TaxTMI 
TaxTMI 
2022 (8) TMI 477
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.... the petitioner in his personal capacity and was not in any manner in discharge of any corporate debt in respect of 'his company'. Thus the entire controversy is as to whether criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881, (hereinafter referred to as the "NI Act" or the "Act"), would also remain stayed in terms of Section 96 of the Code, even where the cheque in question was not issued to discharge a 'corporate debt', though issued by a personal guarantor qua a corporate debtor, but is not a cheque qua parties as are adversaries or litigants in any proceedings before the National Company Law Tribunal/Resolution Professional/Interim Resolution Professional. 2. Before going further, a very brief reference to the complaint under the NI Act, filed by the respondent, needs to be made. As per the respondent herein, the petitioner had requested him for a loan of Rs.1,00,000/- for his business requirements, with an offer made to repay the same with interest; and keeping in view their friendly relations, the complainant is stated to have given him a loan, vide a demand draft for an amount of Rs.11,00,000/-, issued by the State Bank of Patial....
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.... argument therefore is that once the petitioner had filed an application under Section 94 of the said Code before the Adjudicating Authority for initiation of a personal insolvency resolution process, in December 2020, on account of having became personally insolvent, necessarily all proceedings under Section 138 of the Act of 1881 would remain stayed in terms of the Section 96(1)(b) of the Code, which reads as follows:- "96. Interim-moratorium-(1) When an application is filed under Section 94 or Section 95- (a) an interim-moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application; and (b) during the interim-moratorium period- (i) any legal action or proceedings pending in respect of any debt shall be deemed to have been stayed; and (ii) the creditors of the debtor shall not initiate any legal action or proceedings in r espect of any debt ." (Emphasis applied in this judgment only) 4. Mr. Jagga further submitted that as a matter of fact the trial court, vide the impugned order, has wholly erred in holding that the provisions....
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....nd the interest and costs thereupon, would show that it is really a hybrid provision to enforce payment under a bounced cheque if it is otherwise enforceable in civil law. Further, though the ingredients of the offence are contained in the first part of Section 138 when the cheque is returned by the bank unpaid for the reasons given in the Section, the proviso gives an opportunity to the drawer of the cheque, stating that the drawer must fail to make payment of the amount within 15 days of the receipt of a notice, again making it clear that the real object of the provision is not to penalise the wrongdoer for an offence that is already made out, but to compensate the victim. 37. Likewise, under Section 139, a presumption is raised that the holder of a cheque received the cheque for the discharge, in whole or in part, of any debt or other liability. To rebut this presumption, facts must be adduced which, on a preponderance of probability (not beyond reasonable doubt as in the case of criminal offences), must then be proved. Section 140 is also important, in that it shall not be a defence in a prosecution for an offence under Section 138 that the drawer had no reason to beli....
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.... 53. A conspectus of these judgments would show that the gravamen of a proceeding under Section 138, though couched in language making the act complained of an offence, is really in order to get back through a summary proceeding, the amount contained in the dishonoured cheque together with interest and costs, expeditiously and cheaply. We have already seen how it is the victim alone who can file the complaint which ordinarily culminates in the payment of fine as compensation which may extend to twice the amount of the cheque which would include the amount of the cheque and the interest and costs thereupon. Given our analysis of Chapter XVII of the Negotiable Instruments Act together with the amendments made thereto and the case law cited hereinabove, it is clear that a quasicriminal proceeding that is contained in Chapter XVII of the Negotiable Instruments Act would, given the object and context of Section 14 of the IBC, amount to a "proceeding" within the meaning of Section 14(1)(a), the moratorium therefore attaching to such proceeding." 8. Thereafter, he referred to a judgment of the Supreme Court in Swiss Ribbon Pvt. Ltd. and another v. Union of India and others AIR 2019 (S....
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.... interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters / those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends." 9. Mr.Jagga next referred to another judgment of the Supreme Court, in Lalit Kumar Jain v. Union of India and others 2021 (2)Law Herald (SC) 1462, from which he specifically referred to paragraphs 91, 92, 95 and 96, which read as follow:- "91. The close proximity, or inter-relatedness of personal guarantors with corporate debtors, as opposed to individuals and partners in fi....
