Cheque-dishonour prosecution survives insolvency proceedings; Section 96 IBC does not bar criminal action against directors.

Pendency of proceedings under Section 96 of the Insolvency and Bankruptcy Code, 2016 did not bar continuation of a cheque-dishonour complaint under Section 138 of the Negotiable Instruments Act, 1881 against the company's directors. The complaint was treated as penal in character, not a debt-recovery proceeding, and the insolvency moratorium was held not to extinguish or suspend criminal liability of natural persons proceeded against under Section 141 of the Negotiable Instruments Act, 1881. The Court also found no basis for interference under Section 482 of the Code of Criminal Procedure, 1973, noting that the petition sought to delay a long-pending trial. The request to stay or quash the complaint was rejected.

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Issues: Whether the pendency of proceedings under Section 96 of the Insolvency and Bankruptcy Code, 2016 barred continuation of a complaint under Section 138 of the Negotiable Instruments Act, 1881 against the directors of the company, and whether the order declining stay of the complaint warranted interference under Section 482 of the Code of Criminal Procedure, 1973.

Analysis: The complaint under Section 138 of the Negotiable Instruments Act, 1881 was held to be penal in character and not a proceeding for recovery of debt. The Court applied the principle that the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 operates against the corporate debtor in insolvency proceedings, but does not extinguish or suspend criminal liability of natural persons proceeded against under Section 141 of the Negotiable Instruments Act, 1881. Relying on the later Supreme Court view, the Court held that Section 96 of the Insolvency and Bankruptcy Code, 2016 also does not create a bar to continuation of such criminal proceedings against the managing director and director, because the complaint was not in respect of a debt proceeding but a penal prosecution for dishonour of cheque. The Court further held that the petition under Section 482 of the Code of Criminal Procedure, 1973 was being used to delay a long-pending trial and amounted to abuse of process.

Conclusion: The request to stay or quash the complaint was rejected, and the continuation of the proceedings under Section 138 of the Negotiable Instruments Act, 1881 against the petitioners was held not to be barred by Section 96 of the Insolvency and Bankruptcy Code, 2016.

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