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2025 (1) TMI 619 - HC - Indian LawsRejection of application moved by the petitioner in a pending criminal case seeking stay on the proceedings pending before the trial Court on the basis of interim-moratorium declared by the National Company Law Tribunal, Indore - whether the interim-moratorium declared by the NCLT would be applicable upon the proceedings initiated against the petitioner under Section 138 of the N.I. Act or not? - HELD THAT - To answer the said question, it is required to see the nature of proceedings initiated against the petitioner by the respondent which are under Section 138 of the N.I. Act and in fact, quasi criminal in nature and indirectly relating to recovery of debt. The said proceedings are initiated by the respondent-complainant against the petitioner for not being able to honour the payment of an amount under the negotiable instruments, which was promised to be paid by the petitioner to the complainant and are indirectly for recovering debt. The proceedings are not considered to be criminal in nature. The case of P. MOHANRAJ ORS. VERSUS M/S. SHAH BROTHERS ISPAT PVT. LTD. 2021 (3) TMI 94 - SUPREME COURT , is relevant in the present case, wherein the Supreme Court has observed 'The Section 138/141 proceedings in this case will continue both against the company as well as the appellants for the reason given as well as the fact that the insolvency resolution process does not involve a new management taking over.' The basic object of the IBC is to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interest of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto. Moreover, the objects of Section 14 of IBC is to ensure that the Corporate Insolvency Resolution Process (CIRP) could proceed unhindered and without any action being taken against the corporate debtor or its assets; it is essentially designed to ensure that the assets and properties of the corporate debtor are duly preserved and no coercive steps are taken against them during the pendency of the CIRP. Here in this case, since one of the creditors i.e. Bank of Baroda has moved an application under Section 95 of the IBC against the present petitioner, who is one of the Board of Directors of the company, as such, when the adjudicating authority has declared interim-moratorium under Section 96, then it is clear that as per sub-section 2 of Section 96, if an application is made in relation to a firm, the interim-moratorium covers the proceedings against not only the firm but also against the partners of the firm. Here in the present case, since the proceedings have been initiated only against the present petitioner that too by one of the creditors, therefore, the interim-moratorium would apply to the proceedings initiated against the petitioner in respect of any of the transactions in which he was involved and proceedings are initiated for recovery of debts from such debtor. The provisions have overriding effect as has already been observed by the Supreme Court because of a special enactment and it is also observed in the case of P. Mohanraj that the moratorium declared under Section 96 of the IBC has also application over the proceedings of Section 138 of the N.I. Act and that ratio of P. Mohanraj has not been disturbed even in the case of Ajay Kumar Radheyshyam Goenka 2023 (3) TMI 686 - SUPREME COURT , but on the contrary, the Supreme Court has followed the ratio of P. Mohanraj and therefore, no question regarding ignoring the legal position as has been settled by the Supreme Court in the case of P. Mohanraj arises. Conclusion - The interim-moratorium under Section 96 of the IBC applies to proceedings under Section 138 of the N.I. Act, providing a stay on such proceedings to facilitate the insolvency resolution process. The order passed by the revisional Court is based upon incorrect interpretation of legal position and as such, not sustainable in the eyes of law. Accordingly, it is set aside - The petition is allowed directing that the proceedings initiated against the petitioner under Section 138 of the N.I. Act, shall remain stayed till the moratorium declared by the NCLT in a pending proceeding of Section 96 of IBC, is in operation.
1. ISSUES PRESENTED and CONSIDERED The core legal question considered in this judgment is whether the interim-moratorium declared by the National Company Law Tribunal (NCLT) under Section 96 of the Insolvency and Bankruptcy Code (IBC) applies to proceedings initiated against the petitioner under Section 138 of the Negotiable Instruments Act, 1881 (N.I. Act). 2. ISSUE-WISE DETAILED ANALYSIS Relevant legal framework and precedents: The legal framework involves the interplay between the IBC and the N.I. Act. Section 96 of the IBC provides for an interim-moratorium on legal actions or proceedings in respect of any debt upon the filing of an application under Section 94 or 95 of the IBC. Section 138 of the N.I. Act deals with the penal consequences of dishonored cheques. The precedents include decisions like P. Mohanraj v. Shah Bros. Ispat (P) Ltd., which discuss the applicability of moratorium provisions to proceedings under the N.I. Act. Court's interpretation and reasoning: The court interpreted the provisions of the IBC and the N.I. Act, considering the nature of proceedings under Section 138 of the N.I. Act as quasi-criminal and indirectly related to the recovery of debt. The court examined whether these proceedings fall under the scope of "any legal action or proceeding pending in respect of any debt" as per Section 96 of the IBC. Key evidence and findings: The court considered the interim-moratorium declared by the NCLT, which was based on an application filed by a creditor under Section 95 of the IBC. The court noted that the moratorium was intended to provide breathing space for the debtor to resolve insolvency issues without facing legal proceedings. Application of law to facts: The court applied the legal principles from the IBC and relevant case law to determine that the interim-moratorium under Section 96 of the IBC applies to the proceedings under Section 138 of the N.I. Act. The court emphasized that the moratorium is designed to prevent depletion of the debtor's assets during the insolvency resolution process. Treatment of competing arguments: The petitioner argued that the moratorium under Section 96 of the IBC should stay the proceedings under Section 138 of the N.I. Act. The respondent contended that the proceedings under the N.I. Act are criminal in nature and should not be stayed. The court examined precedents and statutory provisions to address these arguments. Conclusions: The court concluded that the interim-moratorium declared by the NCLT under Section 96 of the IBC does apply to the proceedings under Section 138 of the N.I. Act. The proceedings against the petitioner are stayed until the moratorium is lifted. 3. SIGNIFICANT HOLDINGS Preserve verbatim quotes of crucial legal reasoning: "The moratorium declared under Section 96 of the IBC has also application over the proceedings of Section 138 of the N.I. Act and that ratio of P. Mohanraj (supra) has not been disturbed even in the case of Ajay Kumar Radheyshyam Goenka (supra)." Core principles established: The judgment establishes that the interim-moratorium under Section 96 of the IBC applies to proceedings under Section 138 of the N.I. Act, providing a stay on such proceedings to facilitate the insolvency resolution process. Final determinations on each issue: The court determined that the revisional court erred in its interpretation of the IBC provisions and that the proceedings under Section 138 of the N.I. Act should be stayed in light of the interim-moratorium declared by the NCLT.
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