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2022 (8) TMI 477 - HC - Insolvency and BankruptcyEffect of interim moratorium - Dishonor of Cheque - stay on criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881, in terms of Section 96 of the Code - the cheque in question was not issued to discharge a corporate debt, though issued by a personal guarantor qua a corporate debtor - the cheque is not qua parties as are adversaries or litigants in any proceedings before the National Company Law Tribunal/Resolution Professional/Interim Resolution Professional - scope of the phrases all the debts and any legal actions or proceedings pending in respect of any debt - Whether the interim moratorium under Section 96 of the Code would apply to the complaint filed by the respondent herein under Section 138 of the NI Act, or not? HELD THAT - After the amendment of 2018 in the Code, sub-section (2) of Section 60 effectively states (even in terms of sub-section (1) thereof) that an application relating to the insolvency resolution or bankruptcy of a corporate guarantor or a personal guarantor, shall be filed before the NCLT. Further, any application filed by a personal guarantor to a corporate debtor can only be filed if a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before the NCLT. In other words, a plain reading of the aforesaid provision would show that a personal guarantor to a corporate debtor cannot independently seek initiation of insolvency or bankruptcy etc. proceedings even before the NCLT in terms of sub-section (1) of Section 60, unless the corporate debtor itself is already subject to such pending proceedings before the Tribunal. In the present case, the application filed by the present petitioner (copy Annexure P-17), under the provisions of Section 94(1) of the Code read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for personal Guarantors to corporate Debtors) Rules, 2019, is to initiate an insolvency resolution process in respect of VIJAY KUMAR GHAI , which would only be possible, on a bare reading of Section 60 (2), if the company of which he is a Director and stands as a personal guarantor to, i.e. M/s Priknit Retails Ltd., is already in proceedings before the NCLT for insolvency resolution/liquidation, either initiated by itself or initiated by the two banks or the company as have been made respondents by the petitioner in his application, i.e. M/s ICICI Bank, State Bank of India and ASREC (India) Ltd. Interpretation of the phrases all the debts and any legal actions or proceedings pending in respect of any debt - HELD THAT - Though in the opinion of this court otherwise a proceeding under Section 138 of the Act, qua a debt as is wholly incurred qua an individual who is not in any manner connected to the corporate debtor that the petitioner stood a personal guarantor for, nor to the corporate debt itself, would need to proceed independently so as not to make the complainant in such proceedings under Section 138 suffer further delays, especially when in the present case he has already suffered a delay of about 10 years since his complaint was initially filed, however, in the light of the fact that Section 96 of the Code does not specifically carve out any exception qua such a debt as is subject matter of an instrument in the context of which a complaint under Section 138 of the Act has been filed, this court would have to interpret the terms all the debts and any legal action or proceedings pending in respect of any debt as occur in Section 96 of the Code, to mean that it would cover all such debts including any debt not pertaining to a corporate debtor for whom the accused in such a complaint under Section 138 stood as a personal guarantor to, even in his capacity as a Director of such corporate debtor - unless the wordings of a statute are unworkable or wholly impractical, nothing extra can be read into a statute or taken away therefrom. Whether proceedings under Section 138 of the Act would be deemed to have been stayed in terms of Section 96 of the Code in view of the fact that the complaint against the petitioner was filed 8 to 9 years prior to the petitioners' application under Section 94 and even about 6 years before the initiation of proceedings against the corporate debtor by the State Bank of India under Section 7 of the Code? - HELD THAT -It would have to be held that by virtue of the term any legal action or proceedings pending in respect of any debt (as per Section 96), proceedings under Section 138 of the Act, would be deemed to be stayed irrespective of the fact that such proceedings were initiated far before the application under Section 94 of the Code was filed by the personal guarantor to a corporate debtor - even though the respondent herein may suffer longer delays due to the stay that would be deemed to be operating on the proceedings in the complaint filed by him under Section 138 of the Act, by virtue of the interim moratorium stipulated in Section 96 of the Code, there would seem to be no option with this court but to allow the petition and set aside the impugned order passed by the learned JMIC, Jalandhar, dated 25.05.2021. Till a decision is taken by the Adjudicating Authority in terms of Sections 100 and 101 of the Code, on the application filed by the petitioner under Section 94(1) thereof, the proceedings before the learned trial court under Section 138 of the Act, would remain stayed - Application disposed off.
Issues Involved:
1. Applicability of Section 96 of the Insolvency and Bankruptcy Code (IBC) to proceedings under Section 138 of the Negotiable Instruments Act (NI Act). 2. Whether the interim moratorium under Section 96 of the IBC stays criminal proceedings under Section 138 of the NI Act. 3. Distinction between personal debts and debts related to corporate debtors under the IBC. 4. Whether the timing of the complaint under Section 138 affects the applicability of the interim moratorium under Section 96 of the IBC. Issue-wise Detailed Analysis: 1. Applicability of Section 96 of the IBC to Proceedings under Section 138 of the NI Act: The petitioner challenged the order of the learned JMIC, Jalandhar, which dismissed his application seeking a stay on proceedings initiated under Section 138 of the NI Act. The court needed to determine if criminal proceedings under Section 138 would remain stayed under Section 96 of the IBC, even when the cheque was issued to discharge a personal debt and not a corporate debt. The court noted that the petitioner had filed for insolvency resolution under Section 94 of the IBC, and the key issue was whether this filing automatically stayed the Section 138 proceedings. 2. Interim Moratorium under Section 96 of the IBC: The court examined Section 96 of the IBC, which states that an interim moratorium commences on the date of the application under Section 94 and stays all legal actions or proceedings in respect of any debt. The petitioner argued that this provision should stay the Section 138 proceedings. The court referred to the Supreme Court judgment in P. Mohanraj and others v. M/s Shah Brothers Ispat Pvt. Ltd., which discussed the applicability of moratorium provisions to Section 138 proceedings. The court concluded that the interim moratorium under Section 96 applies broadly to all debts, including those subject to Section 138 proceedings. 3. Distinction Between Personal Debts and Debts Related to Corporate Debtors: The court considered whether the interim moratorium should only apply to debts related to the corporate debtor for whom the petitioner stood as a guarantor. The petitioner had filed for insolvency in his capacity as a personal guarantor for a corporate debtor. The court noted that the IBC treats personal guarantors to corporate debtors differently from other individuals. The court referred to the judgment in Lalit Kumar Jain v. Union of India, which emphasized the intimate connection between personal guarantors and corporate debtors. The court concluded that the interim moratorium under Section 96 applies to all debts of the petitioner, not just those related to the corporate debtor. 4. Timing of the Complaint under Section 138: The respondent argued that the Section 138 complaint was filed long before the petitioner applied for insolvency, and thus the interim moratorium should not apply. The court noted that the Supreme Court in P. Mohanraj had dismissed appeals where the Section 138 proceedings were initiated long before the moratorium under Section 14 of the IBC was declared. However, the court distinguished this from the interim moratorium under Section 96, which automatically stays all proceedings upon the filing of an application under Section 94. The court held that the timing of the Section 138 complaint does not affect the applicability of the interim moratorium. Conclusion: The court allowed the petition and set aside the impugned order of the learned JMIC, Jalandhar. It held that the proceedings under Section 138 of the NI Act would remain stayed until a decision is taken by the Adjudicating Authority on the petitioner's application under Section 94 of the IBC. The court requested the Adjudicating Authority to expedite the decision in view of the long delay already suffered by the respondent.
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