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Moratorium and Section 138 NI Act Proceedings - Main Points and Insights
Moratorium Impact on NI Act Proceedings: Courts have recognized that during a moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC), criminal proceedings under Section 138 of the Negotiable Instruments (NI) Act are generally not barred, but civil or recovery proceedings are stayed. For example, ["IND_HC_KLHC01056903"] states, the interim moratorium under Section 96 IBC will not apply to the criminal proceedings under Section 138 of the NI Act, 1881 and hence, there is no bar for continuation of the said proceedings. Similarly, ["Wind Word (India) Ltd. Through Its Yogesh Jogendranath Mahera VS State Of Gujarat - Gujarat"] notes that as long as moratorium is in force it also applies to proceedings under Section 138 of the NI Act, but emphasizes that criminal proceedings can continue, implying a distinction between criminal and civil proceedings during moratoriums.
Nature of Proceedings under Section 138 NI Act: Several judgments clarify that proceedings under Section 138 NI Act are penal in nature, not akin to civil debt recovery. Section 138 of the NI Act are not recovery proceedings. They are penal in character. A person may face imprisonment or fine or both ["IND_HC_KLHC01056903"], ["IND_HC_KLHC01056903"], ["IND_HC_KLHC01056903"]. The Supreme Court in ["Ashok B. Jeswani VS Redington India Limited - Madras"] described these proceedings as quasi criminal and hybrid, emphasizing their penal character and that they are not merely civil recovery actions.
Effect of Moratorium on Proceedings: The presence of a moratorium does not automatically nullify criminal proceedings under Section 138. Instead, courts have held that proceedings initiated before the moratorium can continue, but new proceedings against a corporate debtor during moratorium are often stayed. For instance, ["Vishnoo Mittal VS Shakti Trading Company - Supreme Court"] states, since the moratorium order was imposed on 25.07.2018 and was in operation, therefore, the proceedings under Section 138 of the NI Act could not have been initiated against the appellant, indicating that proceedings initiated after the moratorium's start may be barred.
Settlement and Withdrawal of Proceedings: When parties settle or withdraw complaints, proceedings under Section 138 are dismissed or withdrawn. ["Varinder Kumar VS State of Haryana - Punjab and Haryana"] reports that the proceedings under Section 138 of the Act of 1881 were withdrawn in view of an amicable settlement, and continuing criminal proceedings after withdrawal is considered abuse of process.
Legal Orders and Limitation: Courts have also acknowledged that moratorium orders and Supreme Court rulings have a bearing on the limitation and admissibility of proceedings. ["C.KUMARESAN vs K.VASANTHI - Madras"] mentions an order passed on 10.01.2022, which granted moratorium and clarified that complaints cannot be rejected solely on limitation grounds, affecting the prosecution's timeline.
Analysis and Conclusion: Proceedings under Section 138 NI Act are primarily penal and distinct from civil debt recovery. While moratoriums under IBC can stay civil and recovery proceedings, criminal proceedings under Section 138 can continue unless explicitly stayed or withdrawn. Courts have consistently held that the penal nature of Section 138 proceedings makes them resilient to moratoriums, but they can be quashed if settled or if initiated in violation of moratorium orders. The legal framework recognizes the nuanced distinction, and courts have emphasized that criminal proceedings are not akin to civil debt recovery, thus requiring careful consideration during insolvency or moratorium periods ["IND_HC_KLHC01056903"], ["IND_HC_KLHC01056903"], ["C.KUMARESAN vs K.VASANTHI - Madras"].
References:- ["C.KUMARESAN vs K.VASANTHI - Madras"]- ["IND_HC_KLHC01056903"]- ["IND_HC_KLHC01056903"]- ["IND_HC_KLHC01056903"]- ["IND_HC_KLHC01056903"]- ["Ashok B. Jeswani VS Redington India Limited - Madras"]- ["Wind Word (India) Ltd. Through Its Yogesh Jogendranath Mahera VS State Of Gujarat - Gujarat"]- ["Varinder Kumar VS State of Haryana - Punjab and Haryana"]
In the complex interplay between insolvency proceedings and criminal law, one burning question often arises: Does a moratorium under the Insolvency and Bankruptcy Code (IBC) stay proceedings under Section 138 of the Negotiable Instruments Act (NI Act)? This issue, commonly searched as moratorium and 138 NI Act proceedings, is critical for companies, directors, and creditors navigating financial distress.
