Bombay High Court
KAMAL KANT DEWANversusNATIONAL SPOT EXCHANGE LIMITED
- Decided
- Disposal
- Disposed Off
Holding
The interim moratorium under Section 96 of the IBC does not stay criminal prosecutions under Section 138 of the NI Act against directors, and the applications seeking such a stay are dismissed.
Summary
The High Court considered a series of applications and writ petitions filed by directors and other individuals (applicants) seeking a stay of criminal prosecutions under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881, on the ground that an interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 (IBC) had been triggered by their insolvency applications. The Court examined whether the moratorium, which stays "any legal action or proceeding in respect of any debt," extends to criminal proceedings against natural persons for cheque dishonour. Relying on Supreme Court precedents, the Court held that the moratorium applies only to the corporate debtor and does not bar the continuation of criminal prosecution against directors, whose liability is personal under Section 141. Consequently, the applications and petitions were dismissed and the interim stays were vacated.
Issues considered
- The applicability of the interim moratorium under Section 96 IBC to criminal proceedings under Section 138 NI Act against directors.
- Whether the moratorium covers the personal liability of natural persons distinct from the corporate debtor.
- The effect of the "debt" definition in Section 96 on criminal prosecutions.
Legislation cited
- Insolvency and Bankruptcy Code, 2016 — s. 101, 14, 79(15), 94, 95, 96
- Negotiable Instruments Act, 1881 — s. 138, 141
Subjects
- Insolvency
- Moratorium
- Section 96 IBC
- Section 138 NI Act
- Directors liability
- Criminal prosecution
- Corporate debtor
- Personal guarantor
- Interim stay
Judgment
2026:BHC-AS:34126
WP-1749-2024-J.DOC
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION
APPLICATION NO. 1749 OF 2024
Jagmohan Garg … Applicant
Versus
National Spot Exchange Ltd and Anr …Respondents
WITH
WRIT PETITION NO. 2228 OF 2025
Prashant Boorugu … Petitioner
Versus
National Spot Exchange Ltd and Anr …Respondents
WITH
WRIT PETITION NO. 2229 OF 2025
Prashant Boorugu … Petitioner
Versus
National Spot Exchange Ltd and Anr …Respondents
WITH
APPLICATION NO. 501 OF 2024
Kamal Kant Dewan … Applicant
Versus
National Spot Exchange Ltd …Respondent
WITH
WRIT PETITION NO. 6264 OF 2024
Lotus Refineries Pvt Ltd Through Managing … Petitioners
Director Arun Kumar Sharma and Anr
Versus
State of Maharashtra and Anr …Respondents
WITH
APPLICATION NO. 1690 OF 2024
Jagmohan Garg … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
ARS 1/64
WP-1749-2024-J.DOC
WITH
APPLICATION NO. 1694 OF 2024
Jagmohan Garg … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1743 OF 2024
Jai Shankar Shirvastava … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1742 OF 2024
Jagmohan Garg … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1745 OF 2024
Jag Mohan Garg … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1750 OF 2024
Jai Shankar Shirvastava … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1744 OF 2024
Jag Mohan Garg … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
ARS 2/64
WP-1749-2024-J.DOC
APPLICATION NO. 1748 OF 2024
Jag Mohan Garg … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1746 OF 2024
Jai Shankar Shrivastava … Applicant
Versus
National Spot Exchange Ltd …Respondent
WITH
APPLICATION NO. 1756 OF 2024
Jai Shankar Shrivastava … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1757 OF 2024
Jai Shankar Shrivastava … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1758 OF 2024
Jai Shankar Shrivastava … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1754 OF 2024
Jai Shankar Shrivastava … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1838 OF 2024
Jag Mohan Garg … Applicant
ARS 3/64
WP-1749-2024-J.DOC
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1839 OF 2024
Jag Mohan Garg … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1841 OF 2024
Jag Mohan Garg … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1840 OF 2024
Jag Mohan Garg … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1885 OF 2024
Jay Shankar Shrivastava … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1883 OF 2024
Jay Shankar Shrivastava … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1886 OF 2024
Jay Shankar Shrivastava … Applicant
Versus
ARS 4/64
WP-1749-2024-J.DOC
National Spot Exchange Ltd & Anr …Respondents
WITH
APPLICATION NO. 1882 OF 2024
Jay Shankar Shrivastava … Applicant
Versus
National Spot Exchange Ltd & Anr …Respondents
Mr Sudeep Pasbola, Senior Advocate i/by Mr. Abhiraj Rao, for the
Applicant in APL 1749 of 2024.
Mr. Vinay J Bhanushali with Mr. Abhiraj Rao, Mr. Sanmit Vaze, Ms.
Diksha Sharma, for the Applicant 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.
Ms. Aakanksha Nehra (through VC), with Mr. Anuj Jhaveri, Mr. Mihir
Modi, for the Petitioner in WP/2228/2025 and WP/2229/2025.
Mr. Rishi Bhuta, a/w Ms. Vaishnavi Javheri, Mr. Pratham Jain, Mr.
Parth Govilkar, Mr. Prateek Dutta, Ms. Maitrayee Ganediwala,
Ms. Ankita Bamboli, Ms. Saakshi Jha, Ms. Karishma Rajesh, Ms.
Kashish Singhi, Ms. Khushboo shah, Mr. Faizan shaikh, Ms.
Neha Patil, Mr. Ashish Dubey, Ms. Sujata, Ms. Steve
Fernandes /by Mr. Dilip Shukla, for the Petitioners in
WP/6264/2024.
Mr. Arvind Lakhawat a/w Mr. Nimeet Sharma, Mr. Vinit Vaidya, Ms.
Jalpa Shah, Ms. Himani Narula, i/b. MZM Legal LLP, for
Respondent No.1 - NSEL in all the matters.
Mr. D J Haldankar, APP for the Respondent-State
CORAM : N. J. JAMADAR, J.
RESERVED ON : 23rd JULY 2026
PRONOUNCED ON : 18 AUGUST 2026
ARS 5/64
WP-1749-2024-J.DOC
JUDGMENT:
1. Rule. Rule made returnable forthwith and, with the consent of
the learned Counsel for the parties, heard finally.
2. In these Petitions and Applications the core question that arises
for consideration is the applicability of the moratorium under the
provisions of Section 96 of the Insolvency and Bankruptcy Code, 2016
(“IBC 2016”) to the initiation or continuation of a complaint filed for
the commission of an offence punishable under Section 138 read with
Section 141 of the Negotiable Instruments Act, 1881 (“the NI Act,
1881”) qua the directors/the persons liable for commission of such
offence under Section 141 of the NI Act, 1881?
3. Since a common question of law arises for determination in a, by
and large, similar fact-situation, all the Applications and Petitions were
heard together and are being decided by this common judgment.
4. The facts in Application No. 1749 of 2024 are noted as a
representative case. Reference would be made to the facts in the Writ
Petitions in brief, a little latter.
5. The broad background facts leading to the Application No. 1749
of 2024 can be summarized as under:
5.1 National Spot Exchange Limited (“NSEL”), the complainant, is a
company incorporated under the Companies Act, 1956. The
complainant carries on business as a spot exchange providing for an
ARS 6/64
WP-1749-2024-J.DOC
electronic trading platform for spot contracts in commodities on a
compulsory delivery basis. M/s Mohan India Private Limited (A1) is a
private limited company. A1 is a trading and clearing member of the
complainant.
