On an appeal from an order of the Delhi High Court in a criminal revision petition regarding the rejection of the application for discharge of the complaint case by the Metropolitan Magistrate, the Supreme Court ruled that post the approval of the resolution plan by the adjudicating authority, the criminal proceedings under Section 138 of The Negotiable Instruments Act, 1881 (NI Act) would vitiate only against the corporate debtor and not the director/signatory.
The director of a company incorporated under The Companies Act, 2013 had obtained a loan from a public finance institution to meet its corporate needs. To repay the loan, the company issued a cheque to the creditor, which was dishonored by the bank upon presentation. Subsequently, a criminal complaint was lodged under sections 138 r/w 141 & 142 of the NI Act.
During the pendency of the said complaint case an operational creditor of the company filed an application under section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC). Pursuant to the admission of the said application the present creditor also filed its claim qua the debt which was subject of the NI Act proceedings.
Subsequently, the debtor Company also filed an application before the Metropolitan Magistrate for the discharge of the complaint case which was rejected and was later affirmed by the Hon’ble Delhi High Court in a Criminal Revision Petition against the order of the Metropolitan Magistrate.
In an appeal from the order of the High Court, the issue before the Supreme Court was whether during the pendency of the proceeding under the IBC, the proceedings under the NI Act can continue.
The Hon’ble Apex Court, on this issue, opined that the scope and nature of the proceedings under the two Acts is quite different and would not intercede each other. The Court took note that that a bare reading of section 14 of the IBC makes it clear that the nature of proceedings which have to be kept in abeyance does not include criminal proceedings. The Court further stated that the process of IBC under section 31 or 38 to 41 which can extinguish the debt, would not ipso facto extinguish the criminal liability.
The Hon’ble Court further stated that after passing of the resolution plan under section 31 of the IBC, in light of the provisions of section 32-A, the criminal proceedings under section 138 of the NI Act will stand terminated only in relation to the corporate debtor if the same is taken over by a new management, and the same would continue in relation to the signatories/Directors who are covered by the provisos to section 32-A(1) of the IBC.
Hence, the Hon’ble Court while dismissing the appeal held that the Directors or other accused cannot escape from their liability citing the dissolution of the company, as what has dissolved is only the company and not the personal penal liability of the accused covered under section 141 of the NI Act.
Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corpn. of India Ltd
(2023) 10 SCC 545
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