TaxTMI 
TaxTMI 
2025 (1) TMI 619
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....ore [hereinafter referred to as the 'NCLT'] upon the application filed by the creditor-Bank of Baroda. 3.To decide the controversy involved in this case, it is apt to mention the facts of the case, which in nutshell, are:- (3.1)That, the petitioner and the respondent are the parties to the proceedings pending before the Judicial Magistrate Court initiated by the respondent by filing an application under Section 138 of the Negotiable Instruments Act, 1881 [hereinafter referred to as the 'N.I. Act']. The petitioner is one of the Directors of a company registered under the Companies Act. One of the creditors of the petitioner, namely, Bank of Baroda, filed an application for initiating insolvency resolution process under Section 95 of the Insolvency & Bankruptcy Code, 2016 [hereinafter referred to as the 'IBC'] before the NCLT, Indore. The said case was registered as case No.CP(IB)/16(MP)2021 titled as 'Bank of Baroda Vs. Surendra Kumar Patwa'. (3.2)The NCLT in accordance with Section 95 r/w 96 of the IBC, by order dated 18.06.2021, declared interim-moratorium from the date of application with respect to all the debts of the petitioner and all the proceedings pending ....
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....of Section 138 of the N.I. Act. To give strength to his submissions, learned counsel for the petitioner has placed reliance upon various judgments of the Supreme Court, viz. Ajay Kumar Radheyshyam Goenka Vs. Tourism Finance Corporation of India Limited reported in 2023 SCC OnLine SC 266; Charanbir Singh Sethi Vs. Pooja Sharma & Others reported in Manu/2291/2023; Ashok B. Jeswani & Anothers Vs. Redington India Limited reported in 2023 SCC OnLine Madras 8029. It is also submitted by learned counsel for the petitioner that the revisional Court misinterpreted the order passed by the Supreme Court in the case of Ajay Kumar Radheyshyam Goenka (supra). He has also submitted that the case of Ajay Kumar Radheyshyam Goenka (supra) and the other cases of Supreme Court, upon which he has placed reliance, clearly demonstrate that the proceedings initiated against the petitioner even under the provisions of the N.I. Act, cannot be allowed to be continued and the Court could stay the same in pursuance of the order passed by the NCLT. 5.Per contra, learned counsel for the respondent has opposed the submissions advanced by learned counsel for the petitioner and submitted that the order of revisi....
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....sent case, the petitioner had signed the cheque as the Managing Director of Respondent No. 2. The judgment of P. Mohanraj (supra) categorically states that the moratorium provisions u/s 14 IBC would apply only to the corporate debtor and the natural persons would continue to be liable. The petitioner is the natural person and merely because he has filed personal insolvency proceedings, the same would not bring him under the ambit of Section 96 IBC vis-a-vis the pending complaint under section 138 NI Act. 24. The Hon'ble Supreme Court in "AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM FINANCE CORPORATION OF INDIA LTD."2023 : INSC : 232 observed the scope of the IBC as well as NI act. "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 fact, a bare reading of Section 14 of the IBC would make it clear that the nature of proceedings which have to be kept in abeyance do not include criminal proceedings, which is the nature of proceedings under Section 138 of the N.I. Act. We are unable to appreciate the plea of the learned counsel for the Appellant tha....
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....tay the complaint under section 138 NI Act against him. It is clear that the petitioner is facing criminal proceedings for being signatory to the cheque which has been dishonoured. He is covered under natural person under section 141 NI Act. 26. The debt in the present case is not of the petitioner but that of Respondent No. 2. Section 141 of the NI Act fastens liability on every officer of the company who was in management and control of the affairs of the company. 27. Hence, in my considered view, the provisions of Section 96 of the IBC would not be applicable in the facts of the present case as the petitioner is arrayed as an accused in the complaint u/s 138 NI Act in his capacity of the Managing Director of Respondent No." Further, he has placed reliance upon the order passed by the High Court of Madhya Pradesh in the case of Anurodh Mittal Vs. Rehat Trading Company & Another [M.Cr.C. No.17782 of 2024] and also the judgment passed by the High Court of Punjab & Haryana at Chandigarh in the case of Jitender Singh Sodhi & Another Vs. Deputy Commissioner of Income Tax & Another, wherein the Court has observed as under :- "10. It is noteworthy that Chap....
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....arily 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 quasi-criminal proceeding that is contained in Chapter XVII of the Negotiable Instruments Act would, given the object and context of Section 14 IBC, amount to a "proceeding" within the meaning of Section 14(1)(a), the moratorium therefore attaching to such proceeding. xxx 84. Clearly, therefore, given the hybrid nature of a civil contempt proceeding, described as "quasi-criminal" by several judgments of this Court, there is nothing wrong with the same appellation "quasi-criminal" being applied to a Section 138 proceeding for the reasons given by us on an analysis of Chapter XVII of the Negotiable Instruments Act. We, therefore, reject the learned Additional Solicitor General's strenuous argument that the appellation "quasi-criminal" is a misnomer when it comes to Section 138 proceedings and that therefore some of t....