5.2 The Applicant (A2) is the director and authorized signatory of A1.
A3 is also a director and authorized signatory of A1. The day to day
affairs of A1 were managed by A2 and A3 and they were allegedly in-
charge and control of the day to day affairs of A1 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.
ARS 7/64
WP-1749-2024-J.DOC
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 10 th March 2014 a sum of Rs.124.50
Crores was due and payable in terms of the Settlement Award.
5.7 Towards discharge of the liability as per the Settlement Award, A1
issued a cheque for a sum of Rs.30 Crores drawn on Axis Bank Limited,
New Delhi Branch, payable on 28th February 2014. The said cheque was
signed by A2 and A3 on behalf of A1.
5.8 Upon presentment, the said cheque was returned unencashed
with the remarks, “funds insufficient” and “account freezed”, vide Bank
Memo dated 28th February 2014. Despite service of the demand notice
dated 10 March 2014, the accused committed default in payment of the
amount covered by the cheque, within the stipulated period. Thus,
Respondent No.1-complainant lodged the complaint for an offence
punishable under Section 138 read with Section 141 of the N.I. Act,
1881.
5.9 During the pendency of the said complaint, the Applicant (A2)
filed an Application seeking stay of the proceeding in the said complaint
under Section 96 of the IBC, 2016, on the premise that A2 had filed an
Application under Section 94 of the IBC, 2016, before the National
ARS 8/64
WP-1749-2024-J.DOC
Company Law Tribunal, Delhi (NCLT) for initiation of Insolvency
Resolution Process (“IRP”), on 13th May 2024.
5.10 A2 contended that with the initiation of the IR Petition, the
interim moratorium contained in Section 96 of IBC, came into effect.
Resultantly, all the legal proceedings, including the subject prosecution
for an offence punishable under Section 138 of the N.I. Act, 1881, were
deemed to have been stayed. Since the complainant has asserted in the
complaint that the subject cheque was drawn towards the discharge of
part of the debt, the conditions for applicability of moratorium under
Section 96 stood satisfied. Moreover, in view of the provisions contained
in Section 238 of the IBC, 2016, which gives an overriding effect to the
provisions of IBC, 2016, the prosecution under Section 138 of the NI
Act, 1881, was required to be stayed.
5.11 A2 further asserted that he had given his personal guarantee to
various companies and one of the financial creditors had already
invoked the personal guarantee given by A2. Therefore, the proceeding
in the complaint were required to be stayed in view of the moratorium
under Section 96 of the IBC, 2016.
5.12 Respondent No.1-complainant resisted the Application. It was
refuted that Section 96 of the IBC, 2016 governed facts of the case. The
subject cheque was drawn by A1 company for discharge of it part
liability, as such. A2 was prosecuted for being a director and the person
ARS 9/64
WP-1749-2024-J.DOC
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 reject the Application
opining inter alia that the subject cheque was drawn by A1-company
purportedly towards the discharge of its liability. A2 has, in fact, raised
a defence that he was not liable to pay the debt towards discharge of
which the subject cheque was allegedly drawn. Thus, the expression
ARS 10/64
WP-1749-2024-J.DOC
‘debt’ used in Section 96 of the IBC, 2016 would not govern the
liabilities of A2 under Section 141 of NI Act, 1881. Consequently, the
proceeding in the complaint were not requested to be stayed.
5.15 Being aggrieved A2 has preferred this Application.
6. In WP No.2228 of 2025 and 2229 of 2025, the change is that the
Application under Section 95 of IBC, 2016 was instituted before NCLT,
Chennai. Thereupon, the Petitioners filed an application under Section
96 of IBC 2016. Learned Magistrate rejected the Application opining,
inter alia, that the cheques were drawn on an account maintained by
the corporate entity to discharge its corporate liability; the Petitioners
were being prosecuted in their capacity as directors / responsible
persons by invoking the provisions of Section 141 of the Act, 1881 and
that the Petitioners were not the primary debtors.
7. In WP No.6264 of 2024, the Petitioner / accused filed an
application seeking stay of the proceedings on the strength of the
Petition filed under Section 95(1) of IBC, 2016 before the NCLT
Mumbai. As the learned Magistrate rejected the application, the
Petitioner preferred a revision before the learned Sessions Judge. The
Revision Application was dismissed as non-maintainable, construing the
order of rejection as an interlocutory order.
8. I have heard Mr. Vinay J Bhanushali, the learned Counsel for the
Applicant in APL Nos.1690/2024, 1694/2024, 1743/2024, 1742/2024,
ARS 11/64
WP-1749-2024-J.DOC
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 ,
Mr. Rishi Bhuta, the learned Counsel for the Petitioner in
WP/6264/2024, Ms. Aakanksha Nehra (through VC), the learned
Counsel for the Petitioner in WP/2228/2025 and WP/2229/2025, Mr.
Sudeep Pasbola, the learned Senior Advocate, for the Applicant in APL
No.1749 of 2024, Mr. Arvind Lakhawat, the learned Counsel for
Respondent No.1-NSEL, in all the matters, at length.
9. With the assistance of the learned Counsel for the parties, I have
perused 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
ARS 12/64
WP-1749-2024-J.DOC
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, 1 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 rendered in the context of the provisions contained in Section
14 of the IBC, 2016 would apply with greater force and rigor to the
moratorium envisaged under Sections 96 and 101 of the IBC, 2016.
12. Taking the Court through the provisions of Sections 94 and 95,
which are subsumed in Part III of IBC, 2016, Mr. Bhanushali would urge
that ultimate effect of initiation of IR Process either under Section 94 or
Section 95 of IBC, 2016 is that, it triggers the operation of the interim
moratorium under Section 96 of the IBC, 2016 no sooner the Petition is
admitted. Consequently, during the pendency of such Insolvency
Resolution Petition before the NCLT, by operation of law, the
proceedings, including the prosecution under Section 138 of NI Act,
1881, are deemed to be instantaneously stayed.
13. Mr. Bhanushali would urge that, if the object and operation of the
moratorium is to ensure that there is no depletion of corporate debtors
1 (2021) 6 SCC 258.
ARS 13/64
WP-1749-2024-J.DOC
assets during IR Process for maximizing value for all stake holders and
revival of the corporate entity, if possible, the fine distinction sought to
be made in the matter of the proceeding qua the corporate entity and
the natural person would fall through. It was submitted that the scope
of operation of the moratorium under Sections 96 and 101 of IBC, 2016
is more expansive than Section 14 of IBC, 2016 which applies to
corporate debtors.
14. Mr. Bhanushali further submitted that the decisions in the cases
of Ajay Kumar Radheyshyam Goenka Vs Tourisin Finance Corporation of
India2 and Rakesh Bhanot Vs M/s Gurdas Agro Pvt Ltd 3, on which
reliance was placed on behalf of Respondent No.1, are of no assistance
to the complainant as those decisions were rendered in a different fact-
situation. In any event, the decision in the case of P Mohanraj (Supra)
which is rendered by a Bench of three Hon’ble Judges, if properly
construed governs the case of personal insolvency as well. Resultantly,
the complaints under Section 138 and Section 141 of NI Act, 1881 qua
the natural persons, who are impleaded in the capacity of the directors
and the persons in-charge of and responsible to the affairs of the
company, are also required to be stayed.
