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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 ..... issued post-dated cheque of Rs. 25,47,945/- bearing cheque number 090656 dated 15.02.2016, drawn on Indian Overseas Bank, Kalupur Circle Branch, Railway Pura, Ahmedabad, towards the payment of one of the instalments. On the cheque being presented to the bankers of the Respondent i.e., HDFC Bank Limited, Nehru Place Branch, New Delhi, the cheque was returned vide Memo dated 07.04.2016 for the reason "Account Closed". 3. On 19.04.2016, a demand-cum-legal notice under Section 138 of Negotiable Instruments Act, 1881, (hereinafter referred to as 'the NI Act') was issued on behalf of the Respondent calling upon the company as Accused no.1 and the Appellant herein as Accused no. 2 to settle the debt advanced by way of corporate loan dated 27.03.2012. The Accused acknowledged their liability to pay the loan amount vide reply dated 28.04.2016. The amount was not paid and, thus, on 16.05.2016, Criminal Complaint No. 632982/2016 was filed in the Court of Chief Metropolitan Magistrate, Saket Courts, New Delhi, under Section 190 of the Code of Criminal Procedure, 1973, read with Section 138 Dishonour of cheque for insufficiency, etc., of funds in the account, Section 141 Offences by companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, thus, the proceedings under Section 138 of the NI Act, 1881 could continue simultaneously. 6. The Appellant, thus, filed an application for discharge of the Complaint Case in question herein in the present case, which was dismissed by the Metropolitan Magistrate vide order dated 01.11.2019. The Criminal Revision Petition preferred by the Appellant bearing Criminal Revision Petition No. 784 of 2019 also met with a similar fate before the High Court and was dismissed with cost of Rs. 20,000/- to be paid by the Appellant to the Respondent. It is this order, which is now, sought to be assailed before us. Appellant's submissions: 7. Mr. Nikhil Goel, learned counsel, sought to urge on behalf of the appellant that the trigger of Section 138 of the NI Act, is the non-payment of legally enforceable debt. Once the debt is itself extinguished, either under Section 31 or in process from Sections 38 to 41 and 54 of IBC, the basis of Section 138 of the NI Act disappears. We may note that these provisions fall under Chapter III Liquidation Process of the IBC. 8. The term 'Debt' would mean 'legally enforceable debt' under the Explanation to Section 138 of the NI Act and this may be read wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite assuring that they would submit the synopsis has not cared to do so and we have gone on the basis of the record. This position is prevalent right till 12.03.2023 and we do not consider it appropriate to wait any more. We assume that the Respondent is not interested in rendering any further assistance to the Court by filing synopsis. Fortunately for them, for the reasons to be recorded hereinafter, they have not really suffered the consequences thereof. 15. The issue whether the respondent is a Secured Financial Creditor or an Unsecured Financial Creditor within the meaning of the said Code is not something we can deal with as that is the matter of the proceedings under the said Code or any appeal preferred therefrom. The only issue with which we are concerned with is whether during the pendency of the proceedings under the said Code which have been admitted, the present proceedings under the N.I. Act can continue simultaneously or not. 16. We have no hesitation in coming to the conclusion that the scope of nature of proceedings under the two Acts and quite different and would not intercede each other. In fact, a bare reading of Section 14 of the IBC would make it clear that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cceptable. 19. We are, thus, conclusively of the view that the impugned order takes the correct view in law and cannot be assailed before us. Conclusion: 20. The appeals are accordingly dismissed but without costs before us on account of what we have recorded in para 14. CRIMINAL APPEAL NO. 170 OF 2023 (@SLP(CRL) NO. 417 OF 2020) CRIMINAL APPEAL NO. 172 OF 2023 (@SLP(CRL) NO. 482 OF 2020) & CRIMINAL APPEAL NO. 171 OF 2023 (@SLP (CRL) 446 OF 2020) JUDGMENT J. B. PARDIWALA, J. : 1. I have carefully, gone through the perspicuous opinion of my esteemed brother Sanjay Kishan Kaul, J. I am entirely in agreement with the discussion contained in the said judgment on all the cardinal issues that have arisen for consideration in these proceedings. At the same time, having regard to the fact that the issues involved are of seminal importance, I am also inclined to pen down my thoughts. 2. For the sake of convenience, the Criminal Appeal No. 170 of 2023 (@ SLP (Crl) No. 417 of 2020) is treated as the lead matter. 3. This appeal by special leave is at the instance of the original accused No. 2 in a complaint lodged by the respondent herein (original complainant) for the offence puni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tune of Rs. 57,00,000/- (fifty-seven lakhs). 6. The aforesaid complaint under Section 138 of the NI Act was registered in the Court of the Chief Metropolitan Magistrate, Saket Court, New Delhi. 