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2023 (10) TMI 4 - HC - Indian Laws


Issues Involved:
1. Quashing of complaints under Section 138 of the Negotiable Instruments Act (NI Act).
2. Applicability of the Insolvency and Bankruptcy Code (IBC) provisions, specifically Section 14 and Section 32A, to the liability of directors and corporate debtors.
3. Vicarious liability of directors under Section 141 of the NI Act.
4. Jurisdiction and powers of the High Court under Section 482 of the Code of Criminal Procedure (CrPC).

Summary:

Issue 1: Quashing of Complaints under Section 138 of the NI Act
- The petitions sought to quash complaints filed for cheque dishonour under Section 138 of the NI Act, arguing that there were no outstanding legally enforceable debts post-23.09.2019 due to the commencement of the corporate insolvency resolution process (CIRP).
- The petitioners contended that the cheques were security cheques and not meant for encashment, and that the complainant had admitted this in a Memorandum of Understanding (MOU).

Issue 2: Applicability of IBC Provisions
- The petitioners argued that the moratorium under Section 14 of the IBC, which commenced on 23.09.2019, suspended the liability of the Board of Directors and transferred it to the Interim Resolution Professional (IRP).
- The respondent countered that while the IBC's moratorium applies to corporate debtors, it does not protect directors from prosecution under Section 138 of the NI Act, as per Section 141 of the NI Act and relevant case law.

Issue 3: Vicarious Liability of Directors
- The court examined Sections 138, 141, and 142 of the NI Act, which establish that directors can be held vicariously liable for cheque dishonour if they were in charge of and responsible for the company's conduct at the time of the offence.
- The court referred to the Supreme Court's decisions, which clarified that while corporate debtors might be protected under the IBC, directors and other natural persons remain liable under the NI Act.

Issue 4: Jurisdiction and Powers of the High Court under Section 482 CrPC
- The court emphasized that its inherent powers under Section 482 CrPC should be exercised sparingly and only in exceptional cases to prevent miscarriage of justice.
- It was noted that the facts and defenses presented by the petitioners, such as the nature of the cheques and the terms of the MOU, are matters to be examined during the trial, not at the stage of quashing the complaints.

Conclusion:
- The court dismissed the petitions, holding that the directors could not escape liability under the NI Act despite the corporate debtor's insolvency proceedings.
- The court underscored that the trial court should adjudicate the issues based on evidence, and the High Court should not intervene at this preliminary stage.
- The petitions were dismissed, and the rule was discharged.

 

 

 

 

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