15. Mr. Rishi Bhuta, the learned counsel for the Petitioners in Writ
Petition No. 6264 of 2024 submitted that, the text of Section 96 of the
2 (2023) 10 SCC 545.
3 (2025) 6 SCC 781.
ARS 14/64
WP-1749-2024-J.DOC
IBC, 2016 is absolutely clear and 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 instrument, the provisions of the
moratorium would also extend to any instrument having effect by virtue
of any law.
ARS 15/64
WP-1749-2024-J.DOC
18. Mr. Bhuta further submitted that, the IBC, 2016 itself carves out
the specific exceptions in the form, “excluded debts” under Section
79(15). The Parliament has not included the debt arising out of
dishonour of cheque within the category of excluded debts and,
therefore, the moratorium under Section 96 of the IBC, 2016 must
apply to the proceedings under Section 138 of the NI Act, 1881.
19. A contrary view, Mr. Bhuta would urge, would defeat the object
and purpose of IBC, 2016. If the creditors are allowed to pursue the
prosecution under Section 138 of the NI Act, 1881, against the
directors, whilst the proceeding stand stayed against the corporate
entity, it would lead to a chaotic situation and undermine the collective
insolvency resolution mechanism. In any event, no prejudice is likely to
be caused to the complainant as the moratorium under Section 96 can
only be for a limited period.
20. Ms. Aakanksha Nehra, the learned Counsel for the Petitioner in
Writ Petition Nos. 2228 of 2025 and 2229 of 2025 submitted that, there
is a distinction between the Insolvency Resolution process at the
instance of the debtor himself and on the Application of a Creditor. In
the underlying proceeding in Writ Petition No. 1749 of 2024, the IRP
was initiated by the creditors. Therefore, the decision in the case of
Rakesh Bhanot (Supra) which arises out of the IR Process initiated by
debtor himself would not govern the facts of the case. This crucial
ARS 16/64
WP-1749-2024-J.DOC
distinction was lost sight of the by the Trial Court. If the IR Process is
initiated at the instance of the creditor, the interim moratorium under
Section 96 must operate, submitted Ms. Nehra.
21. Mr. Sudeep Pasbola, the learned Senior Advocate for the
Applicants would urge that the claim of complainant falls within the
ambit of ‘debt’ for the purpose of Section 96 of IBC, 2016. The trial
Court committed a grave error in law in carving out a distinction
between the personal debt of the Applicants and that of the corporate
entity. If the effect test is applied, there is no justification for such
artificial distinction. Secondly, the proceeding under Section 138 of the
NI Act,1881, is a quasi-criminal proceeding for recovery of the debt as
the predominant object is to restitute the complainant. Thirdly, 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.4; (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
4 (2024) 5 SCC 435
ARS 17/64
WP-1749-2024-J.DOC
Overseas Bank V/s. M/s. RCM Infrastructure Ltd. 5 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.6.
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 be raised on
behalf of the accused is settled by binding judgments of the Supreme
Court in the cases of Rakesh Bhanot (Supra) and Ajaykumar Goenka
(supra).
25. The support sought to be drawn by the Accused from the
decisions in the cases of Dilip B Jiwrajka Vs Union of India 7 and Sheetal
Gupta Vs National Spot Exchange Ltd 8 is of no avail. Right from the
judgment of the Supreme Court in the case of P Mohanraj (Supra) it is
well-recognized that the moratorium, be it under Section 14 or Section
96 of the IBC, 2016, does not operate qua the proceeding against
natural persons.
26. The decision in the case of P Mohanraj (Supra), according to Mr.
Lakhawat, supports the stand of the complainant. In the case of Sheetal
5 2022 LiveLaw (SC) 496
6 Cri. Appl. No.1151 of 2022 dt. 10 Jan. 2023
7 (2024) 5 SCC 435.
8 2023 SCC OnLine Bom 3095.
ARS 18/64
WP-1749-2024-J.DOC
Gupta (Supra) the attention of this Court was not drawn to the relevant
observations in the judgment in the case of P. Mohanraj (Supra)
pertaining to the natural persons in the matter of the application of
moratorium. Nor the distinction between the provisions contained in
Sections 14 and 96 of IBC, 2016 was considered by this Court.
Comparing and contrasting the provisions contained in Section 14(1)
(a), which uses the expression, “against the corporate debtor” and
Section 96 (1) (b) (i), which uses the expression, “in respect of any
debt”, Mr. Lakhawat submitted that Section 96 governs the case of
personal debt and not the debt of the corporate entity.
27. Mr. Lakhawat submitted that the reliance on the judgment in the
case of P Mohanraj (Supra) is wholly misplaced as the said judgment
does not strictly govern a case covered by Section 96 of IBC, 2016. On
the contrary, the decision in the case of Ajay Kumar Radhyeshyam
Goenka (Supra), Mr. Lakhawat would urge, makes it explicitly clear that
there is no bar for continuation of prosecution for an offence punishable
under Section 138 of the NI Act, 1881, qua the natural persons. Mr.
Lakhawat submitted that after the decision in the case of Rakesh Bhanot
(Supra) in a series of judgments, the challenge of an identical nature
has been repelled by various Courts.
28. At this juncture, it is necessary to note that the parties were heard
on the implications of the judgment of the Supreme Court in the case of
ARS 19/64
WP-1749-2024-J.DOC
Dineshchand Surana Vs Uco Bank9, whereby a two Judge Bench of the
Supreme Court, after an elaborate analysis, enunciated that the
moratorium under 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 punishable
under Section 138 of the NI Act, 1881, the moratorium is not attracted.
What has been referred to the three Judge Bench is the aspect of the
9 2026 INSC 579
ARS 20/64
WP-1749-2024-J.DOC
applicability of the moratorium to the compensatory aspect of the
proceeding under Section 138 of the NI Act, 1881. Since, that stage is
yet to be reached, there is no propriety in staying the underlying
proceedings under Section 138 of the NI Act, 1881 till the decision of
the larger Bench.
31. In any event, Mr. Lakhawat, the learned Counsel, would urge, it is
settled position in law that the mere fact that a decision is referred to a
larger Bench does not dilute the precedential authority of such decision.
Thus this Court need not defer the decision on the
Applications/Petitions which have been extensively heard.
32. To begin with, a resume of the provisions of the IBC 2016, which
bear upon the determination of the question in controversy. Section
3(11) of IBC 2016 defines “debt”, as under :
“(11) “debt” means a liability or obligation in
respect of a claim which is due from any person
and includes a financial debt and operational debt;”
33. Chapter II of IBC 2016 makes the fasciculus of provisions in
regard to the corporate insolvency resolution process. Under Section 6,
a financial creditor, an operational creditor or the corporate debtor itself
may initiate corporate insolvency resolution process. Section 7 provides
for initiation of corporate insolvency resolution process by financial
creditor. Section 9 provides for initiation of corporate insolvency
resolution process by operational creditor.
