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TMI Blog2023 (3) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 138 of the N.I. Act. We are unable to appreciate the plea of the learned counsel for the Appellant that because Section 138 of the N.I. Act proceedings arise from a default in financial debt, the proceedings under Section 138 should be taken as akin to civil proceedings rather than criminal proceedings - It cannot be said that the process under the IBC whether under Section 31 or Sections 38 to 41 which can extinguish the debt would ipso facto apply to the extinguishment of the criminal proceedings. No doubt in terms of the Scheme under the IBC there are sacrifices to be made by parties to settle the debts, the company being liquidated or revitalized. We are unable to accept the plea that if proceedings against the company come to an end then the Appellant as the Managing Director cannot be proceeded against. We are unable to accept the plea that Section 138 of the N.I. Act proceedings are primarily compensatory in nature and that the punitive element is incorporated only at enforcing the compensatory proceedings. The criminal liability and the fines are built on the principle of not honouring a negotiable instrument, which affects trade. This is apart from the principle o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olved as a result of the resolution process, obviously proceedings against it will have to be terminated - where the proceedings under Section 138 of the NI Act had already commenced and during the pendency the plan is approved or the company gets dissolved, the directors and the other accused cannot escape from their liability by citing its dissolution. What is dissolved is only the company, not the personal penal liability of the accused covered under Section 141 of the NI Act. Thus, where the proceedings under Section 138 of the NI Act had already commenced with the Magistrate taking cognizance upon the complaint and during the pendency, the company gets dissolved, the signatories/directors cannot escape from their penal liability under Section 138 of the NI Act by citing its dissolution. What is dissolved, is only the company, not the personal penal liability of the accused covered under Section 141 of the NI Act. After passing of the resolution plan under Section 31 of the IBC by the adjudicating authority in the light of the provisions of Section 32A of the IBC, the criminal proceedings under Section 138 of the NI Act will stand terminated only in relation to the corporate de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . An endeavor for mediation was made but was not successful and, thus, the next date was scheduled before the Magistrate for 15.01.2018. In the meantime, a development, which took place, was that in 2017 M/s Neeraj Paper Agencies Limited, styling itself as Operational Creditor , filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as IBC ) read with Rule 6 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, (hereinafter referred to as IB Rules, 2016 ) with the request to initiate Corporate Insolvency Resolution Process against the Accused company, treating it as the 'Corporate Debtor'. The National Company Law Tribunal vide order dated 12.09.2017 admitted the aforesaid insolvency application. 4. The Respondent herein filed its claim qua the debt, which was the subject matter of the N.I. Act proceedings, on 13.10.2017. In terms of the Resolution Plan dated 26.05.2018, the Resolution Applicant (Kushal Limited) filed the Resolution Plan and during the course of meeting the Committee of Creditors on 05.06.2018, it was informed that the respondent herein could not be considered as a Secured Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is incorporated at enforcing the compensatory provisions. Therefore, once recovery is made partly by the receipt of money and partly by waiver, Section 138 of the NI Act should not be permitted to be continued. 10. It was lastly urged that if the debt of the company is resolved then the payment would be governed under the Resolution Plan. If the debts are not resolved, then the assets of the company are to be distributed in terms of Section 53 of the IBC. Plea of the Respondent: 11. On behalf of the Respondent, it was urged that the cheque was given for repayment of the aforementioned loan amount of Rs.30 crore for which the accused company agreed to repay the principal amount in two installments with first installment of Rs.10 crore payable on 31.03.2015 and the second installment of Rs.20 crore payable on 31.03.2016. The accused company had to pay interest @ 15 per cent per annum on the said principal amount of loan and such interest was payable monthly on the 15th day of every month, which was in consonance with the dates and the cheque amount. 12. It was urged that the accused company along with the Appellant deliberately and with the mala fide intention gave the cheque to defr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plea of the learned counsel for the Appellant that because Section 138 of the N.I. Act proceedings arise from a default in financial debt, the proceedings under Section 138 should be taken as akin to civil proceedings rather than criminal proceedings. We cannot lose sight of the fact that Section 138 of the N.I. Act are not recovery proceedings. They are penal in character. A person may face imprisonment or fine or both under Section 138 of the N.I. Act. It is not a recovery of the amount with interest as a debt recovery proceedings would be. They are not akin to suit proceedings. 