1. Complaints under Section 138, NI Act, for dishonour of cheques issued by a company after NCLT order admitting insolvency. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 )
Back
Next 
2025 Supreme(Online)(Del) 48689
Neena Bansal Krishna, J
Farhad Suri – Appellant
Versus
Praveen Choudhary – Respondent
CRL.M.C. 1347/2021 | CRL.M.A. 7877/2021 | CRL.M.C. 1360/2021 | CRL.M.A. 8253/2021 | CRL.M.C. 1624/2021 | CRL.M.A. 11404/2021
Important Points
Directors cannot be held vicariously liable under Section 138 of the NI Act for cheques dishonoured after an IBC moratorium takes effect, as they lose control of the account. Furthermore, dishonour due to a statutory "ACCOUNT BLOCKED" status does not constitute "insufficiency of funds."
Subject
Criminal Law - Negotiable Instruments Act
Act Referred
Headnote
(A) Negotiable Instruments Act, 1881 - Sections 138 and 141 - Insolvency and Bankruptcy Code, 2016 - Sections 14, 17 and 18 - Dishonour of cheques - Vicarious liability of directors - For an offence under Section 138 of the NI Act, the cheque must be drawn on an account maintained by the drawer and dishonoured for insufficiency of funds. While Section 141 extends vicarious liability to directors, such liability is contingent upon the establishment of a primary offence against the company. (Paras 64, 75)
(B) Insolvency and Bankruptcy Code, 2016 - Impact of moratorium on criminal proceedings - Upon the commencement of Corporate Insolvency Resolution Process (CIRP) and the imposition of a moratorium under Section 14, the management and control of the corporate debtor's bank accounts vest in the Interim Resolution Professional (IRP) or Liquidator under Sections 17 and 18. Once the directors are divested of all authority and control over the company's bank accounts, they cannot be held vicariously responsible for the dishonour of cheques presented after such moratorium. (Paras 65, 67, 68)
(C) Negotiable Instruments Act, 1881 - Interpretation of "account maintained by him" and "insufficiency of funds" - The expression "account maintained by him" requires the account to be operative and the holder to possess the capability to govern financial transactions. Dishonour of a cheque with the remark "ACCOUNT BLOCKED" due to statutory prohibition or freezing by a legal authority is not equivalent to "insufficiency of funds". Where a block is a consequence of statutory proceedings not attributable to the account holder, the essential ingredients of Section 138 are not fulfilled. (Paras 76, 77, 79)
Facts of the case:
Three criminal complaints were filed under Section 138 of the NI Act against the directors of a company regarding the dishonour of cheques dated September 2020, which were returned with the remark "ACCOUNT BLOCKED". The company had been admitted into the Corporate Insolvency Resolution Process in April 2019, and subsequently entered liquidation in December 2019. All cheque books and bank operations had been handed over to the IRP and later the Liquidator, meaning the directors had no control over the account at the time the cheques were issued and presented.
Findings of Court:
The court found that the dishonour occurred significantly after the commencement of insolvency and liquidation proceedings. The "ACCOUNT BLOCKED" status was a direct result of the statutory moratorium and not due to a lack of funds or any act of the directors. Consequently, the requirements of a valid issuance of a cheque and dishonour due to insufficiency of funds were not met.
Issues: Whether the complaints under Section 138 of the NI Act against directors could be sustained after the company entered insolvency proceedings and the directors lost control of the bank accounts, and whether a cheque returned as "ACCOUNT BLOCKED" constitutes an offence under the NI Act.
Ratio Decidendi: The court ruled that upon the imposition of a moratorium under the IBC, the role of natural persons (directors) in managing the company's accounts ceases, divesting them of the ability to "maintain" the account as required by the NI Act. Furthermore, a statutory block on an account due to liquidation or insolvency is distinct from insufficiency of funds and does not trigger the penal provisions of Section 138.
Result: All three Complaints along with the summoning Orders and all the proceedings emanating therefrom, are quashed.
