2023 (2) TMI 1149 - HC - Indian Laws

Dishonour of Cheque - moratorium clamped under Section 14 of the Insolvency and Bankruptcy Code 2016 - continuation/initiation of prosecution against Directors and those others responsible to the day to day affairs of the company/firm under Section 138 read with Section 141 of NI Act - whether the prosecution under Section 138 read with 141 of NI Act against the respondents shall continue in the peculiar facts and circumstances of the case? - HELD THAT - The moratorium in terms of Section 14 of IBC was ordered on 06/06/2017 i.e. after presentation of the cheques for encashment dishonour thereof for the reason Funds Insufficient issuance of Statutory Demand Notice and even non-compliance of the Demand Notice within 15 days of the receipt thereof. As such the ingredients for constituting the offence punishable under Section 138 of NI Act had already occurred. Admittedly NCLT Bench at Mumbai vide its order dated 08/01/2019 passed the prohibitory order (referred hereinabove). As a consequence thereof the company was prohibited from transferring or alienating or disposing of any of its assets. Meaning thereby the amount in the bank account of the Corporate Debtor/company came to be freezed. Insolvency Resolution Professional was appointed. He took over the charge of management of the Corporate Debtor/company. There is communication on record indicating the Corporate Debtor to have expressed its inability to pay the amount of dishonoured cheques on account of moratorium imposed vide order dated 08/01/2019. The concern bank of Corporate Debtor/company was also informed the operation of bank account was taken over by Insolvency Resolution Professional - As a consequence the Insolvency Resolution Professional became the authority to operate the bank account. As a further consequence signature of earlier person who was authorized to operate the bank account came to be replaced with that of the Insolvency Resolution Professional. The cheques came to be presented on 11/04/2019 and 02/05/2019 i.e. long after moratorium was imposed. When the cheques were presented for encashment the respondents were no longer in control and management of day to day affairs of the Corporate Debtor. It is not known as to whether there were sufficient funds in the bank account of Corporate Debtor to honour the cheques. It is reiterated that the cheques were bounced for the reason Drawer s Signature Differ . In view of this Court the ingredients for constituting the offence punishable under Section 138 of NI Act occurred post imposition of moratorium. The respondents herein therefore could not be blamed. True mens-rea is not an essential ingredient of the offence punishable under Section 138 of NI Act. As such ingredients of the offence punishable under Section 138 read with Section 141 of NI Act do not get attracted against any of the respondents herein. The Revisional Court was therefore justified in setting aside the order of issuance of process. This Court is of the view that the Revisional Court did not commit any mistake in passing the orders impugned herein and therefore no interference is warranted therewith. The revision applications therefore fail - Revision dismissed.

Summary

Issues Involved:
1. Whether prosecution under Section 138 read with Section 141 of the Negotiable Instruments Act (NI Act) can continue against the respondents in light of the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code (IBC).
2. The effect of the moratorium on the liability of natural persons involved with the corporate debtor.
3. The impact of the freezing of the corporate debtor's bank accounts on the prosecution under Section 138 of the NI Act.

Issue-wise Detailed Analysis:

1. Prosecution under Section 138 read with Section 141 of the NI Act in light of the IBC moratorium:

The court examined whether the prosecution for dishonor of cheques under Section 138 read with Section 141 of the NI Act could continue against the respondents given the moratorium imposed under Section 14 of the IBC. The moratorium was imposed on the corporate debtor, prohibiting the continuation of suits or proceedings, including those under Section 138 of the NI Act. The court noted that the moratorium was ordered on 08/01/2019, which was before the cheques were presented for encashment on 11/04/2019 and 02/05/2019. Thus, the respondents were no longer in control of the company's day-to-day affairs when the cheques were dishonored.

2. Liability of natural persons under Section 141 of the NI Act:

The court discussed the liability of natural persons (directors and others responsible for the company's affairs) under Section 141 of the NI Act in the context of the moratorium. The court referenced the Supreme Court's judgment in P. Mohanraj and Others vs. Shah Brothers Ispat Private Limited, which held that while the moratorium under Section 14 of the IBC applies to the corporate debtor, it does not extend to natural persons who can still be prosecuted under Section 141 of the NI Act. However, in this case, the court found that the cheques were dishonored due to the moratorium, which froze the company's bank accounts, thus absolving the respondents from liability.

3. Freezing of the corporate debtor's bank accounts:

The court noted that the cheques were dishonored for the reason "Drawer's Signature Differ," which occurred after the moratorium was imposed and the Insolvency Resolution Professional (IRP) took over the management of the company. The court emphasized that the freezing of the company's bank accounts due to the moratorium meant that the respondents were no longer in control of the company's financial operations. Therefore, the ingredients for constituting the offence under Section 138 of the NI Act occurred post-imposition of the moratorium, and the respondents could not be blamed for the dishonor of the cheques.

Conclusion:

The court concluded that the Revisional Court was justified in setting aside the order of issuance of process against the respondents. The court agreed with the observations made in the case of Rajesh Meena vs. State of Haryana and Others, which held that the prosecution under Section 138 of the NI Act could not be maintained when the company's bank accounts were frozen due to the moratorium. Consequently, the revision applications were dismissed.