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TMI Blog2025 (1) TMI 619X X X X Extracts X X X X X X X X Extracts X X X X ..... ] upon the application filed by the creditor-Bank of Baroda. 3.To decide the controversy involved in this case, it is apt to mention the facts of the case, which in nutshell, are:- (3.1)That, the petitioner and the respondent are the parties to the proceedings pending before the Judicial Magistrate Court initiated by the respondent by filing an application under Section 138 of the Negotiable Instruments Act, 1881 [hereinafter referred to as the 'N.I. Act']. The petitioner is one of the Directors of a company registered under the Companies Act. One of the creditors of the petitioner, namely, Bank of Baroda, filed an application for initiating insolvency resolution process under Section 95 of the Insolvency & Bankruptcy Code, 2016 [hereinafter referred to as the 'IBC'] before the NCLT, Indore. The said case was registered as case No.CP(IB)/16(MP)2021 titled as 'Bank of Baroda Vs. Surendra Kumar Patwa'. (3.2)The NCLT in accordance with Section 95 r/w 96 of the IBC, by order dated 18.06.2021, declared interim-moratorium from the date of application with respect to all the debts of the petitioner and all the proceedings pending against him in terms of Section 96 of the IBC. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions, learned counsel for the petitioner has placed reliance upon various judgments of the Supreme Court, viz. Ajay Kumar Radheyshyam Goenka Vs. Tourism Finance Corporation of India Limited reported in 2023 SCC OnLine SC 266; Charanbir Singh Sethi Vs. Pooja Sharma & Others reported in Manu/2291/2023; Ashok B. Jeswani & Anothers Vs. Redington India Limited reported in 2023 SCC OnLine Madras 8029. It is also submitted by learned counsel for the petitioner that the revisional Court misinterpreted the order passed by the Supreme Court in the case of Ajay Kumar Radheyshyam Goenka (supra). He has also submitted that the case of Ajay Kumar Radheyshyam Goenka (supra) and the other cases of Supreme Court, upon which he has placed reliance, clearly demonstrate that the proceedings initiated against the petitioner even under the provisions of the N.I. Act, cannot be allowed to be continued and the Court could stay the same in pursuance of the order passed by the NCLT. 5.Per contra, learned counsel for the respondent has opposed the submissions advanced by learned counsel for the petitioner and submitted that the order of revisional Court is based upon the latest decision of the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of P. Mohanraj (supra) categorically states that the moratorium provisions u/s 14 IBC would apply only to the corporate debtor and the natural persons would continue to be liable. The petitioner is the natural person and merely because he has filed personal insolvency proceedings, the same would not bring him under the ambit of Section 96 IBC vis-a-vis the pending complaint under section 138 NI Act. 24. The Hon'ble Supreme Court in "AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM FINANCE CORPORATION OF INDIA LTD."2023 : INSC : 232 observed the scope of the IBC as well as NI act. "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 the nature of proceedings which have to be kept in abeyance do not include criminal proceedings, which is the nature of proceedings under 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 Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cheque which has been dishonoured. He is covered under natural person under section 141 NI Act. 26. The debt in the present case is not of the petitioner but that of Respondent No. 2. Section 141 of the NI Act fastens liability on every officer of the company who was in management and control of the affairs of the company. 27. Hence, in my considered view, the provisions of Section 96 of the IBC would not be applicable in the facts of the present case as the petitioner is arrayed as an accused in the complaint u/s 138 NI Act in his capacity of the Managing Director of Respondent No." Further, he has placed reliance upon the order passed by the High Court of Madhya Pradesh in the case of Anurodh Mittal Vs. Rehat Trading Company & Another [M.Cr.C. No.17782 of 2024] and also the judgment passed by the High Court of Punjab & Haryana at Chandigarh in the case of Jitender Singh Sodhi & Another Vs. Deputy Commissioner of Income Tax & Another, wherein the Court has observed as under :- "10. It is noteworthy that Chapter XVII covering Sections 138 to 142 of the NI Act was inserted by way of an amendment (Act No.66 of 1988) w.e.f.01.04.1989 with an object "to enhance the acceptabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven our analysis of Chapter XVII of the Negotiable Instruments Act together with the amendments made thereto and the case law cited hereinabove, it is clear that a quasi-criminal proceeding that is contained in Chapter XVII of the Negotiable Instruments Act would, given the object and context of Section 14 IBC, amount to a "proceeding" within the meaning of Section 14(1)(a), the moratorium therefore attaching to such proceeding. xxx 84. Clearly, therefore, given the hybrid nature of a civil contempt proceeding, described as "quasi-criminal" by several judgments of this Court, there