Case Note & Summary
The Supreme Court considered a writ petition filed by a corporate debtor and its directors seeking quashing of criminal complaints under Section 138 of the Negotiable Instruments Act, 1881 pending before judicial magistrates. The petitioners sought relief based on two alternative grounds: first, that the resolution plan approved by the National Company Law Tribunal under Section 30(4) of the Insolvency and Bankruptcy Code, 2016 should lead to quashing of complaints since the complainants had accepted the plan; second, that complaints initiated after the moratorium order dated November 13, 2018 should be quashed as they could not proceed even if old management took over the corporate debtor. The legal issues centered on whether moratorium under Section 14 of IBC and acceptance of resolution plan extinguished liability under Sections 138 and 141 of NI Act. The petitioners argued through Senior Advocate Gopal Sankaranarayanan that resolution plan acceptance should obliterate pending trials under NI Act. The Court analyzed the matter by referring to the three-judge bench decision in P. Mohanraj & Others v. Shah Brothers Ispat Private Limited, which had clearly established that moratorium under Section 14 of IBC applies only to corporate debtors, while natural persons under Section 141 of NI Act continue to be statutorily liable. The Court found the precedent directly applicable and determined that no interference was warranted. Consequently, the Supreme Court dismissed the writ petition, and in view of this dismissal, also dismissed a connected writ petition numbered 300 of 2020.
Headnote
A) Insolvency Law - Moratorium Under IBC - Application to Corporate Debtor Only - Insolvency and Bankruptcy Code, 2016, Section 14 - The Supreme Court considered whether moratorium under Section 14 of IBC applies to proceedings under Negotiable Instruments Act against corporate debtor and its directors - The Court held that moratorium provisions apply only to the corporate debtor and natural persons under Section 141 of NI Act continue to be statutorily liable - Following P. Mohanraj precedent, the Court dismissed the writ petition seeking quashing of criminal complaints (Paras 1-3). B) Negotiable Instruments Act - Liability of Directors - Section 141 NI Act - Natural Persons' Liability - Negotiable Instruments Act, 1881, Sections 138, 141 - The Court examined whether acceptance of resolution plan under IBC extinguishes liability of directors under Section 141 of NI Act - The Court rejected the argument that resolution plan acceptance obliterates pending trials under Sections 138 and 141 - Held that natural persons mentioned in Section 141 continue to be statutorily liable despite resolution plan acceptance (Paras 1-3).
Issue of Consideration
Whether criminal complaints under Section 138 of Negotiable Instruments Act, 1881 against corporate debtor and its directors should be quashed in view of moratorium under Insolvency and Bankruptcy Code, 2016 and acceptance of resolution plan
Final Decision
Writ petition dismissed. In view of order passed in Writ Petition (Civil) No.93 of 2022, Writ Petition (Civil) No.300 of 2020 also dismissed.
Law Points
- Moratorium under Section 14 of Insolvency and Bankruptcy Code
- 2016 applies only to corporate debtor
- not to natural persons under Section 141 of Negotiable Instruments Act
- 1881
- Resolution plan acceptance does not obliterate pending trials under Sections 138 and 141 of Negotiable Instruments Act
