TaxTMI 
TaxTMI 
2025 (7) TMI 278
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....o. 1 in above mentioned criminal cases. The non-applicant company is also involved in business of manufacturing and processing of Steel and Iron Goods. In the year 2015, accused No. 1 company and the non-applicant company entered into business for purchasing goods from the non-applicant company. As per allegations, the accused company obtained goods on credit and huge amount was due from the accused company. Allegedly, applicant No. 1, being Director of the said company, against the said dues issued 16 cheques drawn on Federal Bank, Nagpur Branch, which came to be "dishonoured". Cheque Nos.003874, 003875, and 003876 drawn in favour of the non-applicant company dated 29.10.2022 of Rs .25.00 lacs each were issued in favour of the non-applicant company. The said cheques were returned with endorsement "account closed" and, therefore, Criminal Complaint No. 691/2023 was registered against accused No. 1 company and applicant Nos. 1 to 4. Cheque Nos. 004340, 004341, and 004342 dated 31.10.2022 of Rs .25.00 lacs drawn on the Federal Bank were also deposited and the same were returned as "dishonoured" and, therefore, Criminal Complaint No. 696/2023 was registered. Cheque N....
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....COC) constituted by the Resolution Professional could not reach a successful Resolution Plan for the accused company. It unanimously resolved to liquidate the accused company. Accordingly, the Resolution Professional filed an application under Section 33 of the Insolvency Bankruptcy Code 2016 (IBC 2016) before the NCLT Mumbai to initiate liquidation of the accused company and appointed Resolution Professional as official liquidator. On 25.10.2022, the non-applicant company issued statutory notice under Section 138 of the NIA to applicants along with the accused company alleging that cheques issued against discharge of liability are "dishonoured". 5. As per contentions of applicants, applicant Nos.2 and 4, resigned long back of issuance of cheques and, therefore, they were not persons incharge of the company and holding any responsibilities towards issuance of said cheques. Applicant Nos. 1 and 3 ceased to be incharge of the business since CIRP was initiated by order of NCLT Mumbai. Cheques were presented on 29.10.2022 despite of the non-applicant company was informed by Resolution Professional as to initiation of the CIRP and the accused company was undergoing liquidation, the c....
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....non-applicant company was intimated on 9.5.2019 not to deposit said cheques, cheques were deposited. He further submitted that from declaration of moratorium on 22.4.2919 the authority for signing the cheques remained with the Resolution Professional and therefore, cheques in question which are subject matter of the complaints were not valid cheques and, therefore, there was no question of dishonour of cheques and consequent proceedings under Section 138 of the NIA. In support of his contentions, he placed reliance on following decisions: 1. Vishnoo Mittal vs. Shakti Trading Company, reported in 2025 SCC OnLine Sc 558; 2. Criminal Writ Petition No. 1134/2023 (Manoj Toshniwal and ors vs. Alucast Engineering Pvt.Ltd. and anr) decided on 5.12.2023; 3. DCM Financial Services Limited vs. J.N. Sareen and anr, reported in (2008)8 SCC 1, and 4. Nikhil P.Gandhi vs. State of Gujarat and anr, reported in 2016 SCC OnLine Gujarat 1856. 9. Per contra, learned counsel for the non-applicant company submitted that cheques were issued against discharge of Legal and Enforceable Debt which came to be dishonoured. By complying necessary requirements, the compla....
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.... said cheques presented to the bank were dishonoured with the endorsement of account closed; and 5. The non-applicant company through his various complaints claims Rs. 7,04,10,101/- which includes interests at 24% p.a., the statutory notice under section 138 of the NIA to that effect has been issued on 25.10.2022. These allegations are to be considered in the light of the following facts: 1. applicant No. 2 was Director for the period 4.3.2014 to 10.6.2017 and on 10.6.2017 she tendered her resignation and DIR Form No. 11 is on record; 2. Applicant No. 4 was Director for the period 3.6.2005 to 21.5.2025 and tendered his resignation on 21.5.2025, the DIR Form No. 11 is on record; 3. In the year 2019, the accused company initiated CIRP by filing CP No.(IB) 350/MB/C-III/2019 before the NCLT Mumbai; 4. Vide order dated 22.4.2019, the NCLT Mumbai admitted the petition of the company and declared moratorium thereby prohibiting initiation or continuation of any suit or proceedings against the accused company; 5. By the said order, Mr. Devendra Singh was appointed as Resolution Professional for the purposes of the said CIRP, thereby s....
