Security cheques and insolvency moratorium under Section 138: prosecution failed where CIRP barred action against the company.

A cheque issued as security is not immune from Section 138 of the Negotiable Instruments Act if it is voluntarily signed and delivered and liability exists when presented; statutory presumptions under Sections 139 and 20 may apply unless rebutted with cogent evidence. Once CIRP commences, the moratorium and suspension of management bar initiation or continuation of a Section 138 complaint against the corporate debtor, and directors cannot be vicariously prosecuted under Section 141 where the company itself is not prosecutable as principal offender. Dishonour recorded as "drawer's signature differs" in the context of insolvency control did not sustain the complaint, which was held not maintainable.

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Issues: (i) Whether cheques issued as security could sustain a prosecution under Section 138 of the Negotiable Instruments Act, 1881; (ii) Whether the commencement of CIRP and the moratorium under the Insolvency and Bankruptcy Code, 2016 barred initiation or continuation of proceedings under Section 138 against the company and its directors; (iii) Whether the complaint was maintainable when the cheques were dishonoured for the reason "drawers signature differs" and the corporate account had already been placed under insolvency control.

Issue (i): Whether cheques issued as security could sustain a prosecution under Section 138 of the Negotiable Instruments Act, 1881.

Analysis: A cheque issued as security is not, by that fact alone, outside the reach of Section 138. Where the cheque is voluntarily signed and delivered, and a liability exists when it is presented, the cheque may mature for presentation. A signed blank or incomplete cheque also attracts the statutory presumptions under Sections 139 and 20 of the Negotiable Instruments Act, 1881, unless the accused rebuts them with cogent evidence. The record did not support the plea that the cheques were incapable of being presented merely because they originated as security cheques.

Conclusion: The challenge based on the cheques being security cheques was rejected.

Issue (ii): Whether the commencement of CIRP and the moratorium under the Insolvency and Bankruptcy Code, 2016 barred initiation or continuation of proceedings under Section 138 against the company and its directors.

Analysis: Once CIRP had commenced, the corporate debtor's management and the powers of the board stood suspended and vested in the resolution professional, and later the liquidator. In that situation, proceedings to enforce a debt by a complaint under Section 138 could not be initiated or continued against the corporate debtor during the moratorium. On the liability of directors, vicarious liability under Section 141 of the Negotiable Instruments Act, 1881 is strict and depends on the company being prosecutable as the principal offender. Since the company itself was not amenable to continuation of the complaint in the face of the insolvency process, the directors could not be fastened with liability on these facts. The Court also noted that the complainant had notice of the insolvency proceedings and had filed claims therein.

Conclusion: The complaint could not validly proceed against the company, and the directors were also not liable to be summoned on these facts.

Issue (iii): Whether the complaint was maintainable when the cheques were dishonoured for the reason "drawers signature differs" and the corporate account had already been placed under insolvency control.

Analysis: The dishonour memo recorded "drawers signature differs," which was consistent with the bank account having been rendered inoperative after the insolvency process and the directions issued by the resolution professional. On that footing, and in the absence of a legally sustainable basis to continue the Section 138 proceedings, the complaint could not be maintained against the petitioners.

Conclusion: The complaint was not maintainable on this ground as well.

Final Conclusion: The summoning order was set aside, the petitioners were discharged, and the proceedings stood allowed and disposed of.

Ratio Decidendi: After commencement of CIRP, a Section 138 prosecution cannot be initiated or continued against the corporate debtor, and directors cannot be vicariously prosecuted in the absence of a legally sustainable proceeding against the company as principal offender.

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