Insolvency and Bankruptcy Code, 2016 – ss.94 and 96 – Negotiable Instruments Act, 1881 – ss.138 and 141 – Moratorium – Interim moratorium – Complaint u/s.138 NI Act upon failure of the appellant-accused to make payment after cheques were dishonoured due to insufficiency of funds – Appellant filed an application u/s.94 IBC for personal insolvency – During pendency, the appellant filed an application for adjourning s.138 proceedings sine die, in view of the pendency of s.94 IBC petition as well as the injunctive provision u/s.96 IBC – Trial court rejected application – Appellant then filed criminal petition – High Court dismissed the same – Interference with:
Held: Not called for – Prayer of the appellants to stay the prosecution u/s.138 of the NI Act relying on the interim moratorium u/s.96 IBC, cannot be entertained – Moratorium provisions under the IBC offer protection only to the corporate debtor-company, and is not intended to shield individuals from personal criminal liabilities arising from their actions outside the scope of corporate debt restructuring – Appellants having filed insolvency applications as personal guarantors u/s.94 IBC, cannot extend this protection to avoid prosecution u/s.138 – Object of moratorium or for that purpose, the provision enabling the debtor to approach the tribunal u/s.94 is not to stall the criminal prosecution, but to only postpone any civil actions to recover any debt – Deterrent effect of s.138 is critical to maintain the trust in the use of negotiable instruments like cheques in business dealings – Criminal liability for dishonoring cheques ensures that individuals who engage in commercial transactions are held accountable for their actions – Thus, allowing the respective appellants to evade prosecution u/s.138 by invoking the moratorium would undermine the very purpose of the NI Act, which is to preserve the integrity and credibility of commercial transactions Personal responsibility persists, regardless of the insolvency proceedings and its outcome – Scope and nature of the proceedings under the IBC may result in extinguishment of the actual debt by restructuring or through the process of liquidation – But such extinguishment will not absolve its directors from the criminal liability – Statutory liability against the directors u/s.138 is personal and hence, continues to bind natural persons, irrespective of any moratorium applicable to corporate debtor. [Paras 11-13, 17, 19]
Insolvency and Bankruptcy Code, 2016 – ss.14, 96, 101 – Moratorium – Interim Moratorium – Object – Explained. [Paras 10.1, 17]
Insolvency and Bankruptcy Code, 2016 – ss.94, 96 – Interim moratorium to partners – Interim Moratorium to Company – Difference between:
Held: There is a subtle difference in the protection of interim moratorium available to Directors and Partners – For a partnership firm, the interim moratorium protects not only the firm, but also the partners – But for a company, such protection is available only to the company and not to its directors. [Para 10.1]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Nidhi Jain. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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