Gujarat High Court
Vasant Jayantilal Modi vs State Of Gujarat on 23 November, 2022
R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/CRIMINAL MISC.APPLICATION NO. 1304 of 2022
With
CRIMINAL MISC.APPLICATION (FOR VACATING INTERIM RELIEF) NO.
1 of 2022
In R/CRIMINAL MISC.APPLICATION NO. 1304 of 2022
With
R/CRIMINAL MISC.APPLICATION NO. 1589 of 2022
With
CRIMINAL MISC.APPLICATION (FOR VACATING INTERIM RELIEF) NO.
1 of 2022
In R/CRIMINAL MISC.APPLICATION NO. 1589 of 2022
With
R/CRIMINAL MISC.APPLICATION NO. 2551 of 2022
With
CRIMINAL MISC.APPLICATION (FOR VACATING INTERIM RELIEF) NO.
1 of 2022
In R/CRIMINAL MISC.APPLICATION NO. 2551 of 2022
With
R/CRIMINAL MISC.APPLICATION NO. 2556 of 2022
With
CRIMINAL MISC.APPLICATION (FOR VACATING INTERIM RELIEF) NO.
1 of 2022
In R/CRIMINAL MISC.APPLICATION NO. 2556 of 2022
With
R/CRIMINAL MISC.APPLICATION NO. 2553 of 2022
With
CRIMINAL MISC.APPLICATION (FOR VACATING INTERIM RELIEF) NO.
1 of 2022
In R/CRIMINAL MISC.APPLICATION NO. 2553 of 2022
With
R/CRIMINAL MISC.APPLICATION NO. 2834 of 2022
With
CRIMINAL MISC.APPLICATION (FOR VACATING INTERIM RELIEF) NO.
1 of 2022
In R/CRIMINAL MISC.APPLICATION NO. 2834 of 2022
With
R/CRIMINAL MISC.APPLICATION NO. 3667 of 2022
With
CRIMINAL MISC.APPLICATION (FOR VACATING INTERIM RELIEF) NO.
1 of 2022
In R/CRIMINAL MISC.APPLICATION NO. 3667 of 2022
Page 1 of 52
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R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
==========================================================
1 Whether Reporters of Local Papers may be allowed to
see the judgment ? Yes
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy of
the judgment ? No
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of No
India or any order made thereunder ?
5 CIRCULATE TO ALL THE SUBORDINATE COURTS OF Yes
THE STATE OF GUJARAT
==========================================================
VASANT JAYANTILAL MODI
Versus
STATE OF GUJARAT
==========================================================
Appearance:
IN CRIMINAL MISCELLANEOUS APPLICATION NO.1304 OF 2022:
MR PRABHAKAR UPADYAY(1060) for the Applicant(s) No. 1,2,3
MR VIRAT G POPAT(3710) for the Respondent(s) No. 2
NOTICE SERVED for the Respondent(s) No. 3
MS MOXA THAKKAR APP for the Respondent(s) No. 1
IN CRIMINAL MISCELLANEOUS APPLICATIONS NOS.1589 OF 2022,
2551 OF 2022, 2556 OF 2022, 2553 OF 2022, 2834 OF 2022 AND 3667 OF
2022:
MR CHINTAN N DESAI (9940) for the Applicant(s) No.1,2
MR PARTHIV B SHAH (2678) for the Respondent(s) No.2
MS MOXA THAKKAR, APP for the Respondent(s) No.1
==========================================================
CORAM:HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 23/11/2022
COMMON ORAL JUDGMENT
[1] With the consent of learned advocates appearing on behalf of the Page 2 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 respective parties, all these matters are taken up for final hearing.
Since a common question of law has been raised in all the captioned applications, those were heard analogously and are being disposed of by this common judgement and order.
For the sake of convenience, Criminal Miscellaneous Application No.1304 of 2022 is treated as the lead matter.
[2] By way of this Criminal Miscellaneous Application under Section 482 of the Code of Criminal Procedure, 1973 (for short, "the Cr.P.C."), the applicants - original accused Nos.2 to 4 seek to quash the proceedings of Criminal Case No.92429 of 2019 pending before the learned Metropolitan Magistrate (Special N.I. Act), Court No.34, Ahmedabad under Section 138 of the Negotiable Instruments Act (for short, "the Act") instituted by the respondent No.2 herein.
