TaxTMI 
TaxTMI 
2026 (5) TMI 1732
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....Section 138 of the NI Act 30 (ii) Objective of the enactment of Section 138 of the NI Act and nature of the offence made out therein 33 Statement of Objects and Reasons of the Banking Amendment Act, 1988 33 Stage at which the offence stands committed is different from the stage at which it is prosecuted 35 Difference in stages of commission and prosecution of offence acts as safeguard for bona fide persons 37 Minor nature of the offence 40 (iii) Analysis of P. Mohanraj (supra) as regards nature of Section 138 offence 43 (iv) Quasi-criminal nature of offence under Section 138 47 (v) Distinction between fine and compensation 50 Scheme of compensation under the NI Act prior to the introduction of Chapter XVII 52 Compensation order in Section 138 proceedings to be in terms of Section 395 of the BNSS 59 (vi) Permissibility of filing civil suit parallel to the complaint proceedings under Section 138 76 (vii) Whether Section 138 proceeding is a "civil sheep in a criminal wolf's clothing"? 81 (viii) Discussion on the compensatory asp....
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....d. (hereinafter referred to as "SPL"), a company incorporated under the provisions of the Companies Act, 1956. The company is engaged in the business of generation, production and sale of electricity. Presently, SPL is undergoing liquidation as per the order dated 19.02.2018 passed by the National Companies Law Tribunal, Chennai. 5. It appears from the materials on record that the appellant herein availed various financial and credit facilities from the respondent bank which included the opening of Irrevocable Letters of Credit Facility on 26.12.2014 for the purchase of Indonesian Coal from M/s. Natural Coal Private Ltd. for a sum of Rs. 5,03,21,250/-. The respondent bank acceded to the appellant's request to open an Inland Letter of Credit in favour of SPL for the said purpose. 6. The appellant had to provide a blank cheque by way of security to the respondent for the issuance of the Inland Letter of Credit with an understanding that the respondent would be at liberty to encash the same if ultimately the liability of paying the sum of Rs. 5,03,21,250/- fell onto the respondent due to non-payment thereof by the appellant and SPL respectively within 90 days of the invoice rais....
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....minal enactment which provides for sentence of imprisonment and fine. Therefore, the proceedings under Section 138 of the NI Act could be said to be criminal in nature and not merely intended to be recovery proceedings against a debtor. 13. Later, on 30.08.2024, the NCLT admitted the personal insolvency application against the appellant and triggered the operation of the moratorium under Section 101 of the IBC. 14. Upon completion of the insolvency proceedings, the NCLT, on 03.01.2025, closed the matter thereby granting liberty to the appellant under Section 122 of the IBC and the creditor under Section 123 of the IBC who, in the present case, moved the insolvency application, to file a bankruptcy application. The same was preferred by the said creditor and a bankruptcy order was passed on 12.11.2025 by the NCLT. In view thereof, the moratorium under Section 128 of the IBC is currently operating qua the appellant. B. SUBMISSIONS BY THE PARTIES a. Submissions on behalf of the appellant 15. Mr. Shreeyash Lalit, the learned counsel appearing on behalf of the appellant, addressed himself on the issue whether the proceedings for the dishonour of cheque under Sections 138 ....
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....ction 124(1)(b) and Section 128(1)(c) respectively. The expression "in respect of any debt" indicates that the moratorium which operates under Part-III of the IBC is primarily in respect of a debt rather than a debtor. Mr. Lalit invited our attention to the meaning of the words "in respect of" as discussed by this Court in P. Mohanraj v. Shah Bros. Ispat (P) Ltd., reported in (2021) 6 SCC 258 wherein it was held that the said expression accords a wide meaning to the nature of debt and would therefore, include any proceeding which relates directly or indirectly to a debt. 19. Mr. Lalit distinguished between the moratorium under Section 14 of the IBC qua the corporate debtors from the moratorium provisions under Part-III of the IBC which relates to personal insolvency. It was submitted that the moratorium under Section 14 prohibits institution of suits or continuation of pending suits or proceedings against the corporate debtor. This Court in P. Mohanraj (supra) held upon a juxtaposition of the moratorium provisions under Part-II and Part-III of the IBC respectively, that Section 14 declares a moratorium prohibiting what is mentioned in clauses (a) to (d) thereof in respect of tra....
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....e impact of a suit and a Section 138 proceeding and therefore, the expression "proceedings" appearing in Section 14 of the IBC cannot be confined to such proceedings or actions that are analogous to civil suits. 23. In the same breath, this Court also juxtaposed the language contained in Section 14 with other moratorium provisions under Sections 96 and 101 of the IBC respectively to hold that the expression "legal action or proceeding in respect of any debt" appearing therein also include the proceedings initiated or pending under Sections 138 and 141 of the NI Act. 24. The learned counsel placed reliance upon the observations made in P. Mohanraj (supra) as regards the language of the Section 14 and Section 85 of the IBC respectively. It was held therein that the language of Section 85 of the IBC is only in respect of debts, whereas, the moratorium contained in Section 14 is not subject specific. The expression "in respect of any debt" appears as is in the moratorium provisions provided in Sections 96 and 101 of the IBC respectively which relate to personal insolvency. Therefore, this Court has held in the most clear and unequivocal terms that the expression "legal action or ....
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....ate body/firm/individual should be given breathing space to recuperate for a successful resolution of its debts - in the case of a corporate debtor, through a new management coming in; and in the case of individuals and firms, through resolution plans which are accepted by a committee of creditors, by which the debtor is given breathing space in which to pay back his/its debts, which would result in creditors getting more than they would in a bankruptcy proceeding against an individual or a firm." 27. The learned counsel relied on the Bombay High Court's decision in Sheetal Gupta v. National Spot Exchange Ltd., reported in 2023 SCC OnLine Bom 3095 wherein the meaning of "any debt" as appearing in Sections 96 and 101 of the IBC respectively, was discussed. It was observed that the debt incurred or likely to be incurred by an applicant, that may be passed in a proceeding under Section 138 of the NI Act was covered by the term "any debt" appearing in Section 96 of the IBC. 28. As regards the issue whether this Court's dictum in Rakesh Bhanot v. Gurdas Agro Private Limited, reported in (2025) 6 SCC 781, is in teeth of the larger Bench decision in P. Mohanraj (supra), the learned ....
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.... However, this moratorium is not intended to shield individuals from personal criminal liabilities arising from their actions outside the scope of corporate debt restructuring. The respective appellant-petitioners, having filed insolvency applications as personal guarantors under Section 94 IBC, cannot extend this protection to avoid prosecution under Section 138 of the NI Act, 1881. ---xxx--- 24. On the other hand, the proceedings under Section 138 of the NI Act, 1881, pertain to the dishonour of cheques issued by the respective appellant-petitioners in their personal capacity. These proceedings are distinct from the corporate insolvency proceedings and are aimed at upholding the integrity of commercial transactions by holding individuals accountable for their personal actions. The scope and nature of the proceedings under IBC may result in extinguishment of the actual debt by restructuring or through the process of liquidation. But such extinguishment will not absolve its Directors from the criminal liability. Section 141 of the NI Act, 1881 enables the prosecution of the persons in charge of the affairs and responsible for the conduct of the business of the com....