17. It cannot be said that the process under the IBC whether under Section 31 or Sections 38 to 41 which can extinguish the debt would ipso facto apply to the extinguishment of the criminal proceedings. No doubt in terms of the Scheme under the IBC there are sacrifices to be made by parties to settle the debts, the company being liquidated or revitalized. The Appellant before us has been roped in as a signatory of the cheque as well as the Promoter and Managing Director of the Accused company, which availed of the loan. The loan agreement was also signed by him on behalf of the company. What the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 23.11.2019 in the Criminal Revision Application No. 593 of 2019 by which the Additional Sessions Judge affirmed the order passed by the Metropolitan Magistrate 09, SED dated 01.11.2019 rejecting the application filed by the appellant herein seeking discharge from the criminal proceedings i.e. Complaint Case No. 632984 of 2016 instituted by the respondent-complainant under Section 138 of the NI Act. 4. It is necessary to clarify why the appellant challenged the impugned order passed by the Additional Sessions Judge directly before this Court invoking Article 136 of the Constitution of India. In this regard, the following averments made in the synopsis are reproduced hereinbelow: The petitioner is directly approaching this Hon ble Court, because the first two facets are already being considered by this Hon ble Court, in which view, the Hon ble High Court is not likely to entertain a quashing petition. This apart, a petition before any other court is likely to result in conflicting orders and would be an exercise in futility. The earlier matters pending before this Hon ble Court also arose directly out of the summons issued by the concerned Learned Magistrate. FACTUAL MATRIX 5. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his personal appearance invoking a moratorium under Section 14 of the IBC. The Magistrate vide order dated 12.11.2018 rejected the said application on the ground that the criminal proceedings under the NI Act had nothing to do with the proceedings under the IBC. 14. On 27.02.2019, the NCLT approved the resolution plan so far as the corporate debtor is concerned. 15. As the resolution plan came to be approved by the NCLT, the appellant herein filed an application dated 20.07.2019 before the trial court, praying that he be discharged from the criminal proceedings. The case of the appellant herein before the Magistrate was that as the debt stood settled in the proceedings under the IBC, the criminal proceedings would not survive. 16. The trial court vide order dated 01.11.2019 rejected the aforesaid application essentially on the ground that it had no jurisdiction to discharge an accused in a summons triable case. 17. In view of the aforesaid, the appellant herein filed the Criminal Revision Application No. 593 of 2019 before the Additional Sessions Court, challenging the order passed by the Magistrate dated 01.11.2019 referred to above. The appellant contended before the revisional c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inted out by Mr. Goel that this Court drew a fine distinction between the corporate debtor and natural persons ultimately held that while a corporate debtor would be protected from Section 138 proceedings during the period of moratorium, the natural persons would not enjoy such protection and Section 138 proceedings would continue against the natural persons. However, according to Mr. Goel, this Court may not go in the correctness of such bifurcation as in the case on hand, the proceedings are beyond the period of moratorium. Mr. Goel pointed out that the question framed in para 6 of the decision in P. Mohanraj (supra) is restricted only to the applicability of Section 14 of the IBC to the proceedings under Section 138 of the NI Act. F. The principal argument of Mr. Goel is that if the IBC proceedings have travelled beyond Section 14, the process would either lead to acceptance of a resolution plan under Section 31 of the IBC or liquidation of the company after determination of the claims under Chapter III of the IBC. According to Mr. Goel, Section 31 of the IBC is applicable to the present litigation. 21. In such circumstances referred to above, Mr. Goel prays that there being mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t falls for the consideration of this Court may be formulated as under: Whether in light of: (i) the complainant having participated in the proceedings under the IBC, 2016 by putting forward its claim and consenting to accept some share as a creditor; coupled with (ii) the approval of the resolution plan under Section 31 of the IBC, 2016; the signatory/director in charge of the day-to-day affairs would stand discharged/relieved from the penal liability under Section 138 of the NI Act? 26. Before adverting to the rival submissions canvassed on either side, it is necessary to look into few relevant provisions of the NI Act as well as IBC, 2016. 27. Section 138 of the NI Act reads thus: 138. Dishonour of cheque for insufficiency, etc., of funds in the account. Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission of such offence: Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter. (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation. For the purposes of this section, (a) company means any body corporate and includes a firm or other association of individuals; and (b) director , in relation to a firm, means a partner in the firm. 30. Section 142 of the NI Act is in regard to the cognizance of offence. The same reads thus: 142. Cognizance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be disposed of in terms of the provisions set out in the CrPC. If the complainant fails to turn up on any hearing date, the Magistrate can invoke Section 256 of the CrPC and acquit the accused. Under Section 257 of the CrPC, the complaint can be withdrawn at any point of time before the final order is passed. Under Section 147 of the NI Act the offence can be compounded. The case may end in acquittal or conviction at the conclusion of the trial. 