Section 138 complaint against erstwhile directors fails when insolvency moratorium ends their control over company payments.

Complaint proceedings under Section 138 of the Negotiable Instruments Act could not be maintained against erstwhile directors where insolvency proceedings had commenced before expiry of the statutory notice period, the moratorium had come into force, and control of the corporate debtor had vested in the interim resolution professional. With the board suspended and the petitioners having no control over the company's affairs or bank accounts, they could not ensure payment of the cheque amount. The complaint was therefore held unsustainable against them, and the summoning order and connected proceedings were quashed.

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Issues: Whether complaint proceedings under Section 138 of the Negotiable Instruments Act, 1881 could continue against erstwhile directors when, before the expiry of the statutory notice period, insolvency proceedings had commenced against the company, the moratorium had come into force, and the interim resolution professional had taken over the management and bank accounts of the corporate debtor.

Analysis: The demand notices were served after initiation of the corporate insolvency resolution process and during the statutory notice period the management of the corporate debtor had vested in the interim resolution professional under the Insolvency and Bankruptcy Code, 2016. Once the moratorium operated and the board stood suspended, the petitioners, as erstwhile directors, had no control over the affairs of the company or its bank accounts and could not ensure payment of the cheque amount. The complaint under Section 138 of the Negotiable Instruments Act, 1881 therefore could not be sustained against them on the facts presented. The contrary reliance placed on a case not involving such insolvency-triggered incapacitation was found inapposite.

Conclusion: The proceedings under Section 138 of the Negotiable Instruments Act, 1881 were not maintainable against the petitioners, and the summoning order as well as the connected complaint proceedings were quashed.

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