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....L 1], after a detailed analysis of the provisions relating to moratorium under Sections 14, 96 and 101 IBC, concluded that the moratorium provision contained in Section 14 IBC would apply only to the corporate debtor, and the natural persons mentioned therein, continuing to be statutorily liable under the NI Act, 1881. In doing so, it was clarified that the moratorium under IBC does not extend to criminal proceedings. Further, it was emphasised that IBC's objective is to address the corporate debtor's financial distress and should not be misconstrued as a means to avoid personal criminal accountability. 28. For better appreciation, the relevant portion of the said judgment is extracted hereunder: (Mohanraj case [P. Mohanraj v. Shah Bros. Ispat (P) Ltd., (2021) 6 SCC 258 : (2021) 3 SCC (Civ) 427 : (2021) 2 SCC (Cri) 818 : (2021) 14 Comp Cas-OL 1], SCC p. 351, para 102) "102. Since the corporate debtor would be covered by the moratorium provision contained in Section 14 IBC, by which continuation of Sections 138/141 proceedings against the corporate debtor and initiation of Sections 138/141 proceedings against the said debtor during the corporate insolvency ....
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....de his submissions on the strength of the reasoning that the objective desired to be achieved by the moratorium provisions in Part-II and Part-III of the IBC respectively was the same, i.e., to ensure that there is no depletion of assets of the corporate/individual debtor so as to provide breathing space and opportunity to resolve the financial distress. Therefore, the reasoning as to the applicability of moratorium provisions to the proceedings under Section 138 of the NI Act, in context of corporate insolvency, served as the position of law as regards the applicability of moratorium provisions in the context of personal insolvency as well. 30. The learned counsel also canvassed submissions on the observation of this Court in P. Mohanraj (supra) that in a scenario where the benefit of moratorium is extended to a corporate debtor under Section 14 of the IBC and the proceedings under Section 138 of the NI Act are stayed, such stay would operate only in respect of the corporate debtor. It was clarified that the Section 138 proceedings shall continue against the Directors and other persons vicariously liable under Section 141 of the NI Act, as the language of Section 14 provided fo....
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....vely, of a corporate debtor, there are twin steps provided under Chapters III and IV of Part III of the IBC, namely, insolvency and subsequent bankruptcy, of an individual or a partnership firm, respectively. It was submitted that the object of the moratorium is the same whether it be under (a) corporate debtor insolvency under Section 14 of the IBC, (b) corporate debtor liquidation under Section 33 of the IBC, (c) personal insolvency under Sections 96 and 101 of the IBC, and (d) bankruptcy of individuals or firms under Sections 124 and 128 of the IBC. 36. The learned counsel canvassed the argument that once a proceeding under Section 138 of the NI Act stands covered under both corporate insolvency under Section 14 of the IBC as well as corporate debtor liquidation under Section 33 of the IBC, then there is no reason why it should not be covered by the moratorium provisions for personal insolvency under Sections 96 and 101 of the IBC respectively as well as bankruptcy proceedings under Sections 124 and 128 of the IBC respectively. 37. In the last, Mr. Lalit submitted that the law does not envisage a permanent moratorium qua the proceedings under Section 138 of the NI Act. The....
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....the corporate debtor and initiation of Sections 138/141 proceedings against the said debtor during the corporate insolvency resolution process are interdicted, what is stated in paras 51 and 59 in Aneeta Hada [Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 : (2012) 3 SCC (Civ) 350 : (2012) 3 SCC (Cri) 241] would then become applicable. The legal impediment contained in Section 14 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 Sections 138/141 proceedings 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 Sections 141(1) and (2) of the Negotiable Instruments Act. This being the case, it is clear that the moratorium provision contained in Section 14 IBC would apply only to the corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instruments Act." We thus clarify that the petitioners would not be prevented by the moratorium under Section 14 IBC from initiat....
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....accused was prosecuted under Sections 138 and 141 of the NI Act not on account of the debt owed, but on account of his fraudulent and negligent conduct attracting liability under the said provisions. 43. Mr. Tamber further submitted that Sections 14, 96, and 101 of the IBC respectively, are limited to the entity or person whose debts are undergoing restructuring and resolution. These moratorium provisions are not applicable to criminal liability incurred out of such debt. Therefore, the moratorium provisions under the IBC do not impede criminal proceedings under Section 138 of the NI Act, the Bhartiya Nyaya Sanhita, the Prevention of Money Laundering Act, and other similar penal statutes. 44. In the last, it was submitted that it is a settled position of law that the moratorium under Section 96 of the IBC is not applicable to proceedings under Section 138 read with Section 141 of the NI Act where such proceedings arise out of intentional and fraudulent conduct. In the present case, the petitioner failed to honour the cheque tendered despite giving the assurance that it would be honoured upon presentation. Such conduct constitutes a criminal offence and is not covered under Se....
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....nothing contained in this section shall apply unless- (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, as the case may be, makes 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 or other liability" means a legally enforceable debt or other liability." I. Criminal nature of Section 138 of the NI Act (i) Effect of "deeming fiction" in Section 138 of the NI Act 48. A bare textual reading of Section 138 indicates that when a legally enforceable debt is sought to be discharged by way of a cheque, then the dishonour of ....
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....as possessing that legal character, irrespective of the actual intention or factual position, with all attendant consequences following therefrom. The relevant observations are as under: "9.3. On a conspectus of the principles so enunciated, it is clear that although the word 'deemed' is employed for different purposes in different contexts but one of its principal purpose, in essence, is to deem what may or may not be in reality, thereby requiring the subject-matter to be treated as if real. Applying the principles to the provision at hand i.e., Section 43 of the Code, it could reasonably be concluded that any transaction that answers to the descriptions contained in sub-sections (4) and (2) is presumed to be a preferential transaction at a relevant time, even though it may not be so in reality. In other words, since sub-sections (4) and (2) are deeming provisions, upon existence of the ingredients stated therein, the legal fiction would come into play; and such transaction entered into by a corporate debtor would be regarded as preferential transaction with the attendant consequences as per Section 44 of the Code, irrespective whether the transaction was in fact intended....
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.... Act, 1955, the State Bank of India (Subsidiary Banks) Act, 1959, the Deposit Insurance and Credit Guarantee Corporation Act, 1661, the Industrial Development Bank of India Act, 1964, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, the Regional Rural Banks Act, 1976, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, the Export-Import Bank of India Act, 1981, the National Bank for Agriculture and Rural Development Act, 1981 and the Industrial Reconstruction Bank of India Act, 1984, to achieve the following objectives: (...) (xi) to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case of bouncing of cheques due to insufficiency of funds in the accounts or for the reason that it exceeds the arrangements made by the drawer, with adequate safeguards to prevent harassment of honest drawers. (...)" (Emphasis supplied) 54. What is discernible from the aforesaid is that criminal consequences are attached not to the failure to repay the debt but rather, to the dishonour of the cheque by way of which such debt is sought to be discharged. In our con....
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.... prosecution of offence acts as safeguard for bona fide persons 58. Having gone through the position as regards the stage at which the offence comes to be committed under Section 138, we find it apposite to address ourselves on the two concomitants of (i) issuance of the statutory notice by the payee and (ii) the failure of the drawer to make payment within 15 days of the receipt of the notice. Though these two factors are not the ingredients for the commission of the offence of dishonour, yet they are crucial conditions for the same to be actually tried before the courts. In our view, the reason for the inclusion of these conditions as a requisite precursor to the prosecution of the offence is to safeguard bona fide drawers of cheques against the standard of strict liability. 59. The legislature recognized that strict liability imposed under Section 138 may cause undue harassment to such drawers who may intend to discharge their debt but are unable to do so via a cheque due to temporary shortage of funds or unmanageable default in the cheque clearing system. It is for this reason that additional conditions apart from the commission of the offence, are required to be met for ....