[3] The brief facts, which are not much in dispute, can be stated as under:
[3.1] The present applicants were the Directors of respondent No.3 herein - M/s. Perfect Boring Private Limited, a company incorporated under the provisions of the Companies Act, 1956 and subjected to proceedings under the provisions of the Insolvency and Bankruptcy Page 3 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 Code, 2016 (for short, "the I.B.C."), in respect of which, now Resolution Plan has also been approved by the adjudicating authority under Section 31 of the I.B.C., 2016. The said company was engaged in the business of manufacturing of Rollers, Road Construction Rollers, Fabricator Frames and Services Provider of Machinery Job Works Services, Injection Molding Machinery Parts Job Work Services.
[3.2] The respondent No.2 herein - original complainant is a company namely M/s. Devsariya Iron & Steel Company Private Limited incorporated under the provisions of the Companies Act and is engaged, inter alia, in the business of Iron Plates.
[3.3] It appears from the available records that there was a business transaction between both the companies and in all, Iron Plates worth Rs.6,54,05,000/- were sold and delivered by the respondent No.2 herein to the respondent No.3 herein. As against that, respondent No.3 herein paid a sum of Rs.4,82,38,856/- to the respondent No.2 and remaining amount of Rs.2,90,38,856/- was due and payable by the respondent No.3 to the respondent No.2, therefore, various cheques were issued by the respondent No.3 herein - company in favour of the respondent No.2 as under:
Cheque No. Name of Bank Amount (Rs.) Page 4 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 121795 Axis Bank 25,00,000/- 121796 Axis Bank 25,00,000/- 121797 Axis Bank 25,00,000/- 121798 Axis Bank 25,00,000/- 121799 Axis Bank 25,00,000/- 121801 Axis Bank 25,00,000/- 121802 Axis Bank 25,00,000/- 121803 Axis Bank 25,00,000/- 121806 Axis Bank 14,00,353/- 121842 Axis Bank 53,38,502/-
[3.4] The aforesaid cheques were deposited by the respondent No.2 herein - company on 31st July 2019 as per the direction of the respondent No.3 herein, however, those cheques were dishonoured with an endorsement "account closed" and an intimation thereof was given to the respondent No.2 - company on 1 st August 2019. A statutory notice was issued on 4th August 2019 by the respondent No.2 - company. Upon receipt of the said notice, reply came to be given stating, inter alia, that those cheques were given for security purpose and the same could not have been deposited.
[3.5] Thereafter, on 11th September 2019, the impugned Criminal Case No.92429 of 2019 came to be instituted by the respondent No.2 -
company in the Court of the learned Metropolitan Magistrate (Special N.I. Act), Court No.34, Ahmedabad against the respondent No.3 - a company and against the present applicants being the Directors of the Page 5 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 said company.
[4] The learned Additional Chief Metropolitan Magistrate (Special N.I. Act), Court No.34, Ahmedabad, vide its order dated 11 th October 2019, issued process under the provisions of Section 204 of the Cr.P.C. against the present applicants and the respondent No.3 herein.
[5] It also appears that respondent No.2 herein - complainant filed an application Exhibit : 10 seeking, inter alia, an interim compensation, as envisaged, under the provisions of Section 143A of the Act, which came to be partly allowed by the learned Additional Chief Metropolitan Magistrate (Special N.I. Act), Court No.34, Ahmedabad, vide its order dated 27th October 2021, by directing the applicants herein - original accused Nos.2 to 4 to pay 20% amount of cheque to the respondent No.2
- original complainant within a period of 60 days by way of interim compensation.
[6] It is also pertinent to note that in the interregnum period, respondent No.2 herein has initiated insolvency proceedings against respondent No.3 herein by making an application under Section 9 of the I.B.C. before the National Company Law Tribunal, Ahmedabad Bench (for short, "the NCLT"). The learned NCLT, Ahmedabad was pleased to pass an order dated 30th September 2019 in C.P. No.(IB) 148 of 2019, Page 6 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 whereby, the petition filed by the respondent No.2 was considered and one Mr. Manishkumar Bhagat was appointed as an Interim Resolution Professional.
