Directors cannot be held liable under Section 138 N.I. Act when the corporate debtor is in CIRP and no liability is established against the company.

Headnote:(A) Code of Criminal Procedure, 1973 - Section 482 - Negotiable Instruments Act, 1881 - Section 138 - The petitioners challenged the Summoning Order issued against them under Section 138 N.I. Act, asserting that: (i) the cheques were security cheques issued prior to the initiation of CIRP proceedings; (ii) once CIRP commenced, no legal action could be commenced against the corporate debtor; (iii) the directors were not in charge of the company at the time; (iv) and the reason for dishonour was signature mismatch not insufficiency of funds. (Paras 1, 3, 4, 9, 60)

(B) The court reiterated that while personal liability of directors can continue after a company's insolvency, without the corporate entity being liable, vicarious liability cannot be imposed. (Paras 44, 46, 56)

Facts of the case:
The Petitioner Company faced a criminal complaint for cheque dishonour during its CIRP. The company provided security cheques which were dishonoured, with contention that the directors were suspended and could not be held liable.

Findings of Court:
The Summoning Order against the Petitioners is set aside, with the court noting the lack of continuing legal authority of directors alongside the moratorium imposed on the company under IBC.

Issues: The proceedings under Section 138 N.I. Act may not continue against a corporate debtor under CIRP; however, the principles concerning directors' liabilities were critically examined.

Ratio Decidendi: The court found that the initiation of proceedings under Section 138 against the company was barred during the moratorium; therefore, the directors could not be held vicariously liable in absence of corporate liability.

Result: The Summoning Order dated 09.04.2018 is set aside, and the three petitioners are discharged.

JUDGMENT

NENA BANSAL KRISHNA, J.

1. Petition bearing CRL.M.C. 3501/2018 under Section 482 of the Code of Criminal Procedure, 1973 (hereinafter referred to as „ Cr.P.C .‟), has been filed on behalf of the Accused Company, Innoventive Industries Limited through its Official Liquidator.

2. The other two Petitions bearing CRL.M.C. 4379/2024 and CRL.M.C. 4381/2024, have been filed on behalf of Mr. Chandu Laxman Chavan and Mr. Ravindra Waman Katre, the two Directors of Innoventive Industries Limited.

3. Petitioners are aggrieved by the Order dated 09.04.2018 of the Ld. Metropolitan Magistrate, vide which they have been summoned under Section 138 read with Sections 141 and 142 of the Negotiable Instruments Act, 1881 (hereinafter referred to as „N.I Act‟) in Complaint Case under S.138 NI Act.

4. Briefly stated, the Complainant/IFCI Factors Limited, Respondent No.2 (Complainant) issued a Sanction Letter dated 23.07.2009 for Domestic Factoring Facilities to the Petitioner Company, Innoventive Industries Limited (formerly known as Arihant Domestic Appliances Limited). In terms of Clause 1(b) of the Sanction Letter dated 23.07.2009, in terms of which Petitioner Company, gave 30 security cheques of Rs.50,00,000/- each, with a Letter of Undertaking to the Complainant/IFCI Factors Limited. Certain cheques in terms of the Sanction Letter dated 23.07.2009, were subsequently replaced by the cheques in question. The cheques were signed by Mr. Chandu Laxman Chavan (promoter of the Petitioner Company, Innoventive Industries Limited) and Mr. Sagar Shah (Finance Head), who had already quitted the Petitioner‟s Company in 2014.

5. The Complainant/IFCI Factors Limited presented the nine cheques in question, bearing No. 317556-70 and 3175572, all dated 08.05.2017 for a total amount of Rs.14 Crores to IDBI Bank, Shivaji Nagar Branch, FC Road, Pune, Maharashtra, which got dishonoured vide Memo dated 06.06.2017 for the reason “Drawers signature differs”. Thereafter, Legal Notice dated 01.07.2017 was sent by the Complainant/IFCI Factors Limited, which was duly replied on 22.07.2017 by the Petitioner Company, Innoventive Industries Limited. However, the Complainant, IFCI Factors Limited went ahead and instituted the Complaint bearing C.C. No. 8898/2017 under Section 138 N.I. Act, in August, 2017, before the Court of Ld. MM.

6. On the service of the summons on the Complaint, the Liquidator appeared on behalf of the Petitioner Company, and apprised the Ld. MM about the Corporate Insolvency Resolution Process (for short „CIRP‟) proceedings, which had already been initiated against it.

7. The Ld. MM in the Summoning Order dated 09.04.2018 noted the submissions made on behalf of the Petitioner, but referred to M/s Indo Rama Synthetics vs. State of Maharashtra , Criminal Writ Petition No. 1280/2016, decided on 06.05.2016, wherein it was observed that the expression “suit or proceedings” in Section 446(1) under Chapter II of part VII of the Companies Act, 1956, did not include Criminal Complaints filed under Section 138 of the N.I. Act. It was held that prima facie all the ingredients for the offence under Section 138 of N.I. Act were established and consequently, summoned the Petitioner Company, Innoventive Industries Limited and the Directors, thereof.

8. Aggrieved by the Summoning Order, the present Petitions have been filed on behalf of the petitioner Company, Innoventive Industries Limited through Liquidator and by the two Directors namely, Mr. Chandu Laxman Chavan and Mr. Ravindra Waman Katre.

9. The Petitioner Company, Innoventive Industries Limited has submitted that it was incorporated under the Companies Act and registered at Pune. CIRP under the provisions of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) got initiated by Admission Order dated 17.01.2017, the Adjudicating Authority (National Company Law and Tribunal, Mumbai) and subsequently, Moratorium in terms of Section 14 IBC was imposed. It is asserted that Mr. Dhinal Shah was app

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2025 Supreme(Online)(Del) 3591

Directors cannot be held liable under Section 138 N.I. Act when the corporate debtor is in CIRP and no liability is established against the company.

Cases Referred (3)