Insolvency moratorium does not stop cheque dishonour prosecution under Section 138 when proceedings are penal in character.

The moratorium under the Insolvency and Bankruptcy Code restrains civil recovery actions, but it does not bar criminal prosecution under Section 138 of the Negotiable Instruments Act. Cheque dishonour proceedings are penal in character and are distinct from insolvency-related civil consequences, so pendency of insolvency resolution does not prevent prosecution of the natural persons arraigned in the complaint. The High Court therefore held the Section 138 proceedings maintainable and rejected the request to quash the complaint and summoning order.

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Issues: Whether proceedings under Section 138 of the Negotiable Instruments Act, 1881 can continue during the pendency of insolvency proceedings in view of the moratorium under the Insolvency and Bankruptcy Code, 2016.

Analysis: The petition sought quashing of the complaint and summoning order on the ground that the company had entered insolvency resolution and that the petitioners were no longer managing its affairs. The governing principle applied was that the moratorium under the Insolvency and Bankruptcy Code restrains civil recovery actions, but it does not bar criminal proceedings. Proceedings under Section 138 of the Negotiable Instruments Act are penal in character and are not mere debt recovery proceedings. The criminal liability arising from dishonour of cheque is distinct from the civil consequences of insolvency, and the pendency of insolvency proceedings does not terminate prosecution of the natural persons arraigned under the cheque dishonour provisions.

Conclusion: The Section 138 proceedings were held to be maintainable notwithstanding the insolvency proceedings, and the petition for quashing was rejected.

Final Conclusion: The complaint and the connected criminal proceedings were allowed to proceed, as the insolvency moratorium did not shield the accused from prosecution under the cheque dishonour law.

Ratio Decidendi: The moratorium under the Insolvency and Bankruptcy Code does not bar criminal prosecution under Section 138 of the Negotiable Instruments Act, because such proceedings are penal and distinct from civil recovery actions.

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