[7] It appears that thereafter, under Section 30 of the I.B.C , the Resolution Plan was prepared and placed it before the adjudicating authority and in turn, the adjudicating authority, by exercising its power under Section 31 of the I.B.C, approved the said plan. The learned N.C.L.T., Ahmedabad, thereafter, was pleased to pass an order dated 16 th March 2021, wherein the Resolution Plan submitted by the N.A. ROTO Machines & Moulds India was approved.
[8] Being aggrieved and dissatisfied with the criminal case under Section 138 of the Act and in view of the aforesaid subsequent development with regard to proceedings under the I.B.C., the applicants, being ex-Directors of the respondent No.3 - company, has approached this Court by way of the present Criminal Miscellaneous Application invoking the provisions of Section 482 of the Cr.P.C. for quashing and setting aside the criminal case.
[9] I have heard Mr. Prabhakar Upadhyay, learned advocate for the applicants and Mr. Virat Popat, learned advocate for the respondent No.2 and Ms. Moxa Thakkar, learned A.P.P. for the respondent No.1 -
Page 7 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 State of Gujarat.
[10] Before recording submissions of the learned advocate for the respective parties, it is relevant to take a notice of a judicial order passed by the Coordinate Bench of this Court while issuing notice dated 3 rd February 2022. It reads thus:
"Heard learned advocate Mr. Upadyay for the applicants. Learned advocate for the applicants submitted that the impugned complaint under Section 138 of the Negotiable Instruments Act has been filed by the respondent No.2 against the present applicants, who are the Directors of original accused No.1 company. Learned advocate has referred the order dated 16.03.2021 passed by NCLT, Ahmedabad Bench, copy of which is placed on record at page 86 of the compilation.
Learned advocate has referred para 14 of the said order. Learned advocate, thereafter, has placed reliance upon the decision rendered by the Hon'ble Supreme Court in the case of Ghanshyam Mishra & Sons Private Limited through the Authorized Signatory v. Edelweiss Asset Reconstruction Company Ltd. Through the Director, reported in 2021 (5) Scale 653 and, more particularly, relied upon the observations made by the Hon'ble Supreme Court in para 95 of the said decision.
At this stage, it is further submitted that respondent No.2 - original complainant filed an application under Section 143A of the Negotiable Instruments Act before the concerned Magistrate Court and prayed that Page 8 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 interim compensation be granted to him. Learned advocate has submitted that by impugned order dated 27.10.2021, the concerned Trial Court has, after considering the Resolution Plan, which was approved by the competent authority, specifically recorded the finding that no order can be passed against the accused No.1 company under Section 138 read with Section 141 of the Negotiable Instruments Act.
However, thereafter, the Trial Court has directed the present applicants
- Directors of accused No.1 company to pay 20% of the amount of the cheque by way of interim compensation to the complainant. It is submitted that the present applicants are not liable to pay interim compensation in view of the aforesaid decision rendered by the Hon'ble Supreme Court as well as the order passed by the NCLT.
Issue involved in the present application requires consideration. Hence, issue notice to the respondents returnable on 23.06.2022. Learned APP waives service of notice for the respondent - State. Till the next date of hearing, ad-interim relief in terms of para 12(C)."
[11] Mr. Prabhakar Upadhyay, learned advocate for the applicants submitted that the present applicants are the ex-Directors of the respondent No.3 herein - company, however, at the relevant point of time, when the impugned cheques came to be issued, present applicants were the Directors. He further submitted that the Resolution Plan, once having been approved by the adjudicating authority, the "Corporate Page 9 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 Debtor" i.e. respondent No.3 herein is protected against all the legal proceedings including the Negotiable Instruments Act. He, therefore, submitted that once the respondent No.3 herein, a "Corporate Debtor", is protected against the legal proceedings, the present applicants - ex-
Directors, cannot be prosecuted under the provisions of Section 138 of the Act independently. Mr. Upadhyay submitted that it is the company, having legal entity, is primarily responsible for the offence punishable under Section 138 of the Act and thereby, in absence of the company, the Directors cannot be held vicariously liable.
[12] Mr. Upadhyay vehemently relied upon clause (vi) of the duly approved Resolution Plan. For the sake of brevity, it can be extracted as under:
"PART J : EXTINGUISHMENT OF CLAIMS / RIGHT:
vi. On the Effective Date, all the outstanding negotiable instruments issued by Director / promoter / officers or Corporate Debtor or by any person on behalf of the Corporate Debtor for any dues of Corporate Debtor including demand promissory notes post-dated cheque and letters of credit, shall stand terminated and the Corporate Debtor's liability under such instruments shall stand extinguished in perpetuity.
