"A quasi Criminal Proceeding would affect the object sought to be achieved by the IBC in imposing this moratorium, resulting 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 impacting the CIRP 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."
CHARU LATHA RAMESH
The judgment passed by the Hon’ble Supreme Court in P. Mohanraj & Ors. Vs. M/s. Shah Brothers Ispat Pvt. Ltd., CDJ 2021 SC 178 answers the question whether a proceeding can be instituted or continued under Section 138/141 of the Negotiable Instruments Act during the moratorium period imposed under Section 14 of IBC.
Brief Background of the Case:
Steel products were supplied to Diamond Engineering Pvt Ltd from 21.09.2015 to 11.11.2016, because of which INR 24,20,91,054/- was due and payable by the company. As many as 51 cheques were issued by the company in favour of the respondent, all of which were returned dishonoured for the reason “funds insufficient” on 03.03.2017. As a result, on 31.03.2017, the respondent issued a notice under NI Act, 1881. Since no payment was forthcoming two complaints u/S 138 of NI Act were filed by the respondent.
Meanwhile, as a statutory notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 had been issued by the respondent and an order was passed by the NCLT admitting the application under Section 9 of the IBC and directing commencement of the corporate insolvency resolution process with respect to the company, a moratorium in terms of Section 14 of the IBC was ordered. The Adjudicating Authority stayed further proceedings in the above cheque bounce proceedings.An appeal was filed to the NCLAT challenging this order. Appellate authority had set aside this order, holding that Section 138, being a criminal law provision, cannot be held to be a “proceeding” within the meaning of Section 14 of the IBC.
Decision by SC:
A Section 138/141 proceeding against a corporate debtor is covered by Section 14(1)(a) of the IBC.
Interpretation by SC:
The object of S.14 as dealt in the Report of the Insolvency Law Committee is to see that there is no depletion of a corporate debtor’s assets during the insolvency resolution process so that it can be kept running as a going concern during this time, thus maximising value for all stakeholders. A quasi Criminal Proceeding would thus affect the object sought to be achieved by the IBC in imposing this moratorium, resulting 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 impacting the CIRP 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. It was decided that with the given fact, it would be difficult to accept that noscitur a sociis or ejusdem generis should be used to cut down the width of the expression “proceedings” so as to make such proceedings analogous to civil suits.
(CHARU LATHA RAMESH is a lawyer & a Company Secretary associated with SR Srinivasan & Co LLP.)
Comentarios