{"id":287094,"date":"2023-03-17T10:00:29","date_gmt":"2023-03-17T04:30:29","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=287094"},"modified":"2023-03-30T09:20:47","modified_gmt":"2023-03-30T03:50:47","slug":"initiation-ibc-proceedings-does-not-absolve-company-director-signatories-of-criminal-liability-under-section-138-negotiable-instruments-act-supreme-court-legal-research-news-updates","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2023\/03\/17\/initiation-ibc-proceedings-does-not-absolve-company-director-signatories-of-criminal-liability-under-section-138-negotiable-instruments-act-supreme-court-legal-research-news-updates\/","title":{"rendered":"Initiation of IBC proceedings does not absolve Company Directors\/Signatories of criminal liability under Section 138 NI Act: SC"},"content":{"rendered":"<p><script type=\"text\/javascript\">\n\tdocument.title = 'Liquidation of company and 138 of NI Act can run together: SC| SCC Blog'\n\tdocument.querySelector('meta[name=\"description\"]').setAttribute(\"content\", \"Supreme Court has held that initiation of insolvency proceedings under IBC does not absolve from criminal liability under Section 138 NI Act\");\n<\/script><\/p>\n<div style=\"text-align: justify; line-height: 150%;\">\n<p style=\"margin-bottom: 3%;\"><b>Supreme Court:<\/b> In the case where the 3-judge bench of <b>Sanjay Kishan Kaul<\/b>*, Abhay S. Oka and <b>JB Pardiwala<\/b>**, JJ was called upon to decide whether during the pendency of the proceedings under the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002802178\">Insolvency and Bankruptcy Code, 2016<\/a> which have been admitted, the proceedings under the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002726957\">Negotiable Instruments Act, 1881<\/a> can continue simultaneously or not, it has been held <i>the scope of nature of proceedings under the two Acts are quite different and would not intercede each other.<\/i><\/p>\n<p style=\"margin-bottom: 3%;\">In the case at hand, the Appellant 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. When the company defaulted in payment of the amount, the Appellant was charged for the same.<\/p>\n<p style=\"margin-bottom: 3%;\">It was argued before the Court that the trigger of Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001544366\">138<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002726957\">NI Act<\/a>, is the non-payment of legally enforceable debt and that once the debt is itself extinguished, either under Section 31 or in process from Sections <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001549771\">38<\/a> to <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001549775\">41<\/a> and <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001549789\">54<\/a> of <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002802178\">IBC<\/a>, the basis of Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001544366\">138<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002726957\">NI Act<\/a> disappears.<\/p>\n<p style=\"\"><b><i>Kaul, J,<\/i><\/b> writing for himself and <i>Oka, J<\/i>, rejected the contention and observed that the process under the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002802178\">IBC<\/a> whether under Section 31 or Sections 38 to 41 which can extinguish the debt would not <i>ipso facto<\/i> apply to the extinguishment of the criminal proceedings. No doubt in terms of the Scheme under the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002802178\">IBC<\/a> there are sacrifices to be made by parties to settle the debts, the company being liquidated or revitalized. However, the plea that if proceedings against the company come to an end then the Appellant as the Managing Director cannot be proceeded against, cannot be accepted.<\/p>\n<p style=\"margin-left: 36pt; margin-bottom: 3%;\"><b>&#8220;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 a queue to recover debt would absolve the consequences under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001544366\">138<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002726957\">N.I. Act<\/a>, is unacceptable.&#8221;<\/b><\/p>\n<p style=\"margin-bottom: 3%;\">Writing a separate but concurring opinion, <span style=\"font-weight: bold; font-style: italic;\">Pardiwala, J<\/span> added that where the proceedings under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001544366\">138<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002726957\">NI Act<\/a> had already commenced with the Magistrate taking cognizance upon the complaint and during the pendency, the company gets dissolved, the signatories\/directors cannot escape from their penal liability under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001544366\">138<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002726957\">NI Act<\/a> by citing its dissolution. What is dissolved, is only the company, not the personal penal liability of the accused covered under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001544370\">141<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002726957\">NI Act<\/a>.