While dismissing the SLP in favour of Ortho Relief Hospital and Research Centre, the Supreme Court has upheld the ruling given by the Bombay High Court that prior initiation of insolvency proceedings under the IBC, including imposition of moratorium, does not frustrate or bar prosecution of directors/signatories under Section 138 read with Section 141 of the NI Act, because the moratorium under Section 14 and the protection under Section 32A operate only in favour of the corporate debtor, whereas natural persons continue to bear personal penal liability.
A Two-Judge Bench comprising Justice B.V. Nagarathna and Justice Ujjal Bhuyan affirmed the opinion where the High Court had specifically held that the two enactments operate in different spheres and do not intercede each other, and that criminal proceedings under Section 138 of the NI Act are not the kind of proceedings that are required to be kept in abeyance under Section 14 of the IBC insofar as natural persons are concerned.
Briefly, the petitioner, a proprietorship hospital, alleged that respondent no. 1 company and its directors, respondent nos. 2 and 3, had approached it in October 2015 for a short-term loan of INR 15 lakhs, which was advanced on October 15, 2015, and that, towards security, a post-dated cheque for the same amount was issued from the company’s bank account and signed by respondent no. 2 as Director and authorised signatory. The petitioner further alleged that interest was paid for some time, but payments stopped after January 2018.
The petitioner thereafter learnt that insolvency proceedings under IBC had already been initiated against respondent no. 1, and lodged its claim before the IRP, and, upon assurances from respondent nos. 2 and 3, presented the cheque, which was dishonoured on December 14, 2018 for “insufficient funds”. A legal notice was issued, followed by the filing of a complaint under Section 138 of the NI Act, along with Sections 406 and 420 of the IPC. The Trial Court allowed the application of respondent nos. 2 and 3, discharged them from the offence under Section 138 of the NI Act, and held that the complaint was not maintainable against accused no. 1/company as well.
The matter reached Bombay High Court, which examined Section 32A of the IBC and observed that, while it bars prosecution of the corporate debtor for prior offences upon fulfilment of the statutory conditions, the second proviso preserves liability of persons who were in charge of, responsible to, or associated with the corporate debtor and directly or indirectly involved in the commission of the offence.
Appearances:
AOR Nitin Bhardwaj, for the Appellant
AOR Vatsalya Vigya, along with Advocates Saahiil Dewani, Shakul R. Ghatole, Shyam Dewani, Sachet Makhija, and Dashang Doshi, for the Respondent