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....the debt to the extent of the cheque amount, not being discharged, is the injury that is caused to a payee due to the drawer's act of dishonouring the cheque. What follows from this understanding of Section 138 is that the issuance of the statutory notice under clause (b) of Section 138 is the first expression of a dispute as regards the "injury" that has been caused due to the non-payment of the cheque amount in pursuance of discharge of a legally enforceable debt. 64. In our considered opinion, the clauses (b) and (c) of Section 138 respectively provide for an opportunity to the payer/drawer of the cheque to remedy the injury, i.e., the non-payment of the cheque amount, caused due to the dishonour of the cheque. In a situation where a bona fide drawer repays the cheque amount, the injury caused by the dishonour of the cheque is put right, and the statute mandates that the commission of the offence not be prosecuted. This cannot be taken to mean that the offence would be deemed to have never been committed. It is only the criminal consequences of the commission of such offence that is omitted in light of repayment. 65. This, in our opinion, is a clear indicator that the offe....
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....r than those specified in sub-ss. (1) and (2) are not compoundable. 2. The rationale for compounding of offences is that the chastened attitude of the accused and the praiseworthy attitude of the complainant in order to restore peace and harmony in society, must be given effect to in the composition of offences. 3.1. The Law commission in its 41st Report on the Code of Criminal Procedure, 1969 had not agreed to the formulation of a general rule for compounding by relating compoundable offences to the punishment provided for the offence. The Commission felt that it was "better to have clear and specific provisions such as those contained in S. 345 (of the old Code) than a general rule which is likely to lead to different interpretations ---xxx--- 9. We recommend that as a matter of policy more offences be brought under the category of offences compoundable by the parties themselves without the intervention of the court. However, offences against the public at large, howsoever small they may be, should not be compoundable." (Emphasis supplied) 70. What is discernible from the aforesaid is that in some circumstances, the courts and the l....
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....udged on the principle of preponderance of probability and not on the principle of proof beyond reasonable doubt, as in the case of criminal offences. b) Section 138 provides for the punishment of fine extending up to twice the amount of the cheque that is payable as compensation to the aggrieved party shows that the provision leans heavily towards civil nature of proceedings. c) A period of 15 days is provided to the drawer of the cheque to discharge his liability before the offence becomes prosecutable. This indicates that the real object of the provision is to compensate the victim rather than penalise the offence. d) The offence made out under Section 138 is a strict liability offence and the requirement of mens rea is not an ingredient. e) As regards the jurisdiction in which the trial of Section 138 proceedings ought to take place, it was observed that Section 142 of the NI Act makes a departure from the principle of territorial jurisdiction which is ordinarily used for determining where trial would take place for criminal offences. f) Further, the requirement that the complaint must be filed not immediately after the offence of di....
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.... (supra) regarding the nature of Section 138 before we proceed further on the aspect of its inter-linkage with the moratorium provisions under the IBC. (iv) Quasi-criminal nature of offence under Section 138 76. This Court has recognized the quasi-criminal nature of Section 138 of the NI Act in several decisions. In M. Abbas Haji v. T.N. Channakeshava, reported in (2019) 9 SCC 606, it was observed that due to the quasi-criminal nature of the offence under Section 138, the principles which apply ordinarily to acquittal in criminal cases cannot apply to the offence of cheque dishonour. The relevant portion of the judgment is reproduced hereinbelow: "6. It is urged before us that the High Court overstepped the limits which the appellate court is bound by criminal cases setting aside an order of acquittal. Proceedings under Section 138 of the Act are quasi-criminal proceedings. The principles which apply to acquittal in other criminal cases, cannot apply to these cases. (...)" (Emphasis supplied) 77. Similarly in H.N. Jagadeesh v. R. Rajeshwari, reported in (2019) 16 SCC 730, this Court observed about the quasi-criminal nature of the offence of cheque dishono....
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....milar to other quasi-criminal or regulatory offences such as violations of consumer protection laws, traffic infractions, etc. The Parliament, by dispensing with the requirement to prove mens rea, underscores the importance of the deterrent effect of punishment imposed for dishonour of cheques. 81. Having discussed the quasi-criminal nature of Section 138, could it be said that owing to the functionally civil nature of the wrong committed, the provision is to be treated primarily in the nature of a civil wrong rather than a criminal offence despite the deeming fiction introduced by the Parliament? In our considered view, the answer to this must be an emphatic 'No'. We say so because the criminal colour that has been given to the wrong of cheque dishonour is for the purpose of deterrence. Therefore, it cannot be said that the punishment provided under Section 138 is always in the nature of compensation. (v) Distinction between fine and compensation 82. We may, at the outset, reproduce the portion of Section 138 of the NI Act which provides for punishment for the offence of cheque dishonour: "138. Dishonour of cheque for insufficiency, etc., of funds in the account.....
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....le at sight or on demand, for the amount due to him, together with all expenses properly incurred by him. Such bill must be accompanied by the instrument dishonoured and the protest thereof (if any). If such bill is dishonoured, the party dishonouring the same is liable to make compensation thereof in the same manner as in the case of the original bill." (Emphasis supplied) * Scheme of compensation under the NI Act prior to the introduction of Chapter XVII 85. In order to truly appreciate the distinction between compensation under the NI Act and punishment by way of fine under Chapter XVII thereof, we find it apposite to consider Chapters VII and VIII along with Chapter XII respectively. Chapter VII of the NI Act comprises of provisions regarding the "discharge from liability on notes, bills and cheques". We may view these provisions solely from the perspective of transactions by cheques for the purpose of this exposition. 86. Prior to the introduction of Chapter XVII which includes Section 138, the procedure to avail remedy under the NI Act in cases of cheque dishonour was as follows: (a) It must be determined as to how the liability was discharged and w....
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.... that every party that the holder of the cheque wanted to make severally and/or jointly liable was supposed to be served with a notice. It was submitted that such requirement not having been met was reason enough for the accused directors to be discharged of the criminal liability under Section 138. (b) The Kerala High Court rejected the aforesaid submission and drew a distinction between the notice necessary under Sections 93 and 138. It was observed that for making out the criminal offence under Chapter XVII of the NI Act, only the requirements laid out in the proviso to Section 138 are to be followed. The High Court further held that for the purpose of complying with the requisite of notice for making the offence of cheque dishonour prosecutable, the issuance of notice under Section 93 is not mandatory. The relevant observations in Malankara Plantations (supra) read thus: "11. On a reading of the abovesaid Apex Court judgment in Kirshna Texport & Capital Markets Ltd. v. Ila A. Agrawal (Supra), this Court is not inclined to accept the plea made by the petitioner that the said judgment is per incuriam merely because it does not refer to the provision contained in....
