TaxTMI 
TaxTMI 
2023 (3) TMI 686
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.... under the Agreement, the Accused company issued post-dated cheque of Rs. 25,47,945/- bearing cheque number 090656 dated 15.02.2016, drawn on Indian Overseas Bank, Kalupur Circle Branch, Railway Pura, Ahmedabad, towards the payment of one of the instalments. On the cheque being presented to the bankers of the Respondent i.e., HDFC Bank Limited, Nehru Place Branch, New Delhi, the cheque was returned vide Memo dated 07.04.2016 for the reason "Account Closed". 3. On 19.04.2016, a demand-cum-legal notice under Section 138 of Negotiable Instruments Act, 1881, (hereinafter referred to as 'the NI Act') was issued on behalf of the Respondent calling upon the company as Accused no.1 and the Appellant herein as Accused no. 2 to settle the debt advanced by way of corporate loan dated 27.03.2012. The Accused acknowledged their liability to pay the loan amount vide reply dated 28.04.2016. The amount was not paid and, thus, on 16.05.2016, Criminal Complaint No. 632982/2016 was filed in the Court of Chief Metropolitan Magistrate, Saket Courts, New Delhi, under Section 190 of the Code of Criminal Procedure, 1973, read with Section 138 Dishonour of cheque for insufficiency, etc., of funds in the....
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.... within the purview of Section 14 of the IBC and, thus, the proceedings under Section 138 of the NI Act, 1881 could continue simultaneously. 6. The Appellant, thus, filed an application for discharge of the Complaint Case in question herein in the present case, which was dismissed by the Metropolitan Magistrate vide order dated 01.11.2019. The Criminal Revision Petition preferred by the Appellant bearing Criminal Revision Petition No. 784 of 2019 also met with a similar fate before the High Court and was dismissed with cost of Rs. 20,000/- to be paid by the Appellant to the Respondent. It is this order, which is now, sought to be assailed before us. Appellant's submissions: 7. Mr. Nikhil Goel, learned counsel, sought to urge on behalf of the appellant that the trigger of Section 138 of the NI Act, is the non-payment of legally enforceable debt. Once the debt is itself extinguished, either under Section 31 or in process from Sections 38 to 41 and 54 of IBC, the basis of Section 138 of the NI Act disappears. We may note that these provisions fall under Chapter III Liquidation Process of the IBC. 8. The term 'Debt' would mean 'legally enforceable debt' under the Explanatio....
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....ad submitted the synopsis in advance. The Respondent however, despite assuring that they would submit the synopsis has not cared to do so and we have gone on the basis of the record. This position is prevalent right till 12.03.2023 and we do not consider it appropriate to wait any more. We assume that the Respondent is not interested in rendering any further assistance to the Court by filing synopsis. Fortunately for them, for the reasons to be recorded hereinafter, they have not really suffered the consequences thereof. 15. The issue whether the respondent is a Secured Financial Creditor or an Unsecured Financial Creditor within the meaning of the said Code is not something we can deal with as that is the matter of the proceedings under the said Code or any appeal preferred therefrom. The only issue with which we are concerned with is whether during the pendency of the proceedings under the said Code which have been admitted, the present proceedings under the N.I. Act can continue simultaneously or not. 16. We have no hesitation in coming to the conclusion that the scope of nature of proceedings under the two Acts and quite different and would not intercede each other. In fa....
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....t would absolve the consequences under Section 138 of the N.I. Act, is unacceptable. 19. We are, thus, conclusively of the view that the impugned order takes the correct view in law and cannot be assailed before us. Conclusion: 20. The appeals are accordingly dismissed but without costs before us on account of what we have recorded in para 14. CRIMINAL APPEAL NO. 170 OF 2023 (@SLP(CRL) NO. 417 OF 2020) CRIMINAL APPEAL NO. 172 OF 2023 (@SLP(CRL) NO. 482 OF 2020) & CRIMINAL APPEAL NO. 171 OF 2023 (@SLP (CRL) 446 OF 2020) JUDGMENT J. B. PARDIWALA, J. : 1. I have carefully, gone through the perspicuous opinion of my esteemed brother Sanjay Kishan Kaul, J. I am entirely in agreement with the discussion contained in the said judgment on all the cardinal issues that have arisen for consideration in these proceedings. At the same time, having regard to the fact that the issues involved are of seminal importance, I am also inclined to pen down my thoughts. 2. For the sake of convenience, the Criminal Appeal No. 170 of 2023 (@ SLP (Crl) No. 417 of 2020) is treated as the lead matter. 3. This appeal by special leave is at the instance of the original accused No. 2 i....
