TaxTMI 
TaxTMI 
2026 (8) TMI 1133
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....pplication No. 1694 Of 2024, Application No. 1743 Of 2024, Application No. 1742 Of 2024, Application No. 1745 Of 2024, Application No. 1750 Of 2024, Application No. 1744 Of 2024, Application No. 1748 Of 2024, Application No. 1746 Of 2024, Application No. 1756 Of 2024, Application No. 1757 Of 2024, Application No. 1758 Of 2024, Application No. 1754 Of 2024, Application No. 1838 Of 2024, Application No. 1839 Of 2024, Application No. 1841 Of 2024, Application No. 1840 Of 2024, Application No. 1885 Of 2024, Application No. 1883 Of 2024, Application No. 1886 Of 2024, Application No. 1882 Of 2024. For the Applicant: Mr Sudeep Pasbola, Senior Advocate i/by Mr. Abhiraj Rao, in APL 1749 of 2024. For the Applicant: Mr. Vinay J Bhanushali with Mr. Abhiraj Rao, Mr. Sanmit Vaze, Ms. Diksha Sharma, in APL Nos.1690/2024, 1694/2024, 1743/2024, 1742/2024, 1745/2024, 1750/2024, 1744/2024, 1748/2024, 1746/2024, 1756/2024, 1757/2024, 1758/2024, 1754/2024, 1838/2024, 1841/2024, 1839/2024, 1840/2024, 1885/2024, 1883/2024, 1886/2024, 1882/2024 and 501/2024. For the Petitioner: Ms. Aakanksha Nehra (through VC), with Mr. Anuj Jhaveri, Mr. Mihir Modi, in WP/2228/2025 and WP/2229/2025. For the Pe....
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....and liable for all the acts and deeds done by A1. 5.3 As a member of the complainant spot exchange, A1 was bound to comply with the Rules and By-laws of the complainant. The Accused had given an undertaking to that effect. 5.4 Vide Circular dated 31st July 2013, the complainant directed that the positions outstanding in the contracts would be settled by way of delivery and payment after expiry of 15 (fifteen) days. 5.5 In the wake of outstanding with respect to A1 and its sister concerns, Tavashi Enterprises Private Limited and Vrunda Commodity Private Limited, A1 alongwith its sister concern and six others (including A2 and A3) had entered into a Settlement Agreement. On 30th October 2013, a Settlement Award as contemplated under Section 73 of the Arbitration and Conciliation Act, 1996 ("the Act, 1996") came to be passed. 5.6 Under the said Award, an amount of Rs. 771 Crores became due and payable by A1 in 13 installments. The first installment was paid by A1. However, the accused committed default in payment of the succeeding installments. As of 10th March 2014 a sum of Rs.124.50 Crores was due and payable in terms of the Settlement Award. 5.7 Towards discharge of ....
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....r being a director and the person responsible for A1-company by invoking the provisions contained in Section 141 of the NI Act, 1881. In substance, A2 was being prosecuted as a natural person by invoking his vicarious liability contained in Section 141 of NI Act, 1881. The prosecution was not in relation to the debt owed by A2 personally. 5.13 Respondent No. 1 further asserted that, the proceeding under Section 94 of the IBC, 2016 for initiation of the IR were in relation to the personal liability of A2 in his capacity as a surety in the contract of guarantee executed by him in favour of the complainant. In contrast, the prosecution in the instant case, was in relation to the debt of A1-company towards discharge of which the subject cheque was drawn. The debt of A1 was not the personal debt of A2. There is no embargo for the continuation of the prosecution for an offence punishable under Section 138 of the NI Act, 1881, against the natural person. The moratorium under Section 96, would be attracted only in case of the corporate entity and not the natural person. 5.14 The learned Magistrate, after appraisal of the material on record and the rival submissions, was persuaded to ....
