Interim moratorium under insolvency law does not halt cheque dishonour proceedings against the personally liable drawer

Pendency of a personal guarantor insolvency application under Section 94(1) and the resulting interim moratorium under Section 96 of the Insolvency and Bankruptcy Code did not require suspension of Section 138 cheque dishonour proceedings against the natural person liable on a separate personal liability. The Court applied the settled principle that the moratorium protects only the person or entity covered by it and does not extinguish personal penal liability in cheque dishonour cases. Finding that the complaint was founded on separate loan and mortgage documentation and that no legal infirmity existed in the refusal to stay the criminal case, the request for stay was rejected and the refusal to stay was upheld.

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Issues: Whether pendency of an application under Section 94(1) and the consequent interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 required stay of proceedings under Section 138 of the Negotiable Instruments Act, 1881.

Analysis: The application under the Insolvency and Bankruptcy Code was filed in the context of personal guarantor insolvency, whereas the complaint under Section 138 of the Negotiable Instruments Act arose from a cheque dishonour relating to a separate personal liability. The governing principle applied was that the moratorium provisions under the Insolvency and Bankruptcy Code do not extinguish the personal penal liability of the drawer or signatory in a cheque dishonour case. Reliance was placed on the settled position that proceedings under Section 138 may continue against natural persons notwithstanding insolvency proceedings affecting the corporate debtor, and that the statutory protection is confined to the entity covered by the moratorium. The Court also noted that the complaint was supported by secured loan documentation and mortgage security, and found no legal infirmity in the refusal to stay the criminal proceedings.

Conclusion: The request to stay the Section 138 proceedings on the basis of the insolvency application was rejected, and the order refusing stay was upheld.

Ratio Decidendi: Interim moratorium under the Insolvency and Bankruptcy Code does not bar or terminate pending cheque dishonour proceedings against the natural person liable under the Negotiable Instruments Act where the statutory protection is not attracted to that person.

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