Cheque dishonour prosecution barred after insolvency moratorium commenced before Section 138 cause of action matured.

Section 138 prosecution for dishonour of cheque could not be maintained against a director where the insolvency moratorium had already commenced before the statutory cause of action matured, and the corporate debtor's management had vested in the interim resolution professional. The Court noted that liability under Section 138 is completed only after dishonour, service of demand notice, and failure to pay within fifteen days; on these facts, the appellant no longer controlled the company's affairs or bank accounts and could not comply with the notice. It also held that continuation of the complaint was unwarranted and the complaint and summoning order were liable to be quashed under Section 482 CrPC to prevent abuse of process.

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Issues: (i) Whether proceedings under Section 138 of the Negotiable Instruments Act, 1881 could continue against the director of a corporate debtor when the insolvency moratorium had commenced before the cause of action under Section 138 accrued. (ii) Whether the complaint and summoning order were liable to be quashed in exercise of powers under Section 482 of the Code of Criminal Procedure, 1973.

Issue (i): Whether proceedings under Section 138 of the Negotiable Instruments Act, 1881 could continue against the director of a corporate debtor when the insolvency moratorium had commenced before the cause of action under Section 138 accrued.

Analysis: The liability under Section 138 is completed only when the cheque is dishonoured, a demand notice is served, and the drawer fails to pay within fifteen days. On the facts, the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 had already commenced before the expiry of the statutory period for payment under the notice. Once the interim resolution professional took over management under Section 17 of the Insolvency and Bankruptcy Code, 2016, the appellant ceased to have control over the corporate debtor's affairs and bank accounts. In that situation, the appellant could not have complied with the demand notice in the manner contemplated by Section 138.

Conclusion: Proceedings under Section 138 could not be sustained against the appellant in the peculiar facts of the case.

Issue (ii): Whether the complaint and summoning order were liable to be quashed in exercise of powers under Section 482 of the Code of Criminal Procedure, 1973.

Analysis: The facts were distinguished from the earlier precedent relied upon by the High Court because, here, the cause of action under Section 138 arose after commencement of insolvency proceedings and after the management of the corporate debtor had vested in the interim resolution professional. In these circumstances, continuation of the criminal complaint against the appellant was unwarranted, and interference was justified to prevent abuse of process.

Conclusion: The complaint and summoning order were liable to be quashed under Section 482 of the Code of Criminal Procedure, 1973.

Final Conclusion: The appeal succeeded, and the criminal proceedings against the appellant were set aside because the statutory ingredients for continuing the prosecution could not be made out after the moratorium and takeover of management by the interim resolution professional.

Ratio Decidendi: Where the moratorium under the Insolvency and Bankruptcy Code commences before the Section 138 cause of action matures, and the corporate debtor's management has vested in the interim resolution professional, prosecution based on non-payment after notice cannot be maintained against the director who no longer controls the debtor's affairs.

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