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.... by the principal debtor and the former being a surety will now be liable for the payment. Thus, the object is not to demand payment, but to warn the party of liability and in case of drawer to enable him to protect him as against drawee or acceptor who has dishonoured the instrument. The notice under Section 93 is to be given by the holder or by or on behalf of endorser, who, at the time of giving the notice, is himself liable on the Bill of Exchange." (Emphasis supplied) (d) Upon a plain reading of paragraph 24 of the aforesaid decision, we may say without an iota of doubt that the objective sought to be achieved by the statutory notice mandated under clause (b) of Section 138, is starkly different from the object sought to be achieved under Section 93 of the NI Act. A bare textual reading of the language of clause (b) of Section 138 offers clear explanation for the same. Section 138(b) reads thus: "138. (...) (b) the payee or the holder in due course of the cheque, as the case may be, makes 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 b....
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.... about the dishonour thereof, yet does not ask for compensation but only for the cheque amount to give a chance to the drawer to free himself from criminal liability which may result in imprisonment, fine or both. On the other hand, the redressal of the dishonour of cheque when notified under Section 93 precedes the civil remedy of compensation which the courts award in terms of Section 117 of the NI Act. * Compensation order in Section 138 proceedings to be in terms of Section 395 of the BNSS 88. At this juncture, we find it apposite to distinguish between the "punishment" provided under Section 138 and "compensation". Section 138 provides that the offence of cheque dishonour is punishable with either imprisonment or fine or both. What follows from a plain reading of Section 138 is that the trial courts are empowered to impose the punishment of imprisonment without imposing any fine. Simultaneously, they are also empowered to impose the punishment of fine without any imprisonment and may only order for the same in cases of default in paying the fine. A bare textual reading of the provision shows no indication that the fine so imposed is to be mandatorily directed as compensa....
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.... this section may also be made by an Appellate Court or by the High Court or Court of Session when exercising its powers of revision. (5) At the time of awarding compensation in any subsequent civil suit relating to the same matter, the Court shall take into account any sum paid or recovered as compensation under this section." (Emphasis supplied) 90. For the purpose of this exposition, we may lay emphasis on the following points that are discernible from the aforesaid: a) First, sub-section (1) of Section 395 of the BNSS provides that when a court imposes a sentence of fine, it may, in its discretion, award compensation from the amount of fine, which would be payable to the victim. Such compensation may be either the entirety of the fine imposed or a portion thereof. However, for compensation to be awarded under Section 395(1), it is necessary that a sentence of fine be imposed, irrespective of the fact whether such fine was fixed standalone or along with the sentence of imprisonment. We may illustrate the aforesaid. Person 'A' is convicted of an offence for which the legislature has provided the punishment of imprisonment and/or fine. The trial court....
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....ontroversy, this Court also referred to provisions as regards compensation under Section 357 of the CrPC. It was observed that even if it were to be held that the JMFC was restricted to an upper limit of Rs. 5,000/- when imposing fine, yet Section 357 of the CrPC permitted the JMFC to order compensation without an upper limit, as the same was independent of the power to punish. The relevant portion of the judgment in Pankajbhai (supra) is reproduced below: "17. Even that apart, a Magistrate who thinks it fit that the complainant must be compensated with his loss he can resort to the course indicated in Section 357 of the Code. This aspect has been dealt with in Bhaskaran case [(1999) 7 SCC 510 : 1999 SCC (Cri) 1284] as follows: (SCC p. 521, para 31) "31. However, the Magistrate in such cases can alleviate the grievance of the complainant by making resort to Section 357(3) of the Code. It is well to remember that this Court has emphasised the need for making liberal use of that provision (Hari Singh v. Sukhbir Singh [(1988) 4 SCC 551 : 1988 SCC (Cri) 984] ). No limit is mentioned in the sub-section and therefore, a Magistrate can award any sum as compensation. Of c....
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....not completely clarify the position. The cheque amount is Rs. 69,500 and in this regard a sum of Rs. 80,000 has been directed towards compensation which, by virtue of Section 357(3), Code of Criminal Procedure (CrPC) would be receivable by the complainant. It appears that this sum of Rs. 80,000 has been received by the complainant. The use of the word, "additional sum" in the impugned order has led to considerable confusion. To put the matter finally at rest, we hold that the total compensation payable under Section 138 of the NI Act read with Section 357(3) CrPC is Rs. 80,000 i.e. the cheque amount of Rs. 69,500 together with Rs. 10,500 which may be seen as constituting interest on the dishonoured cheque. In the arguments addressed before us there appears to be no controversy that this sum has been duly paid to the respondent complainant. A reading of the impugned order [Somnath Sarkar v. Utpal Basu Mallick, Criminal Revision Record No. 2447 of 2004, decided on 1-4-2011 (Cal)] appears to indicate that the payment of further sum of Rs. 69,500, in the instalments indicated in that order would be over and above the said sum of Rs. 80,000. This would violate Section 138 of the NI Act ....
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....ion of paying compensation out of the same would arise. This implies that the process comprises two stages. First, when the court determines the amount of fine and levies the same subject to the outer limit, if any, as is the position in the instant case. The second stage comprises invocation of the power to award compensation out of the amount so levied. The High Court does not appear to have followed that process. It has taken payment of Rs. 80,000 as compensation to be distinct from the amount of fine it is imposing equivalent to the cheque amount of Rs. 69,500. That was not the correct way of looking at the matter. Logically, the High Court should have determined the fine amount to be paid by the appellant, which in no case could go beyond twice the cheque amount, and directed payment of compensation to the complainant out of the same." (Emphasis supplied) 93. There are two lens from which the aforesaid exposition compares 'fine' and 'compensation': i. First, when it was observed that the amount of Rs. 80,000/- would suffice as compensation and Rs. 20,000/- shall be considered as fine to set aside the sentence of imprisonment, this Court drew an inherent di....
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.... provision as regards interim compensation which only provides that such compensation shall be payable but does not answer how it shall be payable. 96. The distinction drawn between 'fine' and 'compensation' in Somnath Sarkar (supra) is apparent also from the judgment on facts. We say so because out of the total amount that the accused was ordered to pay, some portion was to be paid by way of compensation (Rs. 80,000/-) and the remaining Rs. 20,000/- was to be retained as fine. In such view of the law expounded in Somnath Sarkar (supra), we are of the considered opinion that the punishment of 'fine' provided under Section 138 cannot be treated as a compensatory provision per se. The fine amount is payable as compensation only in cases where the courts exercise their discretion under Section 357(1) of the CrPC (Section 395(1) of the BNSS). 97. We may also look into the decision of this Court in R. Vijayan v. Baby, reported in (2012) 1 SCC 260, wherein this Court was faced with the situation where the JMFC had imposed a fine of Rs. 2,000/- even though the cheque dishonoured was drawn for the amount of Rs. 20,000/-. It was observed that in the event the sentence of fine was impo....
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....lainants because of the quasi-criminal nature of the offence which we completely agree with. However, there is no gainsaying that Section 138 proceedings are not equivalent to civil suits for recovery of money. We say so because the provision of compensation to the complainant is not the sine qua non for the culmination of Section 138 cases. It is rather the sentence of punishment that completes such proceedings and the court may, in its discretion go one step ahead and provide compensation to the aggrieved person. The exhortations in R. Vijayan (supra) that compensation be granted as a relief to the complainants is to inculcate judicial consistency in dealing with Section 138 matters and to urge the legislature to make the provision relief-friendly and not merely a measure of deterrence. 99. The dichotomy between 'fine' and 'compensation has been clarified by this Court in D. Purushotama Reddy v. K. Sateesh, reported in (2008) 8 SCC 505 wherein it was observed thus: "10. The question, however, is as to whether the courts in one proceeding can issue directions to deposit amount in favour of the plaintiff without taking into consideration the amount deposited by the defe....
