Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2021 Supreme(SC) 115

SUPREME COURT OF INDIA
ROHINTON FALI NARIMAN, NAVIN SINHA, K.M. JOSEPH, JJ.
P. MOHANRAJ & ORS - APPELLANTS
VERSUS
M/S. SHAH BROTHERS ISPAT PVT. LTD. - RESPONDENT
CIVIL APPEAL NO.10355 OF 2018, CRIMINAL APPEAL NO.239 OF 2021, (@ SPECIAL LEAVE PETITION (CRL.) NO.1955 OF 2021) (Diary No.32585 of 2019) CRIMINAL APPEAL NO.240, 241, 242, 243, 244, 245, 246 OF 2021 (@ SPECIAL LEAVE PETITION (CRL.) No.10587, 10857, 10550, 10858, 10860, 10861, 10446 OF 2019) CRIMINAL APPEAL Nos.247-248, 200, 199 OF 2021 (@ SPECIAL LEAVE PETITION (CRL.) Nos.2246-2247, 2496, 3500 OF 2020) WRIT PETITION (CRIMINAL) NO.297, 342, 339 OF 2020 CRIMINAL APPEAL Nos.201-204, 215-230 OF 2021 (@ SPECIAL LEAVE PETITION (CRL.) NOs.5638-5651, 5653-5668 OF 2020) WRIT PETITION (CRIMINAL) NO.330 OF 2020, 9, 26 OF 2021, WRIT PETITION (CIVIL) NO.982, 1417, 1439 OF 2020, 18 OF 2021
Decided On : 01-03-2021

Advocates:
Counsel for parties:Mr. Kartik Seth, Adv. Ms. Shriya Gilhotra, Adv. Ms. Parul Dhurvey, Adv. For M/s. Chambers Of Kartik Seth, AOR M/s. Vachher And Agrud, AOR Mr. Anurag Kishore, AOR Mr. Salman Khurshid Sr. Adv. Mr. Vaibhav Manu Srivastava, AOR Mr. Apoorv Agarwal, Adv. Ms. Riya Thomas, Adv. Ms. Aadya Mishra, Adv. Mr. Mahesh Srivastava, Adv. Mr. Bhanu Pant, Adv. Mr. Vivek Jain, AOR Ms. Suchitra Kumbhat, Adv. Mr. Nirvikar Singh, Adv. Mr. Nitin Sharma, Adv. Mr. Amarjeet Singh, AOR Mr. K. Krishna Kumar, AOR Mohd. Ainul Ansari, Adv. Mr. Rajat Bhardwaj, Adv. Mr. Kripa Shankar Prasad, AOR Mr. Sunil Khatwani, Adv. Ms. Ritu Rajkumari, Adv. Ms. Ekta Rani, Adv. Mr. Jauhar Ali, Adv. Mr. Arvind Kumar Gupta, Adv. Ms. Purti Gupta, Adv. Ms. Henna George, Adv. Ms. Shivani Sharma, Adv. Ms. Twisha Issar, Adv. Mr. Ravindra Sadanand Chingale, AOR Mrs. Malavika Jayanth, AOR Mr. S. Nagamuthu, Sr. Adv. Mr. M.P. Parthiban, AOR Mr. A.S. Vairawan, Adv. Mr. Mani Prabu, Adv. Mr. Santhosh, Adv. Mr. R. Sudhakaran, Adv. Mr. Vikash, Adv. Ms. Shalini Mishra, Adv. Mr. Hardik Gautam, Adv. Ms. Swati Bhushan Sharma, Adv. Ms. Nandani Gupta, Adv. Mr. Krishna Kumar, Adv. Dr. (Mrs.) Vipin Gupta, AOR Mr. Varun Bedi, Adv. Mr. Rameshwar Prasad Goyal, AOR Mr. Aditya Singh, AOR Ms. Pritha Srikumar, AOR Mr. Rishabh Sancheti, Adv. Mr. Prabu Ramasubramanian, Adv. Mr. K. Paari Vendhan, AOR Mr. Raghunatha Sethupathy, Adv. Mr. Karuppiah Meyyappan, Adv. Ms. Nishtha Girotra, Adv. Mr. Birendra Kumar Mishra, AOR Mr. Jay Savla, Sr. Adv. Mr. Prabhat Kumar Chaurasia, Adv. Ms. Renuka Sahu, AOR Mr. Shankar Divate, AOR Mr. Siddharth Sangal, AOR Mr. Harneet Singh Oberoi, Adv. Mr. Sumit Teterrwal, AOR Mr. Gagan Gupta, AOR Mr. Mohit D. Ram, AOR Mr. Dinesh Kumar Garg, AOR Ms. Anisha Upadhyay, AOR Mr. Brijender Chahar, Sr. Adv. Mr. Karan Chahar, Adv. Ms. Jyoti Chahar, Adv. Mr. Shashi Bhushan, Adv. Mr. Vinay Garg, AOR Mr. Abhishek Agarwal, AOR Mr. Raveesh Thakral, Adv. Ms. Suruchii Aggarwal, AOR Ms. Shagun Matta, AOR Mr. Aman Rastogi, Adv. Mr. Kunnal Bakshi, Adv. Mr. Raghav Mathur, Adv. Mr. Hemant Gupta, Adv. Mr. Sanjay Rastogi, AOR Mr. Sonal Jain, AOR Mr. Rishabh Raj Jain, Adv. Mr. Ishkaran Singh, Adv. Ms. Kajal Sharma, Adv. Mr. Nagarkatti Kartik Uday, AOR Mr. Arvind Kumar Sharma, AOR Ms. Namita Choudhary, AOR Mr. Sarvesh Singh Baghel, AOR Ms. Shivranjani Ralawata, Adv. Mr. Ajay Pal, AOR Mr. Anil Mittal, Adv. Mr. Vibhuti Sushant Gupta, Adv. Mr. Narender Kumar Verma, AOR Mr. Rajiv Ranjan Dwivedi, AOR Mr. Chirag M. Shroff, AOR Ms. Abhilasha Bharti, Adv. Mr. Sushant Dogra, Adv. Ms. Pragati Neekhra, AOR Mr. Vishnu Sharma, Adv. Ms. Mukti Chaudhry, AOR Mr. Aniruddha P. Mayee, AOR Mr. Vikas Mehta, AOR Mr. Apoorv Khator, Adv. Ms. Debolina Roy, Adv. Mr. Saurobroto Dutta, Adv.