7. In 2017, one of the operational creditors filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for short, 'the IBC' or 'the IBC, 2016') before the NCLT, Ahmedabad, seeking to initiate Corporate Insolvency Resolution Process (for short, 'the CIRP') with respect to the corporate debtor. 8. The Insolvency application came to be admitted by the NCLT on 12.09.2017. 9. On 3.10.2017, the complainant filed its claim of Rs. 22,50,00,000/- crore (approximately) before the Interim Resolution Professional (for short, 'the IRP'). 10. On 26.05.2018, the resolution applicant filed its resolution plan under the terms of which, the payment to the complainant was in full and final settlement of all its claims against the corporate debtor. 11. On 05.06.2018, the Committee of Creditors (for short, 'the CoC') approved the resolution plan proposed by the resolution applicant. The complainant was one of the members of the CoC. 12. On 23.07.2018, the complainant lodged his ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 138 of the NI Act. This may be read with Section 2(6) & 2(8) resply of the IBC. B. The liability is primarily of the company and prosecution of natural persons under Section 141 of the NI Act is vicarious to the prosecution of the company. It is for this reason that a director cannot be prosecuted without making the company as an accused. [See Ajit Balse v. Ranga Karkere: (2015) 15 SCC 748.] C. The nature of proceedings under Section 138 of the NI Act is primarily compensatory and the punitive element is incorporated at enforcing the compensatory provisions. (paras 53 & 63 resply in P. Mohanraj and Others v. Shah Brothers Ispat Private Limited reported in (2021) 6 SCC 258). Therefore, once recovery is made, partly by receipt of money and partly by waiver, Section 138 of the NI Act should not be permitted to be continued. D. If the debt of the company is resolved then payments 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. Permitting two proceedings to continue would therefore defeat either Section 31 or Section 53 of the IBC, as the case may be. E. Mr. Goel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C bars the continuation of the criminal prosecution initiated against the corporate debtor or its directors or officials. According to the learned counsel, if the company is dissolved as a result of the resolution process, the criminal proceedings against it would stand terminated, however, the signatory to the cheque or its erstwhile directors are not entitled in law to take advantage of such a situation created by operation of law. 23. The learned counsel appearing for the complainant, laid much stress on Section 32A of the IBC, which states that every person who was a 'designated partner' or an 'officer who is in default' or was in any manner in charge of/responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence in accordance with the report submitted or complaint filed by the investigating authority shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor's liability has ceased under the provision of Section 32A of the IBC. 24. In such circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice. Explanation.- For the purposes of this section, "debt of other liability" means a legally enforceable debt or other liability." 28. Section 139 of the NI Act raises presumption. The same reads thus: "139. Presumption in favour of holder.- It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability." 29. Section 141 of the NI Act fastens vicarious liability upon every person, who at the time of the offence, was in charge of and was responsible to the company for the conduct of the business of the company. Section 141 reads thus: "141. Offences by companies.- (1) 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, sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce under section 138 shall be inquired into and tried only by a court within whose local jurisdiction,- (a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or (b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated. Explanation.- For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account." 31. Section 147 of the NI Act provides that the offence under the NI Act shall be compoundable. Section 147 reads thus: "147. Offences to be compoundable.- Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), every offence punishable under this Act shall be compoundable." 32. The offence under Section 138 of the NI Act, is committed, aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The IBC was proposed with the objective of consolidating and amending the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of the value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders, including alteration in the priority of payment of Government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. The IBC provides for designating the NCLT and the Debts Recovery Tribunal (DRT) as the adjudicating authorities for corporate persons, firms and individuals for resolution of insolvency, liquidation and bankruptcy. The IBC was published in the Gazette of India dated 28.05.2016. Provisions of the IBC were, however, brought into effect from different dates in terms of the proviso to Section 1(3) of the IBC. 37. Section 