Supreme Court of India
RAKESH BHANOTversusM/S. GURDAS AGRO PVT. LTD
- Citation
- 2025 INSC 445
- Decided
- 31 March 2025
- Disposal
- Dismissed
- Bench
- B PARDIWALA
Holding
The interim moratorium under the IBC does not stay criminal prosecutions under the Negotiable Instruments Act; personal insolvency cannot be used to evade such liability.
Summary
The appellants, who were directors and guarantors of a company, were charged under sections 138 and 141 of the Negotiable Instruments Act for issuing cheques that bounced due to insufficient funds. While the criminal proceedings were pending, they filed personal insolvency applications under section 94 of the Insolvency and Bankruptcy Code (IBC), invoking the interim moratorium under section 96 to stay the criminal case. The trial court and High Courts rejected the stay applications, and the appellants appealed to the Supreme Court. The Court held that the moratorium under the IBC is limited to civil actions for debt recovery and does not extend to criminal prosecutions, especially those under the NI Act, which aim to preserve commercial trust. Consequently, the Court dismissed the appellants' plea for a stay and upheld the lower courts' orders, dismissing all the criminal appeals and related writ petitions.
Issues considered
- Whether the interim moratorium under section 96 of the Insolvency and Bankruptcy Code applies to stay criminal proceedings under sections 138 and 141 of the Negotiable Instruments Act.
- Whether personal insolvency proceedings can shield individual directors or guarantors from personal criminal liability for cheque dishonour.
Legislation cited
- Insolvency and Bankruptcy Code, 2016s. 101, s. 14, s. 94, s. 96
- Negotiable Instruments Act, 1881s. 138, s. 141
Headnote
Issue for Consideration Issue arose whether the proceedings initiated against the appellants u/s.138 rw s.141 of the Negotiable Instruments Act should be stayed in view of the interim moratorium u/s.96 of the Insolvency and Bankruptcy Code, 2016 having come into effect upon the appellants filing Code, 2016 – ss.94 and 96 – Negotiable Instruments Act, 1881 – ss.138 and 141 – Moratorium – Interim moratorium – Complaint u/s.138 NI Act upon failure of the appellant-accused to make payment after cheques were dishonoured due to insufficiency of funds
Subjects
Noscitur a sociisMoratoriumInterim moratoriumPersonal insolvencyStay of proceedingsDishonour of chequesLegislative intent behind Insolvency and Bankruptcy CodeExtinguishment of criminal liability of directorsProtection of moratoriumMoratorium does not extend to criminal liabilityAdjourning s.138 NI Act proceedings sine dieCorporate debtorPersonal guarantorsRecovery of the debt
Judgment
[2025] 4 S.C.R. 573 : 2025 INSC 445
Rakesh Bhanot
v.
M/s. Gurdas Agro Pvt. Ltd.
(Criminal Appeal No. 1607 of 2025)
01 April 2025
[J.B. Pardiwala and R. Mahadevan,* JJ.]
Issue for Consideration
Issue arose whether the proceedings initiated against the appellants
u/s.138 rw s.141 of the Negotiable Instruments Act should be
stayed in view of the interim moratorium u/s.96 of the Insolvency
and Bankruptcy Code, 2016 having come into effect upon the
appellants filing applications u/s.94 IBC.
Headnotes†
Insolvency and Bankruptcy Code, 2016 – ss.94 and 96 –
Negotiable Instruments Act, 1881 – ss.138 and 141 –
Moratorium – Interim moratorium – Complaint u/s.138 NI
Act upon failure of the appellant-accused to make payment
after cheques were dishonoured due to insufficiency of
funds – Appellant filed an application u/s.94 IBC for personal
insolvency – During pendency, the appellant filed an
application for adjourning s.138 proceedings sine die, in view
of the pendency of s.94 IBC petition as well as the injunctive
provision u/s.96 IBC – Trial court rejected application –
Appellant then filed criminal petition – High Court dismissed
the same – Interference with:
Held: Not called for – Prayer of the appellants to stay the prosecution
u/s.138 of the NI Act relying on the interim moratorium u/s.96 IBC,
cannot be entertained – Moratorium provisions under the IBC offer
protection only to the corporate debtor-company, and is not intended
to shield individuals from personal criminal liabilities arising from their
actions outside the scope of corporate debt restructuring – Appellants
having filed insolvency applications as personal guarantors u/s.94
IBC, cannot extend this protection to avoid prosecution u/s.138 –
Object of moratorium or for that purpose, the provision enabling
* Author
574 [2025] 4 S.C.R.
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the debtor to approach the tribunal u/s.94 is not to stall the criminal
prosecution, but to only postpone any civil actions to recover any
debt – Deterrent effect of s.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 – Thus, allowing the respective appellants to evade
prosecution u/s.138 by invoking the moratorium would undermine
the very purpose of the NI Act, which is to preserve the integrity
and credibility of commercial transactions Personal responsibility
persists, regardless of the insolvency proceedings and its outcome –
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 – Statutory liability against the
directors u/s.138 is personal and hence, continues to bind natural
persons, irrespective of any moratorium applicable to corporate
debtor. [Paras 11-13, 17, 19]
Insolvency and Bankruptcy Code, 2016 – ss.14, 96, 101 –
Moratorium – Interim Moratorium – Object – Explained.
[Paras 10.1, 17]
Insolvency and Bankruptcy Code, 2016 – ss.94, 96 – Interim
moratorium to partners – Interim Moratorium to Company –
Difference between:
Held: There is a subtle difference in the protection of interim
moratorium available to Directors and Partners – For a partnership
firm, the interim moratorium protects not only the firm, but also the
partners – But for a company, such protection is available only to
the company and not to its directors. [Para 10.1]
Case Law Cited
Dilip B. Jiwrajka v. Union of India (2023) SCC OnLine SC
1530:(2024) 5 SCC 435 – Distinguished.
