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SUDHANSHU DHULIA, AHSANUDDIN AMANULLAH
Vishnoo Mittal – Appellant
Versus
Shakti Trading Company – Respondent
What is the cause of action for an offence under Section 138 of the Negotiable Instruments Act? What is the effect of a moratorium under the Insolvency and Bankruptcy Code on proceedings under Section 138 of the Negotiable Instruments Act? Can a director be held liable under Section 138 of the Negotiable Instruments Act when the corporate debtor is under insolvency proceedings and a moratorium is in place?
Key Points: - Return of cheques dishonoured simpliciter does not create an offence under Section 138 of the Negotiable Instruments Act (!) . - The cause of action for an offence under Section 138 of the Negotiable Instruments Act arises only when a demand notice is served and payment is not made within the stipulated fifteen-day period (!) (!) (!) . - A moratorium under Section 14 of the Insolvency and Bankruptcy Code prohibits the institution or continuation of suits or proceedings against the corporate debtor (!) (!) . - The High Court erred in relying on P. Mohan Raj v. M/S Shah Brothers Ispat Pvt. Ltd. as the facts of the present case were distinguishable (!) . - In the present case, the cause of action under Section 138 of the NI Act arose after the commencement of the insolvency process and imposition of moratorium (!) . - When a moratorium is imposed and an Interim Resolution Professional (IRP) is appointed, the management of the corporate debtor vests in the IRP, and the powers of the board of directors are suspended (!) (!) (!) . - Financial institutions must act on the instructions of the IRP regarding the corporate debtor's accounts (!) . - The appellant, as a director, did not have the capacity to fulfil the demand notice under Section 138 of the NI Act because he was suspended from his position and the corporate debtor's accounts were operated under the IRP's instructions (!) . - The High Court ought to have quashed the case against the appellant by exercising its power under Section 482 of the CrPC (!) . - The appeal was allowed, the impugned order was set aside, and the summoning order and complaint case were quashed (!) .
JUDGMENT
SUDHANSHU DHULIA, J.
1. Leave granted.
2. The appellant before this court has challenged the order dated 21.12.2021 of the learned Single Judge of the Punjab and Haryana High Court by which the appellant’s petition under section 482 of Criminal Procedure Code, 1973 (‘CrPC’), seeking quashing of proceedings initiated under Section 138 of Negotiable Instruments Act, 1881 (‘NI Act’) against the appellant, has been dismissed.
3. Admittedly, the appellant was the director of M/s Xalta Food and Beverages Private Limited (hereinafter ‘corporate debtor’). There was a contract between the corporate debtor and the RespondentM/s Shakti Trading Company where the respondent was to function as a super stockist of the corporate debtor. As a consequence of the business relationship between the two companies, the appellant, in his capacity as director of the corporate debtor, had drawn eleven cheques in favour of the respondent of varying amounts, the total amount being Rs.11,17,326/- (approximately). These cheques were dishonoured on 07.07.2018. A legal notice under Section 138 of the NI Act was issued to the appellant by the respondent as the cheque amounts were not furnished to the respond
Dishonour of cheque – Return of cheques dishonoured simpliciter does not create offence under Section 138 NI Act – Cause of action arises only when demand notice is served and payment is not made pur....
The moratorium under the Insolvency and Bankruptcy Code does not protect individuals who are directors or guarantors of a corporate debtor from criminal proceedings under the Negotiable Instruments A....
Directors of a corporate debtor cannot be prosecuted for cheque dishonor under the NI Act for cheques issued during moratorium as per the IBC, voiding their authority to transact.
The court ruled that proceedings under Section 138 of the NI Act are penal and cannot be stayed by the interim moratorium under Section 96 of the IBC, affirming the distinction between criminal and c....
After declaration of moratorium, directors lose liability for cheques issued on behalf of the company, as all powers transfer to the resolution professional.
The moratorium provision under Section 14 of the Insolvency and Bankruptcy Code, 2016 does not apply to the natural persons mentioned in Section 141(1) and (2) of the Negotiable Instruments Act.
The moratorium under the Insolvency and Bankruptcy Code does not protect individuals from criminal liability under the Negotiable Instruments Act for cheque dishonour.
The nature of proceedings under the IBC and the NI Act is different, and the criminal prosecution under Section 138 of the NI Act would not stand terminated by the operation of the provisions of the ....
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