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....all be subject to such conditions as may be specified. 235. (1) Notwithstanding anything contained in this Code or any law for the time being in force if, in the course of insolvency resolution process, or liquidation or bankruptcy proceedings, as the case may be, under this Code, the resolution professional, liquida- tor or bankruptcy trustee, as the case may be, is of the opinion that assets of the corporate debtor or debtor, including a personal guarantor of a corporate debtor, are situated in a country outside India with which reciprocal arrangements have been made under section 234, he may make an application to the Adjudicating Authority that evidence or action relating to such assets is required in connection with such process or proceeding. (2) The Adjudicating Authority on receipt of an application under sub-section (1) and, on being satisfied that evidence or action relating to assets under sub-section (1) is required in connection with insolvency resolution process or liquidation or bankruptcy pro- ceeding, may issue a letter of request to a court or an authority of such country competent to deal with such request." XXXXX XXXXX XXXXX 9....
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....ing pending proceedings against individuals, such as personal guarantors in other forums, and would bring them under the provisions of the Code pertaining to insolvency and bankruptcy of personal guarantors. The impugned notification, as a consequence of the non obstante clause in Section 238, has the result that if any proceeding were to be initiated against personal guarantors it would be under the Code." (Emphasis applied in this judgment only) 10. Mr. Jagga also later referred to Section 79(15)(e) of the Code which reads as follow:- 79. Definitions. In this Part, unless the context otherwise requires- XXXXX XXXXX XXXXX 15. "excluded debt" means - XXXXX XXXXX XXXXX (e) any other debt as may be prescribed; He submitted that there is no exclusion of proceedings under Section 138 of the Act, in any Rules or Regulations promulgated under the Code. 11. On the aforesaid arguments notice of motion was issued to the respondent, with this court having, in the meanwhile, stayed proceedings under the Act of 1881, (qua which the impugned order has been passed). 12. Thereafter, the respondent having put in an ap....
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....eferred to the following part of paragraph 77 of that judgment, which reads as follows:- "Since the corporate debtor would be covered by the moratorium provision contained in Section 14 of the IBC, by which continuation of Section 138/141 proceedings against the corporate debtor and initiation of Section 138/141 proceedings against the said debtor during the corporate insolvency resolution process are interdicted, what is stated in paragraphs 51 and 59 in Aneeta Hada (supra) would then become applicable. The legal impediment contained in Section 14 of the IBC would make it impossible for such proceeding to continue or be instituted against the corporate debtor. Thus, for the period of moratorium, since no Section 138/141 proceeding can continue or be initiated against the corporate debtor because of a statutory bar, such proceedings can be initiated or continued against the persons mentioned in Section 141(1) and (2) of the Negotiable Instruments Act. This being the case, it is clear that the moratorium provision contained in Section 14 of the IBC would apply only to the corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable unde....
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..... In the present case, a complaint under Section 138 read with Section 141 of the Negotiable Instruments Act was filed by Respondent No.1 against the corporate debtor together with its Managing Director and Director on 15.05.2018. It is only thereafter that a petition under Section 9 of the IBC, filed by Respondent No.1, was admitted by the Adjudicating Authority and a moratorium was imposed on 30.10.2018. The impugned judgment dated 16.10.2019 held that a petition under Section 482, CrPC to quash the said proceeding would be rejected as Section 14 of the IBC did not apply to Section 138 proceedings. 3. The impugned judgment is set aside in view of our judgment in Civil Appeal No.10355 of 2018, and the complaint is directed to be continued against the Managing Director and Director, respectively. Criminal Appeal arising out of SLP (Criminal) No.3500 of 2020 1. Leave granted. 2. The complaint in the present case was filed by the respondent on 28.07.2016. An application under Section 7, IBC was admitted by the Adjudicating Authority only on 20.02.2018 and moratorium imposed on the same date. The impugned judgment rejected a petition under Section 4....
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....roceedings under Sections 138/141 of the NI Act would continue; and second, it also having held eventually in the other criminal appeals (as per the orders reproduced hereinabove), that a complaint against the erstwhile directors/persons incharge of and responsible for the conduct of the business of the corporate debtor would also continue, then obviously where the cheque in question issued by the petitioner herein was completely unrelated to any corporate debt between the petitioner and the respondent herein, the complaint filed by the respondent herein in terms of Section 138 of that Act, has to continue against the petitioner and cannot be stayed even in terms of Sections 96 and 101 of the Code, given the fact that even the aims and objects of the Code are only to protect corporate debtors and have nothing to do at all with regard to a debt incurred wholly in a personal capacity with an individual who is not concerned in any manner with any corporate debt (i.e. the respondent herein). He thus reiterated that simply because the petitioner is a personal guarantor to a corporate debtor in a dispute wholly between banks and companies, with the respondent herein having nothing at ....