7 of IBC lays down the procedure for the initiation of the corporate insolvency resolution process by the financial creditor or any other person or more financial creditors jointly. The financial creditor may file an application befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess under the order referred to in section 13 shall contain the following information, namely:- (a) name and address of the corporate debtor under the corporate insolvency resolution process; (b) name of the authority with which the corporate debtor is incorporated or registered; (c) the last date for submission of [claims, as may be specified]; (d) details of the interim resolution professional who shall be vested with the management of the corporate debtor and be responsible for receiving claims; (e) penalties for false or misleading claims; and (f) the date on which the corporate insolvency resolution process shall close, which shall be the one hundred and eightieth day from the date of the admission of the application under sections 7, 9 or section 10, as the case may be. (2) The public announcement under this section shall be made in such manner as may be specified." (c) It is important to note that the resolution professional has no adjudicatory powers in regard to the claims unlike the liquidator. The resolution professional only collates the claims. In this regard, the decision of this Court in the case of Swiss Ribbons Private Limited and Another v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment; (b) assets of any Indian or foreign subsidiary of the corporate debtor; and (c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator." 89. Under the CIRP Regulations, the resolution professional has to vet and verify claims made, and ultimately, determine the amount of each claim as follows: "10. Substantiation of claims.-The interim resolution professional or the resolution professional, as the case may be, may call for such other evidence or clarification as he deems fit from a creditor for substantiating the whole or part of its claim. * * * 12. Submission of proof of claims.-(1) Subject to sub-regulation (2), a creditor shall submit claim with proof on or before the last date mentioned in the public announcement. (2) A creditor, who fails to submit claim with proof within the time stipulated in the public announcement, may submit the claim with proof to the interim resolution professional or the resolution professional, as the case may be, on or before the ninetieth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate debtor has been subjected to any transaction covered under Sections 43, 45, 50 or 66. (2) Where the resolution professional is of the opinion that the corporate debtor has been subjected to any transactions covered under Sections 43, 45, 50 or 66, he shall make a determination on or before the one hundred and fifteenth day of the insolvency commencement date, under intimation to the Board. (3) Where the resolution professional makes a determination under subregulation (2), he shall apply to the adjudicating authority for appropriate relief on or before the one hundred and thirty-fifth day of the insolvency commencement date." 90. As opposed to this, the liquidator, in liquidation proceedings under the Code, has to consolidate and verify the claims, and either admit or reject such claims under Sections 38 to 40 of the Code. Sections 41 and 42, by way of contrast between the powers of the liquidator and that of the resolution professional, are set out hereinbelow: "41. Determination of valuation of claims.-The liquidator shall determine the value of claims admitted under Section 40 in such manner as may be specified by the Board. 42. Appeal against the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant information, as may be specified, so that a resolution plan may then be formulated by a prospective resolution applicant. Under Section 30 of the Code, the resolution applicant must then submit a resolution plan to the resolution professional, prepared on the basis of the information memorandum. After this, the resolution professional must present to the Committee of Creditors, for its approval, such resolution plans which conform to the conditions referred to in Section 30(2) of the Code - see Section 30(3) of the Code. If the resolution plan is approved by the requisite majority of the Committee of Creditors, it is then the duty of the resolution professional to submit the resolution plan as approved by the Committee of Creditors to the Adjudicating Authority - see Section 30(6) of the Code. 43. The aforesaid provisions of the Code are then fleshed out in the 2016 Regulations. Under Chapter IV of the aforesaid Regulations, claims by operational creditors, financial creditors, other creditors, workmen and employees are to be submitted to the resolution professional along with proofs thereof - see Regulations 7 to 12. Thereafter, under Regulation 13, the resolution profess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial year made up to a date not earlier than fourteen days from the date of the application; (d) a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims; (e) particulars of a debt due from or to the corporate debtor with respect to related parties; (f) details