P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd. (2021) 6 SCC 258;
State Bank of India v. V. Ramakrishnan [2018] 10 SCR 974 : (2018)
17 SCC 394; Dena Bank v. Bhikhabhai Prabhudas Parekh and
Co. & Ors. [2000] 3 SCR 509 : (2000) 5 SCC 694; Narinder Garg
and Others v. Kotham Mahindra Bank Ltd. and Others (2022) SCC
[2025] 4 S.C.R. 575
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
OnLine SC 517; Ajay Kumar Radheyshyam Goenka v. Tourism
Finance Corpn. of India Ltd. (2023) 10 SCC 545 : (2024) 1 SCC
(Cri) 128 : 2023 SCC OnLine SC 266 – referred to.
List of Acts
Negotiable Instruments Act, 1881; Insolvency and Bankruptcy
Code, 2016.
List of Keywords
Noscitur a sociis; Moratorium; Interim moratorium; Personal
insolvency; Stay of proceedings; Dishonour of cheques; Legislative
intent behind Insolvency and Bankruptcy Code; Extinguishment of
criminal liability of directors; Protection of moratorium; Moratorium
does not extend to criminal liability; Personal insolvency; Adjourning
s.138 NI Act proceedings sine die; Corporate debtor; Personal
guarantors; Recovery of the debt.
Case Arising From
CRIMINAL APPELLATE/CIVIL ORIGINAL JURISDICTION: Criminal
Appeal No. 1607 of 2025
From the Judgment and Order dated 23.03.2023 of the High Court
of Punjab & Haryana at Chandigarh in CRM-M No. 37169 of 2022
With
Criminal Appeal Nos. 1608, 1609, 1610, 1611, 1612, 1613-1649 of
2025, W.P. (C) No. 469 of 2024, Criminal Appeal Nos. 1650-1652,
1653-1688, 1689, 1690, 1691 And 1692 of 2025
Appearances for Parties
Advs. for the Appellants:
Dr. Yusuf Iqbal Yusuf, Bhavya Sethi, Ms. Gyanika Kochar, Mohd.
Abid Sheikh, Ms. Neelam Singh, R K Rathore, Jawahar Lal, Danish
Saifi, Subramaniam S, Naman Dwivedi, Shafik Ahmed, Bhaskar
Sundaram, P.R. Sreejith, Ms. Pallavi Anand, V. Elanchezhiyan,
Abhimanyu Tewari, Siddhant Saroha, Viren Sibal, Prashant Katara,
Soin Khan, Jaydip Pati, Nitish Kumar Rai, Ms. Anushruti Tripathi,
Ms. Anita, Chritarth Palli, Nakul Mohta, Puneet Pathak, Amulya
Upadhyay, Ayush Kashyap, Shashank Khurana, Ms. Misha Rohatgi,
Nitin Setia, Abhishek Baid, Mohit Kumar Bafna, Praneet Das, Anup
Jain, Ashok Kumar Jain (for M/s.Expletus Legal).
576 [2025] 4 S.C.R.
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Advs. for the Respondent:
Ms. S Janani, Sr. Adv., Shailendra Babbar, Devendra Kumar Shukla,
Avinash Das, Rahul Kumar, Rishi Kapoor, Ms. Deboleena Datta,
Ms. Maitri Goal, Ashish Kumar Upadhyay, Atul Mangla, Ashish
Pandey, Inderjeet, Shubham Saxena, Prateek Rai, Ashutosh
Bhardwaj, Pushkar Dwivedi, Anmol Goyal, Akshit Chauhan,
Ms. Sharika Rai, Deepak Goel, Ms. Alka Goyal, Ms. Archana Preeti
Gupta, Aditya Krishna, Siddharth Dharmadhikari, Aaditya Aniruddha
Pande, Md. Naushad Alam, Raghav Vij, Suraj Kumar Jha, Ms.
Sakshi Tiwari, Pratham Malik, Palash Singhai, S. Vinay Ratnakar,
Apoorva Misra, Manish Gusain, Ankit Roy, Dr. Pankaj Garg, Milind
Garg, Ms. Nikita Garg, Yaksh Garg, Suvidutt M.S., Dr. Pankaj Garg,
Milind Garg, Ms. Nikita Garg, Yaksh Garg, Mrs. Saumya Jain,
Ms. Yashna Ahuja, Ms. Atulika Ghawana, Ms. Shambhavi Sharma,
Ms. Paromita Majumdar, Ms. Minakshi Vimal, Ms. Bhavana Jhakhar,
Ms. Astha Tyagi, Akhil Sachar, Ms. Sunanda Tulsyan, Ms. Henna
George, Ms. Purti Gupta, Ms. Henna George.
Judgment / Order of the Supreme Court
Judgment
R. Mahadevan, J.
1. Leave granted.
2. Since the facts and issues involved in all these cases are common,
they are clubbed together and disposed of, by this common judgment.
