Ajay Kumar Radheyshyam Goenka vs Tourism Finance Corporation of India Ltd.

the signatories/directors cannot escape from their penal liability u/s. 138 of the NI Act by citing its dissolution – What is dissolved, is only the company, not the personal penal liability of the accused covered u/s. 141 of the NI Act – After passing of the resolution plan u/s. 31 of the IBC by the adjudicating authority & in the light of the provisions of s.32A of the IBC, the criminal proceedings u/s. 138 of the NI Act will stand terminated only in relation to the corporate debtor if the same is taken over by a new management – s.138 proceedings in relation to the signatories/directors who are liable/covered by the two provisos to s. 32A(1) will continue in accordance with law.

Dismissing the appeals, the Court

Per SANJAY KISHAN KAUL, J. (For himself and ABHAY S. OKA, J.)

HELD: 1. A bare reading of Section 14 of the IBC would make it clear that the nature of proceedings which have to be kept in abeyance do not include criminal proceedings, which is the nature of proceedings under Section 138 of the N.I. Act. It cannot be said that the process under the IBC whether under Section 31 or Sections 38 to 41 which can extinguish the debt would ipso facto apply to the extinguishment of the criminal proceedings. No doubt in terms of the Scheme under the IBC there are sacrifices to be made by parties to settle the debts, the company being liquidated or revitalized. The Appellant has been roped in as a signatory of the cheque as well as the Promoter and Managing Director of the Accused company, which availed of the loan. The loan agreement was also signed by him on behalf of the company. What the Appellant seeks is escape out of criminal liability having defaulted in payment of the amount at a very early stage of the loan. In fact, the loan account itself was closed. So much for the bona fides of the Appellant. [Paras 16 and 17][997D-E, G-H; 998-A-B] Per J.B. PARDIWALA, J. (Concurring)

HELD: 1. Section 141 of the NI Act states that if the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. The expression “as well” is occurring in Section 141 of the NI Act. This expression means “on par”. Therefore, the liability of such persons in charge of and responsible to the company for the conduct of its business is thus co-extensive. [Para 33][1007-H; 1008-A-B]

2. The creditor has no option but to join the process under the IBC. Once the plan is approved, it would bind everyone under the sun. The making of a claim and accepting whatever share is allotted could be termed as an “Involuntary Act” on behalf of the creditor. The making of a claim under the IBC and accepting the same and not making any claim, will not make any difference in light of Section 31 of the IBC. Both the situations will lead to Section 31 and the finality and binding value of the resolution plan. At best, it could be said that from the cheque amount under Section 138 of the NI Act, the amount received under the resolution plan may be deducted. [Paras 41, 42][1020-D-F]

3. It is true that by virtue of Section 238 of the IBC, the provisions of the CrPC shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. But, no provision of the IBC bars the continuation of the criminal prosecution initiated against the directors and officials. It is equally true that once the corporate debtor comes under the resolution process, its erstwhile managing director(s) cannot continue to represent the company. Section 305(2) of the CrPC states that where a corporation is the accused person or one of the accused persons in an inquiry or trial, it may appoint a representative for the purpose of the inquiry or trial and such appointment need not be under the seal of the corporation. Therefore, it is only the Resolution Professional who can represent the accused company during the pendency of the proceedings under IBC. After the proceedings are over, either the corporate entity may be dissolved or it can be taken over by a new management in which event the company will continue to FINANCE CORP. OF INDIA LTD.

exist. When a new management takes over, it will have to make arrangements for representing the company. If the company is dissolved as a result of the resolution process, obviously proceedings against it will have to be terminated. But even then, its erstwhile directors may not be able to take advantage of the situation. Where the proceedings under Section 138 of the NI Act had already commenced and during the pendency the plan is approved or the company gets dissolved, the directors and the other accused cannot escape from their liability by citing its dissolution. What is dissolved is only the company, not the personal penal liability of the accused covered under Section 141 of the NI Act. They will have to continue to face the prosecution in view of the law laid down in Aneeta Hada [Paras 49, 50 and 52][1030-H; 1031-B-D; 1032-B-C]

4. While interpreting Sections 14, 31 & 32A resply of the IBC vis-a-vis Sections 138 and 141 resply of the NI Act, the principle of harmonious construction should be applied and followed. By permitting to proceed against the signatories/directors even after the approval of the plan, what is achieved is uniformity in the functioning of the law by removing the anomalous and absurd situations, thereby, making it compliant with Article

14 of the Constitution. The said interpretation shields the relevant provisions from attack of being manifestly arbitrary. [Para 54][1033-C-E]

5. If the argument that extinguishment of debt under Section

31 of the IBC leads to the discharge of signatory/director under Section 138 proceedings is accepted, the same will lead to conflict in law as laid down compared to the guarantor’s liability wherein in spite of the plan being approved, the guarantor is held separately liable for the remaining amount. If the guarantor does not get the benefit of extinguishment of debt under Section 31 of the IBC, then similarly for extinguishment of debt, the signatory/director cannot get any benefit. If accepted, this may lead to uncertainty in the first Principles of law on interpretation of extinguishment of debt. [Para 60][1034-G-H; 1035-A-B]