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....shonour of the three cheques issued by the appellant herein for discharge of the debt in part to the tune of Rs. 57,00,000/- (fifty-seven lakhs). 6. The aforesaid complaint under Section 138 of the NI Act was registered in the Court of the Chief Metropolitan Magistrate, Saket Court, New Delhi. 7. In 2017, one of the operational creditors filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for short, 'the IBC' or 'the IBC, 2016') before the NCLT, Ahmedabad, seeking to initiate Corporate Insolvency Resolution Process (for short, 'the CIRP') with respect to the corporate debtor. 8. The Insolvency application came to be admitted by the NCLT on 12.09.2017. 9. On 3.10.2017, the complainant filed its claim of Rs. 22,50,00,000/- crore (approximately) before the Interim Resolution Professional (for short, 'the IRP'). 10. On 26.05.2018, the resolution applicant filed its resolution plan under the terms of which, the payment to the complainant was in full and final settlement of all its claims against the corporate debtor. 11. On 05.06.2018, the Committee of Creditors (for short, 'the CoC') approved the resolution plan proposed by the resolution....
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....s of Section 138 of the NI Act no longer remains. The term debt would mean the 'legally enforceable debt' under the explanation to Section 138 of the NI Act. This may be read with Section 2(6) & 2(8) resply of the IBC. B. The liability is primarily of the company and prosecution of natural persons under Section 141 of the NI Act is vicarious to the prosecution of the company. It is for this reason that a director cannot be prosecuted without making the company as an accused. [See Ajit Balse v. Ranga Karkere: (2015) 15 SCC 748.] C. The nature of proceedings under Section 138 of the NI Act is primarily compensatory and the punitive element is incorporated at enforcing the compensatory provisions. (paras 53 & 63 resply in P. Mohanraj and Others v. Shah Brothers Ispat Private Limited reported in (2021) 6 SCC 258). Therefore, once recovery is made, partly by receipt of money and partly by waiver, Section 138 of the NI Act should not be permitted to be continued. D. If the debt of the company is resolved then payments would be governed under the resolution plan. If the debts are not resolved then the assets of the company are to be distributed in terms....
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....ted by the appellant herein prior to the scheme would not get automatically compounded only as a result of the said scheme. He would further submit that none of the provisions of the IBC bars the continuation of the criminal prosecution initiated against the corporate debtor or its directors or officials. According to the learned counsel, if the company is dissolved as a result of the resolution process, the criminal proceedings against it would stand terminated, however, the signatory to the cheque or its erstwhile directors are not entitled in law to take advantage of such a situation created by operation of law. 23. The learned counsel appearing for the complainant, laid much stress on Section 32A of the IBC, which states that every person who was a 'designated partner' or an 'officer who is in default' or was in any manner in charge of/responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence in accordance with the report submitted or complaint filed by the investigating authority shall continue to be liable to be prosecuted and punish....
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....s a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and (c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice. Explanation.- For the purposes of this section, "debt of other liability" means a legally enforceable debt or other liability." 28. Section 139 of the NI Act raises presumption. The same reads thus: "139. Presumption in favour of holder.- It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability." 29. Section 141 of the NI Act fastens vicarious liability upon every person, who at the time of the offence, was in charge of and was responsible to the company for the conduct of the business of the company. Section 141 reads thus: "141. Offences by....
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....the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period. (c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138. (2) The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction,- (a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or (b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated. Explanation.- For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account." 31. Section 147 of t....
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....overnment dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto". 36. The Statement of Objects and Reasons of the IBC indicates that the Legislature was of the opinion that the existing framework for insolvency and bankruptcy was inadequate and ineffective and resulted in undue delays in resolution. The IBC was proposed with the objective of consolidating and amending the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of the value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders, including alteration in the priority of payment of Government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. The IBC provides for designating the NCLT and the Debts Recovery Tribunal (DRT) as the adjudicating authorities for corporate persons, firms and individuals for resolution of insolvency, liquidation and bankruptcy. The IBC was published in the Gazette of India dated 28.05.2016. P....