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....used the material on record. SUBMISSIONS : FOR APPLICANTS/PETITIONERS : 10. Mr. Bhanushali, the learned Counsel for the Applicants submitted that, if the entire scheme of IBC, 2016 and the underlying object of the mechanism of moratorium are appreciated, then the continuation of the prosecution for an offence punishable under Section 138 of the NI Act, 1881, qua the directors would prove detrimental and counter productive to the avowed object of revival of the corporate entity. The distinction between the corporate debtor and the natural person who are sought to be prosecuted for an offence punishable under Section 138 read with Section 141 of the NI Act, 1881, does not hold the ground if the legislative intendment is properly understood. 11. Mr. Bhanushali submitted that the decision in the case of P. Mohanraj Vs M/s Shah Brothers Ispat Pvt Ltd (2021) 6 SCC 258., which forms the sheet anchor of the distinction between the fate of the proceeding qua the corporate debtor and natural person, does not advance the cause of the submissions on behalf of the complainant, if the principles laid down therein are appreciated correctly. On the contrary, the said decision though re....
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....d unambiguous. Once an Insolvency Resolution Petition is admitted, the interim moratorium operates automatically and instantaneously. The broad expression, "any legal action or proceeding in respect of any debt" used in Section 96, covers in its fold a prosecution for an offence under Section 138 of the NI Act, 1881, as well. 16. Amplifying the aforesaid submission Mr. Bhuta would urge a complaint under Section 138 of the NI Act, 1881, has its genesis in the issuance of a cheque towards discharge of a legally enforceable debt or liability. Thus, the Supreme Court in the case of P. Mohanraj (Supra), enunciated that, though proceedings under Section 138 of the NI Act, 1881, are criminal in form, yet they are primarily intended to enforce the payment of a debt or discharge of the liability. Consequently, the continuation of the prosecution even against the director of a company during the pendency of the moratorium is legally impermissible. 17. Mr. Bhuta also laid emphasis on the non-obstante clause contained in Section 238 of IBC, 2016, which gives an overriding effect to the provisions of IBC, 2016, over any other law or instrument. Thus, since Section 6 defines a cheque as an....
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....y, if the benefit of the interim moratorium under Section 96 of IBC, 2016, is not made applicable to the proceeding under Section 138 of the NI Act, 1881, the very object of IBC would be jeopardized. 22. In order to lend support to the aforesaid submissions, the learned Counsel for the Applicants/Petitioners have placed reliance on the judgments of the Supreme Court in the cases of- (i) Dilip B. Jiwrajka V/s. Union of India and Ors. (2024) 5 SCC 435; (ii) P. Mohanraj and Ors. V/s. Shah Brothers Ispat Pvt. Ltd. (supra); (iii) Ajay Kumar Radheyshyam Goenka V/s. Tourism Finance Corporation of India Ltd. (supra); (iv) Indian Overseas Bank V/s. M/s. RCM Infrastructure Ltd. 2022 LiveLaw (SC) 496 and the judgment of the learned Single Judge of this court in the case of Sheetal Gupta V/s. National Spot Exchange Ltd. and Anr. Cri. Appl. No. 1151 of 2022 dt. 10 Jan. 2023. For Respondent No. 1 - complainant : 23. Mr. Arvind Lakhawat, the learned Counsel for Respondent No. 1-complainant, stoutly countered the submissions on behalf of the Applicants-Petitioners and supported the impugned order. 24. Mr. Lakhawat would urge that the issue sought to ....
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....nder Sections 96 and 101 of IBC, 2016, respectively, is applicable qua the directors' 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. And the following questions were referred to a three Judge Bench : 1. Whether the provisions of Section 138 of the NI Act, 1881 and the objective underlying the enactment thereof indicate that it is a quasi-criminal in nature with a tilt towards the criminal side? 2. Whether the moratorium provisions under Part III of the IBC, 2016, should be made applicable on the entire proceedings under Section 138 of NI Act, 1881 or only to the compensatory aspect thereof? 29. The Counsels for the Applicants/Petitioners were in unison on the point that the decision on these Applications/Petitions be deferred till the larger Bench decides the aforesaid questions. It was submitted that the aforesaid judgment bolsters up the case of the Accused. 30. Per contra, the learned Counsel for the Respondents-complainant submitted that the aforesaid judgment reinforces the principle that, so far as the prosecution of the natural persons for an offence pun....
