2023 (6) TMI 838 - HC - Indian Laws

Court allows concurrent proceedings under Insolvency and Bankruptcy Code and Negotiable Instruments Act

Sachin Goyal and another Versus M/s Rajasthan Trading Co. and another

The High Court dismissed the petition seeking to quash a complaint under Section 138 of the Negotiable Instruments Act, 1881, and summoning orders, ... Continuation of present proceedings under the NI Act simultaneously, during the pendency of the proceedings under the IBC - Dishonour of cheque - HELD THAT:- While dealing with a similar question, a Three Judge Bench of the Hon’ble Supreme Court in Ajay Kumar Radheyshyam Goenka vs. Tourism Finance Corporation Of India Ltd [2023 (3) TMI 686 - SUPREME COURT], has held To say that under a scheme which may be approved, a part amount will be recovered or if there is no scheme a person may stand in a queue to recover debt would absolve the consequences under Section 138 of the N.I. Act, is unacceptable. Thus, what flows from the above law laid down by the Hon'ble Supreme Court is that whereas recovery proceedings barred under Section 14 of the IBC are primarily civil in nature, the proceedings under Section 138 of the NI Act are criminal in nature, and both have a different set of purpose. Furthermore, the complainant approaches the Criminal Court not only for recovery of the legally enforceable debt but also for taking penal action under Section 138 of the NI Act for the offence already committed by the accused by not making the payment of the cheque amount despite the receipt of the statutory notice. Therefore, by operation of the provisions of the IBC, the criminal prosecution initiated against the natural persons under Section 138 read with 141 of the NI Act would not stand terminated. This Court does not find any merit in the instant petition, which is accordingly dismissed. Issues Involved:1. Invocation of inherent jurisdiction under Section 482 of the Cr.P.C. for quashing a complaint under Section 138 of the Negotiable Instruments Act, 1881.2. Whether proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) can continue simultaneously with proceedings under the NI Act.Summary:The petitioners invoked the inherent jurisdiction of the High Court under Section 482 of the Cr.P.C. seeking to quash a complaint under Section 138 of the Negotiable Instruments Act, 1881, along with summoning orders passed by the lower courts. The petitioners, who were directors of a company undergoing resolution before the NCLT, argued that due to an interim moratorium order by the NCLT, they ceased to be directors and could not be held liable under Section 138 of the NI Act. The main contention was whether proceedings under the IBC and NI Act could run concurrently.In considering the issue, the Court referred to a Supreme Court judgment which clarified that the nature of proceedings under the IBC and NI Act are distinct and do not intercede with each other. The Court highlighted that Section 138 of the NI Act involves criminal proceedings, not akin to civil recovery proceedings. The purpose of Section 138 is penal in nature, aiming to penalize the dishonor of negotiable instruments, distinct from civil debt recovery. Therefore, the Court concluded that the criminal prosecution under Section 138 of the NI Act against individuals would not be terminated by the operation of IBC provisions.Ultimately, the High Court dismissed the petition, finding no merit in the argument that the IBC proceedings should halt the NI Act proceedings against the accused individuals.This judgment clarifies the coexistence of proceedings under the IBC and NI Act, emphasizing the distinct nature of civil and criminal proceedings, thereby upholding the continuation of criminal prosecution under the NI Act despite ongoing insolvency proceedings.