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2023 (4) TMI 1238 - HC - Insolvency and BankruptcyContinuation of proceedings u/s 138 of the NI Act, once moratorium declared - thrust of the arguments of the learned counsel rest on the contention that the scope of the protection accorded to individuals/firms under Section 96 of the IBC (interim moratorium) is wider than that of Section 14 of the IBC. HELD THAT - As per the settled law, even in the wake of legal impediment under Section 14 of the IBC, natural persons mentioned in Section 141 of the NI Act, e.g. the petitioners in the instant case, would continue to be statutorily liable under Section 138 of the NI Act. It is abundantly clear that when the provisions of Section 14 and 96 of the IBC are viewed in context of Corporate Debtors vis-a-vis individuals, as is the case in hand, the scope of Section 14 of the IBC comes across as being much wider than that of Section 96 of the IBC. Adverting to the submissions made by learned counsel qua the petitioners not being vicariously liable in view of their status being that of suspended Directors , it would be pertinent to notice that the cheques in question had been issued on 15.09.2019 i.e. prior to the order dated 10.10.2019 passed by the NCLT, Chandigarh Branch, appointing Amit Gupta as IRP. Therefore, there can be no manner of doubt that on the date of issuance of the cheque in question, the petitioners were still in-charge of the management of the affairs of the Corporate Debtor as it was a matter of record that they were its Managing Directors. This Court does not find any merit in the instant petitions and they stand dismissed.
Issues Involved:
1. Quashing of Complaint under Section 138 of the Negotiable Instruments Act, 1881. 2. Impact of Moratorium under Sections 14 and 96 of the Insolvency and Bankruptcy Code, 2016 (IBC) on the proceedings under Section 138 of the NI Act. 3. Liability of Directors as suspended directors under the IBC. Summary: Issue 1: Quashing of Complaint under Section 138 of the NI Act The petitioners sought quashing of Complaint NACT No. 68 of 2020, summoning order dated 03.09.2021, and bailable warrants issued on 22.03.2023. They argued that due to the ongoing Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, proceedings under Section 138 of the NI Act should be stayed or quashed. Issue 2: Impact of Moratorium under Sections 14 and 96 of the IBC The petitioners claimed protection under Section 96 of the IBC, asserting that the scope of protection under Section 96 is broader than Section 14, thereby prohibiting the continuation of criminal proceedings under Section 138 of the NI Act. They relied on the Supreme Court judgment in P. Mohanraj and others Vs. Shah Brothers Ispat Private Limited, arguing that Section 96 covers criminal proceedings related to debt. However, the court found no merit in this argument, stating that Section 14 of the IBC does not apply to personal guarantors and that criminal proceedings under Section 138 of the NI Act are penal in nature and not recovery proceedings. Issue 3: Liability of Directors as Suspended Directors under the IBC The petitioners argued that they were not liable as they were suspended directors at the time of the issuance of the cheques. The court noted that the cheques were issued before the appointment of the Interim Resolution Professional (IRP), and the petitioners were in charge of the Corporate Debtor's affairs at that time. The court referred to the Supreme Court's judgment in C.C. Alavi Haji Vs. Palapetty Muhammed, which held that the statutory notice requirement does not absolve the drawer from liability if they fail to make payment within 15 days of receiving the summons. Conclusion: The court dismissed the petitions, stating that the moratorium under Section 14 of the IBC does not stay criminal proceedings under Section 138 of the NI Act, and the petitioners, being in charge of the Corporate Debtor at the relevant time, are liable under the NI Act. The court emphasized that the scope of Section 14 of the IBC is broader than Section 96, and the proceedings under Section 138 NI Act cannot be quashed based on the moratorium provisions.
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