2023 (9) TMI 1564 - HC - Indian Laws

Dishonour of Cheque - abatement of proceedings under Section 138 of NI Act - whether proceedings under Section 138 of the Act also abate on account of initiation of proceedings, if any, under Section 94 (1) of Insolvency and Bankruptcy Code, or same can proceed simultaneously alongwith afore proceedings initiated under Insolvency and Bankruptcy Code? HELD THAT - The question has already been answered by the Hon ble Apex Court in case titled Ajay Kumar Radheyshyam Goenka Vs. Tourism Finance Corporation of India Ltd. 2023 (3) TMI 686 - SUPREME COURT , wherein Hon ble Apex Court taking note of its earlier judgment passed in P. Mohanraj Ors. 2021 (3) TMI 94 - SUPREME COURT has categorically held that where the proceedings under Section 138 of the Act had already commenced with the Magistrate taking cognizance upon the complaint and during pendency of the company gets dissolved, signatories, directors cannot escape from their penal liability under Section 138 of the Act by citing its resolution. Hon ble Apex Court further held in the afore judgment that an offence under Section 138 of the Act, which has been committed by the company and is proved that offence has been committed with consent and connivance of, any neglect on the part of any director, manager, secretary or other officers of the company, such director, manager, secretary or other officers shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. It is quite apparent from the aforesaid exposition of law laid down by Hon ble Apex Court that the signatory/director cannot take benefit of discharge obtained by corporate debtor by operation of law under the IBC, meaning thereby that personal liability of signatory/ director of the company in a cheque dishonour case cannot be absolved because there is pending corporate liability resolution proceedings against the company under the provisions of IBC. Directors/ signatories cannot escape from their penal liability by citing its dissolution, only the accused company is dissolved and director/signatory cannot be permitted to go scot-free after the approval of resolution plan. Since complainant bank is a secured creditor and loan is strictly secured by way of equitable mortgage of the property in question, coupled with the fact that such property has no other charge of having nature, complainant bank has otherwise paramount charge of the property against the house loan given to the accused and Smt. Shaveta Sharma for Rs. 2,00,00,00/-. This Court finds no illegality or infirmity in the impugned order, which appears to be based upon proper appreciation of facts and law and as such, same is upheld - Petition dismissed.

Summary

Issues Involved:

1. Whether proceedings under Section 138 of the Negotiable Instruments Act abate due to the initiation of proceedings under Section 94(1) of the Insolvency and Bankruptcy Code (IBC), or can they proceed simultaneously?
2. The applicability of interim moratorium under Section 96 of the IBC on proceedings initiated under Section 138 of the Negotiable Instruments Act.
3. The personal liability of directors/signatories in cheque dishonour cases amidst corporate insolvency proceedings under the IBC.

Detailed Analysis:

Issue 1: Concurrent Proceedings under Section 138 and IBC

The primary issue was whether the initiation of proceedings under Section 94(1) of the Insolvency and Bankruptcy Code (IBC) results in the abatement of proceedings under Section 138 of the Negotiable Instruments Act. The court held that proceedings under Section 138 do not abate due to insolvency proceedings under the IBC. The judgment referenced the Supreme Court's decision in *Ajay Kumar Radheyshyam Goenka Vs. Tourism Finance Corporation of India Ltd.*, which clarified that the penal liability under Section 138 persists despite the initiation of corporate insolvency resolution processes. The court emphasized that the personal penal liability of directors or signatories is not extinguished by the corporate debtor's insolvency proceedings.

Issue 2: Applicability of Interim Moratorium under Section 96 of the IBC

The petitioner argued that an interim moratorium under Section 96 of the IBC should stay proceedings under Section 138 of the Negotiable Instruments Act. The court rejected this argument, noting that the interim moratorium applies only to the corporate debtor and not to the natural persons involved. The court cited the Supreme Court's ruling in *P. Mohanraj & Ors. Vs. Shah Brothers Ispat Private Ltd.*, which established that the moratorium provision under Section 14 of the IBC applies to corporate debtors, not to individuals liable under Section 141 of the Negotiable Instruments Act. Thus, the court concluded that the interim moratorium does not stay proceedings against directors or signatories in cheque dishonour cases.

Issue 3: Personal Liability of Directors/Signatories

The court addressed the issue of whether directors or signatories can escape personal liability in cheque dishonour cases due to corporate insolvency proceedings. It was determined that directors or signatories cannot evade their personal penal liability by citing the company's insolvency proceedings. The court reiterated that, according to the Supreme Court's interpretation, personal liability under Section 138 remains intact despite the corporate debtor's insolvency resolution. The court emphasized that the liability of directors or signatories is distinct from that of the corporate debtor, and they remain liable for offences committed under Section 138 of the Negotiable Instruments Act.

Conclusion:

The court upheld the trial court's decision, finding no illegality or infirmity in its order. It concluded that the proceedings under Section 138 of the Negotiable Instruments Act can continue concurrently with insolvency proceedings under the IBC, and the personal liability of directors or signatories remains unaffected by the corporate debtor's insolvency. Consequently, the petition was dismissed, affirming the trial court's ruling.