Moratorium under insolvency law halts cheque dishonour prosecution against the company, but not against directors or other natural persons.

The moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 bars initiation or continuation of Sections 138 and 141 Negotiable Instruments Act proceedings against a corporate debtor during the insolvency period, so the complaint against the company could not continue and was quashed. That protection does not extend to directors or other natural persons arraigned under Section 141, whose statutory liability remains subject to adjudication on evidence; their prosecution therefore continued and was not quashed at the inherent-jurisdiction stage.

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Issues: (i) Whether the criminal proceedings under Sections 138 and 141 of the Negotiable Instruments Act, 1881 could continue against the corporate debtor during the moratorium declared under Section 14 of the Insolvency and Bankruptcy Code, 2016. (ii) Whether the proceedings could be quashed against the directors/natural persons arraigned as accused in the same complaints.

Issue (i): Whether the criminal proceedings under Sections 138 and 141 of the Negotiable Instruments Act, 1881 could continue against the corporate debtor during the moratorium declared under Section 14 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The corporate insolvency resolution process had commenced and moratorium had been declared by the Tribunal. The governing principle applied was that the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 interdicts institution or continuation of Section 138/141 proceedings against the corporate debtor during the moratorium period. The criminal liability of the corporate debtor is therefore kept in abeyance for that period.

Conclusion: The proceedings against the corporate debtor were quashed.

Issue (ii): Whether the proceedings could be quashed against the directors/natural persons arraigned as accused in the same complaints.

Analysis: The controlling legal position recognised that the moratorium applies only to the corporate debtor and does not extend to the natural persons covered by Section 141 of the Negotiable Instruments Act, 1881. Their statutory liability continues and the question of their defence requires adjudication on evidence. Such liability could not be negated in exercise of inherent jurisdiction at that stage.

Conclusion: The proceedings against the directors/natural persons were not quashed.

Final Conclusion: The complaints were terminated only insofar as the company was concerned, while the prosecution was allowed to proceed against the remaining accused, leaving their defences open before the trial court.

Ratio Decidendi: The moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 bars initiation or continuation of Section 138/141 proceedings only against the corporate debtor and does not extend to natural persons liable under Section 141 of the Negotiable Instruments Act, 1881.

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