IMPORTANT POINTS
(1) Negotiable Instruments Act, 1881 – Section 138/141 – Insolvency and Bankruptcy Code, 2016 – Section 14 – Dishonour of cheque – Moratorium – Section 138/141 proceeding against a corporate debtor is covered by Section 14(1)(a) of IBC.
(2) Even in cases of civil contempt, fine or imprisonment or both may be imposed. Mere fact that punishments that are awardable relate to Section 53 of Indian Penal Code would not, render a civil contempt proceeding a criminal proceeding.
(3) Ejusdem generis and noscitur a sociis, being rules as to construction of statutes, cannot be exalted to nullify plain meaning of words used in a statute if they are designedly used in a wide sense.

Headnote:
Negotiable Instruments Act, 1881 – Section 138/141 – Insolvency and Bankruptcy Code, 2016 – Section 14 – Dishonour of cheque – Offence by company – Moratorium – Section 138/141 proceeding against a corporate debtor is covered by Section 14(1)(a) of IBC – A quasi-criminal proceeding that is contained in Chapter XVII of Negotiable Instruments Act would, given object and context of Section 14 of IBC, amount to a “proceeding” within meaning of Section 14(1)(a), moratorium therefore attaching to such proceeding – Section 138/141 proceeding against them cannot be initiated or continued without corporate debtor – Section 141 of Negotiable Instruments Act speaks of persons in charge of, and responsible to
company for conduct of business of company, as well as company – For period of moratorium, since no Section 138/141 proceeding can continue or be initiated against corporate debtor because of a statutory bar, such proceedings can be initiated or continued against persons mentioned in Section 141(1) and (2) of Negotiable Instruments Act – This being the case, moratorium provision contained in Section 14 of IBC would apply only to corporate debtor, natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of Negotiable Instruments Act. (Paras 53, 77 and 78)
(B) Insolvency and Bankruptcy Code, 2016 – Section 14 – Civil Procedure Code, 1908 – Section 26 – Moratorium – Scope and ambit – Sweep of provision is very wide as it includes institution, continuation, judgment and execution of suits and proceedings – Award of an arbitration panel or an order of an authority is also included – This being the case, it would be incongruous to hold that expression “the institution of suits or continuation of pending suits” must be read disjunctively as otherwise, institution of arbitral proceedings and proceedings before authorities cannot be subsumed within expression institution of “suits” which are proceedings in civil courts instituted by a plaint – Expression “institution of suits or continuation of pending suits” is to be read as one category, and disjunctive “or” before word “proceedings” would make it clear that proceedings against corporate debtor would be a separate category – Since criminal proceedings under Code of Criminal Procedure, 1973 are conducted before courts mentioned in Section 6, Cr.P.C., Section 138 proceeding being conducted before a Magistrate would certainly be a proceeding in a court of law in respect of a transaction which relates to a debt owed by corporate debtor. (Para 14)
(C) Insolvency and Bankruptcy Code, 2016 – Sections 14 and 85 – Negotiable Instruments Act, 1881 – Section 138/141 – Moratorium – Though language of Section 85 is only in respect of debts, moratorium contained in Section 14 is not subject specific – A legal action or proceeding in respect of any debt would, on its plain language, include a Section 138 proceeding for reason that a Section 138 proceeding would be a legal proceeding in respect of a debt – Where individuals or firms are concerned, recovery of any property by an owner or lessor, where such property is occupied by or in possession of individual or firm can be recovered during moratorium period unlike property of a corporate debtor – For all these reasons, given object and context of Section 14, expression “proceedings” cannot be cut down by any rule of construction and must be given a fair meaning consonant with object and context. (Paras 27 and 28)