3. All these appeals are filed against the orders passed by different
High Courts, which dismissed the petitions filed under Section
482 of the Criminal Procedure Code, 19731 and thereby affirmed
the orders passed by the trial Court rejecting the applications filed
for staying the proceedings under Section 138 of the Negotiable
Instruments Act, 18812, sine die till the conclusion of the proceedings
initiated under Section 94 of the Insolvency and Bankruptcy Code,
20163, before the National Company Law Tribunal. A writ petition
has also been filed for declaration and direction that section 138
1 For short, “Cr.P.C”
2 For short, “N.I. Act, 1881”
3 For short, “IBC”
[2025] 4 S.C.R. 577
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
proceedings shall be deemed to be stayed during the operation
of the moratorium period under section 96 IBC. The details of the
cases are tabulated below:
Case No. Name of the Order impugned Order impugned
parties before this Court before the High
Court
SLP(Crl) Rakesh Order dated Order dated
No.6087 of Bhanot v. M/s. 23.3.2023 passed 23.05.2022 passed
2023 Gurdas Agro by the High Court of by the Judicial
Pvt. Ltd Punjab and Haryana, Magistrate First
Chandigarh in Class, Bathinda in
CRM – M –37169/ complaint No. COMA
2022 (O&M) 1059/2019
SLP(Crl) Sandeep Order dated Order dated
No.9316 of Gupta v. M/s. 15.5.2023 passed 03.12.2021 passed
2023 Sri Ram Steel by the High Court of by the Metropolitan
Traders and Delhi at New Delhi, Magistrate Patiala
another in Crl.M.C. No.381 of House Courts,
2022 New Delhi, in CT
No.12161/2018
SLP(Crl) Rakesh Order dated Order dated
No.12328 Bhanot v. M/s. 23.03.2023 passed 12.09.2022 passed
of 2023 Gurdas Agro by the High Court of by the Judicial
Pvt. Ltd Punjab and Haryana, Magistrate First
Chandigarh in Class, Bathinda in
CRM – M – 59371/ complaint No. COMA
2022 (O&M) 89/2016
SLP(Crl) Order dated Order dated
No.12327 07.02.2023 passed 23.05.2022 passed
of 2023 by the High Court of by the Judicial
Punjab and Haryana, Magistrate First
Chandigarh in Class, Bathinda in
CRM – M – 39859/ complaint No. COMA
2022 (O&M) 1060/2019
SLP(Crl) Order dated Order dated
No.12329 23.03.2023 passed 23.05.2022 passed
of 2023 by the High Court of by the Judicial
Punjab and Haryana, Magistrate First
Chandigarh in Class, Bathinda in
CRM – M – 39885/ complaint No. COMA
2022 (O&M) 1061/2019
578 [2025] 4 S.C.R.
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SLP(Crl) Sanjeev Order dated Order dated
No.6835 of Narula v. 06.3.2024 passed 18.01.2024 passed
2024 M/s. Elkay by the High Court of by the Judicial
International Punjab and Haryana, Magistrate First
Ltd Chandigarh in Class, Faridabad
CRM – M – 9799/ in complaint No.
2024 (O&M) NACT– 719/2016.
SLP (Crl) M/s. Shiva Order dated Complaint in No.
Nos. 9104 Shakti Grains 12.03.2024 passed NACT– 704/2017
-9140 of (India) Pvt. by the High Court of dated 21.11.2017
2024 Ltd and Punjab and Haryana, as well as the
Another Etc. Chandigarh in summoning orders
v. M/s.Kaur CRM – M – 12807/ dated 14.09.2018
Chand Munish 2019 etc. cases issued by the
Kumar Etc. Judicial Magistrate
First Class, Sri
Muktsar Sahib and
all consequential
proceedings.
W.P(C) No. Vijay Chetan (i)to declare that the
469/2024 Lilaramani proceedings under
and another v. section 138 r/w 141
Union of India of the Negotiable
and others Instruments Act,
1881, shall be
covered under
moratorium imposed
by section 96 of the
IBC or shall deemed
to be stayed during
operation of the
moratorium under
section 96 of the
IBC; and (ii)to direct
that the trial pending
before the Additional
Chief Metropolitan
Magistrate,
Bengaluru in CC
No. 54895/2023
stands deemed to
be stayed, during
the continuation of
moratorium under
the IBC.
[2025] 4 S.C.R. 579
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
SLP(Crl) Ashok B. Order of the High Stay further
Nos.272- Jeswani and Court of Madras proceedings with
274 of 2025 another v. dated 07.12.2023 in respect to the
M/s.Redington Crl.OP. No. 24506 recovery of debt
India Ltd of 2023 and dated u/s.138 of the N.l.
06.06.2024 in Crl. Act, 1881, qua the
M. P. Nos.7782 and appellants in view of
7783 of 2024 in Crl. Sections 94, 96 and
RC No.911 of 2024 101 of the IBC.
SLP(Crl) Jitender Order dated Order dated
Nos. 4822- Singh Sodhi 13.03.2024 passed 21.08.2023 passed
4857 of and another by the High Court of by the Judicial
2025 v. Deputy Punjab and Haryana, Magistrate First
Commissioner Chandigarh in Class, Chandigarh, in
of Income Tax CRM – M – 52874/ Complaint No. NACT
and another 2023 etc. cases /3656/2015
SLP(Crl) Yogesh Order dated Stay the proceedings
No.15852 Jogindernath 15.10.2024 passed in CC No.186/SS/
of 2024 Mehra and by the High Court of 2018 pending before
another v. Bombay, in Criminal the 30th Metropolitan
State of Writ Petition (ST) No. Magistrate, Kurla,
Maharashtra 11799 of 2024 Mumbai
and another
SLP(Crl) Yogesh Order dated Stay the proceedings
No.15813 Jogindernath 15.10.2024 passed in CC No.186/SS/
of 2024 Mehra and by the High Court of 2018 pending before
another v. Bombay, in Criminal the 30th Metropolitan
State of Writ Petition (ST) No. Magistrate, Kurla,
Maharashtra 11800 of 2024 Mumbai
and another
SLP(Crl) Yogesh Order dated Stay the proceedings
No.15933 Jogindernath 15.10.2024 passed in CC No.186/SS/
of 2024 Mehra and by the High Court of 2018 pending before
another v. Bombay, in Criminal the 30th Metropolitan
State of Writ Petition (ST) No. Magistrate, Kurla,
Maharashtra 11950 of 2024 Mumbai
and another
SLP(Crl) Yogesh Order dated Stay the proceedings
No.15905 Jogindernath 15.10.2024 passed in CC No.186/SS/
of 2024 Mehra and by the High Court of 2018 pending before
another v. Bombay, in Criminal the 30th Metropolitan
State of Writ Petition (ST) No. Magistrate, Kurla,
Maharashtra 12390 of 2024 Mumbai
and another
580 [2025] 4 S.C.R.
