2024 (12) TMI 1230 - HC - Indian Laws

Dishonour of Cheque - Seeking quashing of the summoning order - challenge to proceedings under Section 138 of the NI Act - vicarious liability of petiitoner - whether proceedings under Section 138 of the NI Act can continue against individuals after the commencement of the CIRP proceedings against the accused company? HELD THAT - It is evident that insolvency proceedings against the company were initiated under the provisions of the IBC, and an order under Section 14 of the IBC was issued on 31.10.2019. The IBC explicitly provides that when a corporate debtor is undergoing proceedings before the adjudicating authority (NCLT), the control and management of the corporate debtor are vested in the Interim Resolution Professional. It is undisputed that the cheques in question were dated 15.01.2020 and 15.03.2020, respectively. However, the IRP was appointed on 31.10.2019, prior to these dates. Consequently, the account was blocked due to the order issued by the NCLT, and this cannot be attributed to the account holder. As a result of the NCLT s order, the authority and control of the account holder over the account ceased to exist. A coordinate bench of this Court in Govind Prasad Todi Anr. V. Govt. of NCT of Delhi Anr. 2023 (6) TMI 534 - DELHI HIGH COURT , quashed the summoning order in similar circumstances, observing that once a moratorium under Section 14 of the IBC is in effect, proceedings under Section 138 of the NI Act against the corporate debtor cannot continue. It is reiterated that the cheques in question were dishonoured for the reason Drawer Signature to operate account not received . In view of this Court, the ingredients for constituting the offence punishable under Section 138 of the NI Act occurred post imposition of moratorium. The petitioners herein therefore cannot be held vicariously responsible for dishonour of cheque. The impugned order along with any consequential proceedings arising therefrom, is quashed - Petition allowed.

Summary

Issues:
Quashing of summoning order under Section 138 of the Negotiable Instruments Act, 1881 and consequential proceedings during Corporate Insolvency Resolution Process (CIRP).

Analysis:
The petitioners sought to quash the summoning order dated 01.04.2022 under Section 138 of the NI Act and all consequential proceedings arising from it. The petitioners, a suspended director and an Authorized Signatory of an accused company, issued cheques in compliance with a National Consumer Disputes Redressal Commission order. While some cheques were honored, two were dishonored post the company's admission to CIRP under the Insolvency and Bankruptcy Code, 2016 (IBC). The main contention was that due to the moratorium under Section 14 of the IBC, the petitioners could not be held liable for the offense under Section 138 of the NI Act as they had no role in the company's affairs after the appointment of the Interim Resolution Professional (IRP).

The central issue was whether proceedings under Section 138 of the NI Act could continue against individuals post the commencement of CIRP proceedings against the company. The IBC vests control and management of a corporate debtor in the IRP during insolvency proceedings. The cheques in question were presented after the IRP's appointment, resulting in the account being blocked due to the NCLT's order, thereby ceasing the account holder's authority and control over the account.

Referring to a previous judgment, the court highlighted that once CIRP proceedings are admitted, the moratorium under Section 14 of the IBC comes into effect, preventing proceedings against the corporate debtor. The question remained whether the petitioners, as natural persons, could be prosecuted under Section 138 of the NI Act. Since the IRP was in charge of the company's affairs when the cheques were presented, the petitioners' role had ceased, and the cheques could not have been encashed due to the IBC's provisions.

The court emphasized that the dishonor of cheques occurred after the imposition of the moratorium, absolving the petitioners of vicarious liability. Consequently, the court allowed the petitions, quashing the impugned order and all related proceedings. The authority to operate bank accounts lay with the IRP, not the petitioners, at the time of presentation of the cheques, leading to the dismissal of the case against the petitioners.