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TMI Blog2023 (9) TMI 1564X X X X Extracts X X X X X X X X Extracts X X X X ..... Act by citing its resolution. Hon ble Apex Court further held in the afore judgment that an offence under Section 138 of the Act, which has been committed by the company and is proved that offence has been committed with consent and connivance of, any neglect on the part of any director, manager, secretary or other officers of the company, such director, manager, secretary or other officers shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. It is quite apparent from the aforesaid exposition of law laid down by Hon ble Apex Court that the signatory/director cannot take benefit of discharge obtained by corporate debtor by operation of law under the IBC, meaning thereby that personal liability of signatory/ director of the company in a cheque dishonour case cannot be absolved because there is pending corporate liability resolution proceedings against the company under the provisions of IBC. Directors/ signatories cannot escape from their penal liability by citing its dissolution, only the accused company is dissolved and director/signatory cannot be permitted to go scot-free after the approval of resolution plan. Since c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sufficient funds vide memo dated 14.02.2019. Since accused failed to make the payment good within the time stipulated in the legal notice, complainant bank was compelled to initiate proceedings before the competent Court of law under Section 138 of the Act. 3. Learned trial Court on the basis of averments contained in the complaint as well as documents annexed therewith issued process against the accused. During pendency of afore complaint, accused filed an application under Section 96 of Insolvency and Bankruptcy Code, 2016 (Annexure P-7), stating therein that he has filed one application under Section 94 (1) read with other applicable provisions of Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal, Chandigarh and in pursuance to the invocation of said provision of law, the same become operational, whereby interim moratorium has actually commenced on the date of filing of the petition. Accused also submitted in afore application that as per Section 96(1) (a) an interim moratorium will commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission on such application. It was further stated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned trial Court to dismiss the application filed by the complainant bank under Section 96 of Insolvency and Bankruptcy Code. 6. To substantiate the aforesaid plea, Mr. Subhash Sharma, learned counsel for the petitioner, specifically invited attention of this Court to judgment passed by Hon ble Apex Court in case titled P.Mohanraj Ors. Vs. Shah Brothers Ispat Private Ltd. (2021) 6 SCC 258 . Mr. Sharma, state that as per aforesaid judgment, moratorium under Section 14 would also apply in respect of proceedings initiated under Sections 138 and 141 of the Act against corporate debtor. 7. To the contrary, Mr. Arvind Sharma, learned counsel for the complainant bank, supported the impugned order. He submitted that bare perusal of pleadings adduced on record by the accused would itself suggests that complaint filed under Section 138 of the Act at the behest of complainant bank is qua the loan advanced to the wife of the accused. He submitted that property comprised in plot No. 64, Sector 5-C of OMAX City, Chandigarh, is exclusively owned by Smt. Shaveta Sharma wife of the accused and afore property stands mortgaged with the Basal Branch of the complainant bank against the house lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 018, titled Magma Autolinks Pvt. Ltd. to initiate Corporate Insolvency Resolution Process ( CIRP ) of the company. The CIRP of the company was initiated on 13.09.2018 and thereafter, bank concerned submitted its claim in Form-C, which was duly accepted by the Interim Resolution Professional of the Corporate Debtor. On account of initiation of aforesaid proceedings interim moratorium came to be declared qua all debts of the aforesaid company. 11. Besides above, accused and his wife Smt. Shaveta Sharma, applied for term loan facility as house loan for a sum of Rs. 2,00,00,000/-, which was granted on 24.01.2015. Since accused failed to repay the loan amount as per the terms and conditions of agreement executed by the accused with complainant bank, he with a view to discharge his lawful liability issued cheque bearing No. 393682 dated 14.02.2019 amounting to Rs. 5,90,000/- of his account No. 35417139168, but fact remains that aforesaid cheque on its presentation, was dishonoured on account of insufficient funds vide memo dated 14.02.2019, as detailed hereinabove. Since accused failed to make the payment good within the time stipulated in the legal notice, complainant bank was compelled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the NI Act, 1881 is said to be covered by Section 14 of the IBC, 2016. b. That Section 138 proceedings can be said to be a civil sheep in a criminal wolf's clothing. i. The Court relied upon Kaushalya Devi Massand v. Roopkishore Khore, (Para 59) [(2011)4 SCC 593] and Meters Instruments (P) Ltd. v. Kanchan Mehta, (Para 63) [(2018)1 SCC 560] c. Section 138 proceedings are covered 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 continuat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 upon resolution or liquidation, such property also continues to exist, either as property of the corporate debtor, or in the hands of the purchaser. 17.2. However, even after commencement of CIRP or after its successful resolution or liquidation, the corporate debtor, along with its property, would be susceptible to investigations or proceedings 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate 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 inserted to provide that where the corporate debtor is successfully resolved, it should not be held liable for any offence committed prior to the commencement of the CIRP, unless the successful resolution applicant was also involved in the commission of the offence, or was a related party, promoter or other person in management and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hadow 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 lower recoveries to creditors as a result of the corporate debtor continuing to be exposed to criminal liability. 42. Unfortunately, Section 32-A is inelegantly drafted. The second proviso to Section 32-A (1) speaks of persons who are in any manner in charge of, or responsible to the corporate debtor for the conduct 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 debtor, if the control of the corporate debtor goes in the hands of the new management which is different from the original old management. b. The prosecution in relation to every person who was a designated partner as defined in clause (j) of Section 2 of the Limited Liability Partnership 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia 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 discharge of signatory/director under Section 138 proceedings is accepted, the same will lead to conflict in law as laid down compared to the guarantor s liability wherein in spite of the plan being approved, the guarantor is 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 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 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. 13. It is quite apparent from the aforesaid exposition of law laid down by Hon ble Apex Court that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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