Section 138 cheque dishonour prosecution survives insolvency moratorium claims and suspended-director objections on the pleaded facts

Section 138 proceedings under the Negotiable Instruments Act were not liable to be quashed on the basis of moratorium or interim moratorium under the Insolvency and Bankruptcy Code. The Court held that the protection under Sections 96 and 101 is not so wide as to extinguish penal prosecution, and at most could support a stay where legally applicable. It also rejected the suspended-director defence, noting that the cheques were issued when the petitioners were still managing the company and the complaint contained averments of their responsibility for day-to-day affairs. The objection based on non-service of notice also failed because payment was not made after summons.

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Issues: (i) Whether proceedings under Section 138 of the Negotiable Instruments Act, 1881 could be quashed or stayed on the basis of moratorium or interim moratorium under the Insolvency and Bankruptcy Code, 2016. (ii) Whether the petitioners, as suspended directors, could avoid liability on the grounds of their status and alleged non-service of statutory notice.

Issue (i): Whether proceedings under Section 138 of the Negotiable Instruments Act, 1881 could be quashed or stayed on the basis of moratorium or interim moratorium under the Insolvency and Bankruptcy Code, 2016.

Analysis: The Court held that the protection under Sections 96 and 101 of the Insolvency and Bankruptcy Code, 2016 is not wider in the manner suggested so as to justify quashing of criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881. Relying on the distinction drawn between Section 14 and the provisions governing individuals and firms, the Court held that even if the interim moratorium plea were assumed to apply, the consequence would at best be a stay and not quashing. It further held that proceedings under Section 138 are penal in character and are not recovery proceedings, and therefore do not stand interdictable in the manner urged.

Conclusion: The plea that the Section 138 proceedings were liable to be quashed or stayed on account of moratorium or interim moratorium was rejected.

Issue (ii): Whether the petitioners, as suspended directors, could avoid liability on the grounds of their status and alleged non-service of statutory notice.

Analysis: The Court held that the cheques had been issued before the appointment of the Interim Resolution Professional and that, on the date of issuance, the petitioners were still in charge of the company's management. It also noted specific averments in the complaint regarding their responsibility for the day-to-day affairs of the company. As to notice, the Court applied the principle that even if notice is disputed, the drawer can still make payment within the statutory period after receipt of summons, and failure to do so defeats the objection.

Conclusion: The petitioners' challenge based on suspended-director status and alleged lack of notice was rejected.

Final Conclusion: The Court found no merit in either ground urged for quashing and upheld continuation of the complaint under Section 138 of the Negotiable Instruments Act, 1881 against the petitioners.

Ratio Decidendi: Proceedings under Section 138 of the Negotiable Instruments Act, 1881 are penal in nature and are not quashed merely because insolvency proceedings or a moratorium is invoked; at most, the relevant moratorium plea may justify a stay where legally applicable, while statutory liability of persons in charge of the company continues on the facts pleaded and proved.

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