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....te debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. [Explanation. - For the purpose of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period.] 35. Chapter III makes the provisions in relation to insolvency resolution process qua a person. Section 94 provides for insolvenc....
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....consolidating the proceedings under the applications as it thinks just. (4) An application under sub-section (1) shall be accompanied with details and documents relating to - (a) the debts owed by the debtor to the creditor or creditors submitting the application for insolvency resolution process as on the date of application; (b) the failure by the debtor to pay the debt within a period of fourteen days of the service of the notice of demand; and (c) relevant evidence of such default or non-repayment of debt. (5) The creditor shall also provide a copy of the application made under sub-section (1) to the debtor. (6) The application referred to in sub-section (1) shall be in such form and manner and accompanied by such fee as may be prescribed. (7) The details and documents required to be submitted under sub-section (4) shall be such as may be specified." 36. Section 96 of IBC, with which we are primarily concerned in these proceedings, provides for interim moratorium in the wake of insolvency resolution application under Section 94 or Section 95. Section 96 reads as under : "96. Interim-Moratorium.- (1) When....
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....on process has been initiated in different modes and the debtor is revived as a running concern, insulating it/him from the claims of creditors during the period of insolvency resolution process, has introduced the device of moratorium. 39. While appreciating the interplay between the provisions contained in Section 14 and section 96, or, for that matter, Section 101 of the IBC 2016, the object of IBC 2016, in general, and the device of moratorium, in particular, deserves to be kept in view. The Parliament has undoubtedly used different expressions in Section 14 and Section 96 of the IBC 2016. Yet, while construing the terms used in the said provisions, the overarching object of the mechanism of moratorium cannot be lost sight of. 40. The Statement of Objects and Reasons indicates that IBC 2016 was enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firm, individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of governme....
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.... that the word "proceedings" covers in its fold a prosecution for an offence punishable under Section 138 of the NI Act, 1881. The observations in paragraph Nos.31, 35.2, 35.3 and 36 are instructive, and, hence, extracted below : "31. It can thus be seen that regard being had to the object sought to be achieved by the IBC in imposing this moratorium, a quasi-criminal proceeding which would result in the assets of the corporate debtor being depleted as a result of having to pay compensation which can amount to twice the amount of the cheque that has bounced would directly impact the corporate insolvency resolution process in the same manner as the institution, continuation, or execution of a decree in such suit in a civil court for the amount of debt or other liability. Judged from the point of view of this objective, it is impossible to discern any difference between the impact of a suit and a Section 138 proceeding, insofar as the corporate debtor is concerned, on its getting the necessary breathing space to get back on its feet during the corporate insolvency resolution process. Given this fact, it is difficult to accept that noscitur a sociis or ejusdem generis should b....
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....en the moratorium period comes to an end. 46. While considering the question whether natural persons are covered under Section 14 of IBC 2016, after following the pronouncement in the case of Aneeta Hada V/s. Godfather Travels & Tours (P) Ltd. (2012) 5 SCC 661, which enunciated that a proceeding under Section 138 read with 141 of the Act, 1881 cannot be initiated or continued against the directors / persons in management or control of corporate debtor, without the corporate debtor being impleaded as an accused, the Supreme Court enunciated the law as under : "102. Since the corporate debtor would be covered by the moratorium provision contained in Section 14 of the IBC, by which continuation of Section 138/141 proceedings against the corporate debtor and initiation of Section 138/141 proceedings against the said debtor during the corporate insolvency resolution process are interdicted, what is stated in paragraphs 51 and 59 in Aneeta Hada (supra) would then become applicable. The legal impediment contained in Section 14 of the IBC would make it impossible for such proceeding to continue or be instituted against the corporate debtor. Thus, for the period of moratorium, s....