33. Section 141 of the NI Act states that if the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. The expression as well is occurring in Section 141 of the NI Act. This expression means on par . Therefore, the liability of such persons in charge of and responsible to the company for the conduct of its business is thus co-extensive. SCHEME OF THE IBC, 2016 34. I shall now try to understand the scheme of the IBC. 35. It is a comprehensive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it shall admit the application. 38. Section 8 of the IBC provides that an operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debt or copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed. 39. Section 9 of the IBC stipulates that after the expiry of the period of 10 days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of Section 8 if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of Section 8, it would be open for the operational creditor to file an application before the adjudicating authority for initiating a corporate insolvency resolution process. 40. After the initiation of the CIRP the following takes place: (a) All the creditors are mandatorily required to put forward their claims before the CIRP in light of the public announcement. (b) In the aforesaid context, I must look into Sections 13 and 15 resply of the IBC. Sections 13 and 15 resply are reproduced hereinbelow: 13. Declaration of moratorium and public announc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m resolution professional shall perform the following duties, namely (a) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to (i) business operations for the previous two years; (ii) financial and operational payments for the previous two years; (iii) list of assets and liabilities as on the initiation date; and (iv) such other matters as may be specified; (b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under Sections 13 and 15; (c) constitute a Committee of Creditors; (d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the Committee of Creditors; (e) file information collected with the information utility, if necessary; and (f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including (i) assets o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of the claims, and thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims, and update it. (2) The list of creditors shall be (a) available for inspection by the persons who submitted proofs of claim; (b) available for inspection by members, partners, Directors and guarantors of the corporate debtor; (c) displayed on the website, if any, of the corporate debtor; (d) filed with the adjudicating authority; and (e) presented at the first meeting of the committee. 14. Determination of amount of claim. (1) Where the amount claimed by a creditor is not precise due to any contingency or other reason, the interim resolution professional or the resolution professional, as the case may be, shall make the best estimate of the amount of the claim based on the information available with him. (2) The interim resolution professional or the resolution professional, as the case may be, shall revise the amounts of claims admitted, including the estimates of claims made under sub-regulation (1), as soon as may be practicable, when he comes acros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28 of the Code, which can, by a two-thirds majority, replace one resolution professional with another, in case they are unhappy with his performance. Thus, the resolution professional is really a facilitator of the resolution process, whose administrative functions are overseen by the Committee of Creditors and by the adjudicating authority. (d) Section 29 of the IBC deals with the information memorandum on the basis of which the resolution plan would be submitted. In this regard, Regulation 36 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, assumes importance wherein Regulation 36(2)(d) covers the claims of different kinds of creditors. Regulation 36(2)(d) reads thus: 36. Information memorandum.-(1) Subject to sub-regulation (4), the resolution professional shall submit the information memorandum in electronic form to each member of the committee within two weeks of his appointment, but not later than fifty-fourth day from the insolvency commencement date, whichever is earlier. (2) The information memorandum shall contain the following details of the corporate debtor- (a) xxxx Xx xx xx (d) a list of creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimated realisable value of the assets of the corporate debtor, if they were to be exchanged on the insolvency commencement date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion; ] and liquidation value as defined by Regulation 2(1)(k) [Id. Under Regulation 2(1)(k): 2. (1)(k) liquidation value means the estimated realisable value of the assets of the corporate debtor, if the corporate debtor were to be liquidated on the insolvency commencement date; ] shall be determined by two registered valuers appointed under Regulation 27, which shall be handed over to the resolution professional. 45. After receipt of the resolution plans in accordance with the Code and the Regulations, the resolution professional shall then provide the fair value and liquidation value to every member of the Committee of Creditors see Regulation 35(2). Regulation 36 is important as it forms the basis for the submission of a resolution plan. The information memorandum, spoken of by this regulation, must contain the following: 36.