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....obligated to take the same into consideration. In other words, having regard to the provisions of sub-section (5) of Section 357 of the Code, a duty was cast upon the High Court to take into account the fact that a sum of Rs 2,00,000 had already been paid by the appellants to the respondent. Concededly, both the proceedings were maintainable. Law recognises the same. Parliament must have the situation of this nature in mind while enacting clause (b) of sub-section (1) of Section 357 of the Code and sub-section (5) thereof." (Emphasis supplied) 100. What has been conveyed by this Court in so many words is that the courts may order payment of compensation under Section 357(1)(b) of the CrPC for the loss and injury suffered by the complainant when such amount is recoverable before a civil court. Further, Section 357(5) of the CrPC enjoins the court which is in seisin of the subsequent civil suit to take into account the sum that has been ordered as compensation under Section 357(1) of the CrPC. This observation is telling of the intrinsically civil nature of compensation. Criminal courts have been statutorily empowered to order compensation if they are of the view that suc....
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....at: "42. Coming to the second question i.e., whether civil and criminal proceedings both can be maintained on the very same set of allegations the same person(s), the answer stricto sensu, is that there is no bar to simultaneous civil and criminal proceedings. If the element of criminality is there, a civil case can co-exist with a criminal case on the same facts. The fact that a civil remedy has already been availed of by a complainant, ipso facto, is not sufficient ground to quash an FIR, as pointed out, inter alia, in P Swaroopa Rani v M Hari Narayana, (2008) 5 SCC 765 and Syed AksariHadi Ali Augustine Imam v State (Delhi Admn.), (2009) 5 SCC 528. (...)" (Emphasis supplied) 105. The aforesaid judgments evince that there is no bar on simultaneous civil and criminal actions instituted by a complainant provided that the element of criminality is evident even though the criminal complaint relates to a civil transaction including a breach of contract. Even though the judgments referred to above are in the context of offences such as cheating, criminal breach of trust, etc., yet we find that the observations as regards the co-extensive nature of criminal and civil....
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....for any transaction are available, the aggrieved person can avail both the remedies. What has been filed by the present respondent through civil suit is a civil remedy pertaining to civil liability of the petitioner to pay the outstanding amount. The complaint case filed by the present respondent pertains to criminal liability where despite being served with a statutory notice after dishonour of cheque, the petitioner/accused opted not to pay. The goal of the civil suit is the decree of the suit amount while the goal of the criminal proceedings is imposition of punishment, which can be imprisonment as well. There is no bar on the respondent proceeding with both remedies simultaneously." (Emphasis supplied) 109. In Rajendra Kumar v. Mamta Tanwar, reported in 2025 SCC OnLine Del 235, the Delhi High Court observed thus: "7. Learned counsel for appellant also argues that qua the subject cheque, the respondent has initiated proceedings under Section 138 Negotiable Instruments Act and has also filed the suit from which this appeal arises, which cannot be permissible since the respondent has to choose either of the remedy. The argument has been recorded only to be rej....
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....e and commerce caused due to decreasing faith of people in cheques as a financial instrument. This objective was held to be distinct from the issue of financial liability of debt that was not discharged by the drawer of the cheque. The relevant portions of the judgment in Ajay Kumar Radheyshyam Goenka (supra) read thus: "17. We have no hesitation in coming to the conclusion that the scope of nature of proceedings under the two Acts is quite different and would not intercede each other. In fact, a bare reading of Section 14 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 NI Act. We are unable to appreciate the plea of the learned counsel for the appellant that because Section 138 of the NI Act proceedings arise from a default in financial debt, the proceedings under Section 138 should be taken as akin to civil proceedings rather than criminal proceedings. We cannot lose sight of the fact that Section 138 of the NI Act are not recovery proceedings. They are penal in character. A person may face imprisonment or fine or both under Section....
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....16 SCC OnLine Bom 2611], the question that arose before the Bombay High Court was whether the expression "suit or other proceedings" mentioned in Section 446(1) of the Companies Act, 1956 would include criminal proceedings under Section 138 of the NI Act. It was held that : (SCC pp. 256 & 259-606, paras 17, 24-25, 28 & 30) "17. Thus, the main object of Section 138 of the NI Act, which can be inferred, is to safeguard the credibility of commercial transactions and to prevent bouncing of cheques by providing a personal criminal liability against the drawer of the cheque in public interest. No civil liability or any liability against the assets of the drawer of the cheque is contemplated under Section 138 of the NI Act. Hence, it follows that the provisions of Section 446(1) of the Companies Act can have apparently and in essence no application to the proceedings under Section 138 of the Negotiable Instruments Act, as it is not a suit or proceeding having direct bearing on the proceedings for winding-up or the assets of the Company. (...)" (Emphasis supplied) 113. In our considered view, the dictum in Ajay Kumar Radheyshyam Goenka (supra), clarifies that even thou....
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....rs of the predominantly criminal nature of the offence. 117. Further, the object behind enacting Section 141 of the NI Act which makes the directors of the corporate debtor vicariously liable, is to pierce the corporate veil and attribute criminal responsibility to the persons in charge of managing the company. Therefore, even if the debt of the company or the corporate debtor stands settled owing to statutory insolvency proceedings, yet Section 138 proceedings may continue in respect of the directors who participated in the offence of cheque dishonour. 118. In Rakesh Bhanot (supra), a two-Judge Bench of this Court wherein one of us, J.B. Pardiwala, J., was a part, it was observed that where the proceedings under Section 138 have been instituted against a company, the criminal liability imposed on the Directors of such company by Section 141 of the NI Act is personal and irrespective of the effect of the moratorium provisions under the IBC on the corporate debtor. It was held that the inter-play between moratorium provisions of the IBC and the proceedings initiated qua the debt of the insolvent individual or firm would depend upon the nature of such proceedings. A distinction....
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....ntinual of any criminal action. The cause of action for prosecution under Section 138 of NI Act commences on the dishonour of the cheque and the failure to pay the amount unpaid because of dishonour, within 15 days from the date of receipt of notice demanding payment. It is pertinent to mention here that the prosecution can be only with respect to the amount unpaid by dishonour of the cheque irrespective of the actual debt. The distinction between the right to sue based on a dishonoured cheque by initiating a civil suit and launching a prosecution under Section 138 of the Negotiable Instruments Act is significant. In case of former, the interim moratorium can operate, but not in case of latter. ---xxx--- 31. For the foregoing discussion, we are of the opinion that the object of moratorium or for that purpose, the provision enabling the debtor to approach the Tribunal under Section 94 is not to stall the criminal prosecution, but to only postpone any civil actions to recover any debt. The deterrent effect of Section 138 is critical to maintain the trust in the use of negotiable instruments like cheques in business dealings. Criminal liability for dishonouring chequ....
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.... the injury caused, i.e., breach of contract for payment (for valid consideration), are inherently civil in nature. The enactment of Section 138 makes the wrongful act of breach of trust placed in cheque as a negotiable instrument, a criminal offence and provides for penal consequences therefor. In such a scenario, where the injury continues to remain civil but the act causing it has intentionally been made criminal by way of a statutory provision, we find it difficult to accept that the offence is a "civil sheep in criminal wolf's clothing". We find it necessary to view the interaction between Section 138 of the NI Act and the moratorium provisions as regards personal insolvency under the IBC, in the context of the criminal nature of Section 138. (viii) Discussion on the compensatory aspect of Section 138 proceedings 123. Having expounded the criminal nature of Section 138 of the NI Act in the aforesaid parts of this judgment, we find it apposite to discuss the compensatory aspect thereof. Though ordering compensation under Section 395 of the BNSS is a discretionary power of the court in Section 138 proceedings, yet there is no gainsaying that once the court does exercise th....