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....c) appoint an interim resolution professional in the manner as laid down in section 16. (2) The public announcement referred to in clause (b) of subsection (1) shall be made immediately after the appointment of the interim resolution professional. Xxx xxx xxx 15. Public announcement of corporate insolvency resolution process.- (1) The public announcement of the corporate insolvency resolution process under the order referred to in section 13 shall contain the following information, namely:- (a) name and address of the corporate debtor under the corporate insolvency resolution process; (b) name of the authority with which the corporate debtor is incorporated or registered; (c) the last date for submission of [claims, as may be specified]; (d) details of the interim resolution professional who shall be vested with the management of the corporate debtor and be responsible for receiving claims; (e) penalties for false or misleading claims; and (f) the date on which the corporate insolvency resolution process shall close, which shall be the one hundred and eightieth day from the date of the admissi....
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.... or may not be in possession of the corporate debtor; (iii) tangible assets, whether movable or immovable; (iv) intangible assets including intellectual property; (v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies; (vi) assets subject to the determination of ownership by a court or authority; (g) to perform such other duties as may be specified by the Board. Explanation.-For the purposes of this section, the term "assets" shall not include the following, namely- (a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment; (b) assets of any Indian or foreign subsidiary of the corporate debtor; and (c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator." 89. Under the CIRP Regulations, the resolution professional has to vet and verify claims made, and ultimately, determine the amount of each claim as follows: "10. Substantiation of claims.-The interim resolution professiona....
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.... including the estimates of claims made under sub-regulation (1), as soon as may be practicable, when he comes across additional information warranting such revision." It is clear from a reading of these Regulations that the resolution professional is given administrative as opposed to quasi-judicial powers. In fact, even when the resolution professional is to make a "determination" under Regulation 35-A, he is only to apply to the adjudicating authority for appropriate relief based on the determination made as follows: "35-A. Preferential and other transactions.-(1) On or before the seventy-fifth day of the insolvency commencement date, the resolution professional shall form an opinion whether the corporate debtor has been subjected to any transaction covered under Sections 43, 45, 50 or 66. (2) Where the resolution professional is of the opinion that the corporate debtor has been subjected to any transactions covered under Sections 43, 45, 50 or 66, he shall make a determination on or before the one hundred and fifteenth day of the insolvency commencement date, under intimation to the Board. (3) Where the resolution professional makes a determi....
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....later than fifty-fourth day from the insolvency commencement date, whichever is earlier. (2) The information memorandum shall contain the following details of the corporate debtor- (a) xxxx Xx xx xx (d) a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims;....." (e) In the aforesaid context, I may look into the decision of this Court in the case of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others reported in (2020) 8 SCC 531, more particularly, paras 42-45 which read thus: "42. Under Section 29(1) of the Code, the resolution professional shall prepare an information memorandum containing all relevant information, as may be specified, so that a resolution plan may then be formulated by a prospective resolution applicant. Under Section 30 of the Code, the resolution applicant must then submit a resolution plan to the resolution professional, prepared on the basis of the information memorandum. After this, the resolution professional must present to the Committee of Creditors,....
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....d liquidation value to every member of the Committee of Creditors - see Regulation 35(2). Regulation 36 is important as it forms the basis for the submission of a resolution plan. The information memorandum, spoken of by this regulation, must contain the following: "36.(2)(a) assets and liabilities with such description, as on the insolvency commencement date, as are generally necessary for ascertaining their values. Explanation.-"Description" includes the details such as date of acquisition, cost of acquisition, remaining useful life, identification number, depreciation charged, book value, and any other relevant details. (b) the latest annual financial statements; (c) audited financial statements of the corporate debtor for the last two financial years and provisional financial statements for the current financial year made up to a date not earlier than fourteen days from the date of the application; (d) a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims; (e) particulars of a debt due from or to the....
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....n plan binds even the persons who have not consented. Paras 115 & 117 resply read thus:- "115. While the above observations were made in the context of a scheme that has been sanctioned by the court, the resolution plan even prior to the approval of the adjudicating authority is binding inter se the CoC and the successful resolution applicant. The resolution plan cannot be construed purely as a "contract" governed by the Contract Act, in the period intervening its acceptance by the CoC and the approval of the adjudicating authority. Even at that stage, its binding effects are produced by IBC framework. The BLRC Report mentions that "[w]hen 75% of the creditors agree on a revival plan, this plan would be binding on all the remaining creditors" [ 3.3.1, The Report of the Bankruptcy Law Reforms Committee, Vol. I : Rationale and Design (November 2015), p. 13, available at <https://ibbi.gov.in/BLRCReportVol1_ 04112015.pdf> last accessed 20-8-2021.]. The BLRC Report also mentions that, "the RP submits a binding agreement to the adjudicator before the default maximum date" [Id, p. 92.]. We have further discussed the statutory scheme of IBC in Sections I and J of this judgment to ....
