Supreme Court upholds liability of company directors in criminal complaints despite insolvency resolution plan approval

The Supreme Court dismissed a writ petition seeking to quash criminal complaints under Section 138 of the Negotiable Instruments Act against a company and its directors despite the National Company Law Tribunal's approval of a resolution plan. The Court clarified that the moratorium provisions under the Insolvency and Bankruptcy Code only apply to the corporate debtor, not to natural persons like directors, who remain liable under the Act. The acceptance of the resolution plan does not absolve directors of their statutory liability, emphasizing that the moratorium does not shield them from criminal complaints under the Act.

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Issues involved:
1. Quashing of criminal complaints under Section 138 of the Negotiable Instruments Act, 1881 against a company and its directors in light of the National Company Law Tribunal's order approving a resolution plan.
2. Interpretation of moratorium provisions under the Insolvency and Bankruptcy Code, 2016 in relation to liability of corporate entities and natural persons like directors under Sections 138 and 141 of the Negotiable Instruments Act, 1881.

Analysis:

Issue 1: Quashing of criminal complaints under Section 138 of the Negotiable Instruments Act:
The writ petition sought to quash criminal complaints pending before the Judicial Magistrate/Chief Metropolitan Magistrate/Judicial Magistrate of 1st Class against the petitioner company and its directors under Section 138 of the Negotiable Instruments Act, 1881. The petition relied on the National Company Law Tribunal's order approving the resolution plan and the acceptance of the plan by the complainants. The petition also argued that the complaints initiated after the moratorium order could not proceed even if the old management took over the corporate debtor. The Supreme Court, citing a previous judgment in P. Mohanraj & other connected matters, clarified that the moratorium provisions under the Insolvency and Bankruptcy Code, 2016 apply only to the corporate debtor, not to natural persons like directors who remain liable under the Act. The Court dismissed the writ petition, affirming that the resolution plan's acceptance does not affect the liability of the directors under Sections 138 and 141 of the Act.

Issue 2: Interpretation of moratorium provisions and liability of natural persons:
The Court referred to the judgment in P. Mohanraj and Ors. v. Shah Brothers Ispat Private Limited, where it was established that moratorium provisions under the Insolvency and Bankruptcy Code, 2016 apply solely to the corporate debtor. The liability of natural persons, such as directors, under Sections 138 and 141 of the Negotiable Instruments Act, 1881, remains unaffected by the moratorium. The Court emphasized that the acceptance of a resolution plan does not absolve the directors of their statutory liability under the Act. The dismissal of the writ petition in this case further reinforces the principle that the moratorium does not shield natural persons from liability under the Act.

Conclusion:
The Supreme Court's judgment clarifies that the moratorium provisions under the Insolvency and Bankruptcy Code, 2016 do not exempt natural persons, including directors, from liability under the Negotiable Instruments Act, 1881. The acceptance of a resolution plan does not affect the pending criminal complaints against the company and its directors under Sections 138 and 141 of the Act.

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