Note : Above clause give immunity to corporate debtor and resolution applicant, not to its suspended directors and promoters. The right against suspended directors and promoters shall be protected."Page 10 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022
R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 Referring the aforesaid clause of the Resolution Plan, Mr. Upadhyay, the learned advocate for the applicants submitted that on the effective date, all the outstanding negotiable instruments such as demand promissory notes, postdated cheque and letters of credit issued by the Director / Promoter / officers or Corporate Debtor shall stand terminated and the Corporate Debtor's liability under such instruments shall stand extinguished in perpetuity. Thus, according to Mr. Upadhyay, the impugned criminal case under the provisions of Section 138 of the Act, cannot be prosecuted further against the respondent No.3 herein -
Corporate Debtor and thus, the applicants herein, being erstwhile Directors, cannot be prosecuted in absence of the principal accused -
respondent No.3 herein - Corporate Debtor.
[13] To substantiate the aforesaid submissions, Mr. Upadhyay, the learned advocate for the applicants has heavily placed reliance on the decision of the Hon'ble Supreme Court in the case of Ghanshyam Mishra and Sons Private Limited vs. Edelweiss Asset Reconstruction Company Limited reported in (2021) 9 SCC 657, more particularly, para 95. It reads thus:
"95. In the result, we answer the questions framed by us as under:Page 11 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022
R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022
(i) That once a resolution plan is duly approved by the Adjudicating Authority under sub section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan;
(ii) 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect;
(iii) Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued."
[14] Relying upon the aforesaid judgement, it was contended by the learned advocate for the applicants that in view of the provisions of Section 31 of the I.B.C., once the adjudicating authority approves the Resolution Plan, the debt of the "Corporate Debtor" is extinguished, therefore, there is no enforceable debt exists and thus, in absence of any Page 12 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 enforceable legal dues, the proceedings under the provisions of Section 138 of the Act cannot be maintainable. Accordingly, Mr. Upadhyay requested this Court to quash and set aside the criminal case against the present applicants.
[15] Mr. Upadhyay further submitted that at the time of approval of the Resolution Plan, the learned N.C.L.T., vide its order dated 16 th March 2021, paid an amount of Rs.8,89,729/- to the respondent No.2 herein against the entire claim by the respondent No.3 herein - company and the same has been accepted by the respondent No.2 - company. He further submitted that in view of the aforesaid, the claim of the respondent No.2 herein is extinguished against the present applicants as well, and therefore, the proceedings initiated by the respondent No.2 herein against the applicants would not be sustainable in the eyes of law.
Mr. Upadhyay further submitted that at the relevant point of time, those cheques were issued by the respondent No.3 herein and not by the present applicants in their personal capacity, and therefore, once the respondent No.3 absolved from its liability, the present applicants cannot be held liable in their individual capacity. In such circumstances, Mr. Upadhyay, learned advocate for the applicants prayed this Court to quash and set aside the criminal case.
Page 13 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 [16] By making the above submissions, Mr. Upadhyay, learned advocate for the applicants has prayed this Court to allow the present Criminal Miscellaneous Application in terms of prayers made hereinabove. Mr. Chintan Desai, learned advocate, has adopted the submission s of Mr. Upadhyay.
[17] Per contra, Mr. Virat Popat, learned advocate for the respondent No.2 herein - company has vehemently opposed the present application contending, inter alia that the interpretation sought to be canvassed by the learned advocate for the applicants is misconceived and not tenable in the eyes of law. Mr. Popat submitted that the law declared by the Hon'ble Supreme Court in the case of P. Mohanraj vs. Shah Brothers Ispat Pvt Ltd reported in (2021) 6 SCC 258 has fairly covered the entire issue on hand.
[18] Mr. Virat Popat has submitted that the sole contention and reliance placed on Ghanshyam Mishra & Sons Private Limited (supra) by the learned advocate for the applicant is nothing, but a misconception of law. Mr. Popat further submitted that the said decision has no connection whatsoever with regard to maintainability of the proceedings under Section 138 of the Act. According to Mr. Popat, the said decision covers claims, tax and other debts of the company within its ambit and Page 14 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 not an offence of Section 138 of the Act qua the natural persons i.e. Directors and others liable under Section 141(2) of the Negotiable Instruments Act.
