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of <h1>Directors' liability for cheque dishonour during CIRP moratorium and IRP appointment-held not in charge; summons quashed</h1> Whether erstwhile directors can be prosecuted under Section 138 N.I. Act when CIRP with IRP appointment and moratorium preceded completion of the offence: ... Filing and continuation of complaint under Section 138 of N.I. Act, when CIRP proceedings had been initiated and IRP had been appointed prior to giving of demand notice - HELD THAT:- The controversy is no more res integra. In Vishnoo Mittal [2025 (3) TMI 839 - SUPREME COURT], an identical issue had arisen before the Hon’ble Supreme Court. In the said case, the cheques had been issued by a private limited company which were dishonoured on 07.07.2018, and the legal notice dated 06.08.2018 under Section 138 of N.I. Act was issued to the director of the company namely, Vishnoo Mittal, who failed to make the payment. Consequently, a complaint was filed for the offence under Section 138 of N.I. Act in September, 2018 - The Hon’ble Supreme Court placing reliance on Section 17 of IBC, observed that when the notice was issued to the director of the said company, he was not incharge of the corporate debtor as he was suspended from his position as director thereof from the day IRP was appointed on 25.07.2018, and all the powers vested with the Board of Directors were to be exercised by the IRP. Thus, all the bank accounts of the corporate debtor were operating under the instructions of the IRP, hence, it was not possible for the director of the said private limited company to repay the amounts. Accordingly, the Hon’ble Supreme Court quashed the summoning order, as well as, the complaint filed under Section 138 of N.I. Act. In Govind Prasad Todi v. Govt. of NCT of Delhi, [2023 (6) TMI 534 - DELHI HIGH COURT], a Coordinate Bench while dealing with identical factual matrix, observed that when Resolution Professional has been appointed, the control of the operation of the bank accounts of the corporate debtor is taken over by the RP, the directors of the corporate debtor cannot be said to be in control of the affairs of the company. Accordingly, it was held that the erstwhile directors of the corporate debtor cannot be summoned under Section 138 of NI Act. In the case in hand the two cheques in question were returned unpaid for the second time on 02.07.2022. The demand notices dated 14.07.2022 issued by respondent no.1/bank, which were dispatched on 21.07.2022, were received by the petitioners between 23.07.2022 and 26.07.2022. Even on the basis of the earliest date of service of demand notice i.e. 23.07.2022, the 15 days period for making payment in terms of demand notice had expired on 07.08.2022 - Thus, the offence under Section 138 of N.I. Act was complete on 07.08.2022 and it is thereafter, that the cause of action arose for filing the complaint under the said provision. However, in the meanwhile, the NCLT, Mumbai admitted the petition under Section 7 of IBC; initiated CIRP against respondent no.2/company; appointed the IRP, and imposed a moratorium under Section 14 of IBC. The petitioners in their capacity as erstwhile directors were not incharge of respondent no.2/company’s [corporate debtor] affairs nor were having any authority to operate its bank accounts and to ensure honouring, or to prevent the dishonouring, of two cheques in question. Therefore, the petitioners could not have been summoned under section 138 of NI Act, and holding them guilty for the alleged offence does not arise. The impugned summoning order dated 24.01.2023 is quashed - Petition allowed. Issues: (i) Whether a complaint under Section 138 of the Negotiable Instruments Act can be filed and continued against erstwhile directors when Corporate Insolvency Resolution Process has been initiated and an Interim Resolution Professional has been appointed prior to issuance/service of the statutory demand notice.Analysis: The statutory framework comprises Section 138 NI Act governing dishonour of cheques and the IBC provisions which vest management and the power to operate corporate debtor accounts in the Interim Resolution Professional from the date of appointment, and impose a moratorium. Where CIRP had been initiated and IRP appointed before or during the statutory notice/notice period, the erstwhile directors are suspended from exercising board powers and do not control the corporate debtor's bank accounts or management. Applying these principles to the facts, the 15-day period for compliance under the demand notice expired after CIRP and IRP appointment; consequently, the petitioners lacked the capacity and authority to honour or effect payment of the cheques. Earlier authoritative decisions dealing with identical questions were applied to conclude that continuation of proceedings under Section 138 against suspended directors in such circumstances is impermissible.Conclusion: The complaint and summoning order under Section 138 NI Act against the petitioners are quashed; the petition is allowed in favour of the petitioners.
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