2018 (8) TMI 631 - HC - Indian Laws

Court clarifies Insolvency Code doesn't bar criminal cases against insolvent companies.

Tayal Cotton Pvt. Ltd. Versus The State of Maharashtra and Others

The court clarified that Section 14 of the Insolvency and Bankruptcy Code does not apply to criminal proceedings against a company under insolvency. The ... Cheque bounce case - Prosecution proceedings u/s 138 of the Negotiable Instruments Act - Whether moratorium prohibiting institution of a proceeding as provided for in Section 14 of the Insolvency and Bankruptcy Code, 2006 (hereinafter referred to as Code) applies even to a criminal proceeding. - Held that:- The criminal revision should not have been directed to be kept in abeyance by resorting to Section 14 of the Code. For that matter even the National Company Law Tribunal in its order in a proceeding under Section 10 could not have and has not specifically directed any prohibition against the continuation of a criminal proceeding. The learned Additional Sessions Judge has committed a gross illegality in directing the criminal revision to be kept in abeyance by the impugned order. The order is not sustainable in law and is liable to be quashed and set aside. Issues:Interpretation of Section 14 of the Insolvency and Bankruptcy Code, 2006 regarding the applicability of moratorium to criminal proceedings.Analysis:1. The main issue in this case was whether the moratorium under Section 14 of the Insolvency and Bankruptcy Code applies to criminal proceedings. The petitioner had filed a complaint under Section 138 of the Negotiable Instruments Act against the respondents, who had initiated insolvency proceedings. The National Company Law Tribunal had prohibited the institution of suits or continuation of pending suits against the corporate debtor, leading to a challenge in the criminal revision.2. The petitioner argued that Section 14 of the Code does not specifically prohibit criminal proceedings against a company under insolvency. Referring to a previous judgment, the petitioner contended that the provision does not debar continuation of criminal proceedings. The petitioner challenged the order directing the revision to be kept in abeyance until the insolvency proceeding was resolved.3. The respondents, on the other hand, argued that the purpose of the moratorium would be defeated if criminal proceedings were allowed to continue. They emphasized that the National Company Law Tribunal's order invoked Section 14 of the Code, justifying the direction to keep the criminal revision in abeyance.4. The court analyzed Section 14 of the Code, which prohibits the institution of suits or continuation of pending suits against the corporate debtor. The court interpreted the words 'proceedings' and 'in any Court of law' in conjunction with the word 'suits' preceding them. It concluded that the provision only prohibits civil suits or proceedings of a similar nature and does not include criminal proceedings.5. The court relied on the principle of interpretation of statutes to deduce that the legislature consciously omitted the term 'criminal' from the provision, indicating an intention to restrict the moratorium to civil suits. It referenced a previous judgment to support its interpretation and held that the criminal revision should not have been kept in abeyance under Section 14 of the Code.6. Consequently, the court allowed the Writ Petition, quashed the order directing the revision to be kept in abeyance, and instructed the Additional Sessions Judge to proceed with the hearing of the criminal revision in accordance with the law. The court found the order unsustainable and set it aside.7. In conclusion, the court clarified the interpretation of Section 14 of the Code regarding the moratorium's application to criminal proceedings, emphasizing the legislative intent to restrict the prohibition to civil suits and similar proceedings.