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....e change in the management or control of the corporate debtor to a person who was not- (a) a promoter or in the management or control of the corporate debtor or a related party of such a person; or (b) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or court: Provided that if a prosecution had been instituted during the corporate insolvency resolution process against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan subject to requirements of this sub-section having been fulfilled: Provided further that every person who was a "designated partner" as defined in clause (j) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or an "officer who is in default", as defined in clause (60) of section 2 of the Companies Act, 2013 (18 of 2013), or was in any manner incharge of, or responsible to the corporate debtor for the conduct of its business or as....
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....tee of Creditors. As far as protection afforded to the property is concerned there is clearly a rationale behind it. Having regard to the object of the statute we hardly see any manifest arbitrariness in the provision." (Emphasis supplied) 45. In P. Mohanraj (supra), this Court in clear terms held that Section 32A only protects the corporate debtor and not the signatories/directors etc. The prosecution against the signatories/directors would continue. In P. Mohanraj (supra): - a. The issue involved was whether the institution/continuation of a proceeding under Section 138/141 of the NI Act, 1881 is said to be covered by Section 14 of the IBC, 2016. b. That Section 138 proceedings can be said to be a "civil sheep" in a "criminal wolf's" clothing. i. The Court relied upon Kaushalya Devi Massand v. Roopkishore Khore, (Para 59) [(2011)4 SCC 593] and Meters & Instruments (P) Ltd. v. Kanchan Mehta, (Para 63) [(2018)1 SCC 560] c. Section 138 proceedings are covered by Section 14 of the IBC, 2016. (Para 67) d. Moratorium under Section 14, IBC only applies to the Corporate Debtor and does not apply to natural persons mentioned und....
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.... suspended, and are to be exercised by the interim resolution professional. Thereafter, Section 29-A, read with Section 35(1)(f), places restrictions on related parties of the corporate debtor from proposing a resolution plan and purchasing the property of the corporate debtor in the CIRP and liquidation process, respectively. Thus, in most cases, the provisions of the Code effectuate a change in control of the corporate debtor that results in a clean break of the corporate debtor from its erstwhile management. However, the legal form of the corporate debtor continues in the CIRP, and may be preserved in the resolution plan. Additionally, while the property of the corporate debtor may also change hands upon resolution or liquidation, such property also continues to exist, either as property of the corporate debtor, or in the hands of the purchaser. 17.2. However, even after commencement of CIRP or after its successful resolution or liquidation, the corporate debtor, along with its property, would be susceptible to investigations or proceedings related to criminal offences committed by it prior to the commencement of a CIRP, leading to the imposition of certain liabilities ....
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....ffixed only upon those who were responsible for the corporate debtor's actions in this period. However, the new management of the corporate debtor, which has nothing to do with such past offences, should not be penalised for the actions of the erstwhile management of the corporate debtor, unless they themselves were involved in the commission of the offence, or were related parties, promoters or other persons in management and control of the corporate debtor at the time of or any time following the commission of the offence, and could acquire the corporate debtor, notwithstanding the prohibition under Section 29-A. [For example, where the exemption under Section 240-A is applicable.] 17.7. Thus, the Committee agreed that a new section should be inserted to provide that where the corporate debtor is successfully resolved, it should not be held liable for any offence committed prior to the commencement of the CIRP, unless the successful resolution applicant was also involved in the commission of the offence, or was a related party, promoter or other person in management and control of the corporate debtor at the time of or any time following the commission of the offence....
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....4(1)(a) as the reason for introducing Section 32-A had nothing whatsoever to do with any moratorium provision. At the heart of the section is the extinguishment of criminal liability of the corporate debtor, from the date the resolution plan has been approved by the adjudicating authority, so that the new management may make a clean break with the past and start on a clean slate. A moratorium provision, on the other hand, does not extinguish any liability, civil or criminal, but only casts a shadow on proceedings already initiated and on proceedings to be initiated, which shadow is lifted when the moratorium period comes to an end. Also, Section 32-A(1) operates only after the moratorium comes to an end. At the heart of Section 32-A is the IBC's goal of value maximisation and the need to obviate lower recoveries to creditors as a result of the corporate debtor continuing to be exposed to criminal liability. 42. Unfortunately, Section 32-A is inelegantly drafted. The second proviso to Section 32-A(1) speaks of persons who are in any manner in charge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor and who....