(2)(a) assets and liabilities with such descripti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate debtor, guarantors, creditors, other stakeholders etc. Thus, whatever amount is allotted to the creditor under the plan, the same will have to be accepted without any option. (l) The new avatar of the corporate debtor does not have to deal with the various hydra heads , i.e. multiple new claims popping up after the approval of the plan (para 107 of the Essar Steel (supra) (m) The aforesaid has been accepted as a Clean Slate Theory . (See paras 93-94 of Ghanashyam Mishra Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657). (n) This Court in Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another reported in (2022) 2 SCC 401, has held that the resolution plan binds even the persons who have not consented. Paras 115 117 resply read thus:- 115. While the above observations were made in the context of a scheme that has been sanctioned by the court, the resolution plan even prior to the approval of the adjudicating authority is binding inter se the CoC and the successful resolution applicant. The resolution plan cannot be construed purely as a contract governed by the Contract Act, in the period intervening its a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly construed Section 32A with Section 14 of the IBC so as to apply to Section 138 NI Act, proceedings. Section 32A(1) is very crucial and hence, is quoted below:- 32A. Liability for prior offences, etc. (1) Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not (a) a promoter or in the management or control of the corporate debtor or a related party of such a person; or (b) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or court: Provided that if a prosecution h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to make a clean break with the past and start on a clean slate. We must also not overlook the principle that the impugned provision is part of an economic measure. The reverence courts justifiably hold such laws in cannot but be applicable in the instant case as well. The provision deals with reference to offences committed prior to the commencement of the CIRP. With the admission of the application the management of the corporate debtor passes into the hands of the interim resolution professional and thereafter into the hands of the resolution professional subject undoubtedly to the control by the Committee of Creditors. As far as protection afforded to the property is concerned there is clearly a rationale behind it. Having regard to the object of the statute we hardly see any manifest arbitrariness in the provision. (Emphasis supplied) 45. In P. Mohanraj (supra), this Court in clear terms held that Section 32A only protects the corporate debtor and not the signatories/directors etc. The prosecution against the signatories/directors would continue. In P. Mohanraj (supra): - a. The issue involved was whether the institution/continuation of a proceeding under Section 138/141 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. LIABILITY OF CORPORATE DEBTOR FOR OFFENCES COMMITTED PRIOR TO INITIATION OF CIRP [Recommendations contained herein have been implemented pursuant to Section 10 of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019.] 17.1. Section 17 of the Code provides that on commencement of the CIRP, the powers of management of the corporate debtor vest with the interim resolution professional. Further, the powers of the Board of Directors or partners of the corporate debtor stand suspended, and are to be exercised by the interim resolution professional. Thereafter, Section 29-A, read with Section 35(1)(f), places restrictions on related parties of the corporate debtor from proposing a resolution plan and purchasing the property of the corporate debtor in the CIRP and liquidation process, respectively. Thus, in most cases, the provisions of the Code effectuate a change in control of the corporate debtor that results in a clean break of the corporate debtor from its erstwhile management. However, the legal form of the corporate debtor continues in the CIRP, and may be preserved in the resolution plan. Additionally, while the property of the corporate debtor may also change hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17.6. Given this, the Committee felt that a distinction must be drawn between the corporate debtor which may have committed offences under the control of its previous management, prior to the CIRP, and the corporate debtor that is resolved, and taken over by an unconnected resolution applicant. While the corporate debtor's actions prior to the commencement of the CIRP must be investigated and penalised, the liability must be affixed only upon those who were responsible for the corporate debtor's actions in this period. However, the new management of the corporate debtor, which has nothing to do with such past offences, should not be penalised for the actions of the erstwhile management of the corporate debtor, unless they themselves were involved in the commission of the offence, or were related parties, promoters or other persons in management and control of the corporate debtor at the time of or any time following the commission of the offence, and could acquire the corporate debtor, notwithstanding the prohibition under Section 29-A. [For example, where the exemption under Section 240-A is applicable.] 17.7. Thus, the Committee agreed that a new section should be inserte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution professional subject undoubtedly to the control by the Committee of Creditors. As far as protection afforded to the property is concerned there is clearly a rationale behind it. Having regard to the object of the statute we hardly see any manifest arbitrariness in the provision. 