Court quashes summoning order in case involving Insolvency and Bankruptcy Code and Negotiable Instruments Act

The court quashed the summoning order dated 24.11.2020 in a case involving the applicability of the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) and the liability of petitioners under Section 138 of the Negotiable Instruments Act (NI Act) during the moratorium period. The court held that the petitioners could not be prosecuted under Section 138 of the NI Act due to the moratorium in place before the cheques were presented, rendering them incapable of encashment. Consequently, the petition was allowed, and the summoning order was quashed.

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Issues Involved:
1. Quashing of the summoning order dated 24.11.2020.
2. Applicability of moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC).
3. Liability of petitioners under Section 138 of the Negotiable Instruments Act (NI Act) during the moratorium period.

Summary:

Quashing of the Summoning Order:
The petition sought quashing of the summoning order dated 24.11.2020 passed by the learned MM, Patiala House Courts, New Delhi in CC No. 7554/2020 titled 'M/s KTC Trading (P) Ltd. vs. M/s Ajanta Offset & Packaging Ltd.'.

Applicability of Moratorium under Section 14 of the IBC:
Admittedly, CIRP proceedings were admitted against M/s Ajanta on 04.02.2020, initiating the moratorium under Section 14 of the IBC. The IRP, Mr. Satyanarayana Guddeti, directed all banks on 07.02.2020 not to allow any debit transactions from M/s Ajanta's accounts without written approval. The cheques in question were presented for encashment on 12.02.2020 and dishonored on 13.02.2020 with the remarks 'payment stopped by drawer'. The court emphasized that Section 14 prohibits the continuation of proceedings against the corporate debtor once CIRP is admitted.

Liability of Petitioners under Section 138 of the NI Act During Moratorium:
The petitioners argued that due to the moratorium, the cheques were incapable of encashment, and thus they cannot be prosecuted under Section 138 of the NI Act. The court agreed, noting that from the date of CIRP admission, the IRP was responsible for the company's affairs, and the petitioners' role had ceased. The court referenced the Bombay High Court's judgment in 'Asmita Sarang vs. Yogesh Badoni and Another' and distinguished the present case from the Supreme Court's judgment in 'P. Mohanraj & Others v. Shah Brothers Ispat Private Ltd.', where the moratorium commenced after the cheques had bounced and demand notices were issued. In contrast, in the present case, the moratorium and IRP's directives were in effect before the cheques were presented, rendering them incapable of encashment.

Conclusion:
For the aforementioned reasons, the petition was allowed, and the summoning order dated 24.11.2020 was quashed. The petition was disposed of accordingly.

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