Cheque dishonour cases under Section 138 NI Act are quasi-criminal, aimed at penalizing defaults rather than mere recovery. Meanwhile, the IBC's moratorium under Section 14 provides a shield for corporate debtors during Corporate Insolvency Resolution Process (CIRP). But does this shield extend to criminal liability? Let's break it down based on judicial precedents and legal analysis.
Proceedings under Section 138 NI Act are criminal in nature and not automatically stayed during an IBC moratorium. The moratorium primarily halts civil proceedings against the corporate debtor, but criminal cases—even those involving directors or promoters—typically continue unless explicitly barred. Courts, including the Supreme Court, have consistently ruled that Section 138 cases stand apart from civil recovery actions. Raj Kumar Khurana VS State of (NCT of Delhi) - 2009 0 Supreme(SC) 926Ram Kishor Arora @ R. K. Arora VS Puneet Dhar - 2023 0 Supreme(P&H) 296
Section 138 NI Act punishes cheque dishonour, imposing fines up to twice the cheque amount and potential imprisonment. The Supreme Court emphasizes: Section 138 of the N.I. Act are not recovery proceedings. They are penal in character. Sachin Goyal VS Rajasthan Trading Co. - 2023 Supreme(P&H) 3497Ram Kishor Arora @ R. K. Arora VS Anubhav Kapoor - 2023 Supreme(P&H) 257Ram Kishor Arora @R. K. Arora VS Anubhav Kapoor - 2023 Supreme(P&H) 290
This distinction is pivotal. Unlike civil suits for debt recovery, these cases focus on deterrence and credibility of cheques in commerce. Laxmi Devi Singhal VS Kailash Singhal
The moratorium offers breathing space by staying civil actions: The IBC’s Section 14 introduces a broad moratorium that halts civil suits, proceedings in execution, and actions for recovery of debts against the corporate debtor. Govind Prasad Todi VS Govt. of NCT of Delhi - 2023 0 Supreme(Del) 1791
However, it does not explicitly cover criminal matters. High Courts reinforce: Criminal proceedings under Section 138 can continue despite IBC proceedings, noting their distinct natures. Sachin Goyal VS Rajasthan Trading Co. - 2023 Supreme(P&H) 3497
Directors face personal liability if cheques were issued in their capacity. Proceedings against promoters or directors personally are generally permissible unless specific provisions or orders state otherwise. Rakesh Bhanot VS Gurdas Agro Pvt. Ltd. - 2025 0 Supreme(SC) 588Govind Prasad Todi VS Govt. of NCT of Delhi - 2023 0 Supreme(Del) 1791
In one case, petitioners argued IBC resolution barred summons under Section 138, but the court dismissed: Criminal liability under Section 138 is not negated by recovery proceedings. Sachin Goyal VS Rajasthan Trading Co. - 2023 Supreme(P&H) 3497
Multiple rulings affirm continuity:- Supreme Court Guidance: Penal provisions of NI Act are strictly construed and unaffected by insolvency moratorium. Raj Kumar Khurana VS State of (NCT of Delhi) - 2009 0 Supreme(SC) 926- Bombay High Court: 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 IBC. Ram Kishor Arora @R. K. Arora VS Anubhav Kapoor - 2023 Supreme(P&H) 290Ram Kishor Arora @ R. K. Arora VS Anubhav Kapoor - 2023 Supreme(P&H) 257- Other Contexts: Even in relief undertakings or provident fund defaults, moratoriums do not stay criminal prosecutions for statutory liabilities. S. Ganapathy VS Mallalakshmi Textile Mills Ltd. and other.
These cases highlight that IBC and NI Act serve different purposes: insolvency resolution vs. penal enforcement.