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.... (iii) The provision relating to mode of service of summons (Section 144) as contrasted from the mode prescribed for criminal cases in Section 62 of the Code. (iv) The provision for taking evidence of the complainant by affidavit (Section 145) which is more prevalent in civil proceedings, as contrasted from the procedure for recording evidence in the Code. (v) The provision making all offences punishable under Section 138 of the Act compoundable." (Emphasis supplied) 126. The dictum in R. Vijayan (supra) provides the reasons on the basis of which this Court in P. Mohanraj (supra) held that the provision under Section 138 of the NI Act is of predominantly civil nature. Though we have explained our reservations with this conclusion in the aforesaid part of this exposition due to the criminal aspects of Section 138 not being brought to the attention of the three-Judge Bench, yet we do not find ourselves in disagreement with the dicta of this Court in a plethora of judgments that one of the objectives of Section 138 may also be to compensate the complainant. We find such an approach to be necessary for reducing litigation and thereby alleviating t....
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....gislature: This Court has consistently applied the principles of purposive interpretation for the provisions governing the offences under Section 138 of the Negotiable Instruments Act to align the compensatory and remedial nature of the proceedings under Section 138 with the intention of the legislature, which is of paramount importance. This Court has consistently held that the offence under Section 138 of the Negotiable Instruments Act must be construed through a purposive interpretative lens, having regard to the mischief sought to be remedied by the statute. The legislative intent underlying Chapter XVII is to confer credibility, stability, and sanctity upon commercial transactions by ensuring that negotiable instruments particularly cheques serve as reliable substitutes for cash. Consequently, courts have consistently declined to adopt a narrow, technical, or hyper-literal interpretation that would enable the drawer of a dishonoured cheque to defeat the compensatory object of the provision. Instead, the interpretation must advance the twin purposes of deterring the practice of issuing cheques without sufficient funds and ensuring speedy and effective recovery of the cheque amo....
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....nership Firms". Section 96 of the IBC provides for interim-moratorium after the filing of insolvency application and reads thus: "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 proceeding 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 respect of any debt. (...)" (Emphasis supplied) 130. Similarly, Section 101 of the IBC deals with the operation of moratorium on any legal action or proceeding in respect of any debt after the insolvency application comes to be admitted. Section 101 reads thus: "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 hundred and eighty days beg....
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....e sought to be achieved by the enactment of Section 138. We may even go so far as to say that the applicability of moratorium provisions on Section 138 proceedings makes the same equivalent to a debt recovery mechanism, which could never have been the intention of the legislature. 134. The moratorium provisions in the IBC must be made available having regard to the consequence of the "legal action or proceeding". The natural consequence of a Section 138 proceedings is criminal liability in the form of either imprisonment or fine or both. The exclusion of criminal liability, especially for the purposes of personal insolvency under Part III is evident from Section 79(15) of the IBC which provides the definition of "excluded debt". Section 79(15) of the IBC reads thus: "79. Definitions.-- (...) (15) "excluded debt" means- (a) liability to pay fine imposed by a court or tribunal; (b) liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other legal obligation; (c) liability to pay maintenance to any person under any law for the time being in force; (d) liability in relation to a student loan; ....
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...., staying only "legal actions or proceedings in respect of any debt". Unlike corporate insolvency proceedings, where the goal is a comprehensive resolution of the company's liabilities, individual insolvency proceedings are designed primarily for restructuring personal debts and providing relief to the debtor. The legislative intent behind limiting the scope of the interim moratorium under Section 96 IBC must be respected, and a blanket stay on all regulatory penalties would result in defeating the objectives of consumer protection laws. 34. The moratorium under Section 96 IBC is intended to provide temporary relief to debtors by preventing certain proceedings against them during the resolution process. However, this protection is not absolute and does not extend to all categories of debts. The legislative intent behind the moratorium is to ensure that the debtor's assets are preserved for an efficient resolution process and to prevent creditors from taking unilateral actions that may frustrate the objective of insolvency proceedings. However, the statutory scheme of the IBC makes it clear that the protection under the moratorium does not cover all forms of liabili....
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....to balance between the interests of the debtors and public policy considerations. Therefore, errant persons ought not to be afforded the protection of moratorium in respect of violations that are discouraged in the interest of social or economic policy. 139. We find it apposite to also briefly address the distinction drawn between Section 138 of the NI Act and Section 27 of the Consumer Protection Act, 1986 by this Court in Anilkumar Aggarwal (supra). It was observed that the moratorium provisions have been made applicable on Section 138 proceedings because the assumption of debt is inherent to the offence itself unlike the penal provisions under the Consumer Protection Act. It is worth noting that this Court made such an observation only with a view to address the argument that the provisions under Section 138 of the NI Act and Section 27 of the Consumer Protection Act were both penal and hence, moratorium, if operable in respect of Section 138 proceedings, ought to be applicable on the penalties under Section 27 of the Consumer Protection Act. Since the question before the Bench therein did not pertain to the applicability of moratorium provisions on Section 138 of the NI Act,....
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.... of the provision under Section 138 of the NI Act. Therefore, as discussed hereinabove, allowing the said criminal aspect to be stayed by the moratorium provisions under Part III of the IBC would cause violence to the language and intent of Section 138 of the NI Act. 143. However, we have also discussed in the aforesaid part of this exposition that one of the objectives of Section 138 of the NI Act is also to provide an effective remedy to the complainant. It is evident from the insertion of Sections 143-A and 148 respectively of the NI Act that compensating the complainant is also one of the avowed objectives of the provision. We, however, lament the absence of any guidance in the statute itself as regards the manner in which such compensation would be ordered. 144. This is because the power to order compensation is exercisable in Section 138 proceedings to restore to the complainant his rightful dues along with the time value of money in the form of interest, and/or any expenses incurred in attempting to recover such dues. The nature of this remedy is inherently civil in nature even though exercisable by a court of criminal jurisdiction. Therefore, any order of compensation....
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.... is not meant as punishment or atonement of the convict but rather as a step towards reparation to the victims who have suffered from the offence committed by the convict. 26. If payment of compensation becomes a consideration for reducing sentence, then the same will have a catastrophic effect on the criminal justice administration. It will result in criminals with a purse full of money to buy their way out of justice, defeating the very purpose of criminal proceedings." (Emphasis supplied) 147. The aforesaid order indicates that compensation under Section 395 of the BNSS is in the nature of reparations. This includes restitution of the victim complainant to his original position by ordering the payment of his rightful dues as determined by the court exercising criminal jurisdiction. It has been recognized by this Court in Ankush Shivaji Gaikwad v. State of Maharashtra, reported in (2013) 6 SCC 770 that the power to award compensation and restitution of victims was earlier solely in the domain of the courts exercising civil jurisdiction. The criminal courts have been statutorily empowered to order compensation so as to ensure complete and effective remedy for ....
