2023 (1) TMI 684 - HC - Indian Laws

Dishonor of Cheque - Effect of moratorium to non-corporate debtor/debtors dealt under Section 141 of the Negotiable Instruments Act - emergence of vicarious liability in criminal law, in terms of Section 141 of the Negotiable Instruments Act - essentials to fasten vicarious liability. Whether the moratorium provision contained in Sec.14 (1) of IBC would apply only to corporate debtor and the noncorporate debtor/debtors mentioned in Section 141 of the N.I.Act, continuing to be statutorily liable under Chapter XVII of the N.I Act? - HELD THAT - In view of the legal position settled by the Three Bench of the Apex Court, in P. Mohanraj's case 2021 (3) TMI 94 - SUPREME COURT , holding the view that, moratorium provision contained under Section 14 (1) of IBC would apply only to a corporate debtor and the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the N.I.Act - Therefore, the complaint against the petitioners (accused Nos.1 to 7) cannot be quashed, simply on the ground of moratorium order as per Annexure-B. However, the prosecution against the 1st petitioner/1st accused being corporate debtor can be kept in abeyance till finalization of the moratorium proceedings, while allowing prosecution against petitioners 2 to 7, natural persons. As regards to the application of vicarious liability in terms of criminal law as provided under Section 141 of the N.I. Act is concerned, the same cannot be fastened because of the civil liability. Vicarious liability under sub- section (1) to S.141 of the NI Act can be pinned when the person is in overall control of the dayto- day business of the company or firm. Vicarious liability under sub-section (2) to S.141 of the NI Act can arise because of the director, manager, secretary, or other officer's personal conduct, functional or transactional role, notwithstanding that the person was not in overall control of the day-to-day business of the company when the offence was committed. Vicarious liability under sub-section (2) is attracted when the offence is committed with the consent, connivance, or is attributable to the neglect on the part of a director, manager, secretary, or other officer of the company. Thus, the twin contentions raised by the learned counsel for the petitioners to quash Annexure-A complaint, found to be not sustainable. However, the prosecution against the 1st petitioner, the corporate debtor shall stand deferred subject to the outcome of moratorium proceedings, while allowing continuance of prosecution against petitioners 2 to 7, the non-corporate debtors/natural persons. This petition stands disposed of.

Summary

Issues involved:
1. Applicability of moratorium under Section 14 (1) of the Insolvency and Bankruptcy Code, 2016 to non-corporate debtor/debtors under Section 141 of the Negotiable Instruments Act.
2. Vicarious liability in criminal law under Section 141 of the Negotiable Instruments Act and the essentials required to establish it in a complaint.

Analysis:

Issue 1: Applicability of moratorium under Section 14 (1) of the Insolvency and Bankruptcy Code, 2016 to non-corporate debtor/debtors under Section 141 of the Negotiable Instruments Act:
The petitioners sought to quash a complaint under Section 138 of the Negotiable Instruments Act, arguing that the moratorium under the Insolvency and Bankruptcy Code applied to them as the first petitioner was a corporate debtor. The court referred to a Supreme Court decision and concluded that the moratorium provision under Section 14 (1) of the IBC applies only to corporate debtors. Therefore, the complaint against the non-corporate debtors (accused 2 to 7) could not be quashed solely based on the moratorium order. However, the prosecution against the first petitioner, being a corporate debtor, could be kept in abeyance pending the moratorium proceedings.

Issue 2: Vicarious liability in criminal law under Section 141 of the Negotiable Instruments Act:
The petitioners argued that specific roles of the directors must be narrated in the complaint to establish vicarious liability. Citing Supreme Court decisions, the court clarified that vicarious liability under Section 141 of the NI Act can arise when a person is in overall control of the business or due to the personal conduct of directors or officers. The court found that the complaint adequately alleged the roles of the accused directors, satisfying the requirements for establishing vicarious liability. The court held that the contentions to quash the complaint were not sustainable, allowing the prosecution against the non-corporate debtors to continue while deferring the prosecution against the corporate debtor.

In conclusion, the court dismissed the petition and allowed the continuation of the prosecution against the non-corporate debtors while deferring the prosecution against the corporate debtor pending the outcome of the moratorium proceedings.