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....d contentions, Mr. Jagga, learned counsel for the petitioner, again referred to Sections 79, 96, 102, 105, 107, 108, 109, 114 and 115 of the Code. He contended that the term "excluded debt" would include only those debts as are described in clauses (a) to (d) of Section 79; and consequently, any debt incurred even between two individuals would come within the ambit of Section 94 of the Code, resulting in an interim moratorium as prescribed in Section 96 thereof, being applicable to any complaint pending under the provisions of Section 138 of the Negotiable Instruments Act, 1881, till either admission of the petition filed by the petitioner before the adjudicating authority/NCLT, or at least upto its rejection (without admission), under Section 100 thereof. 20. He next submitted that though the ratio of the judgment in P. Mohanraj and others v. M/s Shah Brothers Ispat Pvt. Ltd. (Civil Appeal no.10355 of 2018, decided on March 01, 2021), may not strictly apply to the case of the petitioner, in view of the fact that the petitioner is a guarantor in his personal capacity as a Director of the company as is now in insolvency/ liquidation proceedings, that judgment being one pertain....
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....r he is not a corporate personality himself and still remains an individual who 'is in the process of becoming bankrupt/has already become bankrupt'. 22. Learned counsel for the petitioner last submitted that the petitioner has included the name of the respondent herein (Pritpal Singh Babbar), in the list of those persons whom he owes a debt to, alongwith his application under Section 94 of the Code; and therefore the interest of the respondent would get duly protected at the relevant time if the assets of the petitioner are to be distributed to his creditors. 23. Having considered the matter the three essential facts that first need to be noticed from the arguments of learned counsel for the respondent as are not denied by learned counsel for the petitioner, are that:- i. That the complaint filed by the respondent herein against the petitioner under the provisions of Section 138 of the NI Act (copy Annexure P-1), is seen to be dated 21.03.2012 and with summons having been issued to the petitioner by the learned trial court (JMIC, Jalandhar), on 28.05.2012 (copy Annexure P-2). ii. The application made by the petitioner before the National Company Law Tribunal (C....
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.... all legal proceedings pending in respect of any debt incurred by the applicant, i.e. the petitioner herein. Per contra, learned counsel for the respondent essentially submitted that the respondent in no way being even remotely connected to the liability of the petitioner or his company, i.e. M/s Priknit Retails Ltd., and the cheque issued by the petitioner in favour of the respondent being in respect of a transaction/loan entered into wholly in their own individual capacities, from the personal account of the petitioner, no provision of the Code would apply to any proceedings arising out of such liability of the petitioner, including proceedings under Section 138 of the NI Act. 25. First and foremost, the following provisions of the Code need to be reproduced, as are germane to the controversy:- "Section 2. The provisions of this Code shall apply to- (a) any company incorporated under the Companies Act, 2013 (18 of 2013) or under any previous company law; (b) any other company governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act; (c) any Li....
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....unal having territorial jurisdiction over the place where the registered office of the corporate persons located. (2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or 1 [liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of such corporate debtor] shall be filed before such National Company Law Tribunal. (3) An insolvency resolution process or 2[liquidation or bankruptcy proceeding of a corporate guarantor or personal guarantor, as the case may be, of the corporate debtor] pending in any court or tribunal shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such corporate debtor. (4) The National Company Law Tribunal shall be vested with all the powers of the Debt Recovery Tribunal as contemplated under Part III of this Code for the purpose of sub-section (2). (5) Notwithstandin....
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....or the benefit of the debtor; and (g) a company, where the debtor or the debtor along with his associates, own more than fifty per cent. of the share capital of the company or control the appointment of the board of directors of the company. Explanation.-For the purposes of this clause, "relative", with reference to any person, means anyone who is related to another, if- (i) they are members of a Hindu Undivided Family; (ii) one person is related to the other in such manner as may be prescribed; (3) "bankrupt" means- (a) a debtor who has been adjudged as bankrupt by a bankruptcy order under section 126; (b) each of the partners of a firm, where a bankruptcy order under section 126 has been made against a firm; or (c) any person adjudged as an undischarged insolvent; (4) "bankruptcy" means the state of being bankrupt; (5) "bankruptcy debt", in relation to a bankrupt, means- (a) any debt owed by him as on the bankruptcy commencement date; (b) any debt for which he may become liable after bankruptcy commencement date but before his discharge by reason of any transaction entered ....