of guarantees that have been given in relation to the debts of the corporate debtor by other persons, specifying which of the guarantors is a related party; (g) the names and addresses of the members or partners holding at least one per cent stake in the corporate debtor along with the size of stake; (h) details of all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities; (i) the number of workers and employees and liabilities of the corporate debtor towards them; (j)-(k)*** (l) other information, which the resolution professional deems relevant to the committee."" (f) On the basis of the information memorandum, the resolution plan is submitted under Section 30(1) of the IBC. (g) It is important to note that the op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12015.pdf> last accessed 20-8-2021.]. The BLRC Report also mentions that, "the RP submits a binding agreement to the adjudicator before the default maximum date" [Id, p. 92.]. We have further discussed the statutory scheme of IBC in Sections I and J of this judgment to establish that a resolution plan is binding inter se the CoC and the successful resolution applicant. Thus, the ability of the resolution plan to bind those who have not consented to it, by way of a statutory procedure, indicates that it is not a typical contract. Xxx xxx xxx 117. ..... The terms of the resolution plan contain a commercial bargain between the CoC and resolution applicant. There is also an intention to create legal relations with binding effect. However, it is the structure of IBC which confers legal force on the CoC-approved resolution plan. The validity of the resolution plan is not premised upon the agreement or consent of those bound (although as a procedural step IBC requires sixtysix per cent votes of creditors), but upon its compliance with the procedure stipulated under IBC." (Emphasis supplied) 41. Thus, from the aforesaid, it is evident that the creditor has no option but to join the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n "officer who is in default", as defined in clause (60) of section 2 of the Companies Act, 2013 (18 of 2013), or was in any manner incharge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence as per the report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor's liability has ceased under this sub-section." 44. Section 32A of the IBC has been upheld by this Court in Manish Kumar v. Union of India and Another reported in (2021) 5 SCC 1. This Court has held that the said section does not permit the wrong-doer to get away. Thus, if the argument of allowing the signatory/director to go scot-free after the approval of the resolution plan is accepted the same would run contrary to the legislative intent of Section 32A which has been upheld by this Court as under: "326. We are of the clear view that no case whatsoever is made out to seek invalidation of Section 32-A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vered by Section 14 of the IBC, 2016. (Para 67) d. Moratorium under Section 14, IBC only applies to the Corporate Debtor and does not apply to natural persons mentioned under Section 141 of NI Act, 1881. The said conclusion is reached after considering Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661. (Para 102) e. I quote para 102 of P. Mohanraj (supra) as under: "102. Since the corporate debtor would be covered by the moratorium provision contained in Section 14 IBC, by which continuation of Sections 138/141 proceedings against the corporate debtor and initiation of Sections 138/141 proceedings against the said debtor during the corporate insolvency resolution process are interdicted, what is stated in paras 51 and 59 in Aneeta Hada ((2012) 5 SCC 661) would then become applicable. The legal impediment contained in Section 14 IBC would make it impossible for such proceeding to continue or be instituted against the corporate debtor. Thus, for the period of moratorium, since no Sections 138/141 proceeding can continue or be initiated against the corporate debtor because of a statutory bar, such proceedings can be initiated or continued against the persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings related to criminal offences committed by it prior to the commencement of a CIRP, leading to the imposition of certain liabilities and restrictions on the corporate debtor and its properties even after they were lawfully acquired by a resolution applicant or a successful bidder, respectively. Liability where a Resolution Plan has been approved 17.3. It was brought to the Committee that this had created apprehension amongst potential resolution applicants, who did not want to take on the liability for any offences committed prior to commencement of CIRP. In one case, JSW Steel had specifically sought certain reliefs and concessions, within an annexure to the resolution plan it had submitted for approval of the adjudicating authority. [SBI v. Bhushan Steel Ltd., 2018 SCC OnLine NCLT 32305, para 83(i)] Without relief from imposition of the such liability, the Committee noted that in the long run, potential resolution applicants could be disincentivised from proposing a resolution plan. The Committee was also concerned that resolution plans could be priced lower on an average, even where the corporate debtor did not commit any offence and was not subject to investigation, du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d control of the corporate debtor at the time of or any time following the commission of the offence. 