9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2024 (5) TMI 612 - HC - Indian LawsDishonour of Cheque - Continuation of proceedings during moratorium period - vicarious liability of director - Despite moratorium, whether institution or continuation of proceedings under Section 138 or 141 of the NI Act against the erstwhile Directors or the persons in-charge of or responsible for conduct of the business of a corporate debtor could be continue? - after resolution plan under Section 31 of the IB Code by Adjudicating Authority and in the light of provisions of Section 32-A of the IB Code, such criminal proceedings will stand terminated against a corporate debtor or not. HELD THAT - As per Section 14 of the IB Code, the adjudicating authority shall declare moratorium for prohibiting institution of suit or continuation of pending suit or proceedings against a corporate debtor including execution of any judgment, decree or order. The object of a moratorium provision such as Section 14 is to see that there is no depletion of a corporate debtor's assets during the insolvency resolution process so that it can be kept running as a going concern during this time, thus maximising value for all stakeholders - Notably, moratorium provision does not extinguish any liability, civil or criminal, but only casts a shadow on proceedings already initiated and on proceedings to be initiated. This moratorium shall remain into force till the date of approval of resolution plan or liquidation order under Section 31 of the IB Code. Then, Section 32-A of the IB Code comes into play. Section 32-A(1) operates only after the moratorium comes to an end. On approval and commencement of the corporate resolution plan, the liability of a corporate debtor for an offence committed prior to commencement of corporate insolvency shall cease and a corporate debtor shall not be prosecuted for an offence if in the resolution plan there is a change in management or control of the corporate debtor to a person other than a promoter and other person mentioned in Section 32A of the IB Code - Interestingly, per the second proviso of Section 32A(1) of IB Code, a natural person, who was in any manner in charge of or responsible to the corporate debtor for the conduct of its business or associated with a corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence shall continue to be liable to be prosecuted and punished for an offence committed by a corporate debtor. The applicant nos. 2 and 3 are the natural persons through whom the applicant no. 1-Company was managed, rather they are signatories to the cheques in question. The complaint specifically mentions that at the relevant time, the applicant nos. 2 and 3 were managing the day to day affairs and business of the applicant no. 1-Company - the protection of cessation of liability for prior offence under Section 32-A of the IB Code is applicable only to a corporate debtor i.e. a Company and that too only if the management of the Company is changed in the resolution approved by the adjudicating authority - there are substance in the argument of the learned counsel for the non-applicant that the applicant nos. 2 and 3 cannot be protected by Section 32-A of the IB Code. The protection provided to a corporate debtor under Section 32-A(1) of absolving from its liability for an offence committed prior to commencement of the corporate insolvency process will not be available to the applicant no. 1, a corporate debtor also. Therefore, the applicant no. 1-Company (corporate debtor) is also not absolved from its criminal liability for an offence committed prior to commencement of insolvency proceedings. There are no merit in the submission of the learned counsel for the applicants. The proceedings against the applicants, for the offence punishable under Section 138 of the NI Act, shall continue against the applicants, the company as well as its directors. Thus, the application is sans merits and fails. The application is dismissed.
Issues Involved:
1. Whether institution or continuation of proceedings u/s 138 or 141 of the NI Act against the erstwhile Directors or persons in-charge of a corporate debtor could continue despite moratorium. 2. Whether criminal proceedings will stand terminated against a corporate debtor after approval of a resolution plan u/s 31 of the IB Code in light of Section 32-A of the IB Code. Summary: Issue 1: Continuation of Proceedings Against Directors Despite Moratorium The application sought to quash Summary Criminal Case No. 12363/2018 filed for the offence punishable u/s 138 of the NI Act, invoking the inherent powers of the Court u/s 482 of the Code of Criminal Procedure. The applicants argued that the moratorium imposed u/s 14 of the IB Code prohibits continuation of the proceedings against the company and its directors. The Court, however, noted that the moratorium provision does not extinguish any liability but only casts a shadow on proceedings. Referring to the Supreme Court's decision in P. Mohanraj and others Vs. Shah Brothers Ispat Private Ltd., it was held that proceedings u/s 138 of the NI Act are included within the meaning of Section 14(a) of the IB Code. The Court concluded that despite the moratorium, proceedings u/s 138 or 141 of the NI Act can be instituted or continued against the erstwhile Directors or persons in-charge of or responsible for the conduct of business of a corporate debtor. Issue 2: Termination of Criminal Proceedings Against Corporate Debtor Post-Resolution Plan The applicants contended that after the approval of the resolution plan u/s 31 of the IB Code, the criminal proceedings u/s 138 of the NI Act should stand terminated against the corporate debtor. The Court analyzed Section 32-A of the IB Code, which provides that the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease if the resolution plan results in a change in the management or control of the corporate debtor. However, the Court observed that in the present case, the management of the company was entrusted to the applicant no. 2, who was already in control, thus not resulting in a change in management. Consequently, the protection u/s 32-A(1) of the IB Code was not available to the corporate debtor. The Court also referenced the Supreme Court's decision in Ajay Kumar Radheshyam Goenka, which reiterated that criminal proceedings u/s 138 of the NI Act will continue against the signatories/directors even if the corporate debtor is taken over by a new management. Conclusion: The Court dismissed the application, holding that the proceedings against the applicants for the offence punishable u/s 138 of the NI Act shall continue against both the company and its directors. The protection under Section 32-A of the IB Code was not applicable as there was no change in the management or control of the corporate debtor.
|