ARS 21/64
WP-1749-2024-J.DOC
34. Section 14(1) of IBC 2016, which provides for Moratorium, reads
as under :
“14. Moratorium. - (1) Subject to provisions of sub-
sections (2) and (3), on the insolvency
commencement date, the Adjudicating Authority shall
by order declare moratorium for prohibiting all of the
following, namely : -
(a) the institution of suits or continuation of
pending suits or proceedings against the corporate
debtor including execution of any judgment, decree
or order in any Court of law, tribunal, arbitration
panel or other authority;
(b) transferring, encumbering, alienating or
disposing of by the corporate debtor any of its assets
or any legal right of beneficial interest therein;
(c) any action to foreclose, recover or enforce any
security interest created by the corporate 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
ARS 22/64
WP-1749-2024-J.DOC
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 insolvency
resolution process at the instance of the debtor. Section 95 enables a
creditor to initiate insolvency resolution process. They read as under :
“94. Application by debtor to initiate insolvency
resolution process. - (1) a debtor who commits a default
may apply, either personally or through a resolution
professional, to the Adjudicating Authority for initiating
the insolvency resolution process, by submitting an
application.
(2) Where the debtor is a partner of a firm, such
debtor shall not apply under this Chapter to the
Adjudicating Authority in respect of the firm unless all
or a majority of the partners of the firm file the
application jointly.
(3) An application under sub-section (1) shall be
submitted only in respect of debts which are not
excluded debts.
(4) A debtor shall not be entitled to make an
application under sub-section (1) if he is -
(a) an undischarged bankrupt;
ARS 23/64
WP-1749-2024-J.DOC
(b) undergoing a fresh start process;
(c) undergoing an insolvency resolution
process; or
(d) undergoing a bankruptcy process.
(5) A debtor shall not be eligible to apply under sub-
section (1) if an application under this Chapter has been
admitted in respect of the debtor during the period of
twelve months preceding the date of submission of the
application under this section.
(6) The application referred to in sub-section (1)
shall be in such form and manner and accompanied with
such fee as may be prescribed.
95. Application by creditor to initiate insolvency
resolution process. - (1) A creditor may apply either
by himself, or jointly with other creditors, or through a
resolution professional to the Adjudicating Authority for
initiating an insolvency resolution process under this
section by submitting an application.
(2) A creditor may apply under sub-section (1) in
relation to any partnership debt owed to him for
initiating an insolvency resolution process against -
(a) any one or more partners of the firm; or
(b) the firm.
(3) Where an application has been made against one
partner in a firm, any other application against another
partner in the same firm shall be presented in or
transferred to the Adjudicating Authority in which the
first mentioned application is pending for adjudication
and such Adjudicating Authority may give such
directions for consolidating the proceedings under the
applications as it thinks just.
ARS 24/64
WP-1749-2024-J.DOC
(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 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 -
ARS 25/64
WP-1749-2024-J.DOC
(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.
(2) Where the application has been made in relation
to a firm, the interim-moratorium under sub-section (1)
shall operate against all the partners of the firm as on
the date of the application.
(3) The provisions of sub-section (1) shall not apply
to such transactions as may be notified by the Central
Government in consultation with any financial sector
regulator.”
37. Section 101 deals with the Moratorium. It reads as under :
“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 beginning with the date of admission of the
application or on the date the Adjudicating Authority
passes an order on the repayment plan under section
114, whichever is earlier.
(2) During the moratorium period -
(a) any pending legal action or proceeding in
respect of any debt shall be deemed to have been stayed;
(b) the creditors shall not initiate any legal
action or legal proceedings in respect of any debt; and
(c) the debtor shall not transfer, alienate,
encumber or dispose of any of his assets or his legal
rights or beneficial interest therein;
ARS 26/64
WP-1749-2024-J.DOC
(3) Where an order admitting the application under
section 96 has been made in relation to a firm, the
moratorium under sub-section (1) shall operate against
all the partners of the firm.
(4) The provisions of this section shall not apply to
such transactions as may be notified by the Central
Government in consultation with any financial sector
regulator.”
38. A conjoint reading of the aforesaid provisions would indicate
that the Parliament with a view to ensure that there is no depletion of
assets of the corporate debtor or a person against whom insolvency
resolution 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
ARS 27/64
WP-1749-2024-J.DOC
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 government dues and
to establish an effective legal framework for timely resolution of
insolvency and bankruptcy.
41. In the case of P. Mohanraj (supra), a three-judge Bench of the
Supreme Court emphasised that the object of a moratorium provision
like Section 14, was to ensure that there is no depletion of 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. The idea is that it facilitates the continued
operation of the business of the corporate debtor to allow it breathing
space to organise its affairs so that a new management may ultimately
take over and bring the corporate debtor out of financial sickness, thus
benefiting all stakeholders, which would include workmen of the
corporate debtor.
42. At this juncture, the object of the provisions contained in Chapter
XVII of the Negotiable Instruments Act, 1881, which came to be
introduced by the amending Act, 1988, deserves to be noted. Chapter
XVII was introduced to inculcate faith in the efficacy of banking
ARS 28/64
WP-1749-2024-J.DOC
operations and credibility in transacting business on negotiable
instruments.
43. In the case of Mosaraf Hossain Khan V/s. Bhagheeratha Engg.
Ltd.10, the Supreme Court enunciated that the object of the provision of
Section 138 of the NI Act, is that for proper and smooth functioning of
business transaction in particular, use of cheques as negotiable
instruments would primarily depend upon the integrity and honesty of
the parties. It was noticed that cheques used to be issued as a device
inter alia for defrauding the creditors and stalling the payments.
Dishonour of a cheque by the bank causes incalculable loss, injury and
inconvenience to the payee and the entire credibility of the business
transactions within and outside the country suffers a serious setback.
Remedy available in a civil court is a long-drawn process and an
unscrupulous drawer normally takes various pleas to defeat the genuine
claim of the payee.
44. In regard to the nature of the liability of the corporate entity,
which could be enforced by resorting to the prosecution for an offence
punishable under Section 138 of the NI Act, 1881, and the applicability
of the moratorium qua the prosecution under Section 138 of the NI Act,
1881, in the case of P. Mohanraj (supra), the Supreme Court enunciated
that the word “proceedings” covers in its fold a prosecution for an
offence punishable under Section 138 of the NI Act, 1881. The
10 (2006) 3 SCC 658
ARS 29/64
WP-1749-2024-J.DOC
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 be used to cut down the width
of the expression “proceedings” so as to make such
proceedings analogous to civil suits.
…..
35.2 A legal action or proceeding in respect of any
debt would, on its plain language, include a Section
138 proceeding. This is for the reason that a Section
138 proceeding would be a legal proceeding “in
respect of” a debt. “In respect of” is a phrase which is
wide and includes anything done directly or indirectly
– see Macquarie Bank Ltd. v. Shilpi Cable Technologies
ARS 30/64
WP-1749-2024-J.DOC
Ltd.11 (at page 709) and Giriraj Garg v. Coal India
Ltd.12 (at pages 202-203). This, coupled with the fact
that the Section is not limited to ‘recovery’ of any debt,
would indicate that any legal proceeding even
indirectly relatable to recovery of any debt would be
covered.
35.3 When the language of these Sections is
juxtaposed against the language of Section 14, it is
clear that the width of Section 14 is even greater, given
that Section 14 declares a moratorium prohibiting
what is mentioned in clauses (a) to (d) thereof in
respect of transactions entered into by the corporate
debtor, inclusive of transactions relating to debts, as is
contained in Sections 81, 85, 96, and 101. Also,
Section 14(1)(d) is conspicuous by its absence in any
of these Sections. Thus, where individuals or firms are
concerned, the recovery of any property by an owner
or lessor, where such property is occupied by or in
possession of the individual or firm can be recovered
during the moratorium period, unlike the property of a
corporate debtor.