17.8. Notwithstanding this, those persons who were responsible to the corporate debtor for the conduct of its business at the time of the commission of such offence, should continue to be liable for such an offence, vicariously or otherwise, regardless of the fact that the corporate debtor's liability has ceased." (emphasis in original and supplied) 40. This Court in Manish Kumar v. Union of India [(2021) 5 SCC 1], upheld the constitutional validity of this provision. This Court observed : (SCC pp. 170-71, para 326) "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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onduct of its business or associated with the corporate debtor and who are, directly or indirectly, involved in the commission of "such offence" i.e. the offence referred to in sub-section (1), "as per the report submitted or complaint filed by the investigating 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 com mitted 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership Act , 2008 (6 of 2009) , or an "officer who is in default" , as defined in clause (60) of Section 2 of the Companies Act , 2013 (18 of 2013) , or was in any manner in charge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence" shall be proceeded and the law will take it's own course. Only the corporate debtor (with new management) as held in Para 42 of P. Mohanraj will be safeguarded. c. If the old management takes over the corporate debtor (for MSME Section 29A does not apply (see 240A), hence for MSME old management can takeover) the corporate debtor itself is also not safeguarded from prosecution under Section 138 or any other offences. 47. Thus, I am of the view that by operation of the provisions of the IBC, the criminal prosecution initiated against the natural persons under Section 138 read with 141 of the NI Act read with Section 200 of the CrPC would not stand terminated. 48. In JIK Industries Limited and Others v. Amarlal V. Jumani and Another reported in (2012) 3 SCC 255, this Court held that the sanctio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the company, proceeded to hold that the matter would stand on a different footing where there is some legal impediment as the doctrine of lex non cogit ad impossibilia gets attracted. It was specifically observed that the decision in Anil Hada (supra) is overruled with the qualifier as stated in para 51. Considering the same, the ratio of the decision of this Court in Ajit Balse (supra) upon which strong reliance is placed on behalf of the appellant is of no avail. 51. What follows from the aforesaid is that for difficulty in prosecuting the corporate debtor under Section 138 of the NI Act after the approval of the resolution plan under the IBC, we need not let the natural persons i.e., the signatories to the cheques/directors of the corporate debtor escape prosecution. How can one allow the natural persons to escape liability on such specious plea? In such a situation the Latin maxim Lex Non Cogit Ad Impossibilia is attracted which means law does not compel a man to do which he cannot possibly perform. Broom's "Legal Maxims" contains several illustrative cases in support of the maxim. This maxim has been referred to with approval by this Court in State of Rajasthan v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot continue after the dissolution of the corporate debtor. 54. Thus, while interpreting Sections 14, 31 & 32A resply of the IBC vis-a-vis Sections 138 and 141 resply of the NI Act, the principle of harmonious construction should be applied and followed. By permitting to proceed against the signatories/directors even after the approval of the plan, what is achieved is uniformity in the functioning of the law by removing the anomalous and absurd situations, thereby, making it compliant with Article 14 of the Constitution. The said interpretation shields the relevant provisions from attack of being manifestly arbitrary. 55. The distinction between a strict construction and a more free one has disappeared in the modern times and now mostly the question is, "what is the true construction of the statute?" A passage in Craies on Statue Law 7th Edn. reads to the following effect:- "The distinction between a strict and a liberal construction has almost disappeared with regard to all classes of statutes, so that all statutes, whether penal or not, are now construed by substantially the same rules. 'All modern Acts are framed with regard to equitable as well as legal principles. