Moratorium Provision U/S 14 IBC Applies Only To Corporate Debtor; Natural Persons Are Liable Under NI Act: Bombay High Court

The Bombay High Court held that the moratorium provision under Section 14 of the Insolvency and Bankruptcy Code, 2016 applies only to the Corporate Debtor and the natural persons are liable under Chapter XVII of the Negotiable Instruments Act, 1881 (NI Act).

The Nagpur Bench held thus in a batch of Criminal Applications seeking to quash the criminal cases filed under Section 138 read with 141 of the NI Act.

A Single Bench of Justice Urmila Joshi-Phalke observed, “In para No.77 of the judgment, in the case of P.Mohanraj vs. M/s.Shah Ispat Private Limited supra, the Hon’ble Apex Court observed that for the period of moratorium, since no Section 138/141 proceeding can continue or be initiated against the corporate debtor because of a statutory bar, such proceedings can be initiated or continued against the persons mentioned in Section 141(1) and (2) of the NIA. This being the case, it is clear that the moratorium provision contained in Section 14 of the IBC would apply only to the corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the NIA.”

Advocate Yash Venkatraman appeared for the Applicants while Advocate Darasingh Sindhu appeared for the Non-Applicant.

Factual Background

The Applicants were Directors of a company namely “Venus Rolling Mills Private Limited” which was arraigned as accused No.1 in the criminal cases. The Non-Applicant company was involved in the business of manufacturing and processing of Steel and Iron Goods. In 2015, the accused company and the Non-Applicant company entered into business for purchasing goods from the said company. As per allegations, the accused company obtained goods on credit and a huge amount was due. Allegedly, the Applicant No. 1 being the Director of the company, issued 16 cheques drawn on Federal Bank, which were ‘dishonoured’. The said cheques were returned with endorsement “account closed” and, therefore, a Criminal Complaint was registered. More cheques were drawn on the Federal Bank were also deposited and the same were returned as dishonoured.

Similarly, other cheques were also dishonoured. The accused company in 2019 suffered major losses in business and hence, applied for initiation of proceeding by filing a plea before the National Company Law Tribunal (NCLT). The Resolution Professional (RP) intimated the Non-Applicant company not to deposit cheques. The Committee of Creditors (COC) constituted by the RP could not reach a successful Resolution Plan for the accused company. It unanimously resolved to liquidate the accused company. Accordingly, RP filed an Application under Section 33 IBC before the NCLT and the CIRP (Corporate Insolvency Resolution Process) got initiated. Demand notices were issued by the Non-Applicant company and as dues were not paid, the Applicants being Directors were liable to pay the amount as per the Non-Applicant.

Reasoning

The High Court in view of the facts and circumstances of the case, noted, “… the moratorium granted by the order issued under section 14 of the IBC can only be obtained by a corporate debtors and not by natural person such as the present appellant who was the director of the corporate debtor.”

The Court said that there is substance in the submission that once the moratorium was imposed and liquidation proceeding has been completed and powers of the Directors in view of the Order of the NCLT Mumbai are assigned to the Resolution Professional appointed subsequently as liquidator and Applicants ceased to be Directors and powers vested with the Board of Directors were to be exercised by the liquidator/Resolution Professional in accordance with the provisions of the IBC.

“All transactions of the corporate debtor to be carried out by the Resolution Professional, hence applicant Nos.1 and 3 were not the person incharge of the company and was not having any authority to sign the cheques and, therefore, cheques in question which are subject matter of the complaints were not valid cheques. On the contrary, documents substantiate the contentions of the applicants that cheques were issued in 2018 as a security and while taking steps after moratorium was declared on 9.5.2019, Resolution Professional intimated the non-applicant not to deposit the cheques”, it added.

Accordingly, the High Court allowed the Applications and set aside the impugned Orders.

Cause Title- Jatinder Singh & Ors. v. Ganga Iron and Steel Trading Company Limited (Neutral Citation: 2025:BHC-NAG:6249)

Appearance:

Applicants: Advocate Yash Venkatraman and Pragya Nawandar.

Non-Applicant: Advocate Darasingh Sindhu

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