36. For all these reasons, therefore, given the object
and context of Section 14, the expression
“proceedings” cannot be cut down by any rule of
construction and must be given a fair meaning
consonant with the object and context. It is conceded
before us that criminal proceedings which are not
directly related to transactions evidencing debt or
liability of the corporate debtor would be outside the
scope of this expression.” (emphasis supplied)
11 (2018) 2 SCC 674
12 (2019) 5 SCC 192
ARS 31/64
WP-1749-2024-J.DOC
45. The Supreme Court went on to examine the co-relation of Section
14 with the other provisions of IBC 2016, especially Section 32-A, and
enunciated that, a moratorium provision does not extinguish any
liability, civil or criminal, but only casts a shadow on proceedings
already initiated and on proceedings to be initiated, which shadow is
lifted when 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.13, 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
13 (2012) 5 SCC 661
ARS 32/64
WP-1749-2024-J.DOC
corporate debtor. Thus, for the period of moratorium,
since no Section 138/141 proceeding 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 Section
141(1) and (2) of the Negotiable Instruments Act.
This being the case, it is clear that the moratorium
provision contained in Section 14 of the 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.” (emphasis supplied)
47. The thrust of the submission on behalf of the
Applicants/Petitioners was that, in view of the difference in the
terminology used in Section 96 of the IBC 2016, the aforesaid
distinction drawn in the matter of applicability of moratorium under
Section 14 qua natural persons does not apply with equal force.
Emphasis was laid on the expressions “in relation to all the debts” used
in sub-section (a) of Section 96(1), and “any legal action or
proceedings” and “in respect of any debt” used in sub-clauses (i) and
(ii) respectively, of clause (b) of Section 96(1).
48. As noted above, an endeavour was made to drive home the point
that, in P Mohanraj (supra), the Supreme Court was concerned with the
moratorium qua corporate insolvency resolution process initiated under
Chapter II of IBC 2016. Reliance was placed on the observations in
ARS 33/64
WP-1749-2024-J.DOC
para 35.2 (extracted above), to the effect that a legal action or
proceeding in respect of any debt would, on its plain language, include
a section 138 proceeding, as it would be a legal proceeding “in respect
of” a debt. And “in respect of” is a phrase which is wide and includes
anything done directly or indirectly. Thus, any legal proceeding even
indirectly relatable to recovery of any debt would be covered.
49. The prosecution for an offence punishable under Section 138 of
the NI Act, 1881, if viewed in the context of the consequences that the
conviction may entail with fine double the amount of the cheque and/or
compensation, is essentially for the recovery of the debt or liability
towards the discharge of which a dishonoured cheque was drawn. The
provisions contained in Section 96 must receive an expansive
interpretation, was the substratum of the submissions on behalf of the
Applicants/Petitioners.
50. The response on behalf of the Respondent No.1 -complainant was
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
ARS 34/64
WP-1749-2024-J.DOC
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 read with 141 of the NI Act, 1881. In the
meanwhile, the operational creditor filed an application under Section 9
of the IBC 2016 before the NCLT. The Appellant filed an application for
discharge before the learned Magistrate. As the learned Magistrate and
the High Court did not accede to the prayer of the Appellant, an SLP
was filed before the Supreme Court.
53. In a leading judgment, two Honourable Judges of the Supreme
Court considered the question :
whether in the wake of the initiation of the
insolvency resolution process under IBC 2016, a
ARS 35/64
WP-1749-2024-J.DOC
prosecution for an offence punishable under Section
138 read with 141 can simultaneously continue ?
54. And after appraisal of the provisions of IBC 2016 and Negotiable
Instruments Act, 1881, and the objects of two enactments, enunciated
the law as under :
“16. The issue whether the respondent is a Secured
Financial Creditor or an Unsecured Financial Creditor
within the meaning of the said Code is not something we
can deal with as that is the matter of the proceedings
under the said Code or any appeal preferred therefrom.
The only issue with which we are concerned with is
whether during the pendency of the proceedings under
the said Code which have been admitted, the present
proceedings under the N.I.Act can continue
simultaneously or not.
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 N.I. Act. We are unable to appreciate
the plea of the learned counsel for the Appellant that
because Section 138 of the N.I. 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 N.I. Act are not recovery
proceedings. They are penal in character. A person may
face imprisonment or fine or both under Section 138 of
ARS 36/64
WP-1749-2024-J.DOC
the N.I. Act. It is not a recovery of the amount with
interest as a debt recovery proceedings would be. They
are not akin to suit proceedings.
18. It cannot be said that the process 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 the fines are built
on the principle of not honouring a negotiable
instrument, which affects trade. This is apart from the
principle of financial liability per se. To say that under a
scheme which may be approved, a part amount will be
recovered or if there is no scheme a person may stand in
ARS 37/64
WP-1749-2024-J.DOC
a queue to recover debt would absolve the consequences
under Section 138 of the N.I. Act, is unacceptable.”
55. Evidently, the judgment in the case of Ajay Kumar Radheyshyam
Goenka (supra), arose out of the corporate insolvency resolution
process. The Supreme Court has noted the submissions canvassed on
behalf of the parties in relation to the decision in the case of P. Mohanraj
(supra), and the Supreme Court has taken a view which was in
consonance with its prior decision in the case of P. Mohanraj (supra).
The Supreme Court has in terms observed that the object of IBC 2016
and the NI Act, 1881 are distinct and would not intercede each other.
The extinguishment of the debt, consequent to the insolvency resolution
process under IBC 2016, would not ipso facto result in extinguishment
of criminal proceeding. Nor can the termination of the proceeding
against the corporate entity would result in automatic exoneration of
the directors / responsible persons from the offence punishable under
Section 138 of the Act, 1881.
56. Then came the decision of the two-judge Bench of the Supreme
Court in the case of Rakesh Bhanot (supra), wherein the precise
question; that is sought to be raised in these applications / Petitions,
was considered by the Supreme Court. The question was formulated by
the Supreme Court, as under :
ARS 38/64
WP-1749-2024-J.DOC
“Whether the proceedings initiated against the
appellants / Petitioners (natural persons) under Section
138 read with section 141 of the NI Act, 1881 should be
stayed in view of the interim moratorium under section
96 IBC having come into effect upon the appellants /
petitioners’ filing applications under Section 94 IBC ?
57. To appreciate the ratio in the case of Rakesh Bhanot (supra),
with greater clarity, it may be advantageous to note the facts in the
backdrop of which the said decision was rendered.
