2022 (1) TMI 801 - HC - Indian Laws

Dishonor of Cheque - CIRP under process - moratorium in effect - applicability of moratorium provisions on natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instrument Act - 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 and Bankruptcy Code. Therefore, as held by the Hon'ble Supreme Court in P. MOHANRAJ ORS. VERSUS M/S. SHAH BROTHERS ISPAT PVT. LTD. 2021 (3) TMI 94 - 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 inclined to quash the proceedings in respect of 1st petitioner and insofar as the petitioners 2 and 3 are concerned, 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:
Quashing of criminal proceedings under Section 138, 141, and 142 of the Negotiable Instrument Act, 1881 due to insolvency proceedings - Applicability of moratorium provision - Liability of natural persons under Section 141 - Jurisdiction of the Court under Section 482 of Criminal Procedure Code.

Analysis:
The petitioners sought to quash criminal proceedings under Section 138, 141, and 142 of the Negotiable Instrument Act, 1881, initiated against them in various cases. The accused company, engaged in a leather business, issued cheques to the complainant, which were dishonored, leading to the complaints. The petitioners contended that the complaints were legally unsustainable as no legal notice was served, and insolvency proceedings had commenced against the company. The respondent argued that while the moratorium applied to the corporate debtor, natural persons remained liable under Section 141 of the Act.

The Court noted that the cheques were dishonored, and insolvency proceedings had indeed begun, as communicated by the accused company. Referring to the Supreme Court decision in P. Mohanraj case, the Court highlighted that the moratorium under the Insolvency and Bankruptcy Code applied only to the corporate debtor, not the natural persons mentioned in Section 141. Therefore, the liability of natural persons in cases under Section 138 and 141 of the Act survived, excluding the company from prosecution.

Considering the above legal position, the Court quashed the proceedings against the 1st petitioner, the company, due to the moratorium. However, for the 2nd and 3rd petitioners, natural persons, the Court held that their liability required a trial for appreciation of evidence, declining to interfere under Section 482 of the Criminal Procedure Code. The Court directed the trial court to expedite the cases involving the 2nd and 3rd petitioners, emphasizing cooperation from both parties for a swift trial process.

In conclusion, the Criminal Original Petitions were allowed concerning the 1st petitioner, leading to the quashing of criminal proceedings. For the 2nd and 3rd petitioners, the Court directed the trial court to proceed expeditiously, leaving the decision on their liability to be determined during the trial process. The appearance of the petitioners before the trial court was dispensed with for most proceedings, except for specific circumstances where their presence might be necessary.