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....by an investigating authority or complaint and not to quasi-criminal proceedings that are instituted under Sections 138/141 of the Negotiable Instruments Act against the corporate debtor, the object of Section 14(1) IBC gets subserved, as does the object of Section 32-A, which does away with criminal prosecutions in all cases against the corporate debtor, thus absolving the corporate debtor from the same after a new management comes in." (Emphasis applied) Thus, the heart of the matter is the second proviso appended to Section 32A(1) (b) of the IBC which provides statutory recognition of the criminal liability of the persons who are otherwise vicariously liable under Section 141 of NI Act, in the context of Section 138 offence. 46. Thus, Section 32A broadly leads to: a. Extinguishment of the criminal liability of the corporate debtor, if the control of the corporate debtor goes in the hands of the new management which is different from the original old management. b. The prosecution in relation to "every person who was a "designated partner" as defined in clause (j) of Section 2 of the Limited Liability Part nership Act , 2008 (6 of 2009) , or an "o....
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....states that where a corporation is the accused person or one of the accused persons in an inquiry or trial, it may appoint a representative for the purpose of the inquiry or trial and such appointment need not be under the seal of the corporation. Therefore, it is only the Resolution Professional who can represent the accused company during the pendency of the proceedings under IBC. After the proceedings are over, either the corporate entity may be dissolved or it can be taken over by a new management in which event the company will continue to exist. When a new management takes over, it will have to make arrangements for representing the company. If the company is dissolved as a result of the resolution process, obviously proceedings against it will have to be terminated. But even then, its erstwhile directors may not be able to take advantage of the situation. This is because, this Court in Aneeta Hada (supra), even while overruling its decision in Anil Hada v. Indian Acrylic Ltd. reported in (2000) 1 SCC 1, as not laying down the correct law in so far as Anil Hada (supra) states that the director or any other officer can be prosecuted without impleadment of the company, proceede....
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.... the NI Act, they will have to be released in appeal once the resolution plan is approved. Thus, then, no purpose would be served by proceeding further against the co-accused under Section 138 during the moratorium. ii. If the resolution plan is not approved and the corporate debtor goes under liquidation in such circumstances under Section 35(1)(k) of the IBC the liquidator can represent the corporate debtor. Thus, the prosecution under Section 138/141 continues. This may lead to absurd situations in working of the IBC and its impact on Section 138 proceedings. iii. At the end of the liquidation, the distribution will take place under Section 53 of the IBC. Therein everyone, including the creditors will get their share as per the waterfall mechanism statutorily decided and the same would be binding and mandatory. Thereafter, the corporate debtor is dissolved under Section 54 of the IBC after selling of the assets under liquidation. Now during the said period, the prosecution might have been completed and appeals would be pending. Then it would be argued that because under the liquidation the amount is accepted, the prosecution against the signatory/director canno....
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....ine of reasoning assigned by this Court that the "Involuntary Act" of the principal debtor would not absolve the guarantors. 58. This Court in Lalit Kumar Jain v. Union of India and Others reported in (2021) 9 SCC 321 has held that the approval of the resolution plan per se does not operate as a discharge of guarantors' liability. That is because: a. an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability. b. a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the case of a company) does not absolve the surety of his liability. 59. The same principle is applicable to the signatory/director in the case of Section 138/141 proceedings. The signatory/director cannot take benefit of discharge obtained by the corporate debtor by operation of law under the IBC. 60. If the argument that extinguishment of debt under Section 31 of the IBC leads to the discharge of signatory/director under Section 138 proceedings is accepted, the same will lead to conflict in law as laid down compared to the guarantor's liability wherein in spite of the plan ....