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....id cheque comes to be dishonoured, there is a breach of obligation to pay on part of the debtor-drawer. The dishonour and the fulfilment of the five concomitants of Section 138 of the NI Act provide the aggrieved creditor-complainant a right to remedy for such breach under the NI Act. The breach of obligation to pay by the debtor gives rise to the right of payment of the cheque amount by way of a civil suit for recovery of money. However, could it be said that the punitive remedy provided under the NI Act also provides a similar right of payment as a civil suit? The answer to the same depends on the discretion exercised by the criminal court. 153. If the court exercising jurisdiction over the complaint under Section 138 restricts itself to Tier I remedy and imposes only punishment but no compensation, then the right to payment does not accrue to the creditor-complainant before the criminal court. In such cases, the complainant would have to move the appropriate court to receive his rightful monies. On the other hand, if the criminal court trying Section 138 proceedings also orders compensation, then the right to payment accrues to the complainant and the compensation fulfils the....
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....the debt of Rs. 10,000/- payable by way of a mode other than cheque, then the amount payable by cheque should also be made subject to such protection. 157. We make the aforesaid observation on the basis of the distinction between 'fine' and 'compensation'. The reason underlying a 'fine' is to impose exemplary penalty on the drawer of the cheque so as to deter him from committing the same offence again. It is as clear as noon day that allowing stay on the proceedings which may impose such punishment of 'fine' would cause detriment to the intent of Chapter XVII of the NI Act. But allowing even the compensatory aspect of Section 138 to run its course despite the imposition of moratorium on other similarly situated debts would lead to Section 138 proceedings being treated as an alternative debt recovery mechanism. Any differential treatment of debts payable through cheque and debts payable otherwise, in respect of IBC proceedings, would be an injustice to such creditors whose claims might be defeated due to depletion of the debtor's assets during Section 138 proceedings. 158. For the reasons in the aforesaid, we find that the moratorium provisions under Part III of the IBC must b....
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....ate debtor'. This means that any suit or proceeding, whether pending or yet to be initiated, in relation to the transactions of the corporate entity which may result in the depletion of the assets thereof, are stayed by the operation of the moratorium. 161. On the other hand, the moratorium under Section 96 contemplates an examination of the existence of the debt, whether or not it has been repaid and whether there is a repayment plan in place in case of continuing defaults. The moratorium under Part III does not stay legal action or proceedings in respect of all transactions that relate to the debtor, rather it operates in respect of "any debt". Therefore, it is clear that the purpose of the moratorium under Part III of the IBC is protective and does not halt or hamper the individual's beneficial transactions in respect of his assets. The moratorium under Section 14 is all encompassing whereas the stay envisaged under Part III of the IBC is only with respect to the liabilities of the individual or partnership firm in question. The relevant portions of the judgment in Dilip B. Jiwrajka (supra) read thus: "3. The impact of a moratorium under Section 14 of Part II vis-....
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....nd it apposite to clarify that though the aforesaid observations were in the context of interim-moratorium under Section 96 of the IBC, yet the observation regarding the protective purpose of the said section holds true for all other moratorium provisions falling under Part III of the IBC. We say so because the contra-distinction drawn between Sections 14 and 96 in Dilip B. Jiwrajka (supra) as regards the length and breadth of the transactions in relation to which suits, legal actions or proceedings are subjected to stay under the two different provisions, can be extended to the other moratorium provisions falling under Part III of the IBC. 163. However, the aforesaid distinction between the moratorium provisions under Part II and Part III respectively, of the IBC has no bearing on the fundamental objective that is sought to be achieved by staying suits, legal actions or proceedings. The underlying purpose of the moratorium provisions under both Part II and Part III of the IBC is to provide breathing space to the corporate debtor or individual debtor in order to best restructure their assets and liabilities which would allow them to discharge their obligations. 164. In this r....
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.... ---xxx--- 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 that the corporate debtor gets breathing space to continue as a going concern in order to ultimately rehabilitate itself. Any crack in this shield is bound to have adverse consequences, given the object of Section 14, and cannot, by any process of interpretation, be allowed to occur. ---xxx--- 47. We have already seen how the language of Sections 96 and 101 would include a Sections 138/141 proceeding against a firm so that the moratorium stated therein wo....
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.... applicable on the directors of a liquidated corporate entity in respect of the amount of the dishonoured cheque (considered to be 'debt of the company') for which they have been made vicariously liable under Section 141 of the NI Act. In order to effectively deal with this issue, we find it apposite to address ourselves on the following related questions: * Whether, by the operation of Section 141 of the NI Act, the directors are also bound by the pecuniary liability imposed by the compensatory aspect of Section 138 proceedings, or is the legal responsibility of the directors limited to personal criminal liability, i.e., punishment under Section 138? * Whether moratorium would be applicable on such debts which are not the individual's personal debts but were originally the liability of the now-insolvent or liquidated corporate debtor? (ii) Pecuniary liability of compensation ordered under Section 138 of the NI Act on the Directors of the company 168. In cases where it is a company that has committed the offence of dishonouring the cheque, Chapter XVII of the NI Act, more particularly Section 141 thereof provides that every person who, at the time of the com....
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.... that Section 138 proceedings against the directors would survive. 170. In Aneeta Hada v. Godfather Travels & Tours (P) Ltd., reported in (2012) 5 SCC 661, it was observed on a plain reading of Section 141 of the NI Act and the expression "as well as" appearing therein, that a complaint under Section 138 against the directors of a company would not subsist if the company itself had not been impleaded. However, the three-Judge Bench carved out an exception for those cases in which the company cannot be proceeded against due to a legal snag. Applying the the principle of lex non cogit ad impossibilia, it was held that in cases where the company cannot legally be impleaded and made criminally liable for the offence of cheque dishonour, the proceeding against the directors under Section 141 of the NI Act would not cease. The relevant observations of this Court in Aneeta Hada (supra) is reproduced below: "51. We have already opined that the decision in Sheoratan Agarwal [(1984) 4 SCC 352 : 1984 SCC (Cri) 620] runs counter to the ratio laid down in C.V. Parekh [(1970) 3 SCC 491 : 1971 SCC (Cri) 97] which is by a larger Bench and hence, is a binding precedent. On the aforesaid....
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....plicable on the director(s) of the company in cases where the latter could not have been impleaded due to a legal impediment. Any interpretation of Sections 143-A and 148 of the NI Act respectively, that states otherwise would defeat the compensatory objective of the proceedings under Section 138 and would deny the complainant the benefit of the remedial nature of the provision. c) Lastly, though a corporate entity must ideally possess a distinct and separate legal identity from the people in charge thereof, such separateness should not be used in a manner that allows the compensatory provisions under Sections 143-A and 148 to be rendered nugatory. In cases where the company is beyond the reach of prosecution, adopting a hyper-technical understanding of statutory provisions under Sections 143-A and 148 would lead to there being no person, juristic or natural, to whom the direction to pay interim compensation or appellate deposit could be given. It was held that this cannot be the intention of the legislature, which after the 2008 amendment to the NI Act, has made compensatory relief one of the avowed objectives of the Act. The relevant portions of the judgment in Bharat....
