Insolvency moratorium does not bar cheque dishonour prosecution or invalidate a compensation deposit condition in appeal.

Proceedings under Section 138 of the Negotiable Instruments Act remain criminal and penal in character, so initiation of insolvency proceedings and the interim moratorium under the Insolvency and Bankruptcy Code do not extinguish criminal liability or stop cheque dishonour prosecution against the drawer or signatory. The moratorium was held not to bar continuation of such proceedings, and the conviction was not rendered invalid on that ground. The appellate direction to deposit part of the compensation amount as a condition for suspension of sentence was also not shown to be illegal, so interference was refused.

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Issues: Whether initiation of insolvency proceedings and the interim moratorium under the Insolvency and Bankruptcy Code, 2016 barred prosecution under Section 138 of the Negotiable Instruments Act, 1881 or invalidated the condition requiring deposit of compensation for suspension of sentence.

Analysis: The legal position was treated as settled that proceedings under Section 138 of the Negotiable Instruments Act, 1881 are criminal and penal in character, and are not recovery proceedings. The scope of the moratorium under the Insolvency and Bankruptcy Code, 2016 was held not to extend so as to extinguish criminal liability or prevent continuation of cheque dishonour proceedings against the drawer or signatory. On that basis, the mere initiation of insolvency proceedings did not make the conviction bad, and the appellate court's direction to deposit part of the compensation amount as a condition for suspension of sentence was also not shown to be illegal.

Conclusion: The initiation of insolvency proceedings did not bar the conviction under Section 138 of the Negotiable Instruments Act, 1881 or the deposit condition imposed in appeal, and interference was refused.

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