2022 (3) TMI 1534 - SC - Indian Laws

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 ... Moratorium under the Insolvency and Bankruptcy Code - criminal proceedings under the Negotiable Instruments Act (Sections 138 and 141) - liability of natural persons under Section 141 - effect of an approved resolution plan on pending criminal proceedingsMoratorium under the Insolvency and Bankruptcy Code - criminal proceedings under the Negotiable Instruments Act (Sections 138 and 141) - liability of natural persons under Section 141 - Whether the moratorium operating under the IBC precludes initiation or continuation of proceedings under Sections 138 and 141 of the Negotiable Instruments Act against the corporate debtor and its directors. - HELD THAT: - The Court followed the three-Judge decision in P. Mohanraj and Ors. v. Shah Brothers Ispat Private Limited and held that the moratorium provisions under Section 14 of the IBC apply only to the corporate debtor. The Court recorded the subsidiary conclusion that natural persons falling within Section 141 of the Negotiable Instruments Act continue to remain statutorily liable and that moratorium does not cloak them with immunity from criminal proceedings. Applying that precedent, the Court found no basis to quash or stay the criminal complaints against the petitioners on the ground of moratorium. [Paras 3, 4, 6, 7]The petition to quash or restrain proceedings under Sections 138/141 of the Negotiable Instruments Act on the ground of moratorium was rejected and the writ petition dismissed.Effect of an approved resolution plan on pending criminal proceedings - Whether acceptance of a resolution plan by the Committee of Creditors, which provides for the dues of the complainant, operates to obliterate pending criminal trials under the Negotiable Instruments Act. - HELD THAT: - The Court considered the submission that acceptance of the resolution plan in which the complainant's dues are provided for would nullify pending criminal trials. Having applied the ratio of P. Mohanraj, the Court found no interference warranted on that ground and did not accept that approval of the resolution plan obliterates the pending criminal proceedings against the corporate debtor or its directors. [Paras 5, 6, 7]The contention that the approved resolution plan extinguishes pending criminal complaints was rejected and the writ petition dismissed.Consequential dismissal - Whether the connected writ petition (Writ Petition (Civil) No. 300 of 2020) should be entertained after the dismissal of Writ Petition (Civil) No. 93 of 2022. - HELD THAT: - In view of the dismissal of Writ Petition (Civil) No. 93 of 2022 for the reasons recorded, the Court dismissed Writ Petition (Civil) No. 300 of 2020 as consequentially untenable. [Paras 8]Writ Petition (Civil) No. 300 of 2020 dismissed consequentially.Final Conclusion: The Supreme Court, applying the ratio of P. Mohanraj, held that the IBC moratorium protects only the corporate debtor and does not immunise natural persons under Section 141 of the NI Act; the petition to quash or stay criminal complaints under Sections 138/141 was dismissed, and the connected petition was dismissed consequentially. 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.