2019 (4) TMI 1862 - HC - Insolvency and Bankruptcy

Dishonor of Cheque - insufficiency of funds - Section 138 r/w 141 and 142 of Negotiable Instruments Act - initiation of CIRP - allegation that one of the Creditors initiated proceedings under Section 9 of the Insolvency and Bankruptcy Code against the respondent - whether there is statutory bar to initiate the proceedings under Section 138 of Negotiable Instruments Act against the petitioner when the petitioner was declared as insolvent? - HELD THAT - The offence under the Negotiable Instruments Act is a statutory one and the proceedings under the Negotiable Instruments Act is completely different from the Corporate Insolvency Resolution process under the Insolvency and Bankruptcy Code, 2016. The Section 14 of Insolvency and Bankruptcy Code, 2016 prohibits the institution of suits or continuation of pending suits or proceedings against the Corporate Debtor. It means only civil proceedings and not criminal proceedings as against the debtor. This Court has held that there is no prohibition either in the Insolvency Act or in the Negotiable Instruments Act for the complainant to approach the criminal court to take penal action against the accused for the offence already committed under Section 138 of Negotiable Instruments Act either because the insolvency proceedings are pending or even he was declared as an insolvent. Therefore there is no bar to initiate proceedings under the criminal law against the debtor, though he was declared as an insolvent. The bar has been extended only in respect of civil detention and civil arrest. It would not cover the proceedings under Section 138 of Negotiable Instruments Act - The Section 138 of Negotiable Instruments Act is a penal provision which empowers the court of competent jurisdiction to pass the order of imprisonment or fine. It is not the civil proceedings and even fine imposed by the criminal court cannot held to be a money claim or recovery against Corporate Debtor. The criminal proceedings is not covered under the prohibition and as such the petitioner cannot have a shelter under Section 14 of Insolvency and Bankruptcy Code. Therefore, the petition is devoid of merits and it is liable to be dismissed - Petition dismissed.

Summary

Issues:
1. Whether criminal proceedings under Section 138 of Negotiable Instruments Act can be sustained against the petitioner after being declared insolvent?

Analysis:
The petitioner issued a post-dated cheque to the respondent, which was dishonored due to insufficient funds. The respondent initiated proceedings under Section 138 of Negotiable Instruments Act against the petitioner. The petitioner argued that the company had been taken over by an Insolvency Resolution Professional as per the National Company Law Tribunal's order. The petitioner contended that the alleged cheque was for security purposes, and there was no enforceable debt. The respondent, on the other hand, claimed that the cheque was issued to discharge a debt for tanning chemicals supplied to the petitioner.

The key question was whether there was a statutory bar to initiating proceedings under Section 138 of Negotiable Instruments Act against the petitioner after being declared insolvent. The respondent argued that the Insolvency and Bankruptcy Code's Section 14 does not prohibit criminal proceedings against the debtor. The court cited a previous judgment stating that there is no prohibition for the complainant to approach a criminal court for penal action under Section 138 of Negotiable Instruments Act, even if insolvency proceedings are pending or the debtor is declared insolvent.

The court further explained that Section 14 of the Insolvency and Bankruptcy Code pertains to civil proceedings and does not cover criminal proceedings like those under Section 138 of Negotiable Instruments Act. The court emphasized that the criminal proceedings are not subject to the prohibition mentioned in Section 14, as the nature of penal action differs from civil claims. Therefore, the court dismissed the petition, stating that the petitioner could not seek shelter under Section 14 of the Insolvency and Bankruptcy Code.

In conclusion, the court dismissed the Criminal Original Petition, stating that the criminal proceedings under Section 138 of Negotiable Instruments Act could be sustained against the petitioner even after being declared insolvent. The judgment clarified that the prohibition under the Insolvency and Bankruptcy Code's Section 14 does not extend to criminal proceedings, allowing the respondent to pursue legal action against the petitioner for the dishonored cheque.