Case Note & Summary
The petitioner, a partnership firm, filed a complaint under Section 138 of the Negotiable Instruments Act, 1881 against the respondents, who are a company (accused no.1) and its directors (accused nos.2 and 3), for dishonour of cheques issued towards payment for cotton bales purchased. The total amount due was Rs.4,34,46,276/-, out of which Rs.1,78,68,088/- was paid via RTGS, and some cotton bales were returned. The remaining balance was the subject of the cheques. During the pendency of the criminal case, the respondent company underwent insolvency resolution proceedings under the Insolvency and Bankruptcy Code, 2016. The directors filed applications (Exhs.43 and 54) before the Judicial Magistrate, First Class, Akot, seeking a stay of the proceedings against them, relying on the moratorium under Section 14 of the IBC. The Magistrate allowed those applications on 17.08.2023, staying the proceedings till the final moratorium is reached. The petitioner challenged this order before the High Court under Articles 226 and 227 of the Constitution. The High Court held that the moratorium under Section 14 IBC applies only to the corporate debtor (the company) and not to its directors or other persons. The directors are not corporate debtors and cannot claim the benefit of the moratorium. The criminal proceedings under Section 138 NI Act against the directors are independent and can proceed. The court set aside the Magistrate's order and directed the trial court to proceed with the case against all accused, including the directors, in accordance with law.
Headnote
A) Criminal Law - Negotiable Instruments Act - Section 138 - Stay of Proceedings - Moratorium under Section 14 of IBC, 2016 applies only to the corporate debtor and not to its directors or other persons - The trial court erred in staying proceedings against directors who are not corporate debtors - Held that the moratorium does not shield directors from criminal prosecution under Section 138 NI Act (Paras 5-7).
B) Insolvency and Bankruptcy Code - Section 14 - Moratorium - Scope - The moratorium under Section 14 IBC is limited to the corporate debtor and its assets, and does not extend to third parties or individuals - Criminal proceedings against directors for dishonour of cheques cannot be stayed merely because the company is undergoing insolvency resolution - Held that the order staying proceedings against directors is without jurisdiction (Paras 5-7).
Issue of Consideration
Whether the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016, which applies to the corporate debtor, extends to its directors who are accused in a complaint under Section 138 of the Negotiable Instruments Act, 1881, and whether criminal proceedings against them can be stayed pending the insolvency resolution process.
Final Decision
The High Court allowed the writ petition, set aside the common order dated 17.08.2023 passed by the Judicial Magistrate, First Class, Court No.2, Akot below Exhs.43 and 54 in Summary Criminal Case No.405/2017, and directed the trial court to proceed with the case against all accused in accordance with law.
Law Points
- Section 138 Negotiable Instruments Act
- 1881
- Insolvency and Bankruptcy Code
- 2016
- Section 14 IBC moratorium
- Section 32A IBC
- vicarious liability of directors
- stay of criminal proceedings
Case Details
2025 LawText (BOM) (09) 230
Criminal Writ Petition No. 68 of 2024
Mr. C.S. Kaptan, Senior Advocate with Mr.P.K. Mohta, Advocate for the Petitioner; Mr. A.A. Naik, Senior Advocate with Mr.H.M. Mohta, Advocate for Respondents
Shri Ramdev Cotspin Partnership Firm, through its Partner, Pramod Lunkaran Chandak
Pacific Cotspin Ltd. (Now known as Silverton Spineers Ltd), Shri Ashok Mehra, Chandra Prakash Mehra
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Nature of Litigation
Criminal writ petition challenging the order of the Judicial Magistrate staying proceedings under Section 138 of the Negotiable Instruments Act, 1881 against directors of a company undergoing insolvency resolution.
Remedy Sought
The petitioner (original complainant) sought setting aside of the Magistrate's order dated 17.08.2023 that stayed the criminal proceedings against the respondents (original accused) till the final moratorium is reached.
Filing Reason
The petitioner filed a complaint under Section 138 of the NI Act against the respondents for dishonour of cheques issued for payment of cotton bales. During the pendency of the case, the respondent company underwent insolvency resolution, and the directors sought a stay of proceedings against them, which was granted by the Magistrate.
Previous Decisions
The Judicial Magistrate, First Class, Court No.2, Akot, by order dated 17.08.2023, allowed applications at Exhs.43 and 54 filed by the original accused, staying the proceedings in Summary Criminal Case No.405/2017 till the insolvency resolution process reaches final moratorium.
Issues
Whether the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016, which applies to the corporate debtor, extends to its directors who are accused in a complaint under Section 138 of the Negotiable Instruments Act, 1881.
Whether criminal proceedings against directors can be stayed pending the insolvency resolution process of the company.
Submissions/Arguments
The petitioner argued that the moratorium under Section 14 IBC applies only to the corporate debtor and not to its directors, and therefore the Magistrate erred in staying proceedings against the directors.
The respondents argued that the proceedings against them should be stayed as the company is undergoing insolvency resolution and the moratorium should protect all connected persons.
Ratio Decidendi
The moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 is limited to the corporate debtor and its assets, and does not extend to its directors or other persons. Directors are not corporate debtors and cannot claim the benefit of the moratorium to stay criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881. The criminal liability of directors is independent and can proceed despite the insolvency resolution of the company.
Judgment Excerpts
The moratorium under Section 14 of the IBC is applicable only to the corporate debtor and not to its directors or other persons.
The directors are not corporate debtors and cannot claim the benefit of the moratorium.
The order passed by the learned Magistrate staying the proceedings against the directors is without jurisdiction and is liable to be set aside.
Procedural History
The petitioner filed a complaint under Section 138 of the NI Act against the respondents in Summary Criminal Case No.405/2017 before the Judicial Magistrate, First Class, Akot. During the pendency of the case, the respondent company underwent insolvency resolution proceedings. The directors filed applications (Exhs.43 and 54) seeking a stay of proceedings, which were allowed by the Magistrate on 17.08.2023. The petitioner challenged this order by filing Criminal Writ Petition No.68 of 2024 before the High Court of Bombay at Nagpur, which was heard and disposed of on 26.09.2025.
Acts & Sections
- Negotiable Instruments Act, 1881: 138
- Insolvency and Bankruptcy Code, 2016: 14
- Constitution of India: 226, 227