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....ing their enactment. For the reasons set out hereinafter, we find it difficult to concur with the outcome of conclusions reached in Gurudatta Sugars and Bijay Agarwal. In our considered view, a harmonious construction of these provisions is required which aligns with and gives effect to the intent of the legislature. ---xxx--- 62. This Court, in Gurudatta and Bijay, adopted a strict interpretation of the statute while construing the expression 'drawer'. While such an interpretation may be warranted where the provision in question is purely criminal in nature, this Court in P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd. has categorically held that proceedings under Section 138 of the Negotiable Instruments Act, read with Section 141, are quasi-criminal in character. In matters where the proceedings partake the character of a quasi-criminal in nature, this Court has consistently observed including in Abhilash Vinodkumar Jain v. Cox & Kings (India) Ltd., that a purposive interpretation, aligned with and in furtherance of the legislative intent, is to be preferred. The interpretative approach must therefore be guided not by a rigid literalism, but by the object sought t....
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....for its affairs cannot be compelled to comply with the remedial mechanism under Section 148. This would render the purpose and intent underlying Sections 143A and 148 wholly nugatory. The compensatory and remedial object of these provisions which are meant to safeguard the interests of the complainant and to ensure meaningful relief during the pendency of proceedings would be reduced to a lifeless statutory form, devoid of practical efficacy. In our considered view, such an outcome could never have been the intention of the legislature." (Emphasis supplied) 174. The exposition in the aforesaid has referred the issue before it to a larger Bench of this Court. Therefore, we do not want to make any observations as regards the correctness of the same. However, we may say that the decision in Bharat Mittal (supra) indicates that the remedial framework of the proceedings under Section 138 of the NI Act must be taken into account for the purposes of determining final compensation. Though Sections 143-A and 148 of the NI Act are compensatory in nature, they provide no guidance as regards the mode and manner in which the final compensation in Section 138 proceeding must be given....
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....ersonal debts. 179. We do not find any merit in the said argument. Sections 96 and 101 of the IBC respectively provide for the operation of moratorium on the legal actions and proceedings that are instituted in respect of "any debt". The expression "any debt" is of much significance, especially when we draw a comparison between the moratorium provisions under Sections 96 and 101 which relate to insolvency proceedings, and Sections 124 and 128 which relate to bankruptcy proceedings. Section 124 of the IBC reads thus: "124. Effect of application.-- (1) When an application is filed under section 122 or section 123,- (a) an interim-moratorium shall commence on the date of the making of the application on all actions against the properties of the debtor in respect of his debts and such moratorium shall cease to have effect on the bankruptcy commencement date; and (b) during the interim-moratorium period- (i) any pending legal action or legal proceeding against any property of the debtor in respect of any of his debts shall be deemed to have been stayed; (ii) the creditors of the debtor shall not be entitled to initiate any legal a....
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....debtor might not have personally incurred but the onus of repayment of the same falls onto him owing to a contractual agreement or statutory provision. 183. On the other hand, the use of the words "any of his debts" in Section 124 of the IBC indicates a shift in the objective sought to be achieved by the moratorium during bankruptcy proceedings. The aim is no longer to formulate a repayment plan such that the defaults are eliminated. The insolvency proceedings having already been declared unsuccessful, the debtor is subjected to bankruptcy proceedings wherein the objective is to protect that the debtor's asset pool. Therefore, Section 124(1)(a) specifically stipulates that a stay shall operate on "all actions against the properties of the debtor in respect of his debts". This understanding is further reinforced by the language of Section 128(1)(c)(i) which states that a creditor shall not initiate any action against the property of the bankrupt in respect of any debt claimed as bankruptcy debt. 184. Therefore, when Sections 96 and 101 of the IBC respectively have the effect of staying the proceedings in respect of "any debt", the moratorium attaches to the debt obligation its....
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....er Section 395 of the BNSS during the proceedings under Section 138 of the NI Act. 188. To put the matter of applicability of the moratorium provisions under Part III of the IBC on director(s) vicariously liable under Section 141 of the NI Act, to rest, we may also look into the language of Sections 124 and 128 of the IBC respectively. A bare textual reading of the language of Section 124 more particularly, the expression "any of his debts" would indicate that moratorium thereunder operates only in respect of such debts that he personally incurred. However, it is not so. 189. In order to understand the import of the expression "any of his debts" in Section 124 which is an interim-moratorium provision, it is necessary to understand how it relates to Section 128(1)(c) of the IBC which mandates that a creditor shall not initiate any action or commence any suit or legal proceedings without the leave of the Adjudicating Authority against the property of the debtor in respect of any debt claimed as "bankruptcy debt". It is necessary to understand the meaning of "bankruptcy debt" which has been defined under Section 79(5) of the IBC. Section 79(5) reads thus: "79. Definitio....
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....e predominantly criminal nature and objective of Section 138 of the NI Act was not brought to the attention of the three-Judge Bench of this Court in P. Mohanraj (supra). We have held that though proceedings under Section 138 of the NI Act are quasi-criminal, yet the predominant nature of such proceedings is criminal. We have said so after a perusal of the reasons on the strength of which the judgment in P. Mohanraj (supra) described Section 138 as a "civil sheep in criminal wolf's clothing". In our considered opinion the three-Judge Bench described Section 138 proceeding inherently civil in nature primarily on the basis of the procedure stipulated under Chapter XVII of the NI Act. 195. We found it apposite to take into account the objective that the legislature sought to achieve by way of the enactment of Section 138. A bare reading of the Statement of Objects and Reasons of the Banking Amendment Act which introduced Chapter XVII of the NI Act indicates that the predominant object of Section 138 proceedings is to increase the faith of the public in the integrity and credibility of the use of cheques in commercial transactions. 196. On a plain reading of Section 138 of the NI....
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..... On the other hand, if the Section 138 proceedings are kept outside the purview of moratorium, then it would be detrimental to the interests of the debtor as well as other creditors whose claims are similarly placed but are kept secondary due to adoption of methods of payments other than cheques. 200. Therefore, it is imperative to balance between the objectives sought to be achieved by both the legislations. We have attempted to balance the provisions of both the NI Act and the IBC by bifurcating the offence of cheque dishonour into (i) criminal aspect of the offence (Tier I), and (ii) compensatory aspect of the Section 138 proceedings (Tier II). 201. The criminal aspect of Section 138 proceedings results in punishment including imprisonment, fine or both. This makes it sufficiently clear that moratorium provisions under Part III of the IBC cannot be made applicable on the criminal impact of Section 138 of the NI Act. We have said so because Section 79(15) of the IBC which defines "excluded debts" has excluded the 'liability to pay fine' from debts in respect of which legal actions and proceedings are stayed by the operation of moratorium under Part III of the IBC. We are o....
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....btor from the enforcement of existing debts. 208. On the other hand, the protection of moratorium under Sections 124 and 128 of the IBC respectively is extended only to those proceedings which are against the properties of the debtor in respect of his debt. This clearly indicates that the objective of Chapter IV of Part III, i.e, 'Bankruptcy' is to freeze the asset pool which would provide creditors with better value for the claims. 209. In our considered opinion, moratorium under Sections 96 and 101 of the IBC respectively is applicable on the director(s) who are saddled with the liability to discharge the compensatory obligation of the company by virtue of the use of the words "any debt" therein. Further, the moratorium under Sections 124 and 128 of the IBC respectively would also stay any suit or legal proceedings against the properties of the debtor, instituted with the purpose of enforcement of the bankruptcy debt. F. CONCLUSION 210. In view of what has been pointed out hereinabove, we are of the opinion that, for a comprehensive consideration and an authoritative pronouncement after taking into account all aspects, including those dealt with hereinabove, the matte....