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....objective, it is impossible to discern any difference between the impact of a suit and a Section 138 proceeding, insofar as the corporate debtor is concerned, on its getting the necessary breathing space to get back on its feet during the corporate insolvency resolution process, Given this fact, it is difficult to accept that noscitur a sociis or ejusdem generis should be used to cut down the width of the expression "proceedings" so as to make such proceedings analogous to civil suits. 32. Viewed from another point of view, clause (b) of Section 14(1) also makes it clear that during the moratorium period, any transfer, encumbrance, alienation, or disposal by the corporate debtor of any of its assets or any legal right or beneficial interest therein being also interdicted, yet a liability in the form of compensation payable under Section 138 would somehow escape the dragnet of Section 14(1). While Section 14(1)(a) refers to monetary liabilities of the corporate debtor, Section 14(1)(b) refers to the corporate debtor's assets, and together, these two clauses form a scheme which shields the corporate debtor from pecuniary attacks against it in the moratorium period so tha....
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....all cease to have effect at the end of the period of one hundred and eighty days beginning with the date of admission of the application or on the date the adjudicating authority passes an order on the repayment plan under Section 114, whichever is earlier. (2) During the moratorium period- (a) any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed; (b) the creditors shall not initiate any legal action or legal proceedings in respect of any debt; and (c) the debtor shall not transfer, alienate, encumber or dispose of any of his assets or his legal rights or beneficial interest therein; (3) Where an order admitting the application under Section 96 has been made in relation to a firm, the moratorium under sub-section (1) shall operate against all the partners of the firm. (4) The provisions of this section shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator." 35.2. A legal action or proceeding in respect of any debt would, on its plain language, include a Section 138 proceeding. This is for the reas....
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....sion 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. 46. 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 believe when he issued the cheque that the cheque may be dishonoured on presentment ....
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....ng contained in the Code of Criminal Procedure, 1973 (2 of 1974)- (a) no court shall take cognizance of any offence punishable under Section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque; (b) such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to Section 138: Provided that the cognizance of a complaint may be taken by 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 ....
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....ke an application under sub-section (1) if he is- (a) an undischarged bankrupt; (b) undergoing a fresh start process; (c) undergoing an insolvency resolution process; or (d) undergoing a bankruptcy process. (5) A debtor shall not be eligible to apply under sub-section (1) if an application under this Chapter has been admitted in respect of the debtor during the period of twelve months preceding the date of submission of the application under this section. (6) The application referred to in sub-section (1) shall be in such form and manner and accompanied with such fee as may be prescribed. 95. Application by creditor to initiate insolvency resolution process.- (1) A creditor may apply either by himself, or jointly with other creditors, or through a resolution professional to the Adjudicating Authority for initiating an insolvency resolution process under this section by submitting an application. (2) A creditor may apply under sub-section (1) in relation to any partnership debt owed to him for initiating an insolvency resolution process against- (a) any one or more partners of the firm; or (b) ....
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....passed an order under Section 96 constituting the interim-moratorium and directing the respondent therein (present petitioner) to file a report with regard to corporate debtors within ten days. As submitted by learned counsel for the petitioner, when an application is filed under Section 94 of the IBC, then interim-moratorium applies to the debts of a company, but when the application is filed by the creditor under Section 95, the debts confine to the person who is before the NCLT. According to learned counsel for the petitioner, an application under Section 95 was moved by one of the creditors i.e. Bank of Baroda before the NCLT against one of the Directors of the company i.e. the petitioner and as such, interim-moratorium declared by the NCLT would be applicable in respect of any proceedings initiated against the petitioner including the proceedings under the N.I. Act. 10.As per the observation made by the revisional Court in its order holding that in view of the law laid-down by the Supreme Court in the case of Ajay Kumar Radheyshyam Goenka (supra), the other cases relied upon by learned counsel for the petitioner have no application and cannot be treated as precedent. Accord....