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....59 of the Indian Partnership Act, 1932 (9 of 1932); (17) "immediate family" of the debtor means his spouse, dependent children and dependent parents; (18) "partnership debt" means a debt for which all the partners in a firm are jointly liable; (19) "qualifying debt" means amount due, which includes interest or any other sum due in respect of the amounts owed under any contract, by the debtor for a liquidated sum either immediately or at certain future time and does not include- (a) an excluded debt; (b) a debt to the extent it is secured; and (c) any debt which has been incurred three months prior to the date of the application for fresh start process; (20) "repayment plan" means a plan prepared by the debtor in consultation with the resolution professional under section 105 containing a proposal to the committee of creditors for restructuring of his debts or affairs; (21) "resolution professional" means an insolvency professional appointed under this part as a resolution professional for conducting the fresh start process or insolvency resolution process; (22) "undischarged bankrupt" means a bankrupt ....
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....ere the Adjudicating Authority admits an application under sub-section (1), it may, on the request of the resolution professional, issue instructions for the purpose of conducting negotiations between the debtor and creditors and for arriving at a repayment plan. (3) The Adjudicating Authority shall provide a copy of the order passed under sub-section (1) along with the report of the resolution professional and the application referred to in section 94 or 95, as the case may be, to the creditors within seven days from the date of the said order. (4) If the application referred to in section 94 or 95, as the case may be, is rejected by the Adjudicating Authority on the basis of report submitted by the resolution professional that the application was made with the intention to defraud his creditors or the resolution professional, the order under sub-section (1) shall record that the creditor is entitled to file for a bankruptcy order under Chapter IV. Section 101: Moratorium. (1) When the application is admitted under section 100, a moratorium shall commence in relation to all the debts and shall cease to have effect at the end of the period of one....
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....e Code, the Supreme Court in P. Mohanraj (supra) has specifically held that there would be a moratorium even on proceedings under Section 138 of the Act, once the adjudicating authority, on the insolvency commencement date, has ordered that such moratorium be declared. 27. In that context it needs to be observed that the term "insolvency commencement date" has been defined in Section 5 (12) of the Code to be the date of admission of an application for initiating a corporate insolvency resolution process under Section 7/9/10 as the case may be. (The said provisions, i.e. Sections 7, 9 and 10, refer to initiation of such process by a financial creditor, operational creditor and a corporate applicant respectively). Section 5(11) of the Code defines an "initiation date" to be the date on which the applicant makes an application to the adjudicating authority for initiating the corporate insolvency resolution process etc. 28. What is important to again notice here is that Sections 5, 7, 10 and 14 of the Code all fall within Part-II thereof, with the heading of that Part reading as follows:- "Insolvency Resolution and Liquidation for corporate persons" The said ....
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....and subsumes it. Also, the expression "proceedings" used by the legislature in Section 14(1)(a) is not trammelled by the word "legal" as a prefix that is contained in the moratorium provisions qua individuals and firms. Likewise, the provisions of Section 96 and Section 101 are moratorium provisions in Chapter III of Part III dealing with the insolvency resolution process of individuals and firms, the same expression, namely, "debts" is used as is used in Section 85. Sections 96 and 101 read as follows: xxxxx xxxxx xxxxx A legal action or proceeding in respect of any debt would, on its plain language, include a Section 138 proceedings. xxxxx xxxxx xxxxx" (Emphasis applied in this judgment only) Paragraph 28 thereafter reads as follows:- "28. When the language of these Sections is juxtaposed against the language of Section 14, it is clear that the width of Section 14 is even greater, given that Section 14 declares a moratorium prohibiting what is mentioned in clauses (a) to (d) thereof in respect of transactions entered into by the corporate debtor, inclusive of transactions relating to debts, as is contained in Sections 81, 85, 96 and....