41. Section 32-A cannot possibly be said to throw any light on the true interpretation of Section 14(1)(a) as the reason for introducing Section 32-A had nothing whatsoever to do with any moratorium provision. At the heart of the section is the extinguishment of criminal liability of the corporate debtor, from the date the resolution plan has been approved by the adjudicating authority, so that the new management may make a clean break with the past and start on a clean slate. A moratorium provision, on the other hand, does not extinguish any liability, civil or criminal, but only casts a shadow on proceedings already initiated and on proceedings to be initiated, which shadow is lifted when the moratorium period comes to an end. Also, Section 32-A(1) operates only after the moratorium comes to an end. At the heart of Section 32-A is the IBC's goal of value maximisation and the need to obviate low ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion so that the objects of both the provisions get subserved in the process, without damaging or limiting one provision at the expense of the other. If, therefore, the expression prosecution in the first proviso of Section 32-A(1) refers to criminal proceedings properly so-called either through the medium of a first information report or complaint filed by an investigating authority or complaint and not to quasi-criminal proceedings that are instituted under Sections 138/141 of the Negotiable Instruments Act against the corporate debtor, the object of Section 14(1) IBC gets subserved, as does the object of Section 32-A, which does away with criminal prosecutions in all cases against the corporate debtor, thus absolving the corporate debtor from the same after a new management comes in. (Emphasis applied) Thus, the heart of the matter is the second proviso appended to Section 32A(1) (b) of the IBC which provides statutory recognition of the criminal liability of the persons who are otherwise vicariously liable under Section 141 of NI Act, in the context of Section 138 offence. 46. Thus, Section 32A broadly leads to: a. Extinguishment of the criminal liability of the corporate debto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IBC bars the continuation of the criminal prosecution initiated against the directors and officials. 50. It is equally true that once the corporate debtor comes under the resolution process, its erstwhile managing director(s) cannot continue to represent the company. Section 305(2) of the CrPC states that where a corporation is the accused person or one of the accused persons in an inquiry or trial, it may appoint a representative for the purpose of the inquiry or trial and such appointment need not be under the seal of the corporation. Therefore, it is only the Resolution Professional who can represent the accused company during the pendency of the proceedings under IBC. After the proceedings are over, either the corporate entity may be dissolved or it can be taken over by a new management in which event the company will continue to exist. When a new management takes over, it will have to make arrangements for representing the company. If the company is dissolved as a result of the resolution process, obviously proceedings against it will have to be terminated. But even then, its erstwhile directors may not be able to take advantage of the situation. This is because, this Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not liable to be proceeded under Section 138/141 of the NI Act once the resolution plan is approved, the same may lead to the following absurd situations: i. If during the lifetime of the Section 14 moratorium order, some of the accused are convicted under Section 138 of the NI Act, they will have to be released in appeal once the resolution plan is approved. Thus, then, no purpose would be served by proceeding further against the co-accused under Section 138 during the moratorium. ii. If the resolution plan is not approved and the corporate debtor goes under liquidation in such circumstances under Section 35(1)(k) of the IBC the liquidator can represent the corporate debtor. Thus, the prosecution under Section 138/141 continues. This may lead to absurd situations in working of the IBC and its impact on Section 138 proceedings. iii. At the end of the liquidation, the distribution will take place under Section 53 of the IBC. Therein everyone, including the creditors will get their share as per the waterfall mechanism statutorily decided and the same would be binding and mandatory. Thereafter, the corporate debtor is dissolved under Section 54 of the IBC after selling of the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The argument that as the debt stood extinguished by virtue of Section 31 of the IBC, the proceedings under Section 138 of the NI Act cannot continue as regards the director/ signatory, would run contrary to the line of reasoning assigned by this Court that the Involuntary Act of the principal debtor would not absolve the guarantors. 58. This Court in Lalit Kumar Jain v. Union of India and Others reported in (2021) 9 SCC 321 has held that the approval of the resolution plan per se does not operate as a discharge of guarantors liability. That is because: a. an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability. b. a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the case of a company) does not absolve the surety of his liability . 