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4. The common legal question that arises for consideration herein is,
whether the proceedings initiated against the appellants / petitioners
under Section 138 read with Section 141 of the N.I. 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. In view of the commonality of
issues involved in all the cases, we need not necessarily review the
facts of each case individually.
5. However, for ease of reference, the facts leading to the appeal arising
out of S.L.P (Crl.) No.6087 of 2023, in a nutshell are as under:
5.1. The respondent viz., M/s Gurdas Agro Pvt. Ltd. filed a
complaint under Section 138 of the N.I. Act, 1881, against
M/s Arjun Mall Retail Holdings Pvt. Ltd. through its Director-
Kiran Bhanot, Kiran Bhanot (wife of the appellant), Rakesh
Bhanot (appellant herein), and Arjun Bhanot (their son). It was
alleged in the complaint that the accused issued four cheques
each for Rs.50,00,000/- drawn on UCO Bank, Mid Corporate
Industrial Area, Ludhiana, in order to discharge their legally
enforceable liability. When the cheques were presented for
encashment, the same were returned with the endorsement
“Funds Insufficient”. After issuance of a legal notice and
upon the failure of the accused to make payment within the
stipulated time, the respondent / complainant preferred a
complaint under Section 138 of the N.I. Act, 1881. The said
complaint was taken on file as COMA No.1059/2019 and
is pending adjudication before the Judicial Magistrate First
Class, Bhatinda.
5.2. During the pendency of the aforesaid proceedings under section
138 of the N.I. Act, 1881, the appellant Rakesh Bhanot filed an
application in CP(IB) No.147/CHD/PB/2021 under Section 94
IBC before the National Company Law Tribunal, Chandigarh
Bench, for personal insolvency. His wife, who is a co-accused,
also filed a similar application. The said applications are pending
adjudication. Pending the said proceedings, the appellant moved
an application before the trial Court for adjourning the section
138 proceedings sine die, in view of the pendency of section
94 IBC petition as well as the injunctive provision as envisaged
under section 96 IBC.
[2025] 4 S.C.R. 581
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
5.3. The trial Court, vide order dated 23.05.2022, rejected the
aforesaid application. Aggrieved by the same, the appellant
approached the High Court of Punjab and Haryana, Chandigarh,
by filing a criminal petition bearing No.CRM-M-37169-2022
(O&M) under Section 482 Cr.P.C. By order dated 23.03.2023,
the said criminal petition came to be dismissed by the High
Court. Challenging the same, the appellant is before us with
the present appeal.
6. The other appeals as well as the writ petition arising out of similar
set of facts, have been filed by the respective appellants / petitioners
before this court.
7. The learned counsel appearing for all the parties, including the
applicant(s) / intervenor(s), made detailed submissions with respect
to the issues at hand. In order to avoid repetition, they are concisely
outlined as under:
7.1. On the side of the appellants / petitioners
(i) There is a complete and unequivocal bar on continuation
of proceedings of the N.I. Act, 1881, in view of pendency of
the insolvency proceedings before the National Company
Law Tribunal, as envisaged under Section 96 IBC.
(ii) Once the proceedings under Section 94 IBC have been
initiated before the Adjudicating Authority for personal
insolvency resolution process, on account of the appellants
/ petitioners having become personally insolvent,
necessarily all further proceedings under Section 138 of
the N.I. Act, 1881, would remain stayed in terms of Section
96(1)(b) IBC.
(iii) The legislative intent behind the IBC is to provide a
structured framework for debt resolution, while ensuring
that debtors are afforded a fair opportunity to reorganize
their financial affairs. The moratorium is designed to prevent
creditors from taking coercive actions that could further
destabilize the debtors’ financial situation.
(iv) There is fine distinction in the statute between “Corporate
Insolvency Resolution Process” and “Personal Insolvency
Resolution Process”. In case, where a Company is a
582 [2025] 4 S.C.R.
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corporate debtor and insolvency proceedings are initiated
against such corporate debtor under Section 7 or Section
9 IBC, the Adjudicating Authority under Section 14(1) IBC
passes an order to declare a moratorium. On the other
hand, Section 94 IBC provides for a situation wherein
a debtor may approach the Adjudicating Authority for
initiation of Personal Insolvency Resolution Process.
Similarly, Section 95 IBC provides for a situation wherein
a creditor may approach the Adjudicating Authority for
initiation of Personal Insolvency Resolution Process against
an individual. Section 96(1) IBC provides that in either
case, whether under Section 94 or Section 95, (a) Interim
moratorium comes into effect on the date of the application
itself; (b) This moratorium is in respect of all debts; (c)
This moratorium shall cease to have effect on the date
of admission of such application; (d) During this period,
all pending legal action or proceedings in respect of any
debt shall be deemed to have been stayed; (e) Creditors
of debt shall not initiate any legal action or proceeding in
respect of any debt.
(v) In the present case, the moratorium came into effect in a
proceeding under Section 96 IBC and not under Section
14 IBC. However, the High Court erroneously relied on
the judgment in P.Mohanraj v. Shah Brothers Ispat Pvt.
Ltd.,4 as in that case, this court was concerned only with
the proceedings under section 14 IBC and not section 96
IBC. Hence, the observations made therein can be read
only in the context of a moratorium under section 14 IBC.
(vi) Further, the reliance placed in the decision in Ajay Kumar
Radheyshyam Goenka v. Tourism Finance Corporation
of India Ltd.,5 is misconceived, since the said judgement
merely holds that the moratorium under Section 14 IBC
shall not protect the signatories and the directors of the
corporate debtor because the said moratorium is only with
respect to the corporate debtor, and not the individuals.
4 (2021) 6 SCC 258
5 (2023) 10 SCC 545
[2025] 4 S.C.R. 583
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
(vii) Once the application under Section 94 or 95 IBC has
been admitted, Section 101 IBC states that “the debtor
shall not transfer, alienate, encumber, or dispose of any of
his assets of his legal rights or beneficial interest therein”
thereby imposing an express bar on the individual/director/
signatory/cheque from making any payment in relation to
the dishonoured cheque. Thus, when the law prohibits
payment, it would create a dichotomy to simultaneously
proceed against the said individual under Section 138
read with Section 141 of the N.I. Act 1881 for dishonour
of the cheque and failure to make the payment to purge/
compound the said offence. Hence, the appellants /
petitioners cannot be penalised for not performing an act
expressly barred by law.
