Nag Leathers Pvt. Ltd. vs Dynamic Marketing Partnership, Rep. By Its Partners

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2021 Supreme(SC) 1089

SUPREME COURT OF INDIA
UDAY UMESH LALIT, S. RAVINDRA BHAT, JJ.
M/s. Nag Leathers Pvt. Ltd. - Appellant
Versus
M/s. Dynamic Marketing Partnership, Rep. By Its Partners & Another - Respondents
Criminal Appeal No.1424 of 2021(Arising out of SLP (Crl.) No.9077 of 2019)
Decided on : 18-11-2021

Headnote:
Criminal Procedure Code, 1973 – Section 482 –Negotiable Instruments Act, 1881 – Section 138, 141 – Saving of inherent powers of High Court – Quashing of pending proceedings – Criminal Original Petition – Civil appeal – Leave granted – Appeal challenges the judgment and order passed by High Court of Judicature at Madras – Appellant preferred afore stated Criminal Original Petition under Section 482 of Code of Criminal Procedure, 1973 seeking quashing of pending proceedings initiated by respondents herein under Section 138 of Negotiable Instruments Act, 1881 on ground that debt in question was not enforceable and was only in nature of a security – Challenge having been negated, instant appeal has been filed in this Court – Held, Complaint was filed only against corporate entity and none of natural persons who were stated to be in-charge of and responsible for affairs of corporate entity were arrayed as accused – Decision rendered by this Court (supra) has since then been followed by another three-Judge Bench of this Court – It must therefore be held that corporate debtor, namely, appellant herein cannot now be proceeded against under Section 138 of Act – Consequently, proceedings initiated against appellant deserve to be quashed – Since no natural person was arrayed as accused, exception carved out in decision of this Court (supra) does not arise in instant case – Appeal is thus allowed decision under challenge is set-aside – Criminal Original Petition preferred by appellant under Section 482 of Code is allowed and proceedings against appellant are quashed – In end, court must express our sincere appreciation and gratitude for assistance rendered by, learned Solicitor General – Appeal is allowed.

ORDER :

1. Leave granted.

2. This appeal challenges the judgment and order dated 02.04.2019 passed by the High Court of Judicature at Madras in Crl. O.P. No.8869 of 2018.

3. The appellant preferred aforestated Criminal Original Petition under Section 482 of the Code of Criminal Procedure, 1973 (“the Code” for short) seeking quashing of pending proceedings initiated by the respondents herein under Section 138 of the Negotiable Instruments Act, 1881 (“the Act” for short) on the ground that the debt in question was not enforceable and was only in the nature of a security. The challenge having been negated, the instant appeal has been filed in this Court.

4. On 25.10.2019, following submission advanced on behalf of the appellant was noted by this Court whereafter notice was issued in the matter:

He further submits that the statutory notice under Section 138 of the Negotiable Instruments Act was issued on 21.12.2017 and reply dated 2.1.2018 disclosed the factum about the moratorium.

Learned counsel, therefore, submits that the proceedings under Section 138 of the Negotiable Instruments Act against the Corporate-debtor could not have been instituted.”

Considering the issues involved in the matter, by subsequent order dated 17.02.2020, this Court issued notice to the Learned Attorney General for India so that any Law Officer could assist this Court. Pursuant to said order, Mr. Tushar Mehta, learned Solicitor General has appeared and assisted this Court.

During the pendency of the instant matter, the question as to the nature of the liability of a corporate debtor in respect of proceedings initiated under Section 138 of the Act, after the issuance of the moratorium, was considered by a three Judge Bench of this Court in P. Mohanraj & Others v. Shah Brothers Ispat Private Ltd., (2021) 6 SCC 258, and the conclusions drawn by this Court were as under:

“103. In conclusion, disagreeing with the Bombay High Court and the Calcutta High Court judgments in Tayal Cotton (P) Ltd. v. State of Maharashtra, 2018 SCC OnLine Bom 2069 : (2019) 1 Mah LJ 312 and MBL Infrastructions Ltd. v. Manik Chand Somani, 2019 SCC OnLine Cal 9097 respectively, we hold that a Sections 138/141 proceeding against a corporate debtor is covered by Section 14(1)(a) IBC.

104. Resultantly, the civil appeal is allowed and the judgment under appeal is set aside. However, the Sections 138/141 proceedings in this case will continue both against the Company as well as the appellants for the reason given by us in paras 101 and 102 above as well as the fact that the insolvency resolution process does not involve a new management taking over. We may also note that the moratorium period has come to an end in this case.”

5. In that case, apart from the corporate debtor, certain natural persons who were stated to be in-charge of and responsible for the affairs of the corporate debtor were also arrayed as accused and, as such, the proceedings under Section 138/141 of the Act were allowed to be continued as against such natural persons.

6. However, in the instant case, the complaint was filed only against the corporate entity and none of the natural persons who were stated to be the in-charge of and responsible for the affairs of the corporate entity were arrayed as accused.

7. The decision rendered by this Court in P. Mohanraj (supra) has since then been followed by another three-Judge Bench of this Court in Gimpex Private Ltd. v. Manoj Goel, 2021 SCC Online SC 925 : 2021 (12) SCALE 269.

8. It must therefore be held that the corporate

Click Here to Read the rest of this document