58. The Respondent therein had initiated a prosecution for an offence
punishable under Section 138 read with Section 141 of the NI Act, 1881
against M/s. Arjun Mall Retail Holdings Pvt. Ltd., and its directors,
including Rakesh Bhanot – Appellant. During 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,
ARS 39/64
WP-1749-2024-J.DOC
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 observations of the
Supreme Court in paragraph Nos.11 to 13 and 17 to 18 are material,
and, hence, extracted below :
“11. Admittedly, the appellants / petitioners are
facing trial for the offence under section 138 / 141 of
the N.I. Act, 1881, at the instance of the
respondents / complainants. While so, they initiated
the personal insolvency proceedings under the IBC
and sought exemption from the section 138
proceedings before the trial Court, referring to
interim moratorium provided under Section 96 IBC. It
is to be noted that upon the application being
admitted, the moratorium provisions under the IBC
offer protection only to the corporate debtor, i.e., the
company, and do not extend protection against civil
liability to personal guarantors by specific exclusion
or to any individual who is prosecuted for committing
a criminal act.
ARS 40/64
WP-1749-2024-J.DOC
12. The legislative intent behind the Insolvency
and Bankruptcy Code (IBC) is to provide a structured
framework for the resolution of corporate debtors'
financial distress, facilitating their rehabilitation and
ensuring the maximization of asset value. The
application under Section 94 or 95 would fall under
Chapter III of the IBC. An application under Section
94, when taken out by a debtor in the capacity of a
personal guarantor of a company, to declare him/her
as insolvent, is to be disposed by following the
procedures in Sections 97 to 119. The application
filed under Section 94 is scrutinized by the Resolution
Professional and a report is submitted as
contemplated under Section 99 recommending either
the approval or rejection of the application. The
interim moratorium which commences on the
presentation of the application will expire on the
admission of the application by an order of the
adjudicating authority under Section 100. Upon
admission, the moratorium under Section 101 comes
into operation. The interim moratorium under
Section 96 and the moratorium under Section 101
IBC are designed to offer a breathing space to the
corporate debtor, allowing them to reorganize their
financial affairs without the immediate threat of
creditor actions. 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
appellants / petitioners, having filed insolvency
applications as personal guarantors under Section 94
IBC, cannot extend this protection to avoid
ARS 41/64
WP-1749-2024-J.DOC
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 to reorganize their financial
affairs without the immediate threat of creditor
actions. The clear and unequivocal language of this
provision reflects the legislative intent to provide a
protective shield for debtors during the insolvency
process.
13. On the other hand, the proceedings under
Section 138 of the N.I. Act, 1881, pertain to the
dishonor of cheques issued by the respective
appellants / petitioners in their personal capacity.
These proceedings are distinct from the corporate
ARS 42/64
WP-1749-2024-J.DOC
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 the
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 N.I. Act,
1881 enables the prosecution of the persons in charge
of the affairs and responsible for the conduct of the
business of the company along with the company. The
statutory liability against the directors under Section
138 of the N.I. Act, 1881, is personal and hence,
continues to bind natural persons, irrespective of any
moratorium applicable to the corporate debtor. The
acceptance of the resolution plan under Section 31
IBC or its implementation thereof will have no effect
on the prosecution under Section 138 of the N.I. Act,
1881. Similarly, the acceptance of the report by the
resolution professional under Section 100 and the
moratorium under Section 101, which reprises
Section 96, will not bar the continual of any criminal
action. The cause of action for prosecution under
Section 138 of NI Act commences on the dishonor 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
ARS 43/64
WP-1749-2024-J.DOC
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
later.
……….
17. 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 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 by us. Furthermore, the
decision in Dilip B. Jiwrajka (supra) is not relevant to
the facts of the present case, as the issue therein was
ARS 44/64
WP-1749-2024-J.DOC
relating to the constitutional validity of certain
provisions of the IBC and the applicability of
moratorium to a proceedings under Section 138 of
the N.I. Act, 1881 was not the subject matter.”
(emphasis supplied)
60. It is pertinent to note that, the Supreme Court has observed that
the decision in the case of Dilip B Jiwrajka (supra), on which reliance
was placed on behalf of the Petitioners/Applicants, was of no assistance
to the Appellant therein, as in the case of Dilip B Jiwrajka (supra), the
Supreme Court was dealing with the constitutional validity of certain
provisions of IBC and the applicability of the moratorium to the
provisions under Section 138 of the Act, was not the subject matter of
consideration in the said case.
61. It would be profitable to immediately notice the manner in which
three-judge Bench of the Supreme Court exposited the import of Section
96 of IBC 2016 in the case of Dilip B. Jiwrajka (supra). The
observations in paragraph Nos.57 and 58 are instructive, and, hence,
extracted below :
“57. Section 96, as its marginal note indicates, deals
with an “interim-moratorium”. In terms of Section 96,
the interim moratorium takes effect on the date of the
application. In other words, the very submission of an
application under Section 94 or Section 95 triggers the
interim moratorium which then ceases to have effect on
the date of the admission of the application (under
Section 100). The consequences which flow from an
ARS 45/64
WP-1749-2024-J.DOC
interim moratorium are specified in clause (b) of sub-
section (1) of Section 96. The impact of the interim-
moratorium under Section 96 is that a legal action or
proceeding pending in respect of any debt is deemed to
have been stayed and the creditors or the debtors shall
not initiate any legal action or proceedings in respect of
any debt. The crucial words which are used both in
clause (b)(i) and clause (b)(ii) of sub-section (1) of
Section 96 are “in respect of any debt”. These words
indicate that the interim-moratorium which is intended
to operate by the legislature is primarily in respect of a
debt as opposed to a debtor. Clause (b) of sub-section (1)
indicates that the purpose of the interim-moratorium is
to restrain the initiation or the continuation of legal
action 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
ARS 46/64
WP-1749-2024-J.DOC
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 juxtaposition. The emphasis cannot be laid on the
expression “in relation to all the debts” in clause (a) and “in respect of
any debt” in clause (b) of sub-section (1) of Section 96, only. The
opening words of sub-section (1) of Section 96 are of material
significance. Interim moratorium under Section 96 operates “when an
application is filed under Sections 94 or 95”. Under Section 94, a
debtor who commits default may apply for initiating the insolvency
resolution process. Thus, a person who makes an application under
Section 94 must be a debtor. Likewise, under Section 95, the creditor
who applies for initiating insolvency resolution process is enjoined
under sub-section (4) to furnish details and documents relating to “the
debts owed by the debtor to the creditor or creditors.” Sections 94 and
95 thus, make it abundantly clear that the person who initiates
insolvency resolution process or against home insolvency resolution
process is initiated must be a debtor in the first instance.
63. It is well recognized, the shareholders or the directors of the
company are not the owners of the property of the company. It has an
independent juristic existence. When a corporate entity incurs a debt,
either by pledging the credit of its property or otherwise, the debt
ARS 47/64
WP-1749-2024-J.DOC
remains that of the corporate entity. Such debt does not become the
debt of the directors of the company. Thus, in a case where a cheque is
drawn towards the discharge of such debt by the company on an
account maintained by the company, the debt or liability is primarily
that of the company. The directors of the company or persons in charge
of the affairs of, and responsible to, the company, are liable to be
prosecuted on account of deeming provisions contained in Section 141
of the Act, 1881. That, however, does not alter the character of the debt
in discharge of which the corporate entity has drawn the cheque.
64. It would be contextually relevant to note that, sub-section (2) of
Section 94 as well as sub-section (2) of Section 95, make provisions in
relation to a partnership firm. Under sub-section (2) of Section 95, the
creditor may apply for initiating the insolvency resolution process
against one or more partners of the firm or a firm, where any
partnership debt is owed to him. Thus, the distinction between the
corporation as a juristic person and its directors cannot be lost sight of,
when construing the 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.
