Proceedings U/s. 138 NI Act Can't Continue Against Authorised Signatory After Commencement Of Insolvency Proceedings Against Company: Delhi HC

The Delhi High Court has reiterated that proceedings under Section 138 of the Negotiable Instruments Act, 1881 cannot continue against individuals of the Company after the commencement of the CIRP proceedings against the accused Company.

The Court was considering a Petition seeking quashing of the summoning order passed by the Metropolitan Magistrate for the offence under Section 138 of the NI Act by the suspended director and the Authorised Signatory of the Company.

The single bench of Justice Amit Mahajan held, "It is reiterated that the cheques in question were dishonoured for the reason ‘Drawer Signature to operate account not received’. In view of this Court, the ingredients for constituting the offence punishable under Section 138 of the NI Act occurred post imposition of moratorium. The petitioners herein therefore cannot be held vicariously responsible for dishonour of cheque."

The Petitioners were represented by Advocate P.S. Bindra.

The Petitioner's Company was admitted to the Corporate Insolvency Resolution Process under Section 7 of the Insolvency and Bankruptcy Code, 2016 and moratorium under Section 14 of the IBC was imposed in October 2019. Two cheques were issued to the Respondent in 2020 for a sum of ₹10,00,000/- each and were presented for encashment and the same were returned by the bank as dishonoured for the reason ‘Drawer Signature to operate account not received’.

Counsel for the Petitioners submitted that in view of the moratorium, the cheques were incapable of encashment and hence, the Petitioners cannot be held liable for offence under Section 138 of the NI Act. He submits that by virtue of Section-17 of the IBC, from the date of appointment of the IRP, the management of the affairs of the corporate debtor vest in the IRP and the petitioners ceased to have any role in the affairs of the company.

He averred that the offence under Section 138 of the NI Act was committed on the date when the petitioners were neither “in charge of” nor “responsible for the conduct of the business of the company”.

The Court agreed with the submissions by Counsel for the Petitioner and reiterated that proceedings under Section 138 of the NI Act cannot continue against individuals after the commencement of the CIRP proceedings against the accused company.

The Petitions were accordingly allowed.

Cause Title: Ganesh Chandra Bamrana & Ors. vs. Rukmani Gupta (2024:DHC:9923)

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