<\/p>\n<p style=\"\">He observed,<\/p>\n<p style=\"margin-left: 36pt; margin-bottom: 3%;\"><b>&#8220;What follows from the aforesaid is that for difficulty in prosecuting the corporate debtor under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001544366\">138<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002726957\">NI Act<\/a> after the approval of the resolution plan under the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002802178\">IBC<\/a>, 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?&#8221;<\/b><\/p>\n<p style=\"\">He, hence, concluded:<\/p>\n<p style=\"margin-left: 36pt; text-indent: -18pt;\">(a) After passing of the resolution plan under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001549764\">31<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002802178\">IBC<\/a> by the adjudicating authority &amp; in the light of the provisions of Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-9000433089\">32-A<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002802178\">IBC<\/a>, the criminal proceedings under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001544366\">138<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002726957\">NI Act<\/a> will stand terminated only in relation to the corporate debtor if the same is taken over by a new management.<\/p>\n<p style=\"margin-left: 36pt; text-indent: -18pt; margin-bottom: 3%;\">(b) Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001544366\">138<\/a> <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002726957\">NI Act<\/a> proceedings in relation to the signatories\/directors who are liable\/covered by the two provisos to Section 32A(1) will continue in accordance with law.<\/p>\n<p style=\"margin-bottom: 3%;\">[<span style=\"font-weight: bold; color: #632423;\">Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation India Ltd, <a href=\"http:\/\/www.scconline.com\/DocumentLink\/UEKp6e7q\">2023 SCC OnLine SC 266<\/a>, decided on 15.03.2023<\/span>]<\/p>\n<p style=\"text-indent: 18pt;\"><strong><span style=\"color: #000080;\">*Judgment authored by Justice Sanjay Kishan Kaul.<\/span><\/strong><\/p>\n<blockquote class=\"wp-embedded-content\" data-secret=\"2XpQ8NzH2v\"><p><a href=\"https:\/\/www.scconline.com\/blog\/post\/2022\/12\/26\/justice-sanjay-kishan-kaul-a-torch-bearer-of-freedom-of-speech-and-expression\/\">Justice Sanjay Kishan Kaul \u2014 A torch bearer of Freedom of Speech and Expression<\/a><\/p><\/blockquote>\n<p><iframe loading=\"lazy\" class=\"wp-embedded-content\" sandbox=\"allow-scripts\" security=\"restricted\" style=\"position: absolute; clip: rect(1px, 1px, 1px, 1px);\" title=\"&#8220;Justice Sanjay Kishan Kaul \u2014 A torch bearer of Freedom of Speech and Expression&#8221; &#8212; SCC Blog\" src=\"https:\/\/www.scconline.com\/blog\/post\/2022\/12\/26\/justice-sanjay-kishan-kaul-a-torch-bearer-of-freedom-of-speech-and-expression\/embed\/#?secret=7daS3pxI9J#?secret=2XpQ8NzH2v\" data-secret=\"2XpQ8NzH2v\" width=\"600\" height=\"338\" frameborder=\"0\" marginwidth=\"0\" marginheight=\"0\" scrolling=\"no\"><\/iframe><\/p>\n<p style=\"text-indent: 18pt;\"><strong><span style=\"color: #000080;\">**Concurring Opinion by Justice JB Pardiwala.<\/span><\/strong><\/p>\n<blockquote class=\"wp-embedded-content\" data-secret=\"dVnUY9Dm96\"><p><a href=\"https:\/\/www.scconline.com\/blog\/post\/2022\/08\/12\/know-thy-judge-justice-j-b-pardiwala\/\">Know Thy Judge| Justice J B Pardiwala<\/a><\/p><\/blockquote>\n<p><iframe loading=\"lazy\" class=\"wp-embedded-content\" sandbox=\"allow-scripts\" security=\"restricted\" style=\"position: absolute; clip: rect(1px, 1px, 1px, 1px);\" title=\"&#8220;Know Thy Judge| Justice J B Pardiwala&#8221; &#8212; SCC Blog\" src=\"https:\/\/www.scconline.com\/blog\/post\/2022\/08\/12\/know-thy-judge-justice-j-b-pardiwala\/embed\/#?secret=ir1YmupY4n#?secret=dVnUY9Dm96\" data-secret=\"dVnUY9Dm96\" width=\"600\" height=\"338\" frameborder=\"0\" marginwidth=\"0\" marginheight=\"0\" scrolling=\"no\"><\/iframe><\/p>\n<hr\/>\n<p>Advocates who appeared in this case :<\/p>\n<p style=\"margin-left: 18pt;\">For Appellant: Advocates Nikhil Goel, Naveen Goel, Kartik Kaushal, Aditya Koshy Roy;<\/p>\n<p style=\"margin-left: 18pt;\">For Respondent(s): Advocates Rajiv Ranjan Dwivedi, Ved Parkash, Vishal, Manoj Kumar Jha, Ashish Singh, Kapil Chaturvedi.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p><i>The Supreme Court observed that the scope of nature of proceedings under the two Acts are quite different and would not intercede each other.<\/i><\/p>\n","protected":false},"author":121,"featured_media":288182,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,9],"tags":[56012,30361,22064,47247,55020,44633,56011,30606,37265,5363],"class_list":["post-287094","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-supremecourt","tag-dissolution-of-company","tag-ibc","tag-insolvency-and-bankruptcy-code","tag-justice-abhay-s-oka","tag-justice-jb-pardiwala","tag-justice-sanjay-kishan-kaul","tag-liability-of-company-director","tag-ni-act","tag-section-138-of-ni-act","tag-supreme-court"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.4 (Yoast SEO v26.4) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Initiation of IBC proceedings does not absolve Company Directors\/Signatories of criminal liability under Section 138 NI Act: SC | SCC Times<\/title>\n<meta name=\"description\" content=\"In the case where the 3-judge bench of Sanjay Kishan Kaul*, Abhay S. 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