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2022 (3) TMI 1534 - SC - Indian LawsDishonour of Cheque - corporate entity in respect of which moratorium had become effective could be proceeded against in terms of Sections 138 and 141 of the Negotiable Instruments Act, 1881 or not - HELD THAT - In P. MOHANRAJ ORS. VERSUS M/S. SHAH BROTHERS ISPAT PVT. LTD. 2021 (3) TMI 94 - SUPREME COURT , a Bench of three-Judges of this Court considered the matter whether a corporate entity in respect of which moratorium had become effective could be proceeded against in terms of Sections 138 and 141 of the Negotiable Instruments Act, 1881 where it was held that The Section 138/141 proceedings in this case will continue both against the company as well as the appellants for the reason given as well as the fact that the insolvency resolution process does not involve a new management taking over. The decision rendered in P. Mohanraj is quite clear on the point and, as such, no interference in this petition is called for - petition dismsissed.
Issues involved:
1. Quashing of criminal complaints under Section 138 of the Negotiable Instruments Act, 1881 against a company and its directors in light of the National Company Law Tribunal's order approving a resolution plan. 2. Interpretation of moratorium provisions under the Insolvency and Bankruptcy Code, 2016 in relation to liability of corporate entities and natural persons like directors under Sections 138 and 141 of the Negotiable Instruments Act, 1881. Analysis: Issue 1: Quashing of criminal complaints under Section 138 of the Negotiable Instruments Act: The writ petition sought to quash criminal complaints pending before the Judicial Magistrate/Chief Metropolitan Magistrate/Judicial Magistrate of 1st Class against the petitioner company and its directors under Section 138 of the Negotiable Instruments Act, 1881. The petition relied on the National Company Law Tribunal's order approving the resolution plan and the acceptance of the plan by the complainants. The petition also argued that the complaints initiated after the moratorium order could not proceed even if the old management took over the corporate debtor. The Supreme Court, citing a previous judgment in P. Mohanraj & other connected matters, clarified that the moratorium provisions under the Insolvency and Bankruptcy Code, 2016 apply only to the corporate debtor, not to natural persons like directors who remain liable under the Act. The Court dismissed the writ petition, affirming that the resolution plan's acceptance does not affect the liability of the directors under Sections 138 and 141 of the Act. Issue 2: Interpretation of moratorium provisions and liability of natural persons: The Court referred to the judgment in P. Mohanraj and Ors. v. Shah Brothers Ispat Private Limited, where it was established that moratorium provisions under the Insolvency and Bankruptcy Code, 2016 apply solely to the corporate debtor. The liability of natural persons, such as directors, under Sections 138 and 141 of the Negotiable Instruments Act, 1881, remains unaffected by the moratorium. The Court emphasized that the acceptance of a resolution plan does not absolve the directors of their statutory liability under the Act. The dismissal of the writ petition in this case further reinforces the principle that the moratorium does not shield natural persons from liability under the Act. Conclusion: The Supreme Court's judgment clarifies that the moratorium provisions under the Insolvency and Bankruptcy Code, 2016 do not exempt natural persons, including directors, from liability under the Negotiable Instruments Act, 1881. The acceptance of a resolution plan does not affect the pending criminal complaints against the company and its directors under Sections 138 and 141 of the Act.
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