Directors liable for dishonored cheques despite company insolvency

The Court dismissed the Criminal Original Petition seeking to quash proceedings under Section 138 of the Negotiable Instruments Act due to Corporate Insolvency Resolution Process (CIRP) and moratorium. The directors' liability for dishonored cheques issued before the initiation of CIRP was upheld, emphasizing their continued liability under Section 138 despite the company being under CIRP and moratorium.

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Issues:
Quashing of proceedings under Section 138 of the Negotiable Instruments Act due to Corporate Insolvency Resolution Process (CIRP) and moratorium.

Analysis:
1. Allegations and Contentions:
- The petitioners, as directors of a company, borrowed a sum in 2016 and issued cheques in 2018, leading to dishonor and subsequent complaint under Section 138.
- Petitioners argue that the company is under CIRP, with a moratorium declared in 2017, suspending powers of directors.
- Respondent contends that the cheques were issued in 2016, prior to CIRP, and moratorium applies only to the corporate debtor.

2. Legal Provisions and Precedents:
- Section 17 and Section 33 of the Insolvency and Bankruptcy Code, 2016 suspend powers of directors and provide for discharge upon liquidation.
- Citing the Supreme Court judgments in P. Mohanraj and Others vs. Shah Brothers Ispat Pvt. Ltd. and Bir Singh vs. Mukesh Kumar, liability under Section 138 persists for directors even during CIRP.

3. Court's Decision:
- The Court notes the admission by petitioners that cheques were issued in 2016, despite the complaint mentioning 2018.
- Relying on legal provisions and precedents, the Court dismisses the petition to quash proceedings, emphasizing the directors' continued liability under Section 138.

4. Conclusion:
- The Criminal Original Petition seeking to quash proceedings under Section 138 of the Negotiable Instruments Act due to CIRP and moratorium is dismissed, upholding the directors' liability for dishonored cheques issued before the initiation of CIRP.

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