(D) Interpretation of Statute – Rule of ejusdem generis and noscitur a sociis – Ejusdem generis and noscitur a sociis, being rules as to construction of statutes, cannot be exalted to nullify plain meaning of words used in a statute if they are designedly used in a wide sense – Where a residuary phrase is used as a catch-all expression to take within its scope what may reasonably be comprehended by a provision, regard being had to its object and setting, noscitur a sociis cannot be used to colour an otherwise wide expression so as to whittle it down and stultify object of a statutory provision. (Para 22)
(E) Contempt of Courts Act, 1971 – Section 12 – Contempt of Court – Though there may not be any watertight distinction between civil and criminal contempt, yet, civil contempt is essentially an action which is moved by party in whose interest an order was made with a view to enforce its personal right, where contumacious disregard for such order results in punishment of offender in public interest, whereas a criminal contempt is, in essence, a proceeding which relates to public interest in seeing that administration of justice remains unpolluted – Even in cases of civil contempt, fine or imprisonment or both may be imposed – Mere fact that punishments that are awardable relate to Section 53 of Indian Penal Code would not, render a civil contempt proceeding a criminal proceeding. (Para 63)
Facts of the case:
Important question that arises in this appeal is whether institution or continuation of a proceeding under Section 138/141 of Negotiable Instruments Act can be said to be covered by the moratorium provision, namely, Section 14 of the IBC.
Findings of Court:
Given the hybrid nature of a civil contempt proceeding, described as “quasi-criminal” by several judgments of this Court, there is nothing wrong with the same appellation “quasi-criminal” being applied to a Section 138 proceeding.
Result : Civil Appeal allowed.

Judgement Key Points

The legal judgment clarifies that proceedings initiated under Section 138/141 of the Negotiable Instruments Act, which are primarily aimed at recovering dishonored cheque amounts, are considered quasi-criminal in nature. These proceedings are described as "quasi-criminal" because they have characteristics of both civil and criminal processes, with the primary objective being the enforcement of civil liabilities through a criminal law framework (!) (!) (!) (!) .

The court emphasizes that the object of Section 14 of the Insolvency and Bankruptcy Code (IBC) is to preserve the assets of the corporate debtor during the insolvency resolution process, thereby facilitating the ongoing business operations and maximizing value for stakeholders (!) (!) . Since proceedings under Section 138/141 of the Negotiable Instruments Act involve legal actions related to debts and liabilities, they fall within the broad scope of "proceedings" contemplated by Section 14, given their impact on the assets and financial standing of the corporate debtor (!) (!) (!) .

Furthermore, the wide language used in Section 14(1)(a), including terms like "institution of suits or continuation of pending suits or proceedings," indicates an inclusive approach that covers criminal proceedings that are in respect of transactions evidencing debt or liability (!) (!) . The object and setting of the statute suggest that proceedings which directly relate to the enforcement of financial obligations, even if criminal in form, should be considered within the scope of the moratorium, especially since the proceedings aim at recovering debts or assets (!) (!) (!) .