is nothing wrong with the same appellation "quasi-criminal" being applied to a Section 138 proceeding for the reasons given by us on an analysis of Chapter XVII of the Negotiable Instruments Act. We, therefore, reject the learned Additional Solicitor General's strenuous argument that the appellation "quasi-criminal" is a misnomer when it comes to Section 138 proceedings and that therefore some of the cases cited in this judgment should be given a fresh look." In the said case, the Supreme Court considering the aspect as to whether the interim-moratorium under Section 96 applies to the proceedings un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy resolution process, Given this fact, it is difficult to accept that noscitur a sociis or ejusdem generis should be used to cut down the width of the expression "proceedings" so as to make such proceedings analogous to civil suits. 32. Viewed from another point of view, clause (b) of Section 14(1) also makes it clear that during the moratorium period, any transfer, encumbrance, alienation, or disposal by the corporate debtor of any of its assets or any legal right or beneficial interest therein being also interdicted, yet a liability in the form of compensation payable under Section 138 would somehow escape the dragnet of Section 14(1). While Section 14(1)(a) refers to monetary liabilities of the corporate debtor, Section 14(1)(b) refers to the corporate debtor's assets, and together, these two clauses form a scheme which shields the corporate debtor from pecuniary attacks against it in the moratorium period so that the corporate debtor gets breathing space to continue as a going concern in order to ultimately rehabilitate itself. Any crack in this shield is bound to have adverse consequences, given the object of Section 14, and cannot, by any process of interpretation, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of any debt shall be deemed to have been stayed; (b) the creditors shall not initiate any legal action or legal proceedings in respect of any debt; and (c) the debtor shall not transfer, alienate, encumber or dispose of any of his assets or his legal rights or beneficial interest therein; (3) Where an order admitting the application under Section 96 has been made in relation to a firm, the moratorium under sub-section (1) shall operate against all the partners of the firm. (4) The provisions of this section shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator." 35.2. A legal action or proceeding in respect of any debt would, on its plain language, include a Section 138 proceeding. This is for the reason that a Section 138 proceeding would be a legal proceeding "in respect of" a debt. "In respect of" is a phrase which is wide and includes anything done directly or indirectly - see Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd. [Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd., (2018) 2 SCC 674 : (2018) 2 SCC (Civ) 288] (at p. 709) and Giriraj Garg v. Coal India Ltd. [Giriraj Garg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of a notice, again making it clear that the real object of the provision is not to penalise the wrongdoer for an offence that is already made out, but to compensate the victim. 46. Likewise, under Section 139, a presumption is raised that the holder of a cheque received the cheque for the discharge, in whole or in part, of any debt or other liability. To rebut this presumption, facts must be adduced which, on a preponderance of probability (not beyond reasonable doubt as in the case of criminal offences), must then be proved. Section 140 is also important, in that it shall not be a defence in a prosecution for an offence under Section 138 that the drawer had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in that section, thus making it clear that strict liability will attach, mens rea being no ingredient of the offence. Section 141 then makes Directors and other persons statutorily liable, provided the ingredients of the section are met. Interestingly, for the purposes of this section, Explanation (a) defines "company" as meaning any body corporate and includes a firm or other association of individ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplaint may be taken by the court after the prescribed period, if the complainant satisfies the court that he had sufficient cause for not making a complaint within such period. (c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the First Class shall try any offence punishable under Section 138. (2) The offence 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." xxx 103. In conclusion, disagree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er and accompanied with such fee as may be prescribed. 95. Application by creditor to initiate insolvency resolution process.