2022 (11) TMI 430 - HC - Indian Laws

Court dismisses Criminal Original Petition, individual liability under Section 138, liberty to raise factual disputes.

G. Ajay Agarwal Versus M/s. Bhagwandas and Co.

The court dismissed the Criminal Original Petition, allowing the criminal complaint to proceed against the petitioner and the second accused. The court ... Dishonor of Cheque - main contention of the petitioner is that on the date of issuance of the disputed cheque, the petitioner is not the Managing Director of the 1st accused company and he has not signed the disputed cheque and also claimed that during moratorium period as contemplated under Section 14 of the Insolvency and Bankruptcy Code, 2016 (I&B Code), criminal proceedings cannot be initiated - HELD THAT:- The question as to whether by operation of provision of I&B Code, the criminal prosecution initiated under Section 138 r/w 141 of Negotiable Instruments Act, r/w 200 of Cr.P.C can be terminated, is no longer res integra in view of the above stated judgment in P.Mohanraj's case [2021 (3) TMI 94 - SUPREME COURT], wherein the Hon'ble Supreme Court has categorically held that Section 138/141 proceeding against a corporate debtor is covered by Section 14(1)(a) of I&B Code. Moratorium order would not cover person in those cases who are not a corporate debtor, but a Director thereof. The moratorium provision not extending to persons other than the corporate debtor. In respect of persons other than the corporate debtor, Director or Managing Director, as the case may be, Section 14 of I&B Code did not apply to Section 138 proceedings and further, issued direction that complaint is directed to continue against the Managing Director and Director, respectively and observing that Section 14 of I&B code could not cover proceedings already initiated under Section 138 of NI Act, held that such a proceedings can continue against erstwhile Directors/persons in charge of and responsible for the conduct of the business of the corporate debtor. The main plank of the petitioner herein/A3 as to the maintainability of the criminal complaint against him, who is the Managing Director, after the moratorium period, stands negatived. After perusing legal notice exchanged between parties before initiation of proceeding, There is a dispute. Disputed facts cannot be gone into by this Court by holding a enquiry or a mini trial at this stage - Petition dismissed. Issues Involved:1. Quashing of Criminal Complaint under Section 482 of Cr.P.C.2. Applicability of Moratorium under Section 14 of Insolvency and Bankruptcy Code, 2016.3. Liability under Section 138 of Negotiable Instruments Act, 1881.4. Role and liability of the Managing Director post-appointment of Interim Resolution Professional (IRP).Issue-wise Detailed Analysis:1. Quashing of Criminal Complaint under Section 482 of Cr.P.C.:The petitioner, the third accused (A3), sought to quash the criminal complaint (CC No.899 of 2018) filed under Section 138 of the Negotiable Instruments Act, 1881. The petitioner argued that he was not in charge of the company at the time of the cheque issuance and that criminal proceedings could not be initiated during the moratorium period under the Insolvency and Bankruptcy Code, 2016 (I&B Code).2. Applicability of Moratorium under Section 14 of Insolvency and Bankruptcy Code, 2016:The petitioner contended that the moratorium declared by the National Company Law Tribunal (NCLT) on 04.09.2017, under Section 14 of the I&B Code, barred the initiation of criminal proceedings. The court referred to several judgments, including P.Mohanraj Vs. Shah Bros. Ispat (P) Ltd., which clarified that the moratorium under Section 14 applies only to the corporate debtor and not to individual directors or officers. Thus, the criminal proceedings under Section 138 of the Negotiable Instruments Act could continue against the petitioner.3. Liability under Section 138 of Negotiable Instruments Act, 1881:The court examined whether the criminal complaint under Section 138, read with Section 141 of the Negotiable Instruments Act, was maintainable against the petitioner. The court noted that the cheque in question was issued on 29.12.2017, after the appointment of the IRP. The court held that the proceedings under Section 138 could continue against the directors or officers of the company, even if the company itself was under a moratorium.4. Role and liability of the Managing Director post-appointment of Interim Resolution Professional (IRP):The petitioner argued that he was not the Managing Director at the time of the cheque issuance, as the IRP had taken over the management of the company. The court observed that the petitioner was arrayed as the third accused in his capacity as the Managing Director. The court further noted that the disputed facts, including the petitioner's role and the issuance of the cheque, could not be resolved at this stage and required a trial. The court concluded that the complaint was maintainable against the petitioner and the second accused, and the protection under Section 14 of the I&B Code did not extend to them.Conclusion:The court dismissed the Criminal Original Petition, allowing the criminal complaint to proceed against the petitioner and the second accused. The court emphasized that the protection under the I&B Code's moratorium was limited to the corporate debtor and did not shield individual directors or officers from criminal liability under Section 138 of the Negotiable Instruments Act. The petitioner was granted the liberty to raise factual disputes during the trial.