Determination of Director Liability and Moratorium Applicability under NI Act and IBC

The court referred the matter to a larger bench to resolve the legal inconsistencies regarding the liability of directors under Section 138 of the Negotiable Instruments Act in light of the applicability of the moratorium under Section 14 of the Insolvency and Bankruptcy Code. Further proceedings were scheduled for 29.11.2021 to address the conflicting interpretations and ensure a comprehensive adjudication of the issues.

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Issues Involved:
1. Maintainability of complaints under Section 138 of the Negotiable Instruments Act, 1881.
2. Liability of directors and managing directors after the winding up of the company.
3. Applicability of moratorium provisions under Section 14 of the Insolvency and Bankruptcy Code (IBC).
4. Relevance of previous judgments in similar contexts.

Issue-wise Detailed Analysis:

1. Maintainability of complaints under Section 138 of the Negotiable Instruments Act, 1881:
The petitioners challenged the impugned order dated 16.03.2020, wherein the complaints filed under Section 138 of the Negotiable Instruments Act, 1881 were deemed not maintainable. The trial court held that the complaints were invalid as the cheques were presented for encashment after the company had been wound up on 27.03.2014. The court referenced the case "M.L Gupta and Anr. Vs. CEAT Financial Services Ltd." which emphasized that for directors to be liable, the company must have committed the offense. If the company is in liquidation and unable to make payments due to legal constraints, the directors cannot be held liable.

2. Liability of directors and managing directors after the winding up of the company:
The trial court's decision relied on the principle that once a company is wound up, it cannot commit an offense under Section 138 of the NI Act, as it is legally barred from making payments. Consequently, directors, who are effectively ex-directors, cannot be held liable. The court drew parallels with the Supreme Court's judgment in "Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd." which discussed the impact of BIFR's restraint orders on the liability under Section 138 of the NI Act.

3. Applicability of moratorium provisions under Section 14 of the Insolvency and Bankruptcy Code (IBC):
The petitioners argued that the trial court's reliance on "M.L Gupta and Anr." was misplaced in light of the Supreme Court's verdict in "P.Mohanraj and others Vs. Shah Brothers Ispat Private Limited." The Supreme Court clarified that the moratorium under Section 14 of the IBC applies only to the corporate debtor, not to the natural persons mentioned in Section 141 of the NI Act. Therefore, proceedings under Sections 138/141 against directors can continue despite the moratorium on the corporate debtor.

4. Relevance of previous judgments in similar contexts:
The petitioners cited the Supreme Court’s decision in "Re: Expeditious Trial of Cases Under Section 138 of N.I. Act, 1881," which reaffirmed that trial courts do not possess inherent power to review or recall their orders of issuance of process under Section 138 of the NI Act after cognizance has been taken. They also referenced "P.Mohanraj and others Vs. Shah Brothers Ispat Private Limited," asserting that the liability of directors persists despite the corporate debtor being under a moratorium.

The court acknowledged the need to reconcile the trial court’s reliance on "M.L Gupta and Anr." with the Supreme Court’s more recent rulings. Given the conflicting interpretations, the court deemed it appropriate to refer the matter to a larger bench for a comprehensive adjudication on whether the verdict in "M.L Gupta and Anr." remains valid in light of "P.Mohanraj and others."

Conclusion:
The court found it essential to address the applicability of the moratorium under Section 14 of the IBC to directors' liability under Section 138 of the NI Act. The matter was referred to the Hon’ble Chief Justice for consideration by a larger bench to resolve the legal inconsistencies and ensure a thorough examination of the issues. The case was scheduled for further proceedings on 29.11.2021.

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