2021 (12) TMI 327 - HC - Indian Laws

Dishonor of Cheque - criminal liability of natural persons - CIRP proceedings are ongoing against the company - natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instrument Act - Section 138 and 141 of the Negotiable Instrument Act, 1881 - HELD THAT - It is not in dispute that the cheques issued to the complainant's Company were dishonored with an endorsement ''Payment Stopped by the Drawers''. In that regard, the 1st petitioner Company had issued a letter to the respondent through their counsel stating about the initiation of insolvency process by National Company Law Tribunal (NCLT) against the 1st petitioner Company and due to which, the 2nd accused / 2nd petitioner was unable to honor the post dated cheques issued in favour of the respondent Company. Inspite of the communication of the 1st petitioner Company regarding the insolvency process, the complainant has presented the cheques for collection, which was dishonored and thereby filed the complaint against the 1st petitioner Company. In the case on hand, the insolvency process was initiated by NCLT on 10.07.2017 and moratorium has been declared under the Insolvency Bankruptcy Code. Therefore, as held by the Hon'ble Supreme Court, the moratorium was only in respect of the corporate debtor and not in respect of the directors / management and therefore, the petitioners 2 and 3 as natural persons, are liable for prosecution. However, in view of declaration of moratorium by NCLT, the prosecution as against the company cannot be allowed to continue. This Court is of the opinion that the issue is a triable issue and it requires appreciation of evidence and this Court cannot decide the same in exercise of its jurisdiction under Section 482 of Criminal Procedure Code - Petition allowed.

Summary

Issues:
Petition to quash criminal proceedings under Negotiable Instrument Act, 1881 due to insolvency proceedings - Legal notice not served - Statutory bar during moratorium period - Liability of natural persons under Section 138 and 141 - Quashing proceedings against corporate debtor but not against directors.

Analysis:
The petitioners sought to quash criminal proceedings under the Negotiable Instrument Act, 1881, citing insolvency proceedings initiated against the accused company. The accused company, engaged in a leather business, issued cheques for debts which were dishonored, leading to complaints filed by the respondent. The petitioner argued that no legal notice was served, rendering the complaints legally unsustainable.

The petitioner contended that insolvency proceedings had commenced against the company, leading to a moratorium period. Referring to a Supreme Court decision, it was argued that during the moratorium, no proceedings under Section 138 and 141 of the Act could be initiated against the corporate debtor. However, the liability of natural persons under Section 141 continued, making the petitioners 2 and 3 liable for prosecution.

The respondent conceded to quashing the case against the 1st petitioner due to the moratorium benefit but opposed quashing for petitioners 2 and 3. The court examined the submissions and found that while the proceedings against the company could be quashed, those against the natural persons required further trial and evidence appreciation.

The court, based on the Supreme Court's decision, held that the moratorium applied only to the corporate debtor, not the directors, making petitioners 2 and 3 liable for prosecution. The proceedings against the 1st petitioner were quashed, while those against petitioners 2 and 3 were left for the trial court to decide expeditiously based on the merits and in accordance with the law.

In conclusion, the Criminal Original Petitions were allowed in respect of the 1st petitioner, quashing the proceedings against the company. However, the proceedings against petitioners 2 and 3 were directed to be disposed of by the trial court promptly. The appearance of the petitioners before the trial court was dispensed with, except for specific proceedings, with cooperation from both parties for the early completion of the trial.