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.... (2) registered with the Insolvency and Bankruptcy Board of India (IBBI) (the Board) as an insolvency professional (IP) under Section 207. 16. Section 14 of the IBC deals with moratorium which reads as under: "Section 14: Moratorium. 14. (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:- (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Secularization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (d) the recovery of any property by an owner or lessor wher....
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....ted prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in the 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 s....
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.... (3) Subject to the provisions contained in sub-sections (1) and (2), and notwithstanding the immunity given in this section, the corporate debtor and any person who may be required to provide assistance under such law as may be applicable to such corporate debtor or person, shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process.] 19. Section 33 deals with limitation of liquidation, which is reproduced as under: Section 33. Initiation of liquidation. (1) Where the Adjudicating Authority,-- (a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution process under section 56, as the case may be, does not receive a resolution plan under sub-section (6) of section 30; or (b) rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein, it shall-- (i) pass an order requiring the corporate debtor to be liquidated in the mann....
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....nancial sector regulator. (7) The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator. 20. Section 138 of the NIA, defines as to the dishonour of cheques for insufficiency etc. of funds in the account. For constituting an offence in terms of the said provision, the following ingredients are to be satisfied:- (1) A cheque must be drawn; (2) It must be presented and returned unpaid inter alia with the remarks "insufficient funds"; (3) A notice for payment should be served on the accused; (4) The accused has failed to make the payment of the said amount to the payee within 15 days from the date of receipt of notice". 21. Section 141 of the NIA deals with offences by companies, which is reproduced as under: "141. Offences by companies. - (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the compa....
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....f business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. Conversely, a person not holding any office or designation in a company may be liable if he satisfies the main requirement of being in charge of and responsible for the conduct of business of a company at the relevant time. 23. Thus, liability depends on the role one plays in the affairs of a company and not on designation or status. If being a director or manager or secretary was enough to cast criminal liability, the section would have said so. If being Director, Manager, Secretary are not liable by their designations, they are liable if they are discharging the duty by holding responsibility in the day to day affairs of the company and, therefore, only persons who can be said to be connected with the commission of crime who are incharge of the said company. 24. Section 141 of the NIA, provides for constructive liability to launch a prosecution, therefore, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguo....
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....That the provisions of sub-section (1) of Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. (iv) That the order of moratorium shall have effect from 22.04.2019 till the completion of the corporate insolvency resolution process or until this Bench approves the resolution plant under sub-section (1) of Section 31 or passes an order for liquidation of Corporate Applicant under Section 33, as the case may be. (v) That the public announcement of the corporate insolvency resolution process shall be made immediately as specified under Section 13 of the Code. (vi) That this Bench hereby appoints Mr. Devendra Singh, registration No. as IBBI/IPA-002/IP-N00001/2016-17/10001 having address at ATS Greens Paradiso, Flat No.02054, Tower 2, Plot NO.GH-03, Sector ChI-04, Greater Noida 201308 e-mail [email protected] as interim Resolution Professional to carry the functions as mentioned under the Code. (vii) Accordingly, this petition is admitted. (viii) The Registry is hereby directed to communicate this order to the Corporate Applicant and the IRP immed....
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....ppointed in this case to initiate liquidation process as envisaged under Chapter-III under Chapter-III of the Code by following the liquidation process given in the Insolvency & Bankruptcy Board of India (Liquidation Process) Regulations, 2016. d. The Liquidator appointed under section 34(1) of the Code will have powers of the board of directors, key managerial personnel and partners of the Corporate Debtor, as the case may be, shall cease to have effect and shall be vested with the liquidator. e. That the Corporate Debtor to be liquidated in the manner as laid down in the Chapter by issuing Public Notice stating that the Corporate Debtor is in liquidation with a direction to the Liquidator to send this order to the ROC under which this Company has been registered. f. All the powers of the Board of Directors, key managerial persons, the partners of the Corporate Debtor hereafter ceased to exist. All these powers henceforth vest with the Liquidator. g. That the personnel of the Corporate Debtor are directed to extend all co-operation to the Liquidator as required by him in managing the liquidation process of the Corporate Debtor. h. That ....