(viii) In State Bank of India v. V.Ramakrishnan 6 while adjudicating
on the applicability of moratorium under Section 14 IBC to
personal guarantors, it was held by this Court that personal
guarantors are covered by the moratorium under Section
96 IBC, while stating the protection of moratorium under
these sections 96 and 101 IBC is far greater than the
moratorium under section 14 IBC.
(ix) The IBC must prevail over Section 138/141 of the N.I.
Act, 1881, for the want of the non-obstante provision of
Section 238. Further, it will override anything inconsistent
contained in any other enactment, including the Income-Tax
Act, 1961. Reference can be in this connection made to
Dena Bank vs. Bhikhabhai Prabhudas Parekh and Co. &
Ors.,7 which made it clear that income-tax dues, being in
the nature of Crown debts, do not take precedence even
over secured creditors, who are private persons.
(x) Reference was made to the decision in Dilip B. Jiwrajka vs.
Union of India8, wherein, while upholding the constitutional
validity of Sections 95-100 IBC, this court explained the
concept of a moratorium under Section 14 of Part II vis-
6 (2018) 17 SCC 394
7 (2000) 5 SCC 694
8 (2023) SCC OnLine SC 1530) : (2024) 5 SCC 435
584 [2025] 4 S.C.R.
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à-vis interim moratorium under Section 96 of Chapter III
of Part III. Ultimately, it was inter alia concluded that the
purpose of the interim moratorium under section 96 is to
protect the debtor from further legal proceedings.
(xi) Thus, according to the learned counsel, the proceedings
under section 138 r/w 141 of the N.I. Act, 1881, which
is concerned with the dishonour of the alleged cheques
under the signatures of the appellants / petitioners, would
undoubtedly fall within the prohibition contained in section
96 IBC. However, the Courts below erred in rejecting
the petitions filed for staying the 138 proceedings till the
conclusion of the insolvency proceedings pending before
the Tribunal. Hence, the impugned orders passed by them
are liable to be set aside.
7.2. On the side of the applicant(s) / intervenor(s)
Since the decision on the question of law involved herein, shall
impact on the applicants / intervenors undergoing insolvency
proceedings, they sought to make their submissions.
(i) The Insolvency and Bankruptcy Code, 2016 (IBC) was
enacted in order to consolidate and amend the laws
relating to reorganisation and insolvency resolution of
corporate persons, partnership firms and 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. Further, it was enacted with an object to
maximize the wealth of person undergoing insolvency
proceedings, to enable a purposeful and constructive
interpretation.
(ii) On initiation of insolvency proceedings under IBC, Section
14 provides for a moratorium during which all legal
proceedings against the insolvent Company stand stayed.
Whereas, on the filing/initiation of personal insolvency,
moratorium under Sections 96 and 101 IBC come into
effect. When the moratorium comes into effect, then, no
legal proceeding against him can be initiated for recovery
of any debt. Generally, when an individual is prosecuted
[2025] 4 S.C.R. 585
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
even for dishonour of cheque, then in effect, he is being
prosecuted for “non-payment of debt”. As such, such legal
proceedings are covered under Sections 96 and 101 IBC
and the same do not lie/ cannot be continued. Therefore,
all types of debt recovery proceedings are stayed and
all types of assets of the individual are pooled to pay-off
the debts.
(iii) During moratorium under section 14 IBC, the Company
is protected from any civil or legal proceedings including
Section 138 of the N.I. Act, 1881 proceedings. Similarly,
when the resolution of debts of an individual takes place
under the aegis of personal insolvency under IBC, in such
a situation, continuing with the offence of cheque dishonour
case shall double jeopardize the individual, since he has
already utilized all his assets to enter into a resolution
and shall have no means to compound/settle the offence
of cheque dishonour and shall be forced to face criminal
prosecution. Therefore, similar protection under Section 96
IBC ought to be granted to the individual under personal
insolvency as is available to the Company under Section
14 IBC on the initiation of insolvency process.
(iv) The proceedings under Section 138 / 141 of the N.I. Act,
1881 qua the Directors are civil in nature and should be
considered as such for the cases which lie under Section
96/101 IBC. The role of Directors has to be specific,
meaning thereby that the liability under Section 138/141
of the N.I. Act, 1881, is vicarious in nature. Similarly,
the offences under all the statutes, whether under the
Companies Act, Income Tax Act, or any other Act, where
punishment may be imposed by way of fine, must be
considered under the domain of the provisions of section
96/101 IBC.
(v) Thus, according to the learned counsel, the benefit of
moratorium under Section 96 IBC and Section 101 IBC be
extended to the individuals against criminal proceedings
pending under Section 138 of N.I. Act, 1881, as the
same is in consonance with the scope and intent of the
legislature.
586 [2025] 4 S.C.R.
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7.3. On the side of the respondents
(i) The IBC is meant to resolve genuine financial distress,
and not to shield individuals from criminal liability.
(ii) Furthermore, the interim moratorium under Section 96 IBC
is intended to operate in respect of debt as opposed to a
debtor and that the purpose of interim moratorium under
Section 96 is to restrain the initiation or continuation of
legal action or proceedings against the debt. The words
used both in clause (b) (i) and clause (b) (ii) of Section
96(1) are “in respect of any debt” and therefore, moratorium
would strictly apply to the security interest created by the
debtors / appellants / petitioners herein in their personal
capacity, wherein personal guarantee is given in respect
of a debt and in no manner can be stretched to include
the criminal proceedings under Section 138 of the N.I.