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held separately liable for the remaining amount. If the guarantor does not get the benefit of extinguishment of debt under Section 31 of the IBC, then similarly for extinguishment of debt, the signatory/director cannot get any benefit. If accepted, this may lead to uncertainty in the first Principles of law on interpretation of extinguishment of debt. In Lalit Kumar Jain (supra) this Court held as under: "122. It is therefore, clear that the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor's liability. As to the nature and extent of the liability, much would depend on the terms of the guarantee itself. However, this Court has indicated , time and again, that an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability. In Maharashtra SEB [Maharashtra SEB v. Official Liquidator, (1982) 3 SCC 358] the liability of the guarantor (in a case where liability of the principal debtor was discharged under the Insolvency law or the Company law), was considered. It was held that in view of the unequivocal guarantee, such liability of the guarantor cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermits the Signatory/Director to enjoy the fruits of their own wrong. 62. In an interesting case titled Goa State Cooperative Bank Limited v. Krishna Nath A. and Others reported in (2019) 20 SCC 38, the facts were that the liquidation proceedings were required to be completed within a fixed number of years, but failed. Thereafter the borrowers claimed in the recovery suit that now no recovery could be made. This Court held that the defaulters cannot take benefit of their own action. The disbursement of loan in an arbitrary manner and failure to recover was the very fulcrum on the basis of which the winding up of the Society was ordered. I quote the relevant observations as under:- "21. It is apparent that on the termination of the liquidation proceedings, liability of the members for the debts taken by them does not come to an end. There is no such provision in the Act providing once winding-up period is over, the liability of the members for loans obtained by them which is in their hands, and for which recovery proceedings are pending shall come to an end. No automatic termination of recovery proceedings against the members is contemplated. On the other hand, on completion of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id, it is necessary to look into the relevant clauses of the resolution plan upon which strong reliance is sought to be placed on behalf of the appellant. The relevant clauses read thus: "Part K: Extinguishment of Claims/Rights 1. Save and except specifically dealt with under this Resolution Plan, no other payments or settlements (of any kind) shall be made to any other Person in respect of claims filed under the CIRP (including, for the avoidance of doubt, any unverified portion of their claim) and all claims against the Corporate Debtor along with any related legal proceedings, including criminal proceedings, and other penal proceedings, shall stand irrevocably and un35 conditionally abated, settled and extinguished in perpetuity on the Effective Date, and with effect from the Appointed Date. 2. The payment to Persons contemplated in this Resolution Plan shall be the Corporate Debtors and Resolution Applicant's full and final performance and satisfaction of all its obligations to such Persons and all Claims (including, for the avoidance of doubt, any unverified portion of their Claims) of such Persons against the Corporate Debtor shall stand irrevocably and unconditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly: (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force;...." 67. The complainant-creditor of Section 138 NI Act proceedings may or may not have any role to play in the approval of the resolution plan and majority of Section 138 creditors may be small players unlike big financial creditors. 68. The terms of the resolution plan cannot run contrary to the enactment i.e. the IBC or any other plenary law or rules. 69. Thus, the said clauses of the resolution plan have no role to play in answering the neat question of law, which is dependent on the interpretation of various provisions of the IBC and NI Act. 70. It was also sought to be argued on behalf of the appellant that the plain reading of the clauses of the resolution plan referred to above, would indicate that the respondent (complainant) could be said to have compounded the offence punishable under Section 138 of the NI Act. 71. 'Compounding' and 'quashing' are not synonymous terms. In law, they have different meanings and consequences. They arise from different situations and operate in different fields and stages. There is no apparent legal interdependence or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion before the criminal court is whether the cheque issued by the accused towards the discharge of his liability was dishonoured and despite the service of demand notice, whether he had not paid the amount. There is no bar contained in any of the provisions of the IBC, and the NI Act from approaching the criminal court to seek penal action under Section 138 of the NI Act. FEW RELEVANT DECISIONS ON THE SUBJECT 76. In State Bank of India v. V. Ramakrishnan and Another reported in (2018) 17 SCC 394, this Court held that:- "31. The Insolvency Law Committee, appointed by the Ministry of Corporate Affairs, by its Report dated 26-3-2018, made certain key recommendations..... 