6. Section 30(2)(e) of the IBC requires the resolution professional to approve the resolution plan, only if the same does not violate any of the provisions of the law for the time being in force. Thus, the clauses of the resolution plan cannot control the Enactment/Rules in force. It is the resolution plan which has to comply with the laws in force. In the case on hand, any clause giving any effect to the corporate debtor under Section 138 NI Act proceedings, cannot be used to protect the signatories/directors under Section 138/141 NI Act. [Para 65][1039-F-G]

7. ‘Compounding’ and ‘quashing’ are not synonymous terms. In law, they have different meanings and consequences. They arise from different situations and operate in different fields and stages. There is no apparent legal interdependence or interlink to the extent that one could exist only if the conditions of the other were satisfied or vice-versa. Quashing is one of the facets of inherent powers, while compounding of an offence being a statutory expression contained under Section 320 the CrPC is entirely a different concept. [Para 71][1040-E-F]

8. The expressions ‘compromise’ and ‘compounding’ are not synonyms in criminal jurisprudence even though these expressions are usually used without any distinction. Any dispute can be compromised between the parties if the terms are not illegal. But only a compoundable offence allowed by law can be compounded. A dispute relating to a crime can be compromised even before the case is registered, and in that case, victim of the crime may refuse to file a complaint. But if in spite of compromise, if he files a complaint and court finds that what is compromised is a compoundable offence, depending upon the facts and circumstances of each case Magistrate can refuse to take cognizance, or acquit the accused as offence was compounded or the complaint can be quashed in proceedings under Section 482 of the CrPC. In a compromise, consensus between the parties to give and take is more important and in a compounding, decision of the victim of the offence not to prosecute and not to continue with prosecution is more important. [Paras 72, 73][1040-F-H; 1041-A-B]

9. As per Section 138 of the NI Act, when the cheque was dishonoured and a statutory notice demanding the cheque amount was issued, the accused shall pay the cheque amount within 15 FINANCE CORP. OF INDIA LTD.

days from the date of receipt of the said notice. The moment the said 15 days expired, the cause of action arises. In other words, the offence under Section 138 of the NI Act is complete. Once the cause of action arose for the offence committed, the complainant has to approach the criminal court within one month to take penal action under Section 138 of the NI Act. To put it clearly, the complainant approaches the criminal court not for recovery of the legally enforceable debt, but for taking penal action under Section 138 of the NI Act for the offence already committed by the accused by not making the payment of the cheque amount despite the receipt of the statutory notice. The only question before the criminal court is whether the cheque issued by the accused towards the discharge of his liability was dishonoured and despite the service of demand notice, whether he had not paid the amount. There is no bar contained in any of the provisions of the IBC, and the NI Act from approaching the criminal court to seek penal action under Section 138 of the NI Act. [Para 75][1041-C-F]

10. Thus, the upshot of all the decisions referred to above is where the proceedings under Section 138 of the NI Act had already commenced with the Magistrate taking cognizance upon the complaint and during the pendency, the company gets dissolved, the signatories/directors cannot escape from their penal liability under Section 138 of the NI Act by citing its dissolution. What is dissolved, is only the company, not the personal penal liability of the accused covered under Section 141 of the NI Act. [Para 85][1051-G-H; 1052-A-B]

11. Final conclusions may be drawn as under: (a) After passing of the resolution plan under Section 31 of the IBC by the adjudicating authority & in the light of the provisions of Section 32A of the IBC, the criminal proceedings under Section 138 of the NI Act will stand terminated only in relation to the corporate debtor if the same is taken over by a new management. (b) Section

138 proceedings in relation to the signatories/directors who are liable/covered by the two provisos to Section 32A(1) will continue in accordance with law. [Para 86][1052-B-D]

In the Judgment of J.B. PARDIWALA, J.:

Swiss Ribbons Private Limited and Another v. Union of India and Others (2019) 4 SCC 17 : [2019] 3 SCR 535; Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others (2020) 8 SCC 531 : [2019] 16 SCR 275; P. Mohanraj and Others v. Shah Brothers Ispat Private Limited (2021) 6 SCC 258; Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another (2022) 2 SCC 401; Lalit Kumar Jain v. Union of India and Others (2021) 9 SCC 321; Goa State Cooperative Bank Limited v. Krishna Nath A. and Others (2019) 20 SCC 38; State Bank of India v. V. Ramakrishnan and Another (2018)

17 SCC 394 : [2018] 10 SCR 974; Vijay Kumar Jain v. Standard Chartered Bank (2019) 20 SCC 455; JIK Industries Limited and Others v. Amarlal V. Jumani and Another (2012) 3 SCC 255 : [2012] 3 SCR 114;

Narinder Garg and Others v. Kotak Mahindra Bank Ltd. and Others (2022) SCC OnLine SC 517 – relied on.

Ajit Balse v. Ranga Karkere (2015) 15 SCC 748; Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657; Manish Kumar v. Union of India and Another (2021) 5 SCC 1; Anil Hada v. Indian Acrylic Ltd. (2000) 1 SCC 1 : [1999]

5 Suppl. SCR 6 – referred to.

Indorama Synthetics (I) Ltd., Nagpur v. State of Maharashtra and others 2016 SCC OnLine Bom 2611 – referred to.