Directors cannot claim moratorium protection from dishonour of cheque proceedings through individual insolvency applications under Section 94 IBC

The HC dismissed a criminal petition filed by directors seeking suspension of sentence and stay of proceedings in a dishonour of cheque case under Section 138/141 of NI Act. The petitioners, who were convicted, filed individual debtor applications under Section 94 of IBC seeking moratorium protection. The court held that while corporate debtors under IBC may get moratorium protection from Section 138 proceedings per SC precedent, individual directors cannot claim such protection through personal insolvency applications. The moratorium under Chapter III of IBC for individuals does not extend to proceedings against them as directors or guarantors of companies not undergoing corporate insolvency resolution.

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Issues:
1. Application for suspension of sentence and stay of proceedings based on insolvency proceedings under the Insolvency and Bankruptcy Code, 2016.
2. Interpretation of the applicability of moratorium under the Insolvency and Bankruptcy Code, 2016 to individuals prosecuted under section 138/141 of the Negotiable Instruments Act, 1881.
3. Compliance with conditions for suspension of sentence and implications of non-compliance.

Analysis:
1. The petitioners, convicted under section 138 of the Negotiable Instruments Act, filed a petition for suspension of sentence pending appeal. The petitioners cited their applications under section 94(a) of the Insolvency and Bankruptcy Code, 2016, before the NCLT, Mumbai, as grounds for a stay of proceedings, invoking sections 94, 96, and 101 of the IBC. The Sessions Judge rejected their memos, leading to the present petition under section 482 of Cr.P.C.

2. The petitioners argued that the proceedings under section 138/141 of the NI Act fall within the moratorium provision of the IBC, citing the Supreme Court's decision in P. Mohanraj and others vs. Shah Brothers Ispat (P.) Ltd. The respondents contended that the moratorium under the IBC applies only to corporate debtors, not to sureties, and directors of a company. The court analyzed the applicability of the moratorium to individual directors prosecuted under the NI Act.

3. The court highlighted that the petitioners, as directors responsible for the company's affairs, were convicted and sentenced under the NI Act. They subsequently filed applications for insolvency, seeking the benefit of moratorium under the IBC. However, the court emphasized that the moratorium under the IBC does not extend to individuals prosecuted under the NI Act, as clarified in various judgments, including Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd. The court concluded that extending moratorium to individual directors in such cases would lead to absurd results and dismissed the petition.

Conclusion:
The court dismissed the Criminal Original Petition, emphasizing that the moratorium under the IBC does not cover individuals prosecuted under the NI Act, such as directors or guarantors of a company not undergoing resolution under the Code. The court held that granting moratorium to individual directors in such cases would be legally untenable and lead to unjust outcomes, ultimately upholding the rejection of the petitioners' memos and affirming the non-compliance with the conditions for suspension of sentence.

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