While the general rule favors continuation:- Direct Against Corporate Debtor: Barred during moratorium unless NCLT permits. Govind Prasad Todi VS Govt. of NCT of Delhi - 2023 0 Supreme(Del) 1791- Specific Court Orders: Proceedings may be stayed if explicitly ordered.- Pre-Moratorium Initiation: Ongoing criminal cases remain unaffected. Sachin Goyal VS Rajasthan Trading Co. - 2023 Supreme(P&H) 3497
Note: Unrelated moratoriums (e.g., fisherman loans or tsunami relief) require strict eligibility and do not broadly apply to NI Act. A P MOHAMMED vs THE SOUTH MALABAR GRAMIN BANK & ANOTHER - 2012 Supreme(Online)(KER) 24965HARI Vs STATE OF KERALA - 2016 Supreme(Online)(KER) 21839
Disclaimer: This is general information based on precedents and not specific legal advice. Consult a qualified lawyer for your situation.
The IBC moratorium does not automatically stay Section 138 NI Act proceedings, particularly against directors or promoters. In conclusion, the moratorium under the IBC does not automatically stay or bar proceedings under Section 138 of the Negotiable Instruments Act, especially against individuals or promoters. Rakesh Bhanot VS Gurdas Agro Pvt. Ltd. - 2025 0 Supreme(SC) 588
Key Takeaways:- Criminal over civil: Section 138 trumps moratorium.- Personal liability persists.- Rely on precedents like Govind Prasad Todi VS Govt. of NCT of Delhi - 2023 0 Supreme(Del) 1791, Rakesh Bhanot VS Gurdas Agro Pvt. Ltd. - 2025 0 Supreme(SC) 588, Raj Kumar Khurana VS State of (NCT of Delhi) - 2009 0 Supreme(SC) 926 for defenses.
For businesses in CIRP, understanding this balance is crucial to avoid surprises in parallel litigations. Stay informed, act proactively.
References:1. Govind Prasad Todi VS Govt. of NCT of Delhi - 2023 0 Supreme(Del) 1791: Moratorium prohibits against debtor, not persons.2. Rakesh Bhanot VS Gurdas Agro Pvt. Ltd. - 2025 0 Supreme(SC) 588: Criminal proceedings permissible.3. Raj Kumar Khurana VS State of (NCT of Delhi) - 2009 0 Supreme(SC) 926: Penal nature not covered.4. Sachin Goyal VS Rajasthan Trading Co. - 2023 Supreme(P&H) 3497, Ram Kishor Arora @ R. K. Arora VS Anubhav Kapoor - 2023 Supreme(P&H) 257, etc., as cited.
#IBCMoratorium, #NIAct138, #ChequeBounce
This Order was passed on 10.01.2022 following the earlier order giving morotorium for instituting prosecution under Section 138 of Negotiable Instruments Act. Therefore, the complaint cannot be rejected on the ground of limitiation. 5. ... Respondent Prayer: Criminal Original Petition is filed under Section 482 of Cr.P.C, to call for the records and quash the complainant filed in S.T.C.No.335 of 2021 on the file of Judicial Magistrate(Fast Track Court-II) Erode under Section 200 of Cr.P.C r/w 138 of Negotiable ....
The petitioner filed E.A.No.39 of 2011 in E.P.No.3 of 2010 for exonerating him from the liability on the ground that he being a fisherman no proceedings for realisation of the amount could be initiated by virtue of a government order declaring morotorium. ... The benefit of morotorium claimed by the petitioner will be available only if the loan is availed for purchasing fishing materials, constructing house, meeting educational expenses of the children or for meeting the expenses of marriage of daughters.
