Case Note & Summary
The High Court of Karnataka at Bengaluru heard a criminal petition filed under Section 482 of the Code of Criminal Procedure, 1973 by petitioners who were accused in proceedings under Section 138 of the Negotiable Instruments Act, 1881. The petitioners comprised a company and its directors, while the respondent was the complainant. The dispute arose from a transaction where instruments were handed over in 2020, with a cheque presented on 23-06-2020 that was dishonoured, leading to the complaint. The key legal issues centered on whether proceedings under Section 138 of the NI Act could continue against a company under moratorium under the Insolvency and Bankruptcy Code, 2016, and whether directors could be prosecuted separately. The petitioners argued that an Interim Resolution Professional had taken over the company in 2019, thus the company could not be held liable, and directors had no role in day-to-day affairs thereafter, though petitioner No.2 admitted being a signatory to the cheque. The respondent contended that the moratorium did not absolve liability, and except the company, the other petitioners must face trial. The court analyzed the moratorium provision under Section 14 of the IBC and vicarious liability under Section 141 of the NI Act, citing precedents including P. Mohanraj and Others vs. Shah Brothers Ispat Private Limited and Ajay Kumar Radheshyam Goenka vs. Tourism Finance Corporation of India Limited. It held that the moratorium bars continuation of proceedings against the corporate debtor, but proceedings against natural persons under Section 141 can continue. The court partially allowed the petition, quashing proceedings only against the company while directing continuation against the directors.
Headnote
A) Insolvency Law - Moratorium Under IBC - Section 14 Insolvency and Bankruptcy Code, 2016 - Corporate Debtor Protection - Interim Resolution Professional took over petitioner company on 19-09-2019 under Insolvency and Bankruptcy Code - Cheque presented on 23-06-2020 and dishonoured - Court held that moratorium under Section 14 IBC bars continuation of Section 138 NI Act proceedings against corporate debtor during corporate insolvency resolution process - Proceedings against company cannot be permitted to continue (Paras 7-8). B) Negotiable Instruments Law - Vicarious Liability - Section 141 Negotiable Instruments Act, 1881 - Directors' Liability - Petitioners 2-4 were directors/office bearers of company - Petitioner 2 admitted being signatory to cheque - Court held that proceedings under Sections 138/141 NI Act can continue against natural persons mentioned in Section 141 despite moratorium on corporate debtor - Directors remain statutorily liable under Chapter XVII of NI Act (Paras 4-5, 8). C) Criminal Procedure - Quashing of Proceedings - Section 482 Code of Criminal Procedure, 1973 - Partial Quashing - Petitioners sought quashing of entire proceedings in CC No.7456/2021 under Section 482 CrPC - Court partially allowed petition - Quashed proceedings only against petitioner No.1 company - Directed proceedings to continue against petitioner Nos. 2-4 (Paras 1, 9).
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Issue of Consideration: Whether proceedings under Section 138 of Negotiable Instruments Act, 1881 can be continued against a company under moratorium under Insolvency and Bankruptcy Code, 2016 and its directors
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Final Decision
Petition partly allowed. Proceedings quashed against petitioner No.1 company. Proceedings to continue against petitioner Nos. 2 to 4.