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....ct Act, 1872, the liability of the surety is coextensive with that of the principal debtor unless it is otherwise provided by the contract. A surety is no doubt discharged under Section 134 of the Contract Act , 1872 by any contract between the creditor and the principal debtor by which the principal debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. But a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the case of a company) does not absolve the surety of his liability (see Jagannath Ganeshram Agarwale v . Shivnarayan Bhagirath [1939 SCC OnLine Bom 65 : AIR 1940 Bom 247] ; see also Fitzgeorge , In re [Fitzgeorge, In re, (1905) 1 KB 462])."" (Emphasis supplied) LITIGANT CANNOT TAKE ADVANTAGE OF ITS OWN WRONG (NULLUS COMMODUM CAPERE POTEST DE INJURIA SUA PROPRIA) 61. This Court while upholding the validity of Section 32A, IBC (Manish Kumar's case) has held that "The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away." That is a very important object and the same should not be per....
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....over. 25. Once a report has been submitted, the Registrar has to take action in terms of the report and in such circumstances when the proceedings for recovery are pending against the members and the Society has taken loan from the banks for its member, the actual money has to go to the creditor i.e. to the bank who is going to be benefitted by recovery of public money in the hands of members. In such cases it would be appropriate for the Registrar to send notice of the proceedings to a person who is to be benefitted from the recovery. In the instant case, the Bank itself is a prime lendercum- liquidator. The proceedings cannot come to the end. Thus, in our considered opinion, it is open to the bank to continue with the recovery proceedings and make recoveries from the defaulting members. Merely on the liquidation of the Society, or the factum that the period fixed for liquidation is over, liability of the members for the loans cannot be said to have been wiped off. The disbursement of loan in an arbitrary manner and failure to recover was the very fulcrum on the basis of which winding up of the Society was ordered." (Emphasis supplied) TERMS OF THE RESOLUTION ....
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....plied) 64. I have referred to Section 31 of the IBC and Ebix Singapore (supra) to explain that the resolution plan is binding on the creditors who have not consented to it. This is a very important factor, which indicates that the complainant under Section 138 NI Act is bound by the approved resolution plan, even though he may not have consented to it (if he is part of the CoC) or likes it. If he is not a part of the CoC, then also it is binding on him. 65. Section 30(2)(e) of the IBC requires the resolution professional to approve the resolution plan , only if the same does not violate any of the provisions of the law for the time being in force. Thus, the clauses of the resolution plan cannot control the Enactment/Rules in force. It is the resolution plan which has to comply with the laws in force. In the case on hand, any clause giving any effect to the corporate debtor under Section 138 NI Act proceedings, cannot be used to protect the signatories/direc36 tors under Section 138/141 NI Act. 66. Section 61 (3)(i) of the IBC provides for an appeal against an order approving a resolution plan if it contravenes any provision of law. "61. Appeals and Appellate Autho....
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....e was compounded or the complaint can be quashed in proceedings under Section 482 of the CrPC. 73. In a compromise, consensus between the parties to give and take is more important and in a compounding, decision of the victim of the offence not to prosecute and not to continue with prosecution is more important. 74. I am of the view that the clauses as contained in the resolution plan referred to above, only extinguishes the liability of the corporate debtor and not the natural persons. 75. As per Section 138 of the NI Act, when the cheque was dishonoured and a statutory notice demanding the cheque amount was issued, the accused shall pay the cheque amount within 15 days from the date of receipt of the said notice. The moment the said 15 days expired, the cause of action arises. In other words, the offence under Section 138 of the NI Act is complete. Once the cause of action arose for the offence committed, the complainant has to approach the criminal court within one month to take penal action under Section 138 of the NI Act. To put it clearly, the complainant approaches the criminal court not for recovery of the legally enforceable debt, but for taking penal action under....
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.... the guarantor cannot escape payment as the resolution plan, which has been approved, may well include provisions as to payments to be made by such guarantor. This is perhaps the reason that Annexure VI(e) to Form 6 contained in the Rules and Regulation 36(2) referred to above, require information as to personal guarantees that have been given in relation to the debts of the corporate debtor. Far from supporting the stand of the respondents, it is clear that in point of fact, Section 31 is one more factor in favour of a personal guarantor having to pay for debts due without any moratorium applying to save him. Xxx xxx xxx 26.1. Section 14 refers only to debts due by corporate debtors, who are limited liability companies, and it is clear that in the vast majority of cases, personal guarantees are given by Directors who are in management of the companies. The object of the Code is not to allow such guarantors to escape from an independent and co-extensive liability to pay off the entire outstanding debt, which is why Section 14 is not applied to them. ..." (Emphasis supplied) 77. In Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupt....