ARS 48/64
WP-1749-2024-J.DOC
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.14. 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 initiation of the personal insolvency
resolution under Section 95 brought into effect immediate and
automatic interim moratorium called “any legal action or proceedings
pending in respect of any debt”, inclusive of the proceedings for
execution of the orders passed by the Consumer Fora. NCDRC did not
accede to the said prayer.
66. In the appeal, the Supreme Court considered the question
whether the execution of regulatory penalty orders passed under
Section 27 of the Consumer Protection Act can be stayed in view of the
14 (2025) 4 SCC 629
ARS 49/64
WP-1749-2024-J.DOC
interim moratorium provisions envisaged by Section 96 of IBC 2016.
The Supreme Court exposited that the statutory protection applies
strictly to a “debt” as defined under the IBC. It does not extend to
regulatory penalties arising from infractions of consumer welfare
legislation. The purpose of the interim moratorium under Section 96 is
to provide a temporary, targeted breathing room for individuals to
restructure personal liabilities, not to act as a blanket shield against
regulatory non-compliance.
67. Drawing distinction between the corporate moratorium under
Section 14 and the personal interim moratorium under Section 96, the
Supreme Court clarified that Section 14 is much broader in scope,
freezing all execution and enforcement actions against a corporate
debtor to preserve its overall valuation. In contrast, Section 96 is limited
in its scope, staying only “legal actions or proceedings in respect of any
debt”. The legislative intent behind limiting the scope of interim
moratorium under Section 96 IBC must be respected, and a blanket stay
on all regulatory penalties would defeat the objectives of consumer
protection laws.
68. Another significant approach delineated by the Supreme Court in
the case of Saranga Anilkumar Aggarwal (supra), was the implications
of the “excluded debt” under Section 79(15) of the IBC 2016, in the
ARS 50/64
WP-1749-2024-J.DOC
matter of the operation of the moratorium. Under Section 79(15),
“excluded debt” is defined as under :
“(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; and
(e) any other debt as 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
ARS 51/64
WP-1749-2024-J.DOC
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 insolvency resolution process by the debtor himself
under Section 94, and such initiation by the creditor under Section 95,
falls through.
71. Second, the decision in the case of Saranga Anilkumar Aggarwal
(supra) also substantially addresses the thrust of the submission on
behalf of the Applicants/Petitioners that the conviction under Section
138 read with 141 of the NI Act, 1881, may entail the consequences of
payment of fine and/or compensation by the natural persons, in the
capacity of the directors/responsible persons of the corporate entity,
and, therefore, if the said test is applied, the moratorium becomes
operational. The Supreme Court has clarified that the liability to pay a
fine imposed by the Court or Tribunal falls in the category of “excluded
debt” as provided under Section 79(15), and, resultantly, the imposition
of fine and/or direction for payment of compensation remained
unaffected by the commencement of individual insolvency proceedings.
72. This leads me to the decision in the case of Dineshchand Surana
Vs Uco Bank (supra), which has referred the matter to the larger Bench.
As noted above, the parties were heard on the import of the recent
ARS 52/64
WP-1749-2024-J.DOC
decision in the case of Dineshchand Surana Vs Uco Bank (supra) and
the learned Counsel for the respective parties made an endeavour to
place reliance on the relevant observations in the judgment in the case
of Dineshchand Surana Vs Uco Bank (supra), which suit their respective
cases.
73. For instance, Mr. Bhanushali, after taking the Court through the
observations contained in paras 29 and 74, laid emphasis on the
observations in para 120, wherein the Supreme Court observed that the
reasoning adopted by the three-judge Bench in the case of P. Mohanraj
(supra), for calling Section 138 of the NI Act, a “civil sheep in criminal
wolf’s clothing” is based primarily on how the proceedings under
section 138 come to be prosecuted.
74. While the Supreme Court in Dineshchand Surana (supra), agreed
that the procedure for the prosecution of the offence of cheque
dishonour makes a departure from the procedure ordinarily followed
under the CrPC, yet such differences, in the opinion of the Court, was
only because cheque dishonour has been statutorily designated as a
criminal offence and would not be regarded so in the absence of Section
138. Eventually, the Supreme Court observed that, where the injury
continues 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
ARS 53/64
WP-1749-2024-J.DOC
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 Exchange Ltd (supra).
77. In contrast, Mr. Lakhanwat, learned Counsel for Respondent No.1
would submit that the decision in the case of Dineshchand Surana
(supra), in effect, reiterates the earlier pronouncements that the natural
persons cannot draw any mileage out of the initiation of insolvency
resolution process and the proceedings against the natural persons are
ARS 54/64
WP-1749-2024-J.DOC
not at all required to be stayed by invoking the provisions contained in
Section 96 of IBC.
78. The Supreme Court has underscored the predominantly criminal
nature and objective of Section 138 of the Act, 1881. Having made it
explicitly clear that the moratorium under Section 96 of IBC 2016
cannot be used to interdict the criminal aspect of Section 138
proceedings, the Supreme Court has referred the question whether, the
compensatory aspect of the moratorium is stayed by the operation of
the moratorium under Section 96 of IBC.
79. Mr. Lakhanwat placed reliance on the following observations of
the Supreme Court in the case of Dineshchand Surana (supra) :
“158. For the reasons in the aforesaid, we find that the
moratorium provisions under Part III of the IBC must be
made applicable on the compensatory aspect of Section
138 of the NI Act owing to the inherently civil nature of
the same. Therefore, once the criminal court exercising
jurisdiction over a complaint under Section 138, orders
compensation under Section 395 of the BNSS, then the
moratorium would be made applicable if the recovery of
compensation remains pending. Similarly, the
moratorium provision would not put a temporary bar on
the initiation of Section 138 proceedings. The same may
be initiated and taken to it its logical conclusion. The
drawer of the cheque, if convicted must discharge his
personal criminal liability by serving the sentence of
imprisonment or paying the fine imposed. However, if
the court has adjudicated that compensation ought to be
ARS 55/64
WP-1749-2024-J.DOC
given, then the recovery thereof must be temporarily
halted. The impact of IBC proceedings on the
compensatory aspect of Section 138 of the NI Act must
be the same as how such proceedings would affect any
other civil legal action or proceeding in respect of any
other debt. We say so because the assumption of ‘debt’ is
inherent in the provision under Section 138 of the NI
Act……..
………..
166. Therefore, we have no qualms in observing that for
an individual 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.
ARS 56/64
WP-1749-2024-J.DOC
193. We may, at the cost of repetition, reiterate that the
moratorium provisions would not operate in respect of
the criminal aspect of Section 138 and the director(s) of
the corporate debtor cannot escape personal criminal
liability, as clarified in Rakesh Bhanot (supra).”