Act, 1881, since the same is not qua the debt, but is
built on the principle of not honouring the cheques, when
presented for encashment which in turn attract the criminal
liability and fines.
(iii) The interim moratorium under Section 96 IBC will not apply
to the criminal proceedings under Section 138 of the N.I.
Act, 1881 and hence, there is no bar for continuation of
the said proceedings. In this regard, reference was made
to the decisions of this Court in P.Mohanraj (supra), and
Narinder Garg and Others v. Kotham Mahindra Bank Ltd.,
and Others.9
(iv) Reliance was also placed on the Report of the Insolvency
Law Committee of 2020, Chapter V of which explained
the scope of moratorium, and according to which, the
moratorium provisions under Part III IBC were not meant
to stay actions against the corporate debtor or other third
parties involved in the debt. Therefore, the Committee
agreed that the moratorium and interim moratorium under
Part III should be interpreted only to be limited to the
‘debtor’ and its assets.
9 (2022) SCC OnLine SC 517
[2025] 4 S.C.R. 587
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
(v) Section 138 of the N.I. Act, 1881, was enacted to enhance
the credibility of cheques in commercial transactions
and penalize the wilful dishonour of such instruments.
It criminalizes the act of dishonouring cheques due to
insufficiency of funds or other similar reasons. Section 141
extends liability to individuals who were in charge of and
responsible for the conduct of the company’s business at
the time of the offence. On the other hand, the appellants /
petitioners attempted to use the insolvency proceedings
before the National Company Law Tribunal in order to stay
the section 138 proceedings pending before the trial court.
Thus, they cannot absolve themselves of personal liability
merely by citing insolvency proceedings under the IBC.
(vi) As reiterated in P. Mohanraj (supra), “proceedings under
Section 138/141 of the N.I. Act, 1881 are distinct and
operate independently of insolvency proceedings.” Any
contrary interpretation would render creditors powerless
and undermine the effectiveness of the N.I. Act, 1881.
(vii) Whether moratorium is under Section 14 or Section 96
IBC, the provision of section 141 is equally applicable
and remains the same. The judgement of this court
in P.Mohanraj (supra) holding that “it is clear that the
moratorium provision contained in Section 14 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”, would be applicable in the case of moratorium under
Section 96 IBC as well.
(viii) On proper appreciation of facts, the courts below rightly
dismissed the petitions filed by the appellants and hence,
the same need not be interfered with by this court.
8. We have considered the contentions made by the learned counsel
appearing for all the parties and also perused the materials available
on record.
9. Vide order dated 16.05.2023 in SLP (Crl) No.6087 of 2023 titled
“Rakesh Bhanot v. M/s Gurdas Agro Pvt. Ltd.”, this Court granted
an order of stay of further proceedings in COMA No.1059 of 2019.
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Following the same, an order of interim stay of further proceedings
pending before the trial Court was subsequently granted in all other
connected matters as well.
10. At the outset, it will be useful to refer to the relevant provisions of
law connected to the issues at hand, which are as follows:
(A) The Insolvency and Bankruptcy Code, 2016.
“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
or 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 Securitization 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 purposes of this sub-section, it is
hereby clarified that notwithstanding anything contained
in any other law for the time being in force, a license,
permit, registration, quota, concession, clearances or a
similar grant or right given by the Central Government,
State Government, local authority, sectoral regulator or
any other authority constituted under any other law for the
time being in force, shall not be suspended or terminated
on the grounds of insolvency, subject to the condition that
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Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
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;]
(2) The supply of essential goods or services to the
corporate debtor as may be specified shall not be
terminated or suspended or interrupted during moratorium
period.
[(2A) Where the interim resolution professional or
resolution professional, as the case may be, considers
the supply of goods or services critical to protect and
preserve the value of the corporate debtor and manage
the operations of such corporate debtor as a going
concern, then the supply of such goods or services
shall not be terminated, suspended or interrupted during
the period of moratorium, except where such corporate
debtor has not paid dues arising from such supply during
the moratorium period or in such circumstances as may
be specified;]
[(3) The provisions of sub-section (1) shall not apply to—
[(a) such transactions, agreements or other arrangements
as may be notified by the Central Government in
consultation with any financial sector regulator or any
other authority;]
(b) a surety in a contract of guarantee to a corporate
debtor.].
(4) The order of moratorium shall have effect from the
date of such order till the completion of the corporate
insolvency resolution process:
Provided that where at any time during the corporate
insolvency resolution process period, if the Adjudicating
Authority approves the resolution plan under sub-section
(1) of section 31 or passes an order for liquidation of
corporate debtor under section 33, the moratorium shall
cease to have effect from the date of such approval or
liquidation order, as the case may be.”
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“Section 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; (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.”
“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—
(i) any legal action or proceeding pending in respect of
any debt shall be deemed to have been stayed; and
[2025] 4 S.C.R. 591
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
(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.”
“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;
(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.”
10.1. From the above provisions, it is clear that the term “Corporate
Person” includes a company as defined under Section 2(20) of
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the Companies Act, 2013, and a Limited Liability Partnership.
However, there is a subtle difference in the protection available
to the Directors and the Partners. In case of a partnership firm,
the interim moratorium protects not only the firm, but also the
partners. But in case of a company, such protection is available
only to the company and not to its directors. That apart, the
object of interim moratorium can be no different from that of
the moratorium specified under Section 14. It is also clear
from Section 14 that the protection from legal action during
the period of moratorium is not available to the surety or in
other words, to a personal guarantor. The use of the words
“all the debts” and “in respect of any debt” in Sub-section (1)
of Section 96 is not without a purpose, as the moratorium is
intended to offer protection only against civil claim to recover
the debt. Hence, such period of moratorium prescribed under
Section 14 or 96 is restricted in its applicability only to protection
against civil claims which are directed towards recovery and
not from criminal action.
(B) Negotiable Instruments Act, 1881.
