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TMI Blog2024 (5) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 14 is to see that there is no depletion of a corporate debtor's assets during the insolvency resolution process so that it can be kept running as a going concern during this time, thus maximising value for all stakeholders - Notably, moratorium provision does not extinguish any liability, civil or criminal, but only casts a shadow on proceedings already initiated and on proceedings to be initiated. This moratorium shall remain into force till the date of approval of resolution plan or liquidation order under Section 31 of the IB Code. Then, Section 32-A of the IB Code comes into play. Section 32-A(1) operates only after the moratorium comes to an end. On approval and commencement of the corporate resolution plan, the liability of a corporate debtor for an offence committed prior to commencement of corporate insolvency shall cease and a corporate debtor shall not be prosecuted for an offence if in the resolution plan there is a change in management or control of the corporate debtor to a person other than a promoter and other person mentioned in Section 32A of the IB Code - Interestingly, per the second proviso of Section 32A(1) of IB Code, a natural person, who was in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Magistrate First Class, Nagpur. 4. The bare facts, which lead to filing of the present application, can be summarized as under:- The applicant no. 1 is a Company registered under the Companies Act and the applicant nos. 2 and 3 are the Directors of the said Company. The non-applicant filed a criminal complaint against the applicants for the offence punishable under Section 138 of the NI Act. The non-applicant alleged in the said complaint that it has been supplying Pig Iron to the applicant no. 1 since many years. The nonapplicant supplied material worth 2,75,20,619/-. ₹2,75,20,619/-. Towards the Towards the consideration of the said purchase, the applicant no. 1-Company issued eight cheques signed by the applicant nos. 2 and 3 to the nonapplicant- Company. When the said cheques were presented for encashment, those were dishonored for insufficient funds. A statutory notice came to be issued by the non-applicant asking the applicants to pay the cheques amount of 2,75,20,619/-. The ₹2,75,20,619/-. Towards the applicants did not pay the amount within the stipulated period therefore, the aforesaid complaint came to be filed and process came to be issued against the appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41 of the NI Act. The insolvency proceedings have been filed after filing of the complaint. 8. Next, the learned counsel for the non-applicant would submit that the protection under Section 14 of the IB Code is available to a corporate debtor i.e. Company and not to a Director of the Company, that too only for some period till the resolution is passed by the adjudicating authority under the IB Code. By placing reliance on the proviso to Section 32-A(1) of the IB Code, the learned counsel for the non-applicant would submit that the applicant nos. 2 and 3, who were responsible for applicant no. 1-Company for the conduct of its business are signatory to the cheques and shall continue to be liable for prosecution and punishment arising out of the resolution plan, which has been approved by the adjudicating authority under Section 31 of the IB Code. 9. Lastly, the learned counsel for the non-applicant submits that even the resolution plan has been approved by the adjudicating authority under Section 31(1) of the IB Code but, if the resolution plan results in change in Management or control of a corporate debtor to a person, who is not a part of the earlier Management, only then the prot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides a chance to a debtor, whose financial position is critical, to start afresh and to stand on its own feet by a proper resolution plan. The IB Code is thus a beneficial legislation, which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in Management. 14. Having taken note of the broad features of the IB Code, it would be relevant to note the relevant provisions of the IB Code, which are contended in the Sections 14 and 32A of the IB Code. These are reproduced as under:- Section 14. Moratorium. (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:-- (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. * * * Section 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty under such law as may be applicable to the corporate debtor; (ii) nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfils the requirements specified in this section, against whom such an action may be taken under such law as may be applicable. (3) Subject to the provisions contained in sub-sections (1) and (2), and notwithstanding the immunity given in this section, the corporate debtor and any person who may be required to provide assistance under such law as may be applicable to such corporate debtor or person, shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process. 15. As per Section 14 of the IB Code, the adjudicating authority shall declare moratorium for prohibiting institution of suit or continuation of pending suit or proceedings against a corporate debtor including execution of any judgment, decree or order. The object of a moratorium prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 102 of the decision held 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 [Aneeta Hada v. Godfather Travels Tours (P) Ltd., (2012) 5 SCC 661 : (2012) 3 SCC (Civ) 350 : (2012) 3 SCC (Cri) 241] 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 mentioned in Sections 141(1) and (2) of the Negotiable Instruments Act. This being the case, it is clear that the moratorium provision contained in Section 14 IBC would apply only to the corporate debtor, the natural persons mentioned in Section 141 continui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to the cheques in question. The complaint specifically mentions that at the relevant time, the applicant nos. 2 and 3 were managing the day to day affairs and business of the applicant no. 1-Company. As stated above, the protection of cessation of liability for prior offence under Section 32-A of the IB Code is applicable only to a corporate debtor i.e. a Company and that too only if the management of the Company is changed in the resolution approved by the adjudicating authority. This protection is not available to a natural person, in wake of the provision to Section 32-A of the IB Code referred above. Therefore, I find substance in the argument of the learned counsel for the non-applicant that the applicant nos. 2 and 3 cannot be protected by Section 32-A of the IB Code. 23. This takes me to case of the applicant no. 1-Company, a corporate debtor. No doubt, the resolution plan for revival of the applicant no. 1-Company was submitted by the applicant no. 2 himself, which was approved by the adjudicating authority as per the provisions of the IB Code. It is common ground that as per resolution plan, approved by the Adjudicating Authority, the Management of the said Company is a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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