[19] Mr. Popat, thereafter, submitted that the judgement of the Hon'ble Supreme Court in the case of P. Mohanraj (supra) is applicable in the facts of the present case. Mr. Popat submitted that the Hon'ble Supreme Court, in the said decision P. Mohanraj (supra), in terms stated that natural persons would be statutorily liable for the offence under Section 138 of the Act, therefore, at the best, according to Mr. Popat, an approval of Resolution Plan can extinguish a debt of a company, but not an offence. Therefore, Mr. Popat submitted that natural persons, who were Directors of the company, can never escape from their liability in question.
[20] Mr. Popat next submitted that the very object of Section 138 of the Act is punitive in nature, therefore, the same can only be compounded under Section 320 of the Cr.P.C. and not by implication of Section 31 of the I.B.C., 2016. So as to substantiate his contention, Mr. Popat has relied upon the judgement of the Hon'ble Supreme Court in the case of Jik Industries Ltd. vs. Amarlal V. Jumani reported in (2012) 3 SCC 255, wherein the Hon'ble Supreme Court refused to quash the Page 15 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 criminal cases after approval of scheme under Section 395 of the Companies Act. Mr. Popat, relying upon the Resolution Plan approved under Section 31 of the I.B.C., 2016, submitted that Part J of the Resolution Plan provides for the extinguishment of claims / rights. Mr. Popat further submitted that Clause VI of Part J specifically provides that from the effective date, all the outstanding negotiable instruments issued by Director / Promoter / Officer or Corporate Debtor or by any person on behalf of the Corporate Debtor for for any dues of "Corporate Debtor"
including demand promissory notes post-dated cheque and letters of credit shall stand terminated and the Corporate Debtor's liability under such instruments shall stand extinguished in perpetuity. Relying upon the said clause, Mr. Popat submitted that the said clause gives immunity to the "Corporate Debtor" and the resolution applicant, but not its suspended Directors / Promoters. Mr. Popat further relies upon the clarificatory note inserted in Clause VI. Accordingly, Mr. Popat submitted that once the Resolution Plan is approved as per provisions of the I.B.C., the immunity is given to the "Corporate Debtor" only, which is the legal juristic entity and not to the natural person. In view of the aforesaid, Mr. Popat has urged this Court to dismiss the present petition in the interest of justice.
[21] By making the above submissions, Mr. Popat, learned advocate for Page 16 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 the respondent No.2 prays this Court to dismiss the petition. Mr. Parthiv Shah, the learned advocate, has adopted the submissions of Mr. Popat.
[22] Mr. Upadhyay, learned advocate for the applicants, in rejoinder, sought to distinguish the judgement of the Hon'ble Supreme Court delivered in the case of P. Mohanraj (supra) relied upon by the learned advocate for the respondent on facts contending that the said judgement was delivered in completely different set of facts. According to Mr. Upadhyay, the said judgment is with regard to continuance of criminal proceedings against the natural persons after declaration of moratorium and before the Resolution Plan is approved. Mr. Upadhyay, therefore, submitted that in the present case, the Resolution Plan is approved by the adjudicating authority under Section 31 of the I.B.C., and thereby, the judgement rendered by the Supreme Court in the case of P. Mohanraj (supra) is not applicable in the present set of facts.
Accordingly, Mr. Upadhyay has urged this Court to allow the present application.
[23] I have heard the learned advocates for the respective parties at a great length and have also given thoughtful consideration to the materials produced on record. No other and further submissions have been canvassed by the learned advocates appearing for the respective Page 17 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 parties, except what are stated hereinabove.
[24] Having heard the submissions of the learned advocates for the respective parties and having gone through the materials produced on record, the only question that falls for the consideration of this Court is whether, by operation of the provisions of the I.B.C., more particularly, Section 31 of the I.B.C., the criminal prosecution initiated under Section 138 read with Section 141 of the Act read with Section 200 of the Cr.P.C. can be terminated? In other words, whether once Resolution Plan is approved under Section 31 of the I.B.C., 2016, criminal prosecution under Section 138 read with Section 141 of the Negotiable Instruments Act can be terminated?