“138. Dishonour of cheque for insufficiency, etc.,
of funds in the account.—
Where any cheque drawn by a person on an account
maintained by him with a banker for payment of any
amount of money to another person from out of that
account for the discharge, in whole or in part, of any
debt or other liability, is returned by the bank unpaid,
either because of the amount of money standing to
the credit of that account is insufficient to honour the
cheque or that it exceeds the amount arranged to
be paid from that account by an agreement made
with that bank, such person shall be deemed to have
committed an offence and shall, without prejudice
to any other provision of this Act, be punished with
imprisonment for [a term which may be extended to
two years], or with fine which may extend to twice
the amount of the cheque, or with both:
Provided that nothing contained in this section shall
apply unless—
[2025] 4 S.C.R. 593
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
(a) the cheque has been presented to the bank within
a period of six months from the date on which it is
drawn or within the period of its validity, whichever
is earlier;
(b) the payee or the holder in due course of the
cheque, as the case may be, makes a demand for
the payment of the said amount of money by giving
a notice; in writing, to the drawer of the cheque,
[within thirty days] of the receipt of information by
him from the bank regarding the return of the cheque
as unpaid; and
(c) the drawer of such cheque fails to make the
payment of the said amount of money to the payee
or, as the case may be, to the holder in due course
of the cheque, within fifteen days of the receipt of
the said notice.
Explanation.—For the purposes of this section, “debt
of other liability” means a legally enforceable debt
or other liability.
141. Offences by companies.—
(1) If the person committing an offence under section
138 is a company, every person who, at the time the
offence was committed, was in charge of, and was
responsible to, the company for the conduct of the
business of the company, as well as the company,
shall be deemed to be guilty of the offence and shall
be liable to be proceeded against and punished
accordingly:
Provided that nothing contained in this sub-section
shall render any person liable to punishment if he
proves that the offence was committed without his
knowledge, or that he had exercised all due diligence
to prevent the commission of such offence:
[Provided further that where a person is nominated as
a Director of a company by virtue of his holding any
office or employment in the Central Government or
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State Government or a financial corporation owned
or controlled by the Central Government or the State
Government, as the case may be, he shall not be
liable for prosecution under this Chapter.]
(2) Notwithstanding anything contained in sub-
section (1), where any offence under this Act has
been committed by a company and it is proved that
the offence has been committed with the consent
or connivance of, or is attributable to, any neglect
on the part of, any director, manager, secretary or
other officer of the company, such director, manager,
secretary or other officer shall also be deemed to
be guilty of that offence and shall be liable to be
proceeded against and punished accordingly.
Explanation.—For the purposes of this section, —
(a) “company” means any body corporate and
includes a firm or other association of individuals; and
(b) “director”, in relation to a firm, means a partner
in the firm.”
10.2. The above provisions specifically relate to cheque dishonour
cases, and the persons responsible for such dishonour, may
be criminally prosecuted and subjected to penal action, as per
the conditions specified under the N.I. Act, 1881.
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.
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
[2025] 4 S.C.R. 595
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
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 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
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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 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
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 latter.
14. In Mohanraj case, the dishonoured cheques were issued by the
company and hence, the complainant initiated the section 138
proceedings against the company and its directors. The question that
arose for consideration was, whether the institution or continuation
of a proceeding under section 138/141 of the N.I. Act, 1881, can
[2025] 4 S.C.R. 597
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
be said to be covered by the moratorium provision, namely, section
14 IBC. The petitioners in the connected writ petitions therein,
were the erstwhile Directors/persons in charge of and responsible
for the conduct of the business of the corporate debtor and they
were all premised upon the fact that Section 138 proceedings are
covered by Section 14 IBC and hence, cannot continue against the
corporate debtor and consequently, against the petitioners therein.
This Court, after a detailed analysis of the provisions relating to
moratorium under sections 14, 96 and 101 IBC, concluded that the
moratorium provision contained in Section 14 IBC would apply only
to the corporate debtor, and the natural persons mentioned therein,
continuing to be statutorily liable under the N.I. Act, 1881. In doing
so, it was clarified that the moratorium under the IBC does not extend
to criminal proceedings. Further, it was emphasized that the IBC’s
objective is to address the corporate debtor’s financial distress and
should not be misconstrued as a means to avoid personal criminal
accountability. For better appreciation, the relevant portion of the
said judgment is extracted hereunder:-
“102. Since the corporate debtor would be covered by the
moratorium provision contained in Section 14 of the IBC, by
which continuation of Section 138/141 proceedings against
the corporate debtor and initiation of Section 138/141
proceedings against the said debtor during the corporate
insolvency resolution process are interdicted, what is stated
in paragraphs 51 and 59 in Aneeta Hada (supra) would
then become applicable. The legal impediment contained
in Section 14 of the IBC would make it impossible for
such proceeding to continue or be instituted against the
corporate debtor. Thus, for the period of moratorium, 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.”
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15. Similarly, in Narinder Garg (supra), this Court reiterated that the IBC’s
moratorium does not bar criminal proceedings under Section 138 of
the NI Act. For better appreciation, the relevant portion of the said
judgment is extracted hereunder:-
“4. A subsidiary issue was also about the liability of natural
persons like a Director of the Company. In paragraph 77
of its judgment, this Court observed that the moratorium
provisions contained in Section 14 of the Insolvency and
Bankruptcy Code, 2016 would apply only to the corporate
debtor and that the natural persons mentioned in Section
141 of the Act would continue to be statutorily liable under
the provisions of the Act.”
16. Even recently, a larger bench of this Court in Ajay Kumar Radheyshyam
Goenka v. Tourism Finance Corpn. of India Ltd.10, of which one of
us (J.B. Pardiwala, J) is a member, after considering the scope and
object of the IBC and the interplay with the N.I. Act, 1881 in detail,
has held as follows:
“72. It is true that by virtue of Section 238 IBC, the
provisions of Cr.P.C (to be read as Code) shall have effect
notwithstanding anything inconsistent therewith contained
in any other law for the time being in force or any instrument
having effect by virtue of any such law. But, no provision
of IBC bars the continuation of the criminal prosecution
initiated against the Directors and officials.
