Court Quashes Proceedings Against Directors Under NI Act Due to IBC Moratorium and IRP Control Over Company Affairs.

The court quashed the summoning order and all related proceedings under Section 138 of the NI Act against the petitioners, who were a suspended director and an Authorized Signatory of the company. The court held that due to the moratorium under Section 14 of the IBC, the petitioners could not be held liable for the dishonored cheques as they had no control over the company's affairs following the appointment of the Interim Resolution Professional (IRP). The authority to manage the company's bank accounts was vested in the IRP, absolving the petitioners of vicarious liability.

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Issues:
Quashing of summoning order under Section 138 of the Negotiable Instruments Act, 1881 and consequential proceedings during Corporate Insolvency Resolution Process (CIRP).

Analysis:
The petitioners sought to quash the summoning order dated 01.04.2022 under Section 138 of the NI Act and all consequential proceedings arising from it. The petitioners, a suspended director and an Authorized Signatory of an accused company, issued cheques in compliance with a National Consumer Disputes Redressal Commission order. While some cheques were honored, two were dishonored post the company's admission to CIRP under the Insolvency and Bankruptcy Code, 2016 (IBC). The main contention was that due to the moratorium under Section 14 of the IBC, the petitioners could not be held liable for the offense under Section 138 of the NI Act as they had no role in the company's affairs after the appointment of the Interim Resolution Professional (IRP).

The central issue was whether proceedings under Section 138 of the NI Act could continue against individuals post the commencement of CIRP proceedings against the company. The IBC vests control and management of a corporate debtor in the IRP during insolvency proceedings. The cheques in question were presented after the IRP's appointment, resulting in the account being blocked due to the NCLT's order, thereby ceasing the account holder's authority and control over the account.

Referring to a previous judgment, the court highlighted that once CIRP proceedings are admitted, the moratorium under Section 14 of the IBC comes into effect, preventing proceedings against the corporate debtor. The question remained whether the petitioners, as natural persons, could be prosecuted under Section 138 of the NI Act. Since the IRP was in charge of the company's affairs when the cheques were presented, the petitioners' role had ceased, and the cheques could not have been encashed due to the IBC's provisions.

The court emphasized that the dishonor of cheques occurred after the imposition of the moratorium, absolving the petitioners of vicarious liability. Consequently, the court allowed the petitions, quashing the impugned order and all related proceedings. The authority to operate bank accounts lay with the IRP, not the petitioners, at the time of presentation of the cheques, leading to the dismissal of the case against the petitioners.

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