- (1) A creditor may apply either by himself, or jointly with other creditors, or through a resolution professional to the Adjudicating Authority for initiating an insolvency resolution process under this section by submitting an application. (2) A creditor may apply under sub-section (1) in relation to any partnership debt owed to him for initiating an insolvency resolution process against- (a) any one or more partners of the firm; or (b) the firm. (3) Where an application has been made against one partner in a firm, any other application against another partner in the same firm shall be presented in or transferred to the Adjudicating Authority in which the first mentioned application is pending for adjudication and such Adjudicating Authority may give such directions for consolidating the proceedings under the applications as it thinks fit. (4) An application under sub-section (1) shall be accompanied with details and documents relating to- (a) the debts owned by the debtor to the creditor or creditors submitting the application for insolvency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ium declared by the NCLT would be applicable in respect of any proceedings initiated against the petitioner including the proceedings under the N.I. Act. 10.As per the observation made by the revisional Court in its order holding that in view of the law laid-down by the Supreme Court in the case of Ajay Kumar Radheyshyam Goenka (supra), the other cases relied upon by learned counsel for the petitioner have no application and cannot be treated as precedent. According to the revisional Court, the transaction is a personal transaction of the present petitioner and, therefore, he cannot take advantage of his own defaults on the basis of moratorium order. The revisional Court has also observed that in the case of Ajay Kumar Radheyshyam Goenka (supra), the Supreme Court has held that the proceedings of Section 138 of the N.I. Act are criminal proceedings but not recovery proceedings; it has also been observed that the Supreme Court has very clearly held that the provisions of IBC cannot stay the proceedings of the N.I. Act and those proceedings would not stand terminated. According to learned counsel for the petitioner, the revisional Court failed to appreciate the legal question dealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in respect of an individual/personal guarantor under part-3 of the IBC. 12.Learned counsel for the petitioner has also pointed-out that in the case of Ajay Kumar Radheyshyam Goenka (supra), the Supreme Court has followed the earlier decision passed in the case of P. Mohanraj (supra), but so far as the proceedings under Section 138 of the N.I. Act, are concerned, it is per incurium because the Supreme Court in the case of P. Mohanraj (supra) has observed otherwise in respect of the said proceedings. The revisional Court has also observed that the case of P. Mohanraj (supra) does not deal with Section 138 of the N.I. Act whereas this observation of the revisional Court is contrary to the law laid-down by the Supreme Court in the case of P. Mohanraj (supra) because on number of occasions, the Supreme Court has observed that interim-moratorium under Section 96 of the IBC has applicability over the proceedings of N.I. Act. 13.The Supreme Court in the case of Kaushalya Devi Massand Vs. Roopkishore Khore reported in (2011) 4 SCC 593, has observed that the proceedings of the N.I. Act are almost in the nature of civil wrong which have been given criminal overtones. Likewise, the High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , all legal proceedings in respect of any debt that the personal guarantor is facing, would be covered by the interim moratorium and consequently the proceedings in the complaint filed by the respondent herein under Section 138 of the Act also would remain stayed, such proceedings being in respect of a debt alleged to have been incurred by the petitioner qua the respondent, (with such interim moratorium to continue till the application under Section 94 is either rejected or accepted by the Adjudicating Authority. If the application is admitted, proceedings under Section 138 would remain stayed till the proceedings before the Tribunal are taken to their logical conclusion, in terms of Sections 100 and 101 of the Code). 75. The other interpretation that can be given is that the phrases "all legal proceedings" and "any debt", only pertain to debts as are relatable to the corporate debtor in any manner; and any other personal debt incurred by the guarantor to a corporate debtor, as has nothing to do with such corporate debtor or corporate debt, would not be affected in any manner by the application filed under Section 94 by the personal guarantor to a corporate debtor and consequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate persons, does not lead to incongruity. On the other hand, there appear to be sound reasons why the forum for adjudicating insolvency processes - the provisions of which are disparate-is to be common, i.e. through the NCLT. As was emphasized during the hearing, the NCLT would be able to consider the whole picture, as it were, about the nature of the assets available, either during the corporate debtor's insolvency process, or even later; this would facilitate the CoC in framing realistic plans, keeping in mind the prospect of realizing some part of the creditors' dues from personal guarantors." (Emphasis applied in this judgment only). 