(B) Insolvency and Bankruptcy Code, 2016 - Impact of moratorium on criminal proceedings - Upon the commencement of Corporate Insolvency Resolution Process (CIRP) and the imposition of a moratorium under Section 14, the management and control of the corporate debtor's bank accounts vest in the Interim Resolution Professional (IRP) or Liquidator under Sections 17 and 18. Once the directors are divested of all authority and control over the company's bank accounts, they cannot be held vicariously responsible for the dishonour of cheques presented after such moratorium. (Paras 65, 67, 68)
(C) Negotiable Instruments Act, 1881 - Interpretation of "account maintained by him" and "insufficiency of funds" - The expression "account maintained by him" requires the account to be operative and the holder to possess the capability to govern financial transactions. Dishonour of a cheque with the remark "ACCOUNT BLOCKED" due to statutory prohibition or freezing by a legal authority is not equivalent to "insufficiency of funds". Where a block is a consequence of statutory proceedings not attributable to the account holder, the essential ingredients of Section 138 are not fulfilled. (Paras 76, 77, 79)
Facts of the case:
Three criminal complaints were filed under Section 138 of the NI Act against the directors of a company regarding the dishonour of cheques dated September 2020, which were returned with the remark "ACCOUNT BLOCKED". The company had been admitted into the Corporate Insolvency Resolution Process in April 2019, and subsequently entered liquidation in December 2019. All cheque books and bank operations had been handed over to the IRP and later the Liquidator, meaning the directors had no control over the account at the time the cheques were issued and presented.
Findings of Court:
The court found that the dishonour occurred significantly after the commencement of insolvency and liquidation proceedings. The "ACCOUNT BLOCKED" status was a direct result of the statutory moratorium and not due to a lack of funds or any act of the directors. Consequently, the requirements of a valid issuance of a cheque and dishonour due to insufficiency of funds were not met.
Issues: Whether the complaints under Section 138 of the NI Act against directors could be sustained after the company entered insolvency proceedings and the directors lost control of the bank accounts, and whether a cheque returned as "ACCOUNT BLOCKED" constitutes an offence under the NI Act.
Ratio Decidendi: The court ruled that upon the imposition of a moratorium under the IBC, the role of natural persons (directors) in managing the company's accounts ceases, divesting them of the ability to "maintain" the account as required by the NI Act. Furthermore, a statutory block on an account due to liquidation or insolvency is distinct from insufficiency of funds and does not trigger the penal provisions of Section 138.
Result: All three Complaints along with the summoning Orders and all the proceedings emanating therefrom, are quashed.
Legal Category Hierarchy
-
commercial law
- negotiable instruments
- insolvency and bankruptcy code, 2016
- practice and procedure
-
corporate law
-
directors
- vicarious liability
-
directors
Advocates:
For the Appellants/Petitioners: Nalin Tripathi, Shivansh Pandey
For the Respondents: Ankit Tandan
For the Appellants/Petitioners: Nalin Tripathi, Shivansh Pandey
For the Respondents: Ankit Tandan
Table of Contents
2. Cheques issued post-moratorium without control over accounts. Dishonour due to account blocked, not insufficient funds, does not attract Section 138. (Para 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 , 60 )
3. Post-CIRP moratorium, directors lose control over company accounts; cheque issuance and dishonour are not attributable to them. (Para 66 , 67 , 68 , 69 , 70 , 71 , 72 , 73 , 74 , 75 , 76 , 77 , 78 , 79 , 80 , 81 )
4. A cheque dishonoured due to account blocked pursuant to a statutory moratorium under IBC does not constitute an offence under Section 138, NI Act. (Para 66 , 69 , 70 , 75 , 77 , 79 , 81 )
5. Summoning orders and all criminal complaints under Section 138, NI Act, are quashed. (Para 82 , 83 )
6. Can directors be vicariously liable under Section 138, NI Act for cheques issued after CIRP commencement?
No, as post-CIRP moratorium, directors lose control over the company's accounts and cannot be held vicariously responsible for dishonour of cheques. (Para 66 , 68 , 69 , 71 , 72 )
7. Does dishonour of a cheque for 'account blocked' due to NCLT proceedings constitute an offence under Section 138, NI Act?
No, the essential ingredient of dishonour due to insufficiency of funds is not satisfied when the account is blocked due to a statutory moratorium. (Para 74 , 75 , 76 , 77 , 79 , 81 )
8. What is the impact of a moratorium under Section 14, IBC on proceedings under Section 138, NI Act against a corporate debtor?