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....as that the question sought to be raised is no longer res integra and stands answered by the binding judgments of the Supreme Court. Taking the Court through the provisions of Section 141 of the Act, 1881, especially the nature of vicarious liability fastened on the directors / persons in charge of the affairs of the corporate entity, it was submitted that the debt or liability remains that of the corporate entity and does not assume the character of personal debt of the directors / responsible persons. 51. At this stage, reference to the judgments of the Supreme Court, which were pressed into service in support and negation of the submissions canvassed, would be advantageous. 52. In the case of Ajay Kumar Radheyshyam Goenka (supra), the facts were that the Appellant - Ajay Kumar was the Promoter and Managing Director of a corporate entity namely M/s. Rainbow Papers Ltd. The Respondent - Tourism Finance Corporation of India Ltd., had extended financial facilities to the corporate entity. A cheque drawn by the corporate entity towards the discharge of the part of the liability was dishonoured on presentment, and, eventually, that led to filing of a complaint under Section 138 ....
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....ocess under IBC whether under Section 31 or Section 38 to 41 which can extinguish the debt would ipso facto apply to the extinguishment of the criminal proceedings. No doubt in terms of the Scheme under the IBC there are sacrifices to be made by the parties to settle the debts, the company being liquidated or revitalized. The Appellant before us has been roped in as a signatory of the cheque as well as the Promoter and Managing Director of the Accused company, which availed of the loan. The loan agreement was also signed by him on behalf of the company. What the Appellant seeks is escape out of criminal liability having defaulted in payment of the amount at a very early stage of the loan. In fact, the loan account itself was closed. So much for the bona fides of the Appellant. 19. We are unable to accept the plea that if proceedings against the company come to an end then the Appellant as the Managing Director cannot be proceeded against. We are unable to accept the plea that Section 138 of the N.I. Act proceedings are primarily compensatory in nature and that the punitive element is incorporated only at enforcing the compensatory proceedings. The criminal liability and th....
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....uring the pendency of the said complaint, the Appellant filed an application before the NCLT under Section 94 of IBC to initiate the personal insolvency resolution process. Upon the admission of the Petition, the Appellant sought stay to the prosecution on the premise that the interim moratorium under Section 96 was triggered. The learned Magistrate as well as the High Court repelled the contention of the Appellant. The Supreme Court considered the question, whether the prosecution under Section 138 read with 141 of the NI Act, is required to be stayed, in view of the operation of the interim moratorium under Section 96 of the IBC 2016, consequent to initiation of insolvency resolution process by the debtor under Section 94. 59. The two-judge Bench of the Supreme Court, after an analysis of the judgments in the cases of P. Mohanraj (supra), and following the three-judge Bench judgment in the case of Ajay Kumar Radheyshyam Goenka (supra), answered the aforesaid question to the effect that the prayers of the Appellants / Petitioners to quash the prosecution under Section 138 of the Act, 1881, relying on the interim moratorium under Section 96 of IBC 2016 cannot be entertained. The....
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....arantors under Section 94 IBC, cannot extend this protection to avoid prosecution under Section 138 of the N.I. Act, 1881. Upon filing of the application under section 94 IPC, a moratorium comes into effect, designed to protect the debtors from any legal actions concerning their debts. Specifically, Section 96 IBC provides that any legal proceedings pending against the debtor concerning any debt shall be deemed to have been stayed. The term "any legal action or proceedings" does not mean "every legal action or proceedings". In sub-clauses 96(b)(i) and (ii), the term "legal action or proceedings" are followed by the term "in respect of any debt". The term "legal action or proceedings" would have to be understood to include such legal action or proceedings relating to recovery of debt by invoking the principles of noscitur a sociis. The purpose of interim moratorium contemplated under Section 96 is to be derived from the object of the act, which is not to stall the proceedings unrelated to the recovery of the debt. The protection is not available against penal actions, the object of which is to not recover any debt. This moratorium serves as a critical mechanism, allowing the debtor ....
