Whether proceedings under Ss. 138 and 141 of NI Act can be initiated against corporate debtor during moratorium period? Madras HC answers

Madras High Court: N. Sathish Kumar, J., while addressing a matter with regard to the dishonour of cheques under Section 138 of Negotiable Instruments Act, 1881, held that the moratorium provision contained in Section 14 of the Insolvency and Bankruptcy Code, would apply only to corporate debtor, but the natural persons mentioned in Section 141 of Negotiable Instruments Act continue to be statutorily liable under Chapter XVII of the Negotiable Instrument Act.

Petitioner’s case was that the petitioner was arrayed as one of the accused in cases pending before the lower courts for the offences under Section 138, 141 and 142 of the Negotiable Instruments Act, 1881.

As per the request of the petitioners ‘company, the complainant company agreed to supply the “Wet Blue Cow Hides” and supplied the same. During the course of business, the accused Company was due and payable to the respondent Company for the supply made. For the said purpose 2nd accused had issued various cheques but the said cheques were dishonoured with an endorsement of “Payment Stopped by the Drawers”. Hence, the respondent had filed the complaints before Judicial Magistrates’ Court.

Petitioners alleged that no legal notice was served by the respondent, hence the complaint under Section 138 NI Act was legally unsustainable and in view of the same while challenging the said complaint present petition was filed.

Analysis, Law and Decision

High Court reiterated a settled position of law that, the criminal liability of natural persons in case of a complaint filed under Sections 138 and 141 of the Negotiable Instruments Act, 1881 would survive, but would not be attracted against the company.

Bench noted that in the present case, the insolvency process was initiated by NCLT, and a moratorium had been declared under the Insolvency and Bankruptcy Code.

Therefore, referred to the Supreme Court decision in P. Mohanraj v. Shah Brothers Ispat (P) Ltd., (2021) 6 SCC 258, wherein it was held that the moratorium provision contained in Section 14 of the Insolvency Bankruptcy Code, would apply only to corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instrument Act,

High Court expressed that, the moratorium was only in respect of the corporate debtor and not in respect of the directors/management and therefore the petitioners 2 and 3 as natural persons were liable for prosecution. However, in view of the declaration of moratorium by NCLT, the prosecution against the company cannot be allowed to continue.

In view of the above, Court quashed the proceedings in respect of 1st petitioner and with regard to petitioners 2 and 3, Court opined that the issue was triable and required an appreciation of evidence and this Court cannot decide the same in exercise of its jurisdiction under Section 482 of CrPC.

High Court directed the petitioners and respondent to co-operate with the trial court for the early completion of trial.[Nag Leathers (P) Ltd. v. Muzain Hides, 2022 SCC OnLine Mad 205, decided on 3-1-2022]


Advocates before the Court:

For Petitioner in all Crl.O.P.s :  Mr T.P. Prabakaran

For Respondent in all Crl.O.P.s : Mr M. Guruprasad

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