THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD THE HON’BLE SMT.JUSTICE TIRUMALA DEVI EADA CRIMINAL PETITION No.18 of 2021 Date:11.03.2026 Between:

M/s.Segno Ceramics Pvt. Ltd., Rep. by its Director Narahari Prasad Narasimha Rao and another …Petitioners/Accused Nos.1 and 2 And State of Telangana, Rep. by the Public Prosecutor, High Court for the State of Telangana, Hyderabad and another.

… Respondents

ORDER:

This criminal petition is filed seeking to quash the proceedings against the petitioners-accused Nos.1 and 2 in CC No.7179 of 2022 on the file of II Additional Junior Civil Judge cum XIII Additional Judicial Magistrate of First Class, Medchal-Malkajgiri District at Kukatpally, for the offence under Section 138 of the Negotiable Instruments Act (for short ‘NI Act’).

2. Heard Sri Ch. Venkat Raman, learned counsel for the petitioners and Sri M.P.K Aditya, learned counsel for the respondent No.2.

3. Learned counsel for the petitioners has submitted that the petitioner No.2, who is the Director of petitioner No.1, is no longer a Director of the Company. When the cheque was issued, he was the Director of the company, but he retired from the company thereafter and hence, he is not liable for making the payment under the cheque. He further has submitted that the complainant is recognized as an operational creditor in the IBC proceedings before the NCLT, so the insolvency professional will take care of all the assets and liabilities including that of the complainant. Hence, continuation of the proceedings against the petitioner would be an abuse of law.

He, therefore, prayed to quash the proceedings.

4. The learned counsel for the respondent No.2- complainant has submitted that filing of insolvency proceedings or bankruptcy does not absolve the Director of the company. He further submitted that the case under Section 138 of NI Act is much prior to launching of insolvency proceedings and that the criminal liability is not taken away and hence, he prayed to dismiss the petition. He has relied upon the decision of the Apex Court in P. Mohan Raj v. M/s. Shah Brothers Ispat Pvt. Ltd., AIR 2021 SC 1308

5. Perused the record.

6. The present petition is filed seeking quashment of the proceedings in CC No.4286 of 2019 filed under Section 138 of the NI Act. The case of the complainant is that the cheque issued by the petitioners towards legally enforceable debt was dishonoured. Hence, the complainant got issued the legal notice and in pursuance of the notice, the petitioners failed to pay the amount, thus, he filed the complaint under Section 138 of NI Act and the same is pending vide CC No.4286 of 2021.

7. It is the case of the petitioners that IBC proceedings are initiated before the NCLT and that the right of the respondent No.2- complainant is also protected as he is listed as one of the operational creditor. A perusal of the copy of the proceedings before the NCLT discloses that respondent No.2-complainant is shown at serial No.31 in the list of operational creditors.

8. In P. Mohan Raj v. M/s. Shah Brothers Ispat Pvt. Ltd., (supra), relied on by the learned counsel for the respondent No.2- complainant, the Constitutional Bench of the Apex Court held that the proceedings under Section 138 of NI Act are covered by Section 14 of the IBC and hence, cannot continue against the corporate debtor and that such proceedings can continue against erstwhile Directors/persons in charge of and responsible for the conduct of the business of the corporate debtor.

9. Thus, in the light of the above cited decision, when the proceedings are pending before the NCLT under IBC Code, no proceedings under Section 138 of NI Act can be initiated against the company, but the said proceedings can be pursued against the erstwhile Directors/persons in charge and responsible for the business of the corporate debtor in their individual capacity. Therefore, the proceedings in the present case against the petitioner No.1, who is the Company i.e. Corporate Debtor, cannot be