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....e 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 dishonoring cheques ensures that individuals who engage in commercial transactions are held accountable for their actions, however subject to satisfaction of other conditions in the N.I. Act, 1881. Therefore, allowing the respective appellants / petitioners to evade prosecution under Section 138 by invoking the moratorium would undermine the very purpose of the N.I. Act, 1881, which is to preserve the integrity and credibility of commercial transactions and the personal responsibility persists, regardless of the insolvency proceedings and its outcome. 18. In view thereof, the contention of the appellants that the decisions relied on by the High Court dealt with the proceedings under section 14 IBC and not the proceedings under Section 96 IBC, cannot be countenanced ....
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....tion or proceedings against the debt. 58. This must be contra-distinguished from the provisions for moratorium which are contained in Section 14 in relation to the CIRP under Part II. Section 14(1)(a) provides that on the insolvency commencement date, the institution of suits or continuation of pending suits or proceedings against the corporate debtor, including proceedings in execution shall stand prohibited by an order of the adjudicating authority. Clause (b) of sub-section (1) of Section 14 empowers the adjudicating authority to declare a moratorium restraining the transfer, encumbrance, alienation or disposal by the corporate debtor of any of its assets or any legal right or beneficial interest therein. Significantly, the moratorium under Section 14 operates on the order passed by an adjudicating authority. The purpose of the moratorium under Section 96 is protective. The object of the moratorium is to insulate the corporate debtor from the institution of legal actions or the continuation of legal actions or proceedings in respect of the debt." (emphasis supplied) 62. The provisions contained in Sections 94, 95 and 96 are required to be read in juxtapositi....
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.... provisions contained in Section 96 read with Sections 94 or 95 of IBC 2016. To put it in other words, the debt referred to in Section 96 must be a debt of the person by or against whom the insolvency resolution process is initiated under Sections 94 or 95, as the case may be. 65. It would be contextually relevant to note that, in a different context, the Supreme Court was called upon to examine the width of the applicability of the provisions contained in Section 96 of the IBC 2016 in the case of Saranga Anilkumar Aggarwal V/s. Bhavesh Dhirajlal Sheth and Ors. (2025) 4 SCC 629. In the said case, the home buyer / complainant had lodged a consumer dispute before the Consumer Fora. The said complaint was allowed. During the pendency of the execution proceedings before the Consumer Fora, SBI initiated personal insolvency proceedings under Section 95 of IBC 2016 against the Appellant in her capacity as the guarantor for the credit facilities extended to another entity. Invoking the provisions of the interim moratorium under Section 96 of IBC 2016, the Appellant moved an application before the NCDRC to stay the execution of the penalty order, sine die. It was urged that the initiatio....
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....may be prescribed;" 69. Laying emphasis on clauses (a) and (b) of sub-section (15) of Section 79, the Supreme Court in the case of Saranga Anilkumar Aggarwal (supra), emphasised that, liabilities arising from court-imposed fines, penalties or damages for negligence or breach of obligations are explicitly excluded from being discharged or restructured under the resolution process. The NCDRC penalties and compensatory damages for structural delays fall squarely within this category of "excluded debts". Consequently, they remain completely unaffected by the commencement of individual insolvency proceedings. 70. In the context of the controversy at hand, the aforesaid decision in the case of Saranga Anilkumar Aggarwal (supra), is of critical salience from two perspectives. First, in the said case, personal insolvency resolution process was initiated by the creditor under Section 95 and not by the debtor himself under Section 94, which was the case in Rakesh Bhanot (supra). Therefore, the distinction sought to be drawn by Ms. Nehra, learned Counsel for the Petitioner, in the matter of the applicability of the interim moratorium under Section 96, in the cases of initiation of insol....
