Interim Moratorium U/S. 96 IBC Cannot Be Invoked To Stall Prosecution In Cheque Bounce Cases U/S. 138 Of NI Act: Supreme Court
The Supreme Court dismissed Criminal Appeals against the Orders of different High Courts which affirmed the Trial Court’s Orders rejecting the Applications filed for staying the proceedings under Section 138 NI Act before the NCLT.
Justice J.B. Pardiwala, Justice R. Mahadevan, Supreme Court
The Supreme Court held that an interim moratorium under Section 96 IBC cannot be invoked to stall prosecution in cheque bounce cases under Section 138 of Negotiable Instruments Act.
The Court held thus in a batch of Criminal Appeals preferred against the Orders of different High Courts, which dismissed certain Petitions and affirmed the Trial Court’s Orders rejecting the Applications filed for staying the proceedings under Section 138 NI Act before the National Company Law Tribunal (NCLT).
The two-Judge Bench of Justice J.B. Pardiwala and Justice R. Mahadevan observed, “The cause of action for prosecution under Section 138 of NI Act commences on the dishonor of the cheque and the failure to pay the amount unpaid because of dishonour, within 15 days from the date of receipt of notice demanding payment. It is pertinent to mention here that the prosecution can be only with respect to the amount unpaid by dishonour of the cheque irrespective of the actual debt. The distinction between the right to sue based on a dishonoured cheque by initiating a civil suit and launching a prosecution under Section 138 of the Negotiable Instruments Act is significant. In case of former, the interim moratorium can operate, but not in case of later.”
The Bench emphasised that the acceptance of the report by the Resolution Professional under Section 100 and the moratorium under Section 101 of the Insolvency and Bankruptcy Code, 2016 (IBC), which reprises Section 96, will not bar the continual of any criminal action.
AOR Neelam Singh represented the Appellants while Senior Advocate S. Janani represented the Respondents.
Facts of the Case
In the lead case, the Respondent filed a Complaint under Section 138 of NI Act against a company through its Director i.e., the Appellant’s wife, the Appellant, and their son. It was alleged that the accused persons issued four cheques each for Rs. 50 lakhs drawn on UCO Bank in order to discharge their legally enforceable liability. When the cheques were presented for encashment, the same were returned with the endorsement “Funds Insufficient”. After the issuance of a legal notice and upon the failure of the accused to make payment within the stipulated time, the Respondent preferred a Complaint which was pending adjudication before the Judicial Magistrate First Class (JMFC).
During the pendency of the proceedings under Section 138 NI Act, the Appellant filed an Application under Section 94 IBC before the NCLT for personal insolvency. His wife who was a co-accused, also filed a similar Application. The Appellant then moved an Application before the Trial Court for adjourning the Section 138 proceedings sine die, in view of the pendency of Section 94 IBC Petition as well as the injunctive provision as envisaged under Section 96 IBC. The Trial Court rejected the Application and being aggrieved, the Appellant approached the High Court via Criminal Petition which was dismissed. Challenging this, the Appellant approached the Apex Court.
Issue for Consideration
The common legal question that arose for consideration before the Court was: Whether the proceedings initiated against the Appellants under Section 138 read with Section 141 of the NI Act should be stayed in view of the interim moratorium under Section 96 IBC having come into effect upon the Appellants’ filing Applications under Section 94 IBC?
Reasoning
The Supreme Court in the above regard, noted, “The scope and nature of the proceedings under the IBC may result in extinguishment of the actual debt by restructuring or through the process of liquidation. But such extinguishment will not absolve its directors from the criminal liability. Section 141 of the N.I. Act, 1881 enables the prosecution of the persons in charge of the affairs and responsible for the conduct of the business of the company along with the company. The statutory liability against the directors under Section 138 of the N.I. Act, 1881, is personal and hence, continues to bind natural persons, irrespective of any moratorium applicable to the corporate debtor.”
The Court added that the acceptance of the Resolution Plan under Section 31 IBC or its implementation thereof will have no effect on the prosecution under Section 138 of the NI Act.
“… we are of the opinion that the object of moratorium or for that purpose, the provision enabling the debtor to approach the Tribunal under Section 94 is not to stall the criminal prosecution, but to only postpone any civil actions to recover any debt”, it said.
Furthermore, the Court observed that the deterrent effect of Section 138 is critical to maintain the trust in the use of negotiable instruments like cheques in business dealings and that the criminal liability for dishonouring cheques ensures that individuals who engage in commercial transactions are held accountable for their actions, however subject to satisfaction of other conditions in the NI Act.
“Therefore, allowing the respective appellants / petitioners to evade prosecution under Section 138 by invoking the moratorium would undermine the very purpose of the N.I. Act, 1881, which is to preserve the integrity and credibility of commercial transactions and the personal responsibility persists, regardless of the insolvency proceedings and its outcome”, it also remarked.
The Court, therefore, concluded that the prayer of the Appellants to stay the prosecution under Section 138 of the NI Act, relying on the interim moratorium under Section 96 IBC, cannot be entertained.
Accordingly, the Apex Court dismissed the Appeals and upheld the High Courts’ Orders.
Cause Title- Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd. (Neutral Citation: 2025 INSC 445)
Appearance:
Appellants: AORs Neelam Singh, V. Elanchezhiyan, Abhimanyu Tewari, Jaydip Pati, Chritarth Palli, Misha Rohatgi, Advocates Yusuf Iqbal Yusuf, Bhavya Sethi, Gyanika Kochar, Mohd. Abid Sheikh, R K Rathore, Jawahar Lal, Danish Saifi, Subramaniam S, Naman Dwivedi, Shafik Ahmed, Bhaskar Sundaram, P.R. Sreejith, Pallavi Anand, Siddhant Saroha, Viren Sibal, Prashant Katara, Soin Khan, Nitish Kumar Rai, Anushruti Tripathi, Anita, Nakul Mohta, Puneet Pathak, Amulya Upadhyay, Ayush Kashyap, Shashank Khurana, Nitin Setia, Abhishek Baid, Mohit Kumar Bafna, Praneet Das, Anup Jain, and Ashok Kumar Jain.
Respondents: Senior Advocate S. Janani, AORs Devendra Kumar Shukla, Ashish Kumar Upadhyay, Ashish Pandey, Deepak Goel, Aaditya Aniruddha Pande, Md. Naushad Alam, Palash Singhai, S. Vinay Ratnakar, Ankit Roy, Paromita Majumdar, Astha Tyagi, Henna George, Purti Gupta, Advocates Pankaj Garg, Shailendra Babbar, Avinash Das, Rahul Kumar, Rishi Kapoor, Deboleena Datta, Maitri Goal, Atul Mangla, Inderjeet, Shubham Saxena, Prateek Rai, Ashutosh Bhardwaj, Pushkar Dwivedi, Anmol Goyal, Akshit Chauhan, Sharika Rai, Alka Goyal, Archana Preeti Gupta, Aditya Krishna, Siddharth Dharmadhikari, Raghav Vij, Suraj Kumar Jha, Sakshi Tiwari, Pratham Malik, Apoorva Misra, Manish Gusain, Milind Garg, Nikita Garg, Yaksh Garg, Suvidutt M.S., Saumya Jain, Yashna Ahuja, Atulika Ghawana, Shambhavi Sharma, Minakshi Vimal, Bhavana Jhakhar, Akhil Sachar, and Sunanda Tulsyan.