73. It is equally true that once the corporate debtor comes
under the resolution process, its erstwhile Managing
Director(s) cannot continue to represent the company.
Section 305(2)CrPC states that where a corporation is the
accused person or one of the accused persons in an inquiry
or trial, it may appoint a representative for the purpose
of the inquiry or trial and such appointment need not be
under the seal of the corporation. Therefore, it is only the
resolution professional who can represent the accused
Company during the pendency of the proceedings under
10 (2023) 10 SCC 545 : (2024) 1 SCC (Cri) 128 : 2023 SCC OnLine SC 266
[2025] 4 S.C.R. 599
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
IBC. After the proceedings are over, either the corporate
entity may be dissolved or it can be taken over by a new
management in which event the company will continue to
exist. When a new management takes over, it will have
to make arrangements for representing the company. If
the company is dissolved as a result of the resolution
process, obviously proceedings against it will have to be
terminated. But even then, its erstwhile Directors may
not be able to take advantage of the situation. This is
because, this Court in Aneeta Hada [Aneeta Hada v.
Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 :
(2012) 3 SCC (Civ) 350 : (2012) 3 SCC (Cri) 241] , even
while overruling its decision in Anil Hada v. Indian Acrylic
Ltd. [Anil Hada v. Indian Acrylic Ltd., (2000) 1 SCC 1 :
2001 SCC (Cri) 174] , as not laying down the correct
law insofar as Anil Hada [Anil Hada v. Indian Acrylic Ltd.,
(2000) 1 SCC 1 : 2001 SCC (Cri) 174] states that the
Director or any other officer can be prosecuted without
impleadment of the company, proceeded to hold that the
matter would stand on a different footing where there is
some legal impediment as the doctrine of lex non cogit
ad impossibilia gets attracted. It was specifically observed
that the decision in Anil Hada [Anil Hada v. Indian Acrylic
Ltd., (2000) 1 SCC 1 : 2001 SCC (Cri) 174] is overruled
with the qualifier as stated in para 51. Considering the
same, the ratio of the decision of this Court in Ajit Balse
[Ajit Balse v. Ranga Karkere, (2015) 15 SCC 748 : (2016)
3 SCC (Civ) 465 : (2016) 3 SCC (Cri) 379] upon which
strong reliance is placed on behalf of the appellant is of
no avail.
74. What follows from the aforesaid is that for difficulty in
prosecuting the corporate debtor under Section 138 of the
NI Act after the approval of the resolution plan under IBC,
we need not let the natural persons i.e. the signatories
to the cheques/Directors of the corporate debtor escape
prosecution. How can one allow the natural persons to
escape liability on such specious plea? In such a situation
the Latin maxim lex non cogit ad impossibilia is attracted
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which means law does not compel a man to do which
he cannot possibly perform. Broom›s Legal Maxims
contains several illustrative cases in support of the maxim.
This maxim has been referred to with approval by this
Court in State of Rajasthan v. Shamsher Singh [State
of Rajasthan v. Shamsher Singh, 1985 Supp SCC 416 :
1985 SCC (Cri) 421] .
75. Thus, where the proceedings under Section 138 of the
NI Act had already commenced and during the pendency
the plan is approved or the company gets dissolved, the
Directors and the other accused cannot escape from their
liability by citing its dissolution. What is dissolved is only
the company, not the personal penal liability of the accused
covered under Section 141 of the NI Act. They will have
to continue to face the prosecution in view of the law laid
down in Aneeta Hada [Aneeta Hada v. Godfather Travels &
Tours (P) Ltd., (2012) 5 SCC 661 : (2012) 3 SCC (Civ) 350 :
(2012) 3 SCC (Cri) 241] . Where the company continues
to remain even at the end of the resolution process, the
only consequence is that the erstwhile Directors can no
longer represent it.
……………
81. This Court in Lalit Kumar Jain v. Union of India [Lalit
Kumar Jain v. Union of India, (2021) 9 SCC 321 : (2021) 4
SCC (Civ) 527] has held that the approval of the resolution
plan per se does not operate as a discharge of guarantors›
liability. That is because:
(a) an involuntary act of the principal debtor leading to loss
of security, would not absolve a guarantor of its liability.
(b) a discharge which the principal debtor may secure by
operation of law in bankruptcy (or in liquidation proceedings
in the case of a company) does not absolve the surety
of his liability.
82. The same principle is applicable to the signatory/
Director in the case of Sections 138/141 proceedings.
The signatory/Director cannot take benefit of discharge
[2025] 4 S.C.R. 601
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
obtained by the corporate debtor by operation of law
under IBC.
……
Litigant cannot take advantage of its own wrong (Nullus
commodum capere potest de injuria sua propria)
84. This Court while upholding the validity of Section
32-A IBC (Manish Kumar case [Manish Kumar v. Union
of India, (2021) 5 SCC 1 : (2021) 3 SCC (Civ) 50] ) has
held that “The provision is carefully thought out. It is
not as if the wrongdoers are allowed to get away.” That
is a very important object and the same should not be
permitted to be defeated by accepting the argument that
permits the signatory/Director to enjoy the fruits of their
own wrong.”
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 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.
602 [2025] 4 S.C.R.
Digital Supreme Court Reports
19. For the foregoing discussion, the prayer of the appellants / petitioners
to stay the prosecution under Section 138 of the N.I. Act, 1881,
relying on the interim moratorium under Section 96 IBC, cannot
be entertained. Therefore, the judgments / orders passed by the
different High Courts affirming the orders of the trial court, which
had rightly refused to stay the section 138 proceedings, need not
be interfered with by us.
20. In fine, all the criminal appeals and writ petition are dismissed.
21. Pending application(s), if any, shall stand closed.
Result of the case: Criminal appeals and writ petitions dismissed.
†
Headnotes prepared by: Nidhi Jain
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