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....es to remain civil but the act causing it has intentionally been made criminal by way of a statutory provision, the Bench found it difficult to accept that the offence is a "civil sheep in criminal wolf's clothing". In the case of Dineshchand Surana (supra), the Supreme Court went on to emphasise the compensatory aspect of the provisions contained in Section 138 of the Act, 1881. 75. Mr. Bhuta, learned Counsel for the Applicants joined Mr. Bhanushali in laying emphasis on the observations of the Supreme Court in paragraph Nos.131 and 133, especially where the Supreme Court observed that, the expression "legal action or proceeding in respect of any debt" when read stand alone would undoubtedly include proceedings under Section 138 of the NI Act. A reading of the said expression with the qualifier "in respect of any debt" would also not exclude Section 138 proceedings considering that the dishonoured cheque thereunder must be drawn for the payment in whole or in part, of any legally enforceable debt or liability. 76. Mr. Bhanushali would urge that the Supreme Court has given its imprimatur to the construction of the word "debt" in the case of Sheetal Gupta Vs National Spot Exch....
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....vidual undergoing personal insolvency, the moratorium under Sections 96 and 101 of the IBC respectively, would stay the operation of the recovery of compensation, if any, ordered by the criminal court while adjudicating the complaint under Section 138 of the NI Act. 171. The position of law in this regard has been reaffirmed by the dicta of this Court in Ajay Kumar Radheshyam Goenka (supra), P. Mohanraj (supra), as well as Rakesh Bhanot (supra). Therefore, the extension of criminal liability under Section 138 of the NI Act, to the directors of the company by the operation of Section 141 is well established canon of law. 187. In such view of the matter, we may with a view to obviate any confusion, clarify that moratorium under Sections 96 and 101 respectively, when triggered by the insolvency proceedings of the individual director of such a corporate debtor which is also undergoing insolvency or liquidation under Part II of the IBC, stays the recovery of compensation ordered under Section 395 of the BNSS during the proceedings under Section 138 of the NI Act. 193. We may, at the cost of repetition, reiterate that the moratorium provisions would not operate....
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.... the criminal Court may be called upon to examine the said aspect at the stage of the consideration on the aspect of the imposition of punishment, particularly a direction to pay the compensation qua the natural persons under Section 395 of BNSS or at the stage of effecting recovery of the compensation from such directors. However, even from the point of view of the moratorium on the compensatory aspect, there is no justification to stay the trial of the complaint for the offence punishable under Section 138 read with Section 141 of the Act, qua the individual directors. 83. As regards the reference of the question to the larger Bench, the legal position is no longer res integra. It is well recognized, the reference of correctness of the view recorded in a judgment to a larger Bench does not dilute the precedential value of the referred judgment. A useful reference can be made to the decision of the Supreme Court in the case of Ashok Sadarangani and Anr. V/s. Union of India and Ors. AIR 2012 SC 1563, wherein it was enunciated that the pendency of a reference to a larger Bench, does not mean that all other proceedings involving the same issue would remain stayed till a decision w....
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....so necessary to note the stage of the underlying proceedings before the learned Magistrates : Sr.No. Case Details Stage 1 NSEL V/s. Mohan India 9649/SS/2005 and 10 other complaints. (Cheque amount - 675 Crores) HC expedited For further cross-examination of C.W.1 2 NSEL V/s. Lotus 243/SS/2017 (Cheque amount - 252 Crores) HC Expedited For final arguments 3 NSEL V/s. Metkore Alloys 2216/SS/2017, 10560/SS/2016 (Cheque Amount - 18 Crores) HC Expedited For recording statement under Section 313 of Cr.P.C. 4 NSEL V/s. White Water Foods 9357/SS/2026, 9358/SS/2016 (Cheque amount - 84 Crores) For further cross - examination of bank witness 88. As the underlying proceedings in almost all the matters have reached an advanced stage and the trial in the complaints are pending since 10 or more years, this Court does not consider it appropriate to stay the trial, till the decision by the larger Bench. 89. The conspectus of aforesaid consideration is that the trial Court has proceeded on the premise that, for the applicability of the moratorium under Section 96 of the IBC 2016, qua the prosecution under Section 138 of the Act, 1881, the debt ought t....