2023 (12) TMI 1360 - HC - Indian Laws

Dishonour of Cheque - challenge to judgement of conviction and sentence - non-compliance with the conditions to deposit 20% of the compensation amount - Application for suspension of sentence and stay of proceedings based on insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 - HELD THAT - The fundamental facts in this petition is that the application by the petitioners herein are debtors application under section 94 of the Code. It was filed, after they were found guilty for offence under section 138//141 of NI Act. The Hon'ble Supreme Court in Mohanraj case 2021 (3) TMI 94 - SUPREME COURT had unequivocally held that the proceedings under section 138/141 of NI Act will fall under the scope of moratorium referred in IBC subject to the exceptions mentioned in the Code. The judgement of Mohanraj case 2021 (3) TMI 94 - SUPREME COURT is in respect of corporate debtor, which filed application under section 9 of the IBC. In the said judgment, the Hon'ble Supreme Court has held that the proceedings initiated under section 138 of NI Act falls within the scope of Section 14(1)(a) of the Code. In that judgment, at paragraph 102, the Hon'ble Supreme Court has made it clear that interim moratorium in a corporate debtor's application will not extend to the natural persons, who are prosecuted under section 138/141 of NI Act. Section 14 of IBC will apply only to the corporate debtor, the natural persons mentioned in Section 141 of NI Act continue to be statutorily liable. The Directors as Signatory or Guarantor or Person responsible for the affairs of the company, which has issued cheque to discharge its liability, can not have the advantage of their application to declare them as insolvent as an individual to seek moratorium. If such plea is entertained, then as observed by the Hon'ble Supreme Court, it will lead to absurdity. To demonstrate, for instance, in this case, if the interim moratorium under section 96 is extended to these petitioners, who are the representatives of the company, which is not a corporate debtor facing resolution process under the Code, then the first accused company will stand without a natural person to represent. Being a proceedings with penal action, there can be no substitution for the petitioners as the Directors of the first accused company. As the Hon'ble Supreme Court held that the moratorium given to the corporate debtor under Chapter II will not cover the individuals, who are the Guarantors of Directors. Similarly, the moratorium given to an individual under Chapter III will not cover the proceedings initiated against them as Directors or Guarantors of any company, which is not a corporate debtor under this Code. This Criminal Original Petition is dismissed.

Summary

Issues:
1. Application for suspension of sentence and stay of proceedings based on insolvency proceedings under the Insolvency and Bankruptcy Code, 2016.
2. Interpretation of the applicability of moratorium under the Insolvency and Bankruptcy Code, 2016 to individuals prosecuted under section 138/141 of the Negotiable Instruments Act, 1881.
3. Compliance with conditions for suspension of sentence and implications of non-compliance.

Analysis:
1. The petitioners, convicted under section 138 of the Negotiable Instruments Act, filed a petition for suspension of sentence pending appeal. The petitioners cited their applications under section 94(a) of the Insolvency and Bankruptcy Code, 2016, before the NCLT, Mumbai, as grounds for a stay of proceedings, invoking sections 94, 96, and 101 of the IBC. The Sessions Judge rejected their memos, leading to the present petition under section 482 of Cr.P.C.

2. The petitioners argued that the proceedings under section 138/141 of the NI Act fall within the moratorium provision of the IBC, citing the Supreme Court's decision in P. Mohanraj and others vs. Shah Brothers Ispat (P.) Ltd. The respondents contended that the moratorium under the IBC applies only to corporate debtors, not to sureties, and directors of a company. The court analyzed the applicability of the moratorium to individual directors prosecuted under the NI Act.

3. The court highlighted that the petitioners, as directors responsible for the company's affairs, were convicted and sentenced under the NI Act. They subsequently filed applications for insolvency, seeking the benefit of moratorium under the IBC. However, the court emphasized that the moratorium under the IBC does not extend to individuals prosecuted under the NI Act, as clarified in various judgments, including Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd. The court concluded that extending moratorium to individual directors in such cases would lead to absurd results and dismissed the petition.

Conclusion:
The court dismissed the Criminal Original Petition, emphasizing that the moratorium under the IBC does not cover individuals prosecuted under the NI Act, such as directors or guarantors of a company not undergoing resolution under the Code. The court held that granting moratorium to individual directors in such cases would be legally untenable and lead to unjust outcomes, ultimately upholding the rejection of the petitioners' memos and affirming the non-compliance with the conditions for suspension of sentence.