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....s of Section 14 of IBC is to ensure that the Corporate Insolvency Resolution Process (CIRP) could proceed unhindered and without any action being taken against the corporate debtor or its assets; it is essentially designed to ensure that the assets and properties of the corporate debtor are duly preserved and no coercive steps are taken against them during the pendency of the CIRP. So far as the case of Ajay Kumar Radheyshyam Goenka (supra) is concerned, in the said case, the Court was dealing with the scope of Section 14 of the IBC and it's applicability over the corporate debtors under part-2 of the IBC, while in the case of P. Mohanraj (supra), the Court was dealing with the applicability and scope of Section 96 of the IBC, which is in respect of an individual/personal guarantor under part-3 of the IBC. 12.Learned counsel for the petitioner has also pointed-out that in the case of Ajay Kumar Radheyshyam Goenka (supra), the Supreme Court has followed the earlier decision passed in the case of P. Mohanraj (supra), but so far as the proceedings under Section 138 of the N.I. Act, are concerned, it is per incurium because the Supreme Court in the case of P. Mohanraj (supra) has ob....
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....to have been stayed in terms of Section 96 of the Code in view of the fact that the complaint against the petitioner was filed 8 to 9 years prior to the petitioners' application under Section 94 and even about 6 years before the initiation of proceedings against the corporate debtor by the State Bank of India under Section 7 of the Code. 73. As regards the first question, there are two ways of interpreting 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. 74. 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 contin....
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....00 (Law Finder edition = para 113 SCC edition) as follows:- "100. It is clear from the above analysis that Parliamentary intent was to treat personal guarantors differently from other categories of individuals. The intimate connection between such individuals and corporate entities to whom they stood guarantee, as well as the possibility of two separate processes being carried on in different forums, with its attendant uncertain outcomes, 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, ei....
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....t of the creditors' dues from personal guarantors." (Emphasis applied in this judgment only). 82. Hence, though in the opinion of this court otherwise a proceeding under Section 138 of the Act, qua a debt as is wholly incurred qua an individual who is not in any manner connected to the corporate debtor that the petitioner stood a personal guarantor for, nor to the corporate debt itself, would need to proceed independently so as not to make the complainant in such proceedings 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 corp....
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....at comes into effect, by which all proceedings qua any debt of the individual/partnership firm etc. would be deemed to have been stayed. 87. Consequently, even though the respondent herein may suffer longer delays due to the stay that would be deemed to be operating on the proceedings in the complaint filed by him under Section 138 of the Act, by virtue of the interim moratorium stipulated in Section 96 of the Code, there would seem to be no option with this court but to allow the petition and set aside the impugned order passed by the learned JMIC, Jalandhar, dated 25.05.2021. It is therefore ordered accordingly. 88. Hence, till a decision is taken by the Adjudicating Authority in terms of Sections 100 and 101 of the Code, on the application filed by the petitioner under Section 94(1) thereof, the proceedings before the learned trial court under Section 138 of the Act, would remain stayed." 15.Further, the Bombay High Court in the case of Sheetal Gupta Vs. National Spot Exchange Limited & Others reported in Manu/MH/0706/2023 dealing with the same question as to whether Section 96 of the IBC has any application over the proceedings initiated under Section 138 o....
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....interim moratorium or a moratorium is applicable in respect of any debt due. First and foremost, this is a separate moratorium, applicable separately in the case of personal guarantors against whom insolvency resolution processes may be Initiated under Part 111. Secondly, the protection of the moratorium under these sections is far greater than that of Section 14 in that pending legal proceedings in respect of the debt and not the debtor are stayed. The difference in language between Sections 14 and 101 is for a reason." 16. As such, the proceedings under Section 138 read with 141 of NI Act get covered the term "any legal action or proceeding pending in respect of any debt" appearing Section 96(1) of IBC. 17. The contention of learned Advocate for the respondent-NSEL that NSEL 15 no party to the proceedings, will be of no consequence. Admittedly the SBI has filed to the cwill bey of and Board against the applicant hate the petition befores National Company Law Boessary to have a glancen Process releva Insolvency outonapter II of IBC speaks of Insolvency Resolusolvency 94 thereof pertains to the application by debtor to initiate the Insolvency Process. Under Sectio....
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....ion moved under Section 95 of IBC. The terminology of clause (b) of Section 101(2) of IBC unequivocally suggests that any pending legal action or proceeding pending in respect of any debt shall be deemed to have been stayed. The debt incurred or likely to be incurred by the applicant herein by virtue of a final order, that may be passed in a proceedings under Section 138 of NI Act initiated by respondent-NSEL, is covered by the term "any debt" appearing under Section 96 of Sub-section (1) of IBC. As per provisions under Section 103 of IBC, all the creditors are expected to register their claims with the resolution professional by sending details of the claims by way of electronic communications or through courier, speed post or registered letter. 22. Section 41 of the Indian Evidence Act speaks of a final judgment, order or decree of a Competent Court, in the exercise of insolvency jurisdiction, operates as a judgment "in rem". 23. On going through the scheme of Insolvency Resolution Process contained in Chapter III of IBC, the contention of learned Advocate for respondent-NSEL thal proceeding under Section 95 of IBC and outcome thereof is a party specific (partie....
