The Bombay High Court quashed multiple criminal complaints filed under Sections 138 and 141 of the Negotiable Instruments Act, 1881 against four former directors of Venus Rolling Mills Pvt. Ltd. The Court accepted their plea that they had ceased to be in charge of the company either before the issuance of the cheques or upon the commencement of insolvency proceedings.
Justice Urmila Joshi-Phalke held that the complaints were not maintainable in light of the moratorium imposed by the National Company Law Tribunal (NCLT) Mumbai on 22 April 2019, under Section 14 of the Insolvency and Bankruptcy Code (IBC), 2016, which prohibited any legal action against the corporate debtor. Additionally, liquidation was ordered on 9 June 2022, transferring all powers from the directors to the liquidator.
The Court observed that cheques in question—allegedly issued between October and November 2022—were presented despite specific intimation by the Resolution Professional to the complainant company in May 2019, not to deposit the same due to the insolvency proceedings.
The Court noted that Applicants 2 and 4 had resigned long before the issuance of the cheques, while Applicants 1 and 3 ceased to be in control after initiation of CIRP and subsequent liquidation. The complaints lacked clear allegations of how the applicants were responsible for the conduct of the company’s business at the relevant time, failing the legal test under Section 141 of the NI Act.
The Court relied on the Supreme Court’s ruling in P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd. AIR 2021 SCC 1308 to hold that proceedings under Section 138 of the NI Act are barred during the moratorium.
Accordingly, the Court quashed Criminal case pending before the Additional Chief Judicial Magistrate, Nagpur.
Appearances in the case:Â
Shri Yash Venkatraman, Counsel & Ms.Pragya Nawandar, Adv. for Applicants.
Shri Darasingh Sindhu, Counsel for the Non-applicant.
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