ITEM NO.44 REGISTRAR COURT. 2 SECTION III S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS ... Further that till such time the morotorium will be in place no further hearing proceeding in the captional matter can take place. ) span
, order or direction directing the 2nd respondent to award compensation to the damage caused to the petitioners' residential building, lumpsum and till that time the 2nd respondent may direct the 3rd respondent to keep in abeyance all the recovery steps of the loan amount, especially when there is morotorium
W. 1 were examined, Written arguments had also been submitted on behalf of the respondents, it had been contended that the Notification dated 21.2.1983 issued under Sec. 3 of the Act, declaring the first respondent as a relief undertaking, placed a morotorium on criminal prosecutions for failure to ... of property, agreements etc, to which the relief undertaking is a party, alive, and entering moratorium and staying such proceedings against the relief undertaking. ... Accepting the above contention of the respondents, the learned Magist....
We are unable to appreciate the plea of the learned counsel for the Appellant that because Section 138 of the N.I. Act proceedings arise from a default in financial debt, the proceedings under Section 138 should be taken as akin to civil proceedings rather than criminal proceedings. ... We cannot lose sight of the fact that Section 138 of the N.I. Act are not recovery proceedings. They are penal in character. A per....
We are unable to appreciate the plea of the learned counsel for the Appellant that because section 138 of the N.I. Act proceedings arise from a default in financial debt, the proceedings under Section 138 should be taken as akin to civil proceedings rather than criminal proceedings. ... We cannot lose sight of the fact that section 138 of the N.I. Act are not recovery proceedings. They are penal in character. A per....
We are unable to appreciate the plea of the learned counsel for the Appellant that because Section 138 of the N.I. Act proceedings arise from a default in financial debt, the proceedings under Section 138 should be taken as akin to civil proceedings rather than criminal proceedings. ... We cannot lose sight of the fact that Section 138 of the N.I. Act are not recovery proceedings. They are penal in character. A per....
We are unable to appreciate the plea of the learned counsel for the Appellant that because Section 138 of the N.I. Act proceedings arise from a default in financial debt, the proceedings under Section 138 should be taken as akin to civil proceedings rather than criminal proceedings. ... We cannot lose sight of the fact that Section 138 of the N.I. Act are not recovery proceedings. They are penal in character. A per....
We are unable to appreciate the plea of the learned counsel for the Appellant that because Section 138 of the N.I. Act proceedings arise from a default in financial debt, the proceedings under Section 138 should be taken as akin to civil proceedings rather than criminal proceedings. ... We cannot lose sight of the fact that Section 138 of the N.I. Act are not recovery proceedings. They are penal in character. A per....
The Supreme Court in the case of N.Harihara Krishnan v. J.Thomas, reported in (2018) 13 SCC 663 has considered the concept of taking cognizance of the offence but not the offender as not appropriate. Under section 138 of the NI Act a notice has to be given and if a notice is given on the basis of incorrect cheque number then the entire foundation will fall and complaint cannot be maintained on the basis of incorrect cheque number. and its inapplicability to proceedings under section 138 of the NI Act.
When the cause of action has not arisen, the Court is not competent to take cognizance of the said offence. A conjoint reading of Section 138 of N.I. Act, and Section 142(b) of the N.I. Act, would categorically say that when the cause of action arises. In view of the said legal position, the Court is barred from taking cognizance on such complaint.
It is submitted that when the first respondent realized that the application is going to succeed in the proceedings, he deliberately and intentionally filed application under Section 311 of Cr.PC., just to harass the applicant. Mahesh Nagari Sahkari Patsanstha Maryadit, Sangamner through its Recovery Officer, (2018) 1 MhLJ(Cri) 318. In support of aforesaid contention learned counsel appearing for the petitioner placed reliance on ratio laid down in the case of Kavita Satish Agrawal Vs. It is submitted that proceedings under Section 138 of Negotiable Instruments Act (for short 'NI A....
Nature of proceedings under Section 138 of the NI Act
The object behind introducing this chapter is to instill faith in the efficacy of banking operations and giving credibility to negotiable instruments in business transactions. “7. Section 138 of NI Act finds place in Chapter XVII of the NI Act. The relevant portion of judgment passed in (Ramswaroop Tyagi v. Omkarnath Pandey) reported in 2015 (3) JLJ 109 reads as under :- These provisions were introduced in order to discourage people from not honouring their commitments by way of payment through cheques.
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