2018 (7) TMI 2047 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - whether the order of moratorium will cover a criminal proceeding under Section 138 of NI Act, which provides punishment of imprisonment for a term which may extend to three years or with fine which may extend to twice the amount of cheque or with both? HELD THAT - We do not agree with such submission as Section 138 is a penal provision, which empowers the court of competent jurisdiction to pass order of imprisonment or fine, which cannot be held to be proceeding or any judgment or decree of money claim. Imposition of fine cannot held to be a money claim or recovery against the Corporate Debtor nor order of imprisonment, if passed by the court of competent jurisdiction on the Directors, they cannot come within the purview of Section 14. Infact no criminal proceeding is covered under Section 14 of I B Code. Appeal allowed.

Summary

Issues:
1. Whether the order of moratorium covers a criminal proceeding under Section 138 of the Negotiable Instrument Act, 1881?
2. Interpretation of Section 14 of the Insolvency and Bankruptcy Code, 2016 in relation to the moratorium.

Analysis:

1. The case involved two complaints under Section 138 of the Negotiable Instrument Act, one filed before the initiation of Corporate Insolvency Resolution Process and the other after the order of moratorium. The Respondent argued that the complaint filed during the moratorium was not maintainable. The Adjudicating Authority directed the withdrawal of the complaint, stating it was a deliberate misuse of the legal process. The main issue was whether the moratorium would cover a criminal proceeding under Section 138 of the NI Act.

2. The judgment highlighted that while a company cannot be imprisoned, fines can be imposed on the Corporate Debtor if found guilty. However, the Directors of the company can face imprisonment or fines. The interpretation of Section 14 of the Insolvency and Bankruptcy Code, 2016 was crucial in determining the scope of the moratorium and its applicability to criminal proceedings like those under Section 138 of the NI Act.

3. Section 14 of the I&B Code establishes a moratorium prohibiting various actions against the corporate debtor. The Respondent argued that the proceeding under Section 138 of the NI Act falls under the prohibition of suits against the corporate debtor. However, the Appellate Tribunal disagreed, stating that Section 138 is a penal provision allowing for imprisonment or fines, not a money claim against the Corporate Debtor. Therefore, criminal proceedings like those under Section 138 are not covered by Section 14 of the I&B Code.

4. The Appellate Tribunal set aside the previous order, allowing the court of competent jurisdiction to proceed with the Section 138 proceedings even during the moratorium. The Tribunal emphasized that criminal proceedings, such as those under Section 138, do not fall within the scope of Section 14 of the I&B Code. The appeal was allowed, and the related applications were disposed of with no costs incurred.