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.... of the Company are not immune from prosecution in view of the imposition of the moratorium by the N.C.L.T., New Delhi viz- a-viz the Corporate Debtor, the accused No.1/Company. As far as, the accused No.2 is concerned, learned Advocate submitted that to the extent of his individual interest, he can avail the benefit of the imposition of the moratorium by the N.C.L.T., New Delhi in his individual insolvency proceeding under Section 96 of the I.B. Code. 14. Learned Advocates for both the parties, in order to buttress their submissions placed heavy reliance on decision in the case of P. Mohanraj and Others Vs. Shah Brothers Ispat Private Limited reported in (2021) 6 SCC 258. The learned Advocates for the parties took me through the judgment and more particularly through paragraph Nos.101 and 102 of the decision. It would be profitable to re-produce paragraph Nos.101 and 102 of the judgment in the case of P. Mohanraj and Others (supra). It reads thus:- WHETHER NATURAL PERSONS ARE COVERED BY SECTION 14 IBC "101. As far as the Directors/persons in management or control of the corporate debtor are concerned, a Sections 138/141 proceeding against them cannot be initiated....
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....ompany" appearing in the Section make it absolutely unmistakably clear that when the Company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. One cannot be oblivious of the fact that the Company is a juristic person and it has its own respectability. If a finding is recorded against it, it would create a concavity in its reputation. There can be situations when the corporate reputation is affected when a Director is indicted. 59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh (supra) which is a three-Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal (supra) does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada ....
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....ndividual insolvency case under Section 96 of the I.B. Code. I, therefore, conclude that as far as the accused Nos.3 and 9 are concerned, they are not entitled to get the benefit of the moratorium imposed under Section 14 of the I.B. Code vide order dated 03.01.2020 by the N.C.L.T., New Delhi. On this count, their contention deserves to be rejected. 16. As far as the accused No.2 is concerned, he is relying upon order passed by N.C.L.T., New Delhi dated 08.04.2021 under Section 94 of the I.B. Code. The accused No.2 initiated the said insolvency proceeding. He prayed for interim moratorium under Section 96 of the I.B. Code. The N.C.L.T., New Delhi imposed the interim moratorium under Section 96. In the insolvency application of the accused No.2, the N.C.L.T., New Delhi directed the resolution professional to file report as required under Section 97(1) of the I.B. Code. It is to be noted that in view of this order Section 96 of the I.B. Code will come into operation. As per Section 96 (1)(b)(i) in case of imposition of interim moratorium, by deeming fiction, during the interim moratorium period, any legal action or proceeding pending in respect of any debt shall remain staye....
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....as has been held in State of Kerala v. Mar Appraem Kuri Co. Ltd. [State of Kerala v.Mar Appraem Kuri Co. Ltd., (2012) 7 SCC 106 : (2012) 4 SCC (Civ) 69] , that a law "made" by the legislature is a law on the statute book even though it may not have been brought into force. The said judgment states : (SCC pp. 141-42, paras 79-81) "79. The proviso to Article 254(2) provides that a law made by the State Legislature with the President's assent shall not prevent Parliament from making at any time any law with respect to the same matter including a law adding to, amending, varying or repealing the law so made by a State Legislature. Thus, Parliament need not wait for the law made by the State Legislature with the President's assent to be brought into force as it can repeal, amend, vary or add to the assented State law no sooner it is made or enacted. We see no justification for inhibiting Parliament from repealing, amending or varying any State legislation, which has received the President's assent, overriding within the State's territory, an earlier parliamentary enactment in the concurrent sphere, before it is brought into force. Parliament can repeal, amend, o....
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....g to a proceeding initiated under Section 482 of Cr.P.C. asking termination of conviction passed in a case initiated under Section 138 of the N.I. Act and the Judicial Magistrate First Class awarded the sentence of six months and compensation to the tune of Rs.68,69,457.24/-. The High Court has finally observed that merely because the appellant is signatory of a cheque of a corporate debtor against whom the proceedings were initiated under IBC, cannot be given any weightage over the conviction recorded by the trial Court. So far as the decision passed in the case of Sandeep Gupta (supra) is concerned, it was a case in which the petitioner himself has approached the NCLT by moving an application for initiating personal insolvency proceedings and as such, same does not bring him under the ambit of Section 96 of the IBC, therefore, it was held that the benefit of proceedings of Section 138 cannot be given to him whereas in the present case, one of the creditors has approached the NCLT by moving an application under Section 95 of the IBC. Considering the whole scenario of the case, this Court is of the opinion that the revisional Court has not properly considered the factual matrix of ....