The moratorium creates a legal impediment, making it impossible to continue or institute proceedings under Section 138 against the corporate debtor. (Para 66 , 67 )
J U D G M E N T
NEENA BANSAL KRISHNA, J.
1. CRL.MC 1347/2021 has been filed under Section 482 of the Code of Criminal Procedure, 1973 (hereinafter referred to as “Cr.P.C.”) against the Order dated 21.01.2021 whereby the Ld. M.M. in CC N.I. Act No. 113/2021 summoned the Petitioner/Farhad Suri and Dhiren Navlakha for offence under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as “NI Act”).
2. CRL. MC 1360/2021 has been filed under Section 482 Cr.P.C. against the Order dated 19.01.2021 whereby the Ld. M.M. in CC N.I. Act No. 90/2021 summoned the Petitioner/Dhiren Navlakha and Farhad Suri for offence under Section 138 NI Act.
3. CRL. MC 1624/2021 has been filed under Section 482 Cr.P.C. against the Order dated 22.01.2021 whereby the Ld. M.M. in CC N.I. Act No. 117/2021 summoned the Petitioner/Dhiren Navlakha for offence under Section 138 NI Act.
4. The aforesaid three Petitions are being decided together as they arise out of similar facts and involve the same question of law.
Facts as per CC No. 113/2021 under Section 138 NI Act:
5. The Complaint has been filed by Respondent No.1/Praveen Choudhary (Complainant) against Respondent/M/s Sumeru Processors Pvt. Ltd. (Accused No.1 Company); Petitioner No.2/Dhiren Navlakha (Accused No.2); Petitioner No.1/Farhad Suri (Accused No.3) and Niraj Jha (Accused No.4).
6. It is stated that Accused No.1 Company is Pvt. Ltd. Company incorporated under the Companies Act, 1956 and Accused Nos. 2-4 are its Directors and involved in day-to-day functioning and decisions of the Company.
7. The Complainant and Accused No.3/Farhad Suri have known each since a long time through the father of the Complainant. The Complainant got acquainted with the other accused persons through Accused No.3. Accused No.1 Company is involved in the consumer goods in Retail and Wholesale-Discretionary.
8. The Complainant and his brother, Jitender Choudhary, had taken a loan from the bank for starting a business which was transferred in their account on 10.06.2016. Accused No.3 Farhad Suri approached the Complainant and his brother through their father, knowing they had taken a loan. He asked them for financial help (a friendly loan) in the name of Accused No.1 Company and also personally for Accused Nos. 2 to 4. Since the Complainant and his brother needed the money after 4-5 months for their own business and Accused No.3 was a Director of Accused No.1 and a reputed political leader in Delhi, they agreed. On 13.06.2016, they transferred the amount to his account via RTGS as a friendly loan.
9. The accused initially paid interest on the borrowed amount, but from June 2020 they stopped making interest payments. Accused Nos. 1, 2, and 3 later settled the matter and issued Cheque No. 574506 dated 07.09.2020 from DCB Bank, New Delhi, for Rs. 75,00,000 in the Complainant’s name, assuring that it would be honoured. However, it was returned unpaid on 05.10.2020 with the remark “ACCOUNT BLOCKED”.
10. The Complainant contacted the accused persons and thereafter, Accused Nos. 2 to 4 responded by saying that they had intentionally blocked the account to harass the Complainant and stated they would not return the borrowed amount. The Complainant subsequently sent a Legal Notice dated 10.11.2020. However, the Accused had no intention to return money, due to which the Respondents herein filed a Complaint under Section 138 NI Act.
Facts as per CC No. 90/2021 under Section 138 NI Act:
11. The Complaint has been filed by Respondent No.1/Jitender Choudhary (Complainant) against Proforma Respondent/M/s Sumeru Processors Pvt. Ltd. (Accused No.1 Company); Petitioner No.2/Dhiren Navlakha (Accused No.2); Petitioner/Farhad Suri (Accused No.3) and Niraj Jha (Accused No.4).
12. Accused No. 2/Dhiren Navlakha (as CEO) and Accused No. 3/Farhad Suri proposed renting the Complainant’s premises at A-20A, Brijpuri Main Wazirabad Road, Delhi-44 for Rs. 30,000 per month, excluding electricity, water and other charges, to use as sto
