn:cated. In our view this conduct precludes
the Company from getting any equitable rdiefs."

We makt: it c'car thitt the observation was made only fur the Writ
F Petition pending in the High Court and that will not be countt:d against
the said company during the remaining stages of trial.

All the appeals are accordingly dismissed.

G R.A. Appeals dismissed.