78. Hence, it is obviously clear from a reading of the aforesaid part of the said judgment as also from the relevant provisions of the Code as have been reproduced hereinabove, that personal guarantors to corporate debtors are to be treated differently from other categories of individuals who would be covered by Part III of the Code, with it to be again observed that personal guarantors have however only been defined in Section 5(22) falling in Part II thereof and not in Part III. 79. Yet, the rule making authority under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontext of which a complaint under Section 138 of the Act has been filed, this court would have to interpret the terms "all the debts" and "any legal action or proceedings pending in respect of any debt" as occur in Section 96 of the Code, to mean that it would cover all such debts including any debt not pertaining to a corporate debtor for whom the accused in such a complaint under Section 138 stood as a personal guarantor to, even in his capacity as a Director of such corporate debtor. 83. This would be further so in the opinion of this court, because a "debt" has been defined in the absolutely generic meaning of the word, in Section 3(11) of the Code (falling in the preliminary Part-I thereof); and further, as admitted by learned counsel for the respondent, a debt as is subject matter of proceedings under Section 138 of the Act, has not been prescribed to be an "excluded debt" in terms of Section 79(e) of the Code. 84. In this regard, it also needs to be observed here that unless the wordings of a statute are "unworkable" or wholly impractical nothing extra can be read into a statute or taken away therefrom. 85. As regards the second question posed to itself by this court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yed." 15.Further, the Bombay High Court in the case of Sheetal Gupta Vs. National Spot Exchange Limited & Others reported in Manu/MH/0706/2023 dealing with the same question as to whether Section 96 of the IBC has any application over the proceedings initiated under Section 138 of the N.I. Act or not, has observed as under:- "15. In the case of P. Mohanraj and Others vs. Shah Brothers Ispat Private Limited (supra), the Hon'ble Apex Court has observed thus- "35. When the language of Section 14 and Section 85 is contrasted, it becomes clear that though the language of Section 85 is only in respect of debts, the moratorium contained in Section 14 is not subject specific. The only light thrown on the subject is by the exception provision contained in Section 14(3) (a) which is that "transactions" are the subject-matter of Section 14(1). "Transaction" is, as we have seen, a much wider expression than "debt", and subsumes it. Also, the expression "proceedings" used by the legislature in Section 14(1)(a) is not trammelled by the word "legal" as a prefix that is contained in the moratorium provisions qua individuals and firms. Likewise, the provisions of Section 96 and Section 101 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res National Company Law Boessary to have a glancen Process releva Insolvency outonapter II of IBC speaks of Insolvency Resolusolvency 94 thereof pertains to the application by debtor to initiate the Insolvency Process. Under Section 95 of IBC, a creditor may initie an application to is Insolvency Resolution Process. For ready reference, Section 95(1) of IBC is reproduced which reads thus :- "95 - Application by creditor to initiate insolvency resolution process. - (1) A creditor may apply either by himself, or jointly with other creditors, or through a resolution professional to the Adjudicating Authority for initiating an Insolvency Resolution Process under this section by submitting an application." 18. Section 96 of IBC speaks of "Interim-moratorium", which reads thus:- "96 - Interim-moratorium. (1) When an application is filed under Section 94 or Section 95- (a) an interim-moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application; and (b) during the interim-moratorium period- (i) any legal action or proceeding pending in respect of any debt shall be deemed to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of learned Advocate for respondent-NSEL thal proceeding under Section 95 of IBC and outcome thereof is a party specific (parties to the said proceeding only), can not be accepted. 24. Learned Magistrate ought to have allowed the application/s for stay of the proceedings pending before it. Since the same has not been done, interference with the order/s impugned herein is warranted. In the result, the applications succeed. Hence the following order is passed : - ORDER 1. Criminal Application Nos. 1151 to 1153 of 2022 and 1170 of 2022 are allowed. 2. The proceedings (C.C. Nos. 4185/SS/2017, 2218/SS/2017, 4186/SS/2017 & 2217/SS/2017) under Section 138 of NI Act pending before learned Metropolitan Magistrate, 33rd Court, Ballard Pier, Mumbai to stand stayed, qua the applicant, during the interim moratorium period. 3. Criminal Application Nos. 1151 to 1153 of 2022 and 1170 of 2022 stand disposed of." This order of Bambay High Court was also affirmed by the Supreme Court in SLP No.4727 of 2023 decided by order dated 28.04.2023. 