Directors cannot escape criminal liability for cheque dishonour under Section 138 despite company's IBC proceedings or dissolution

HC dismissed petition challenging proceedings under Section 138 of NI Act despite concurrent insolvency proceedings under IBC. Court held that directors/signatories cannot escape penal liability for cheque dishonour by citing company's dissolution or pending IBC proceedings. Following SC precedent in Ajay Kumar Radheyshyam Goenka case, personal liability of directors remains intact even when corporate debtor obtains discharge under IBC. Court emphasized that accused company's dissolution does not absolve directors from criminal liability, and complainant bank's secured creditor status with equitable mortgage further strengthened the case.

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Issues Involved:

1. Whether proceedings under Section 138 of the Negotiable Instruments Act abate due to the initiation of proceedings under Section 94(1) of the Insolvency and Bankruptcy Code (IBC), or can they proceed simultaneouslyRs.
2. The applicability of interim moratorium under Section 96 of the IBC on proceedings initiated under Section 138 of the Negotiable Instruments Act.
3. The personal liability of directors/signatories in cheque dishonour cases amidst corporate insolvency proceedings under the IBC.

Detailed Analysis:

Issue 1: Concurrent Proceedings under Section 138 and IBC

The primary issue was whether the initiation of proceedings under Section 94(1) of the Insolvency and Bankruptcy Code (IBC) results in the abatement of proceedings under Section 138 of the Negotiable Instruments Act. The court held that proceedings under Section 138 do not abate due to insolvency proceedings under the IBC. The judgment referenced the Supreme Court's decision in *Ajay Kumar Radheyshyam Goenka Vs. Tourism Finance Corporation of India Ltd.*, which clarified that the penal liability under Section 138 persists despite the initiation of corporate insolvency resolution processes. The court emphasized that the personal penal liability of directors or signatories is not extinguished by the corporate debtor's insolvency proceedings.

Issue 2: Applicability of Interim Moratorium under Section 96 of the IBC

The petitioner argued that an interim moratorium under Section 96 of the IBC should stay proceedings under Section 138 of the Negotiable Instruments Act. The court rejected this argument, noting that the interim moratorium applies only to the corporate debtor and not to the natural persons involved. The court cited the Supreme Court's ruling in *P. Mohanraj & Ors. Vs. Shah Brothers Ispat Private Ltd.*, which established that the moratorium provision under Section 14 of the IBC applies to corporate debtors, not to individuals liable under Section 141 of the Negotiable Instruments Act. Thus, the court concluded that the interim moratorium does not stay proceedings against directors or signatories in cheque dishonour cases.

Issue 3: Personal Liability of Directors/Signatories

The court addressed the issue of whether directors or signatories can escape personal liability in cheque dishonour cases due to corporate insolvency proceedings. It was determined that directors or signatories cannot evade their personal penal liability by citing the company's insolvency proceedings. The court reiterated that, according to the Supreme Court's interpretation, personal liability under Section 138 remains intact despite the corporate debtor's insolvency resolution. The court emphasized that the liability of directors or signatories is distinct from that of the corporate debtor, and they remain liable for offences committed under Section 138 of the Negotiable Instruments Act.

Conclusion:

The court upheld the trial court's decision, finding no illegality or infirmity in its order. It concluded that the proceedings under Section 138 of the Negotiable Instruments Act can continue concurrently with insolvency proceedings under the IBC, and the personal liability of directors or signatories remains unaffected by the corporate debtor's insolvency. Consequently, the petition was dismissed, affirming the trial court's ruling.

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