59. The same principle is applicable to the signatory/director in the case of Section 138/141 proceedings. The signatory/director cannot take benefit of discharge obtained by the corporate debtor by operation of law under the IBC. 60. If the argument that extinguishment of debt under Section 31 of the IBC leads to the dischar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on i.e. the principal debtor has gone into liquidation also would not have any effect on the liability of the Bank i.e. the guarantor. Under Section 128 of the Contract Act, 1872, the liability of the surety is coextensive with that of the principal debtor unless it is otherwise provided by the contract. A surety is no doubt discharged under Section 134 of the Contract Act , 1872 by any contract between the creditor and the principal debtor by which the principal debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. But a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the case of a company) does not absolve the surety of his liability (see Jagannath Ganeshram Agarwale v . Shivnarayan Bhagirath [1939 SCC OnLine Bom 65 : AIR 1940 Bom 247] ; see also Fitzgeorge , In re [Fitzgeorge, In re, (1905) 1 KB 462]). (Emphasis supplied) LITIGANT CANNOT TAKE ADVANTAGE OF ITS OWN WRONG (NULLUS COMMODUM CAPERE POTEST DE INJURIA SUA PROPRIA) 61. This Court while upholding the validity of Section 32A, IBC (Manish Kumar s case) has held that The provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the case is pending, cannot take advantage of the fact that the period fixed for the Liquidator under the Act is over. 25. Once a report has been submitted, the Registrar has to take action in terms of the report and in such circumstances when the proceedings for recovery are pending against the members and the Society has taken loan from the banks for its member, the actual money has to go to the creditor i.e. to the bank who is going to be benefitted by recovery of public money in the hands of members. In such cases it would be appropriate for the Registrar to send notice of the proceedings to a person who is to be benefitted from the recovery. In the instant case, the Bank itself is a prime lendercum- liquidator. The proceedings cannot come to the end. Thus, in our considered opinion, it is open to the bank to continue with the recovery proceedings and make recoveries from the defaulting members. Merely on the liquidation of the Society, or the factum that the period fixed for liquidation is over, liability of the members for the loans cannot be said to have been wiped off. The disbursement of loan in an arbitrary manner and failure to recover was the very fulcrum on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguished. (Emphasis supplied) 64. I have referred to Section 31 of the IBC and Ebix Singapore (supra) to explain that the resolution plan is binding on the creditors who have not consented to it. This is a very important factor, which indicates that the complainant under Section 138 NI Act is bound by the approved resolution plan, even though he may not have consented to it (if he is part of the CoC) or likes it. If he is not a part of the CoC, then also it is binding on him. 65. Section 30(2)(e) of the IBC requires the resolution professional to approve the resolution plan , only if the same does not violate any of the provisions of the law for the time being in force. Thus, the clauses of the resolution plan cannot control the Enactment/Rules in force. It is the resolution plan which has to comply with the laws in force. In the case on hand, any clause giving any effect to the corporate debtor under Section 138 NI Act proceedings, cannot be used to protect the signatories/direc36 tors under Section 138/141 NI Act. 66. Section 61 (3)(i) of the IBC provides for an appeal against an order approving a resolution plan if it contravenes any provision of law. 61. Appeals and Appellate A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in proceedings under Section 482 of the CrPC. 73. In a compromise, consensus between the parties to give and take is more important and in a compounding, decision of the victim of the offence not to prosecute and not to continue with prosecution is more important. 74. I am of the view that the clauses as contained in the resolution plan referred to above, only extinguishes the liability of the corporate debtor and not the natural persons. 75. As per Section 138 of the NI Act, when the cheque was dishonoured and a statutory notice demanding the cheque amount was issued, the accused shall pay the cheque amount within 15 days from the date of receipt of the said notice. The moment the said 15 days expired, the cause of action arises. In other words, the offence under Section 138 of the NI Act is complete. Once the cause of action arose for the offence committed, the complainant has to approach the criminal court within one month to take penal action under Section 138 of the NI Act. To put it clearly, the complainant approaches the criminal court not for recovery of the legally enforceable debt, but for taking penal action under Section 138 of the NI Act for the offence already committ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to payments to be made by such guarantor. This is perhaps the reason that Annexure VI(e) to Form 6 contained in the Rules and Regulation 36(2) referred to above, require information as to personal guarantees that have been given in relation to the debts of the corporate debtor. Far from supporting the stand of the respondents, it is clear that in point of fact, Section 31 is one more factor in favour of a personal guarantor having to pay for debts due without any moratorium applying to save him. Xxx xxx xxx 26.1. Section 14 refers only to debts due by corporate debtors, who are limited liability companies, and it is clear that in the vast majority of cases, personal guarantees are given by Directors who are in management of the companies. The object of the Code is not to allow such guarantors to escape from an independent and co-extensive liability to pay off the entire outstanding debt, which is why Section 14 is not applied to them. (Emphasis supplied) 77. In Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others reported in (2020) 8 SCC 531, this Court held that: 106. Following this judgment in V. Ramakrishnan case (2018) 17 SCC 394, it is difficult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) (P) Ltd. [J.K. (Bombay) (P) Ltd. v. New