(emphasis supplied)
80. At this juncture, to correctly understand the enunciation of the
Supreme Court in the case of Dineshchand Surana (supra), it is
necessary to also extract the observations in paragraph 133, which read
as under :
“133. We are conscious of the fact that the commission
of the criminal offence of cheque dishonour results in
the civil injury of non-payment of ‘debt’. However, in our
considered view, to make moratorium provisions under
the IBC applicable on proceedings under Section 138 of
the NI Act, solely because of the civil nature of the injury
is untenable in light of the objective 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.” (emphasis supplied)
81. The aforesaid observations of the Supreme Court in the case of
Dineshchand Surana (supra), make it explicitly clear that the Supreme
Court has not departed from the law enunciated in the cases of Ajay
Kumar Radheyshyam Goenka (supra), and Rakesh Bhanot (supra). The
ARS 57/64
WP-1749-2024-J.DOC
Supreme Court has, at the cost of repetition, reiterated that the
moratorium provisions would not operate in respect of criminal aspect
of Section 138 and the directors of the corporate debtors cannot escape
from the personal liability in the event they are found guilty of the
offence punishable under Section 138 read with 141 of the Act, 1881.
The 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.
82. Therefore, the principal submission on behalf of the Applicants /
Petitioners that the trial itself is required to be stayed during the
currency of the interim moratorium under Section 96 of IBC, does not
find support, even from the decision in the case of Dineshchand Surana
(supra). At best, 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
ARS 58/64
WP-1749-2024-J.DOC
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. 15,
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 was rendered in the reference.
Till such time as the decisions cited at the Bar are not modified or
altered in any way, they continue to hold the field.
84. In the case of Union Territory of Ladakh and Ors. V/s. R1 :
Jammu and Kashmir National conference and Anr. 16, the Supreme Court
has again emphasised that it is not open, unless specifically directed by
the Supreme Court, to await an outcome of a Reference or a Review
Petition. It is also not open to a High Court to refuse to follow the
judgment of the Supreme Court by stating that it has been doubted by
the latter co-ordinate Bench. The observations in para 35 read as under
:
15 AIR 2012 SC 1563
16 (2024) 18 SCC 643
ARS 59/64
WP-1749-2024-J.DOC
“35. We are seeing before us judgments and orders by
High Courts not deciding cases on the ground that the
leading judgment of this Court on this subject is either
referred to a larger Bench or a review petition relating
thereto is pending. We have also come across examples
of High Courts refusing deference to judgments of this
Court on the score that a later Coordinate Bench has
doubted its correctness. In this regard, we lay down the
position in law. We make it absolutely clear that the
High Courts will proceed to decide matters on the basis
of the law as it stands. It is not open, unless specifically
directed by this Court, to await an outcome of a
reference or a review petition, as the case may be. It is
also not open to a High Court to refuse to follow a
judgment by stating that it has been doubted by a later
Coordinate Bench….…”
85. In the respectful understanding of this Court, the two-judge
Bench decision of the Supreme Court in the case of Dineshchand Surana
(supra), cannot be said to have taken a view which is completely
contrary to the one recorded in the decisions in the cases of Ajay Kumar
Radheyshyam Goenka (supra) and Rakesh Bhanot (supra). Nay the
two-judge Bench observed in no unequivocal terms that the criminal
aspect of the prosecution under Section 138 of the Act, 1881 would not
be affected by the moratorium provisions of the IBC 2016 and the
directors of the corporate debtor cannot escape personal criminal
liability.
ARS 60/64
WP-1749-2024-J.DOC
86. In this view of the matter, this Court is not inclined to accede to
the submission on behalf of the Applicants/ Petitioners that the
proceedings are required to be stayed till the decision of the reference
by the larger Bench.
87. At this juncture, it is also necessary to note the stage of the
underlying proceedings before the learned Magistrates :
Sr. No. Case Details Stage
1 NSEL V/s. Mohan India For further cross-
9649/SS/2005 and 10 other examination of C.W.1
complaints.
(Cheque amount – 675 Crores)
HC expedited
2 NSEL V/s. Lotus For final arguments
243/SS/2017
(Cheque amount – 252 Crores)
HC Expedited
3 NSEL V/s. Metkore Alloys For recording
2216/SS/2017, 10560/SS/2016 statement under
(Cheque Amount – 18 Crores) Section 313 of Cr.P.C.
HC Expedited
4 NSEL V/s. White Water Foods For further cross –
9357/SS/2026, 9358/SS/2016 examination of bank
(Cheque amount – 84 Crores) 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
ARS 61/64
WP-1749-2024-J.DOC
moratorium under Section 96 of the IBC 2016, qua the prosecution
under Section 138 of the Act, 1881, the debt ought to have been
incurred by the debtor in his personal capacity and not as a feature of
vicarious liability.
90. Incontrovertibly, the debt in question is that of the corporate
entity and the concomitant factors to constitute an offence punishable
under Section 138 of the Act, 1881, are in relation to the failure of the
corporate entity to pay the amount covered by the respective cheques,
in discharge of which the cheques were drawn by the corporate entity.
The Applicants / Petitioners have been arraigned by invoking the
provisions contained in Section 141 of the Act, 1881.
91. The decisions in the cases of Ajay Kumar Radheyshyam Goenka
(supra) and Rakesh Bhanot (supra), authoritatively enunciate that, in a
case of the present nature, the initiation of the insolvency resolution
process, either under Part II or III does not preclude the continuation of
the prosecution for an offence punishable under Section 138 of the Act,
1881.
92. Reliance on a decision of the learned Single Judge of this Court in
the case of Sheetal Gupta (supra), is of no assistance to the Applicants /
Petitioners as the subsequent decisions of the Supreme Court in the
cases of Ajay Kumar Radheyshyam Goenka (supra) and Rakesh Bhanot
(supra), have enunciated in clear and explicit terms that the
ARS 62/64
WP-1749-2024-J.DOC
moratorium under Section 96 of IBC 2016 does not operate qua a
prosecution under Section 138 of the Act, 1881, in relation to the
individual director of the corporate entity.
93. Reference of the questions to the larger Bench in the case of
Dineshchand Surana (supra), does not assist the cause of the Applicants
/ Petitioners as the Supreme Court in the said judgment has reiterated
multiple times that, the criminal aspect of the prosecution for an offence
punishable under Section 138 of the Act, 1881 cannot be stayed by
invoking the provisions of interim moratorium under Section 96 of the
IBC 2016 and the reference is made for an authoritative pronouncement
as to whether the moratorium provisions of Part III of IBC should be
made applicable to the proceedings under Section 138 of the Act, 1881
and only to the compensatory aspect.
94. In the meanwhile, till the reference is decided by the larger
Bench, the precedential value of the decisions in the cases of Ajay
Kumar Radheyshyam Goenka (supra) and Rakesh Bhanot (supra),
remains intact.
95. For the foregoing reasons, the Applications / Petitions deserve to
be dismissed.
96. Hence, the following order :
ORDER
(i) The Applications / Petitions stand dismissed.
ARS 63/64
WP-1749-2024-J.DOC
(ii) Rule discharged.
(iii) In view of the dismissal of the Applications / Petitions,
interim orders stand vacated and all Interim Application (s), if any, also
stand disposed.
[N. J. JAMADAR, J.]
97. At this stage, Mr. Bhanushali, learned Counsel for the Applicants
seeks continuation of the interim relief.
98. Since the complaints are pending for almost 10 years and in the
light of the view this court is persuaded to take, the prayer for
continuation of the stay to the trial before the Magistrates’, does not
seem justifiable.
99. Hence, the oral application for stay stands rejected.
[N. J. JAMADAR, J.]
Signed by: S.S.Phadke ARS 64/64
Designation: PS To Honourable Judge
Date: 18/08/2026 22:38:47
Checking your session…