32. The Committee insofar as the moratorium under Section 14 is concerned, went on to find:... "5.11. Further, since many guarantees for loans of corporates are given by its promoters in the form of personal guarantees, if there is a stay on actions against their assets during a CIRP, such promoters (who are also corporate applicants) may file frivolous applications to merely take advantage of the stay and guard their assets. In the judgments analysed in this relation, many have been filed by the corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which states that the claims of the guarantor on account of subrogation shall be extinguished, cannot be applied to the guarantees furnished by the erstwhile Directors of the corporate debtor. So far as the present case is concerned, we hasten to add that we are saying nothing which may affect the pending litigation on account of invocation of these guarantees. However, NCLAT judgment being contrary to Section 31(1) of the Code and this Court's judgment in V. Ramakrishnan case (2018) 17 SCC 394, is set aside." (Emphasis supplied) 78. In Vijay Kumar Jain v. Standard Chartered Bank reported in (2019) 20 SCC 455, this Court held that: "19.3... we find that Section 31(1) of the Code would make it clear that such members of the erstwhile Board of Directors, who are often guarantors, are vitally interested in a resolution plan as such resolution plan then binds them. Such plan may scale down the debt of the principal debtor, resulting in scaling down the debt of the guarantor as well, or it may not. The resolution plan may also scale down certain debts and not others, leaving guarantors of the latter kind of debts exposed for the entire amount of the debt. 19.4. The regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act there is an automatic compounding of offences under Section 138 of the NI Act even without the consent of the complainant." (Emphasis supplied) 81. In Indorama Synthetics (I) Ltd., Nagpur v. State of Maharashtra and others reported in 2016 SCC OnLine Bom 2611, the question that arose before the Bombay High Court was whether the expression "suit or other proceedings" mentioned in Section 446(1) of the Companies Act, 1956 would include criminal proceedings under Section 138 NI Act. It was held that:- "17. Thus, the main object of section 138 of N.I. Act, which can be inferred, is to safeguard the credibility of commercial transactions and to prevent bouncing of cheques by providing a personal criminal liability against the drawer of the cheque in public interest. No civil liability or any liability against the assets of the drawer of the cheque is contemplated under section 138 of the N.I. Act. Hence, it follows that the provisions of section 446(1) of the Companies Act can have apparently and in essence no application to the proceedings under section 138 of Negotiable Instruments Act, as it is not a suit or proceeding having direct bearing on the proceedings for winding-up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instituted during the CIRP against the corporate debtor, the corporate debtor will stand discharged. This is, however, subject to the condition that the requirements in sub-section (1), which have been elaborated by us, have been fulfilled. In other words, if under the approved resolution plan, there is a change in the management and control of the corporate debtor, to a person, who is not a promoter, or in the management and control of the corporate debtor, or a related party of the corporate debtor, or the person who acquires control or management of the corporate debtor, has neither abetted nor conspired in the commission of the offence, then, the prosecution, if it is instituted after the commencement of the CIRP and during its pendency, will stand discharged against the corporate debtor. Under the second proviso to sub-section (1), however, the designated partner in respect of the liability partnership or the officer in default, as defined under Section 2(60) of the Companies Act, 2013, or every person, who was, in any manner, in charge or responsible to the corporate debtor for the conduct of its business, will continue to be liable to be prosecuted and punished for the offen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell. 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. 327.....Significantly every person who was associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of the offence in terms of the report submitted continues to be liable to be prosecuted and punished for the offence committed by the corporate debtor." (Emphasis supplied) 83. In P. Mohanraj (supra) Full Bench of this Court held thus: "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riminal 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. Xxx xxx xxx 45. Section 138 contains within it the ingredients of the offence made out. The deeming provision is important in that the legislature is cognizant of the fact that what is otherwise a civil liability is now also deemed to be an offence, since this liability is made punishable by law. It is important to note that the transaction spoken of is a commercial transaction between two parties which involves payment of money for a debt or liability. The Explanation to Section 138 makes it clear that such debt or other liability means a legally enforceable debt or other liability. Thus, a debt or other liability barred by the la ..... X X X X Extracts X X X X X X X X Extracts X X X X
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