IBC moratorium bars cheque dishonour proceedings against the corporate debtor, but directors remain liable and prosecution may continue.

The moratorium under the Insolvency and Bankruptcy Code bars continuation or initiation of proceedings under Sections 138 and 141 of the Negotiable Instruments Act against the corporate debtor during the moratorium period, so the cheque dishonour case against the company was quashed. That protection does not extend to natural persons covered by Section 141, and the directors' statutory liability was held to remain unaffected. Accordingly, the prosecution against the individual accused was permitted to continue before the trial court, and their defence was left open to be raised there.

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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 under the Insolvency and Bankruptcy Code, 2016; (ii) Whether the proceedings could continue against the directors/natural persons notwithstanding the moratorium.

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 the Insolvency and Bankruptcy Code, 2016.

Analysis: The complaint related to dishonour of cheques issued by the company, and insolvency proceedings had already commenced against it. The Supreme Court decision relied upon in the judgment was applied to hold that the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 creates a statutory bar against continuation or initiation of proceedings under Sections 138 and 141 of the Negotiable Instruments Act, 1881 against the corporate debtor during the moratorium period.

Conclusion: The proceedings against the corporate debtor were liable to be quashed.

Issue (ii): Whether the proceedings could continue against the directors/natural persons notwithstanding the moratorium.

Analysis: The judgment applied the principle that the moratorium protects only the corporate debtor and does not extend to natural persons covered by Section 141 of the Negotiable Instruments Act, 1881. Accordingly, the directors remained statutorily liable, and the Court found that their liability could not be quashed in exercise of inherent jurisdiction at that stage, leaving them to raise their defence before the trial court.

Conclusion: The proceedings against the natural persons were not quashed and were permitted to continue.

Final Conclusion: The criminal case was quashed against the company alone, while the prosecution against the individual accused was allowed to proceed before the trial court.

Ratio Decidendi: The moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 applies only to the corporate debtor and does not extinguish the statutory criminal liability of natural persons under Section 141 of the Negotiable Instruments Act, 1881.

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