Madhya Pradesh High Court: In an application under Section 482 of CrPC seeking to quash Additional Session Judge’s order which imposed a condition on applicant to deposit Rs.13,73,890/- for suspension of the execution of sentence (including the order to pay compensation), a single-judge bench of G.S. Ahluwalia, J., affirmed the condition imposed by the Appellate Court for the applicant to deposit Rs.13,73,890/- as a condition for suspension of sentence and held that the applicant’s liability under Section 138 of the NI Act remained despite the initiation of insolvency proceedings by the borrower company.
In the instant matter, the applicant was a guarantor for M/s Shree Geeta Textiles Private Limited, which defaulted on borrowed debts. The borrower, initiated insolvency proceedings under Section 96 of the Insolvency and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal (NCLT), Indore Bench. An interim moratorium under Section 96 of the IBC began from 14-10-2022, which was effective at the time of the applicant’s conviction and continued during the appeal.
The applicant was convicted by the Magistrate under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) and was sentenced to 6 months of imprisonment with a compensation amount of Rs.68,69,457.24/-. Aggrieved by the impugned order dated 13-03-2024 and sentence, the applicant filed an appeal along with an application under Section 389 of CrPC seeking suspension of execution of sentence. The Additional Session Judge, vide order dated 16-04-2024, imposed a condition to deposit Rs.13,73,890/- for suspension of the sentence, citing the effect of interim moratorium under Section 96 of the IBC, as imposed by the NCLT.
The applicant contended that the imposition of the deposit condition is contrary to Section 96 IBC, which provides for a moratorium on recovery of debts during insolvency proceedings. The applicant cited precedents to support the contention that criminal proceedings under Section 138 of the NI Act should be stayed during such moratorium. However, the respondents opposed the application and contended that the nature of proceedings under Section 138 of the NI Act is penal and distinct from civil debt recovery proceedings under the IBC. It was argued that the applicant’s personal liability cannot be absolved merely because the borrower company is undergoing insolvency proceedings.
The Court referred to Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corpn. of India Ltd., (2023) 10 SCC 545 and emphasised that criminal proceedings under Section 138 of the NI Act are not affected by the moratorium provisions of the IBC. The Court held that the proceedings under Section 138 of the NI Act are penal in nature and not affected by the interim moratorium under the IBC. The Court held that the initiation of insolvency proceedings by the borrower company did not absolve the applicant of his liability under Section 138 of the NI Act. The Court opined that the conviction and the condition to deposit Rs.13,73,890/- for suspension of the sentence are valid.
“Merely because of initiation of proceedings under the Code, 2016 the signatory of the cheque cannot escape from his liability, it is held that conviction recorded by Trial Court was not bad on account of initiation of proceedings under the Code, 2016.”
The Court dismissed the application under Section 482 of CrPC was and affirmed the Appellate Court’s order requiring the deposit of Rs.13,73,890/- as a condition for suspension of the sentence.
[Anurodh Mittal v. Rehat Trading Co., MCRC No.17782/2024, order dated 21-05-2024]
Advocates who appeared in this case :
Shri Akshat Agrawal and Shri Himanshu Agrawal, Counsel for the Applicant
Shri Dilip Parihar, Counsel for the Respondent No. 2/State
Buy Code of Criminal Procedure, 1973 HERE