Kaiser-I-Hind Spg. And Wvg. Co. Ltd., AIR 1970 SC 1041], this Court cannot accept the appellant's contention that the scheme under Section 391 of the Companies Act will have the effect of automatically compounding the offence under the NI Act. Xxx xxx xxx 27. The compounding of an offence is always controlled by statutory provision. There are various features in the compounding of an offence and those features must be satisfied before it can be claimed by the offender that the offence has been compounded. Thus, compounding of an offence cannot be achieved indirectly by the sanctioning of a scheme by the Company Court. Xxx xxx xxx 70. In the instant case no special procedure has been prescribed under the NI Act relating to compounding of an offence. In the absence of special procedure relating to compounding, the procedure relating to compounding under Section 320 shall automatically apply in view of clear mandate of sub-section (2) of Section 4 of the Code. Xxx xxx xxx 83. For the reasons aforesaid, this Court is unable to accept the contentions of the learned counsel for the appellant(s) that as a result of sanction of a scheme under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act contains certain special provisions in order to safeguard the rights of the Company under liquidation? Xxx xxx xxx 28. If one considers the provisions of section 138 of the N.I. Act, which are introduced subsequently by way of amendment in the said Act, in the year 1988, it being a subsequent Statute, it will necessarily override the provisions of General Statute, like, the Companies Act. Xxx xxx xxx 30. Thus, there is a long line of decisions making the position clear that the expression suit or legal proceedings , used in section 446(1) of the Companies Act, can mean only those proceedings which can have a bearing on the assets of the companies in winding-up or have some relation with the issue in winding-up. It does not mean each and every civil proceedings, which has no bearing on the winding-up proceedings, or criminal offences where the Director of the Company is presently liable for penal action. (Emphasis supplied) 82. In Manish Kumar (supra), this Court upheld Section 32A of the IBC and stated thus: 318. The first proviso in sub-section (1) declares that if there is approval of a resolution plan under Section 31 and a prosecution has been instituted duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xxx xxx 326. We are of the clear view that no case whatsoever is made out to seek invalidation of Section 32-A. The boundaries of this Court's jurisdiction are clear. The wisdom of the legislation is not open to judicial review. Having regard to the object of the Code, the experience of the working of the Code, the interests of all stakeholders including most importantly the imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this Court to interfere. The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away. They remain liable. The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate. We must also not overlook the principle that the impugned provision is part of an economic measure. The reverence courts justifiably hold such laws in cannot but be applicable in the instant case as well. The provision deals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestigating authority . The report submitted here refers to a police report under Section 173 CrPC, and complaints filed by investigating authorities under special Acts, as opposed to private complaints. If the language of the second proviso is taken to interpret the language of Section 32-A(1) in that the offence committed under Section 32-A(1) would not include offences based upon complaints under Section 2(d) CrPC, the width of the language would be cut down and the object of Section 32-A(1) would not be achieved as all prosecutions emanating from private complaints would be excluded. Obviously, Section 32-A(1) cannot be read in this fashion and clearly incudes the liability of the corporate debtor for all offences committed prior to the commencement of the corporate insolvency resolution process. Doubtless, a Section 138 proceeding would be included, and would, after the moratorium period comes to an end with a resolution plan by a new management being approved by the adjudicating authority, cease to be an offence qua the corporate debtor. 43 .the expression prosecution in the first proviso of Section 32-A(1) refers to criminal proceedings properly so-called either through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come effective could be proceeded against in terms of Sections 138 and 141 of the Negotiable Instruments Act, 1881 ( the Act for short). 4. A subsidiary issue was also about the liability of natural persons like a Director of the Company. In paragraph 77 of its judgment, this Court observed that the moratorium provisions contained in Section 14 of the Insolvency and Bankruptcy Code, 2016 would apply only to the corporate debtor and that the natural persons mentioned in Section 141 of the Act would continue to be statutorily liable under the provisions of the Act. 5. It is submitted by Mr. Gopal Sankaranarayanan, learned Senior Advocate that the resolution plan having been accepted in which the dues of the original complainant also figure, the effect of such acceptance would be to obliterate any pending trial under Sections 138 and 141 of the Act. 6. The decision rendered in P. Mohanraj is quite clear on the point and, as such, no interference in this petition is called for. (Emphasis supplied) 85. Thus, the upshot of all the decisions referred to above is where the proceedings under Section 138 of the NI Act had already commenced with the Magistrate taking cognizance upon the compl ..... 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