16.Moreover, in the case of Mukund Ajay Kumar Choudhary & Others Vs. K.B. Board Mills LLP reported in Manu/MH/2140/2023, Nagpur Bench has observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41 proceeding against them cannot be initiated or continued without the corporate debtor - see Aneeta Hada V. Godfather Travels & Tours (P) Ltd. reported in (2012) 5 SCC 661. This is because Section 141 of the Negotiable Instruments Act speaks of persons in charge of, and responsible to the company for the conduct of the business of the company, as well as the company. The Court, therefore, in Aneeta Hada (supra) held as under: (SCC pp.686-88, paras 51, 56 and 58-59) "51. We have already opined that the decision in Sheoratan Agarwal Vs. State of M.P. [(1984) 4 SCC 352 : runs counter to the ratio laid down in State of Madras Vs. C.V. Parekh (1970) 3 SCC 491 which is by a larger Bench and hence, is a binding precedent. On the aforesaid ratiocination, the decision in Anil Hada Vs. Indian Acrylic Ltd., (2000) 1 SCC 1 has to be treated as not laying down the correct law as far as it states that the Director or any other officer can be prosecuted without impleadment of the company. Needless to emphasise, the matter would stand on a different footing where there is some legal impediment and the doctrine of lex non cogit ad impossibilia gets attracted." "56. We have referred to the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision in Anil Hada (supra) is overruled with the qualifier as stated in para 51. The decision in U.P. Pollution Control Board Vs. Modi Distillery (1987) 3 SCC 684 has to be treated to be restricted to its own facts as has been explained by us hereinabove." 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 paragraphs 51 and 59 in Aneeta Hada (supra) 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 Section 141(1) and (2) of the Negotiable Instruments Act. This being the case, it is clear that the moratorium provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the accused No.2 would also be entitled to exercise right and benefits conferred under Section 96 of the I.B. Code. In my view, therefore, during the pendency of the insolvency proceeding the complaint cannot be prosecuted against the accused No.1 and 2." 17.The Supreme Court also in the case of State Bank of India Vs. V. Ramakrishnan & Another reported in (2018) 17 SCC 394, dealing with the issue as to whether provisions of Sections 14 and 96 would be applicable upon the personal guarantor of corporate debtor or not has observed as under:- "26. We are also of the opinion that Sections 96 and 101, when contrasted with Section 14, would show that Section 14 cannot possibly apply to a personal guarantor. When an application is filed under Part III, an interim-moratorium or a moratorium is applicable in respect of any debt due. First and foremost, this is a separate moratorium, applicable separately in the case of personal guarantors against whom insolvency resolution processes may be initiated under Part III. Secondly, the protection of the moratorium under these sections is far greater than that of Section 14 in that pending legal proceedings in respect of the debt and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is assented to by the President and that it need not wait till such assented-to State law is brought into force. This view finds support in the judgment of this Court in Tulloch [State of Orissa v. M.A. Tulloch & Co., AIR 1964 SC 1284 : (1964) 4 SCR 461] . 80. Lastly, the definitions of the expressions "laws in force" in Article 13(3)(b) and Article 372(3) Explanation I and "existing law" in Article 366(10) show that the laws in force include laws passed or made by a legislature before the commencement of the Constitution and not repealed, notwithstanding that any such law may not be in operation at all. Thus, the definition of the expression "laws in force" in Article 13(3)(b) and Article 372(3) Explanation I and the definition of the expression "existing law" in Article 366(10) demolish the argument of the State of Kerala that a law has not been made for the purposes of Article 254, unless it is enforced. The expression "existing law" finds place in Article 254. In Edward Mills Co. Ltd. v. State of Ajmer [Edward Mills Co. Ltd. v. State of Ajmer, AIR 1955 SC 25] , this Court has held that there is no difference between an "existing law" and a "law in force". 81. Applying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 14 of the IBC, the moratorium is constituted with an object that once the proceedings have been initiated by the NCLT under the special enactment to assess the value of assets of the debtors so as to promote entrepreneurship, availability of credit and balance to protect the interest of all the stakeholders including the alteration in the order on priority of payment of Government dues so as to avoid any type of discrimination and therefore, to avoid misuse of assets of any debtor, the moratorium is declared so as to avoid any other proceedings of recovery of debts against the debtor and if the application is moved under Section 94 of the IBC by the debtor or under Section 95 by the creditor, then the authority under the provisions of Section 96 of IBC, constitutes an interim-moratorium. 19.Here in this case, since one of the creditors i.e. Bank of Baroda has moved an application under Section 95 of the IBC against the present petitioner, who is one of the Board of Directors of the company, as such, when the adjudicating authority has declared interim-moratorium under Section 96, then it is clear that as per sub-section 2 of Section 96, if an application is made in relation ..... 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