The judgment also highlights that the rules of statutory construction, such as ejusdem generis and noscitur a sociis, cannot be used to restrict the plain and wide meaning of the term "proceedings" in Section 14, particularly given the object of the legislation and the broad language employed (!) (!) (!) . The wide interpretation aligns with the legislative intent to prevent depletion of assets and to provide a breathing space during the resolution process, which would be undermined if criminal or quasi-criminal proceedings were excluded from the moratorium (!) (!) .

In conclusion, proceedings under Chapter XVII of the Negotiable Instruments Act, including criminal complaints for dishonored cheques, are to be regarded as "proceedings" within the meaning of Section 14 of the IBC. These proceedings impact the assets and liabilities of the corporate debtor and are thus covered by the moratorium, unless explicitly excluded by specific provisions or objects of the legislation (!) (!) (!) .

JUDGMENT :

R.F. NARIMAN, J.

1. Steel products were supplied by the respondent to one M/s. Diamond Engineering Pvt. Ltd. [“the company”] from 21.09.2015 to 11.11.2016, as a result of which INR 24,20,91,054/-was due and payable by the company. As many as 51 cheques were issued by the company in favour of the respondent towards amounts payable for supplies, all of which were returned dishonoured for the reason “funds insufficient” on 03.03.2017. As a result, on 31.03.2017, the respondent issued a statutory demand notice under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881, calling upon the company and its three Directors, the appellants no.1-3 herein, to pay this amount within 15 days of the receipt of the notice.

2. On 28.04.2017, two cheques for a total amount of INR 80,70,133/-presented by the respondent for encashment were returned dishonoured for the reason “funds insufficient”. A second demand notice dated 05.05.2017 was therefore issued under the selfsame Sections by the respondent, calling upon the company and the appellants to pay this amount within 15 days of the receipt of the notice.

3. Since no payment was forthcoming pursuant to the two statutory demand notices, two criminal complaints, being Criminal Complaint No.SS/552/2017 and Criminal Complaint No. SS/690/2017 dated 17.05.2017 and 21.06.2017, respectively, were filed by the respondent against the company and the appellants under Section 138 read with Section 141 of the Negotiable Instruments Act before the Additional Chief Metropolitan Magistrate [“ACMM”], Kurla, Mumbai. On 12.02.2018, summons were issued by the ACMM to the company and the appellants in both the criminal complaints.

4. Meanwhile, as a statutory notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 [“IBC”] had been issued on 21.03.2017 by the respondent to the company, and as an order dated 06.06.2017 was passed by the Adjudicating Authority admitting the application under Section 9 of the IBC and directing commencement of the corporate insolvency resolution process with respect to the company, a moratorium in terms of Section 14 of the IBC was ordered. Pursuant thereto, on 24.05.2018, the Adjudicating Authority stayed further proceedings in the two criminal complaints pending before the ACMM. In an appeal filed to the National Company Law Appellate Tribunal [“NCLAT”], the NCLAT set aside this order, holding that Section 138, being a criminal law provision, cannot be held to be a “proceeding” within the meaning of Section 14 of the IBC. In an appeal filed before this Court, on 26.10.2018, this Court ordered a stay of further proceedings in the two complaints pending before the learned ACMM. On 30.09.2019, since a resolution plan submitted by the promoters of the company had been approved by the committee of creditors, the Adjudicating Authority approved such plan as a result of which, the moratorium order dated 06.06.2017 ceased to have effect. It may only be added that at present, an application for withdrawal of approval of this resolution plan has been filed by the financial creditors of the company before the Adjudicating Authority. Equally, an application to extend time for implementation of this plan has been filed by the resolution applicant sometime in October 2020 before the Adjudicating Authority. Both these applications have yet to be decided by the Adjudicating Authority, the next date of hearing before such Authority being 08.02.2021.

5. The important question that arises in this appeal is whether the institution or continuation of a proceeding under Section 138/141 of the Negotiable Instruments Act can be said to be covered by the moratorium provision, namely, Section 14 of the IBC.

6. Shri Jayanth Muth Raj, learned Senior Advocate appearing on behalf of the appellants, has painstakingly taken us through various provisions of the IBC and has argued that the object of Section 14 being that the assets of the corporate debtor be preserved during the cor