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....me. Therefore, the offence which has already been committed prior to the scheme does not get automatically compounded only as a result of the said scheme. Therefore, even by relying on the ratio of the aforesaid judgment in J.K. (Bombay) (P) Ltd. [J.K. (Bombay) (P) Ltd. v. New Kaiser-I-Hind Spg. And Wvg. Co. Ltd., AIR 1970 SC 1041], this Court cannot accept the appellant's contention that the scheme under Section 391 of the Companies Act will have the effect of automatically compounding the offence under the NI Act. Xxx xxx xxx 27. The compounding of an offence is always controlled by statutory provision. There are various features in the compounding of an offence and those features must be satisfied before it can be claimed by the offender that the offence has been compounded. Thus, compounding of an offence cannot be achieved indirectly by the sanctioning of a scheme by the Company Court. Xxx xxx xxx 70. In the instant case no special procedure has been prescribed under the NI Act relating to compounding of an offence. In the absence of special procedure relating to compounding, the procedure relating to compounding under Section 320 shall ....
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.... personal liability of the Directors of the Company. 25. The conflict involved in the case can also be looked into from another aspect 'as to whether the provisions of section 138 of N.I. Act can override the provisions of Companies Act, as it is a very special provision incorporated in the Negotiable Instruments Act, though the Companies Act contains certain special provisions in order to safeguard the rights of the Company under liquidation?' Xxx xxx xxx 28. If one considers the provisions of section 138 of the N.I. Act, which are introduced subsequently by way of amendment in the said Act, in the year 1988, it being a subsequent Statute, it will necessarily override the provisions of General Statute, like, the Companies Act. Xxx xxx xxx 30. Thus, there is a long line of decisions making the position clear that the expression 'suit or legal proceedings', used in section 446(1) of the Companies Act, can mean only those proceedings which can have a bearing on the assets of the companies in winding-up or have some relation with the issue in winding-up. It does not mean each and every civil proceedings, which has no bearing on the winding-....
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....the corporate debtor is not available and the criminal liability will continue to haunt the persons, who were in charge of the assets of the corporate debtor, or who were responsible for the conduct of its business or those who were associated with the corporate debtor in any manner, and who were directly or indirectly involved in the commission of the offence, and they will continue to be liable. Xxx xxx xxx 326. We are of the clear view that no case whatsoever is made out to seek invalidation of Section 32-A. The boundaries of this Court's jurisdiction are clear. The wisdom of the legislation is not open to judicial review. Having regard to the object of the Code, the experience of the working of the Code, the interests of all stakeholders including most importantly the imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this Court to interfere. The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away. ....
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....al liability. 42. Unfortunately, Section 32-A is inelegantly drafted. The second proviso to Section 32-A(1) speaks of persons who are in any manner in charge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor and who are, directly or indirectly, involved in the commission of "such offence" i.e. the offence referred to in sub-section (1), "as per the report submitted or complaint filed by the investigating authority ...". The report submitted here refers to a police report under Section 173 CrPC, and complaints filed by investigating authorities under special Acts, as opposed to private complaints. If the language of the second proviso is taken to interpret the language of Section 32-A(1) in that the "offence committed" under Section 32-A(1) would not include offences based upon complaints under Section 2(d) CrPC, the width of the language would be cut down and the object of Section 32-A(1) would not be achieved as all prosecutions emanating from private complaints would be excluded. Obviously, Section 32-A(1) cannot be read in this fashion and clearly incudes the liability of the corporate debtor for all offen....
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....ing 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." (Emphasis supplied) 84. In Narinder Garg and Others v. Kotak Mahindra Bank Ltd. and Others reported in (2022) SCC OnLine SC 517, this Court held that: "3. In P. Mohanraj v. Shah Brothers Ispat Private Limited, (2021) 6 SCC 258, a Bench of three-Judges of this Court considered the matter whether a corporate entity in respect of which moratorium had become effective could be proceeded against in terms of Sections 138 and 141 of the Negotiable Instruments Act, 1881 ("the Act" for short). 4. A subsidiary issue was also about the liability of natural persons like a Director of the Company. In paragraph 77 of its judgment, this Court observed that the moratorium provisions contained in Section 14 of the Insolvency and Bankruptcy Code, 2016 would apply only to the corporate debtor and that the natural persons mentioned in Section 141 of the Act would continue to be statutorily liable under the provisions of the Act. 5. It is submitted by Mr. Gopal Sankaranarayanan, learned Senior Advocate that the....