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....antees are given in respect of individual debts by persons who have unlimited liability to pay them. And such guarantors may be complete strangers to the debtor -- often it could be a personal friend. It is for this reason that the moratorium mentioned in Section 101 would cover such persons, as such moratorium is in relation to the debt and not the debtor" (Emphasis applied in this judgment only) 31. Having referred to the aforesaid paragraphs in V. Ramakrishnan, in P. Mohanraj their Lordships held as follows by way of a comment on the significance of the context of the judgment in V. Ramakrishnan:- "These observations, when viewed in context, are correct. However, this case is distinguishable in that the difference between these provisions and Section 14 was not examined qua moratorium provisions as a whole in relation to corporate debtors vis-a-vis individuals/firms." 32. In the context of the present case before this court, what is to be observed is that in paragraph 26.1 of V. Ramakrishnan, the Supreme Court has specifically observed that in a vast majority of cases personal guarantees are given by the Directors of the companies (as are in debt), which is the ad....
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....ed (in paragraph 23 (iii) of this judgment, supra), the application filed by the present petitioner (copy Annexure P-17), under the provisions of Section 94(1) of the Code read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for personal Guarantors to corporate Debtors) Rules, 2019 (hereinafter referred to as the Rules of 2019), is to initiate "an insolvency resolution process in respect of VIJAY KUMAR GHAI", which would only be possible, on a bare reading of Section 60 (2), if the company of which he is a Director and stands as a personal guarantor to, i.e. M/s Priknit Retails Ltd., is already in proceedings before the NCLT for insolvency resolution/liquidation, either initiated by itself or initiated by the two banks or the company as have been made respondents by the petitioner in his application, i.e. M/s ICICI Bank, State Bank of India and ASREC (India) Ltd. It is not denied that in fact proceedings under Section 7 of the Code were initiated by the State Bank of India against the petitioners' company, i.e. M/s Priknit Retails Ltd., upon which an order was initially passed on 11.09.2019 by the learned ....
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....erpreting the phrases "all the debts" and "any legal actions or proceedings pending in respect of any debt" as are referred to in Section 96 of the Code. First, that as per a plain reading of the aforesaid phrases in the provision, once a personal guarantor to a corporate debtor has filed an application under Section 94(1) before the Adjudicating Authority, all legal proceedings in respect of any debt that the personal guarantor is facing, would be covered by the interim moratorium and consequently the proceedings in the complaint filed by the respondent herein under Section 138 of the Act also would remain stayed, such proceedings being in respect of a debt alleged to have been incurred by the petitioner qua the respondent, (with such interim moratorium to continue till the application under Section 94 is either rejected or accepted by the Adjudicating Authority. If the application is admitted, proceedings under Section 138 would remain stayed till the proceedings before the Tribunal are taken to their logical conclusion, in terms of Sections 100 and 101 of the Code). The other interpretation that can be given is that the phrases "all legal proceedings" and "any debt", only per....
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...., led to carving out personal guarantors as a separate species of individuals, for whom the Adjudicating Authority was common with the corporate debtor to whom they had stood guarantee. The fact that the process of insolvency in Part III is to be applied to individuals, whereas the process in relation to corporate debtors, set out in Part II is to be applied to such corporate persons, does not lead to incongruity. On the other hand, there appear to be sound reasons why the forum for adjudicating insolvency processes - the provisions of which are disparate- is to be common, i.e. through the NCLT. As was emphasized during the hearing, the NCLT would be able to consider the whole picture, as it were, about the nature of the assets available, either during the corporate debtor's insolvency process, or even later; this would facilitate the CoC in framing realistic plans, keeping in mind the prospect of realizing some part of the creditors' dues from personal guarantors." (Emphasis applied in this judgment only). 37. Hence, it is obviously clear from a reading of the aforesaid part of the said judgment as also from the relevant provisions of the Code as have been repr....
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....roceedings under Section 138 suffer further delays, especially when in the present case he has already suffered a delay of about 10 years since his complaint was initially filed, however, in the light of the aforesaid observations as also the fact that Section 96 of the Code does not specifically carve out any exception qua such a debt as is subject matter of an instrument in the context of which a complaint under Section 138 of the Act has been filed, this court would have to interpret the terms "all the debts" and "any legal action or proceedings pending in respect of any debt" as occur in Section 96 of the Code, to mean that it would cover all such debts including any debt not pertaining to a corporate debtor for whom the accused in such a complaint under Section 138 stood as a personal guarantor to, even in his capacity as a Director of such corporate debtor. This would be further so in the opinion of this court, because a "debt" has been defined in the absolutely generic meaning of the word, in Section 3 (11) of the Code (falling in the preliminary Part-I thereof); and further, as admitted by learned counsel for the respondent, a debt as is subject matter of proceedings und....