2021 (12) TMI 1106 - HC - Indian Laws

Dishonor of Cheque - Effect of moratorium on proceedings u/s 138 of NI Act - Petitioner is a natural person - suspended director - HELD THAT - The mandate occurring in Section 14 of the IBC, becoming animated, and, it also enabling the drawing of a further legal sequel, that when Clause- A of Sub Section 14(1) of the IBC, hence prohibits the institution of suits, or continuation of pending suits or continuation of pending proceedings against the corporate debtor. Therefore, statutory coinage carried therein, also covering proceedings drawn under Section 138 of the Negotiable Instruments Act. Hon'ble Apex Court pronounced in case titled as P. MOHANRAJ ORS. VERSUS M/S. SHAH BROTHERS ISPAT PVT. LTD. 2021 (3) TMI 94 - SUPREME COURT taken a view that the moratorium provisions contained in Section 14 of the IBC Code, prohibit the continuation of proceedings drawn even under Section 138/141 of the Negotiable Instruments Act, against the corporate debtor, rather during the subjudice corporate insolvency resolution process. The petition at hand, has been filed by one Vishnoo Mittal, who claims himself to be the suspended Director of the corporate entity, named as M/s Xalta Food and Beverates Pvt. Ltd. The learned counsel for the petitioner submits, that the clout of the moratorium, is omnibus, and, it also indemnifies, and, saves the liability, if any, of the petitioner herein. However, the afore made argument, cannot be accepted by this Court, as the Hon'ble Apex Court in judgment made a candid expostulation of law, that proceedings drawn under Section 138 of the Negotiable Instruments Act, though are covered by Section 14 of the IBC Code, but the afore drawn proceedings cannot rather continue only against the corporate debtor accused, but can continue against the erstwhile director/person incharge, and, responsible for the conduct of the business of the corporate debtor. Since the petitioner is a natural person, and, a suspended Director, and, hence falls within the domain of erstwhile director. Thereupon the immunity, as granted to a corporate debtor, cannot be extended to him. Since the petitioner is not a juristic person, but is a natural person, and, though he is a suspended director, yet when he is an erstwhile director of the corporate entity concerned, rather prima facie, at the relevant stage of issuance, was incharge of, and, responsible for the company, and, of the business of the corporate debtor. Therefore, the issuances of summons against him, through the making of the impugned order, does not suffer from any illegality. Petition dismissed.

Summary

Issues Involved:
1. Validity of the summoning order issued under Section 138 of the Negotiable Instruments Act, 1881.
2. Impact of the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) on proceedings under Section 138 of the Negotiable Instruments Act.
3. Applicability of the moratorium to natural persons, specifically the suspended director of the corporate debtor.

Issue-wise Detailed Analysis:

1. Validity of the Summoning Order Issued Under Section 138 of the Negotiable Instruments Act, 1881:
The complaint was filed under Section 138 of the Negotiable Instruments Act, 1881, due to the dishonor of a cheque. The learned Magistrate, after recording preliminary evidence, issued a summoning order. The petitioner, one of the accused, challenged this order. The petitioner argued that the issuance of the statutory notice and subsequent proceedings were vitiated due to the moratorium imposed by the National Company Law Tribunal (NCLT) under Section 14 of the IBC. The court noted that the statutory notice was issued after the moratorium order, which prohibited the institution of suits or continuation of pending proceedings against the corporate debtor, including those under Section 138 of the Negotiable Instruments Act.

2. Impact of the Moratorium Under Section 14 of the Insolvency and Bankruptcy Code (IBC) on Proceedings Under Section 138 of the Negotiable Instruments Act:
The petitioner argued that the moratorium order issued by the NCLT on 25.7.2018, which prohibited the institution or continuation of suits or proceedings against the corporate debtor, also extended to proceedings under Section 138 of the Negotiable Instruments Act. The court referred to the judgment of the Hon'ble Apex Court in P. Mohan Raj and others versus Shah Brothers Ispat Private Limited, which held that the moratorium provisions in Section 14 of the IBC prohibit the continuation of proceedings under Section 138/141 of the Negotiable Instruments Act against the corporate debtor during the corporate insolvency resolution process. Therefore, the court concluded that the moratorium order covered the proceedings under Section 138 of the Negotiable Instruments Act, making the summoning order invalid against the corporate debtor.

3. Applicability of the Moratorium to Natural Persons, Specifically the Suspended Director of the Corporate Debtor:
The petitioner, a suspended director of the corporate debtor, argued that the moratorium also indemnified him from liability. However, the court referred to the Hon'ble Apex Court's judgment, which clarified that while the moratorium under Section 14 of the IBC applies to the corporate debtor, it does not extend to natural persons such as directors. The court noted that the petitioner, as a natural person and suspended director, did not fall within the protection of the moratorium. Therefore, the summoning order against him did not suffer from any illegality, and the proceedings under Section 138 of the Negotiable Instruments Act could continue against him.

Conclusion:
The court dismissed the petition, holding that while the moratorium under Section 14 of the IBC invalidated the proceedings under Section 138 of the Negotiable Instruments Act against the corporate debtor, it did not extend to the natural persons, including the suspended director. The learned Magistrate was directed to draw orders in consonance with this verdict. The court also noted that the cause of action related to criminal proceedings, once deadened, could not be reanimated, even if the moratorium ceased to hold force due to the approval of a resolution plan or liquidation order.