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....s or proceedings against the accused company. The order dated 9.6.2022 passed by the NCLT Mumbai shows that having liquidation process, subject to Section 52 of the Code, no suit or other legal proceeding shall be instituted by or against the Corporate Debtor save and except the liberty to the liquidator to institute suit or other legal proceeding on behalf of the Corporate Debtor with prior approval of this Adjudicating Authority. 30. Now, the important question arises is, whether criminal case under Section 138 and 141 of the NIA can be said to be a proceeding said to be covered by the moratorium provision Section 14 of the IBC. The said aspect is considered by the Hon'ble Apex Court in the case of P. Mohanraj vs. M/s. Shah Ispat Private Limited supra wherein the Hon'ble Apex Court in paragraph No. 14 observed as follows: "We now come to the language of Section 14(1) (a). It will be noticed that the expression "or" occurs twice in the first part of Section 14(1)(a) - first, between the expressions "institution of suits" and "continuation of pending suits" and second, between the expressions "continuation of pending suits" and "proceedings against the corporat....
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.... debtor shall cease to have effect and the powers are vested with the liquidator. It is further clarified by the said orders that all powers of the board of directors, key managerial personnel, and corporate debtor cease to exist. All these powers from the date of order i.e. 9.6.2022 were vested with the liquidator. Thus, from these dates the authority for signing cheques remained with the Resolution Professional who was subsequently appointed as a Liquidator and, therefore, cheques in questions which are subject matter of the complaints were not valid cheques. 33. Learned counsel for the non-applicant placed reliance on the decisions in the cases of P. Mohanraj vs. M/s. Shah Ispat Private Limited supra; Ajaykumar Radheshyam Goenka supra; and Criminal Application (APL) No. 1478/2023 supra wherein it was held that the moratorium granted by the order issued under section 14 of the IBC can only be obtained by a corporate debtors and not by natural person such as the present appellant who was the director of the corporate debtor. In para No. 77 of the judgment, in the case of P. Mohanraj vs. M/s. Shah Ispat Private Limited supra, the Hon'ble Apex Court observed that for the perio....
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....e application under Section 33 of the IBC 2016 was decided by the NCLT Mumbai. 38. Learned counsel for the non-applicant company placed reliance on various decisions to show that persons who are incharge of the company and are responsible to the company for the conduct of the business are liable for the penal action in view of Section 141 of the NIA. 39. Here, the facts of the present case show that on the date of issuance of the alleged cheques, applicant Nos. 1 and 3 ceased to be incharge of the business in view of the order passed by the NCLT Mumbai dated 9.6.2022. 40. Thus, in the present case, on 22.4.2019 the NCLT Mumbai declared moratorium and management of the corporate debtor was taken over by the interim order by the NCLT Mumbai as per Section 17 of the IBC. 41. A bare reading of Section 17 of the IBC shows that the applicant Nos. 1 and 3 and the accused company did not have capacity to fulfill the demand raised by the non-applicant by way of notice issued under clause (c) of the proviso to Section 138 of the NIA as issued after the moratorium was declared. When the notice was issued to the applicants, they were not incharge of the corporate debtor as they wer....
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....ore could not be blamed. True, mens-rea is not an essential ingredient of the offence punishable under Section 138 of NI Act. As such, ingredients of the offence punishable under Section 138 read with Section 141 of NI Act do not get attracted against any of the respondents herein. The Revisional Court was therefore justified in setting aside the order of issuance of process. This Court is in respectful agreement with what has been observed in the case of Rajesh Meena (supra) (referred hereinabove). Reliance on the judgment in the case of Narinder Garg (supra), would be of no consequence, since no natural person was arraigned as accused. Had they been there, what would have been their defence and consequential judgment thereon, is nothing but hypothesis. In the case of Narinder Garg (supra), it is an order and not the judgment. Full facts of said case are not before this Court." 43. Considering submissions, there is substance in the submission that once the moratorium was imposed and liquidation proceeding has been completed and powers of the Directors in view of the order of the NCLT Mumbai are assigned to the Resolution Professional appointed subsequently as liquidator and app....