[25] So as to decide the aforesaid question of law, it would be apt to refer to few provisions of the Negotiable Instruments Act as well as the provisions of the Insolvency and Bankruptcy Code, 2016.
[26] Section 138 and Section 141 of the Act read thus:
The Negotiable Instruments Act:
"Section 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, Page 18 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 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 provisions 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--
(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, 20 [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 or other liability"
means a legally enforceable debt or other liability."
"Section 141. Offences by companies. --
(1) If the person committing an offence under section 138 is a Page 19 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 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 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."Page 20 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022
R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 [27] Sections 14, 31, 32A of the I.B.C. read thus: The Insolvency and Bankruptcy Code, 2016:
"Section 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 Securitisation 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 Page 21 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 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 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 Page 22 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 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."
"Section 31. Approval of resolution plan.- (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, 1[including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] guarantors and other stakeholders involved in the resolution plan.
Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.
(2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan. (3) After the order of approval under sub-section (1),--
(a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and
(b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and Page 23 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 the resolution plan to the Board to be recorded on its database.
(4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later:
Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors."
"32A. Liability for prior offences, etc.--(1) Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not--
(a) a promoter or in the management or control of the corporate debtor or a related party of such a person; or
(b) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to Page 24 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 the relevant statutory authority or Court:
Provided that if a prosecution had been instituted during the corporate insolvency resolution process against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan subject to requirements of this sub-section having been fulfilled:
Provided further that every person who was a designated partner as defined in clause (j) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or an officer who is in default, as defined in clause (60) of section 2 of the Companies Act, 2013 (18 of 2013), or was in any manner incharge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence as per the report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor's liability has ceased under this sub-section.
(2) No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person, who was not--
(i) a promoter or in the management or control of the corporate Page 25 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 debtor or a related party of such a person; or
(ii) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court.
Explanation.--For the purposes of this sub-section, it is hereby clarified that,--
(i) an action against the property of the corporate debtor in relation to an offence shall include the attachment, seizure, retention or confiscation of such property under such law as may be applicable to the corporate debtor;
(ii) nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfils the requirements specified in this section, against whom such an action may be taken under such law as may be applicable.
(3) Subject to the provisions contained in sub-sections (1) and (2), and notwithstanding the immunity given in this section, the corporate debtor and any person who may be required to provide assistance under such law as may be applicable to such corporate debtor or person, shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process."
[28] At this stage, it would be apt to take note of the language used in Page 26 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 clause of Part J of the Resolution Plan approved under Section 31 of the I.B.C., 2016, which speaks about "extinguishment of claims and rights"
and on which reliance has been placed by learned advocate for the petitioner:
"PART J : EXTINGUISHMENT OF CLAIMS / RIGHT:
"i. Save and except specifically dealt with under the instant Resolution Plan, no other payments or settlements (of any kind) shall be made to any other person in respect of claims filed under the CIRP (including, for the avoidance of doubt, any unverified portion of their claims) and all claims against the Corporate Debtor along with any related legal proceedings, including criminal proceedings and other penal proceedings, shall stand irrevocably and unconditionally abated, settled and extinguished in perpetuity without any further and act on the Effective Date.
Note : Above clause gives immunity to corporate debtor and resolution applicant, not to its suspended directors and promoters. The right against suspended directors and promoters shall be protected."
"vi. On the Effective Date, all the outstanding negotiable instruments issued by Director / promoter / officers or Corporate Debtor or by any person on behalf of the Corporate Debtor for any dues of Corporate Debtor including demand promissory notes post-dated cheque and letters of credit, shall stand terminated and the Corporate Debtor's liability under such instruments shall stand extinguished in perpetuity.
Note : Above clause give immunity to corporate debtor and resolution applicant, not to its suspended directors and promoters. The right Page 27 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 against suspended directors and promoters shall be protected."
[29] It would be, at this stage, very useful to refer to and rely upon the exhaustive law declared by the Hon'ble Supreme Court in the case of P. Mohanraj (supra), wherein the Hon'ble Supreme Court has elaborately discussed the two Acts namely the Negotiable Instruments and the Insolvency and Bankruptcy Code, 2016. The extract thereof is thus quoted as under:
"OBJECT OF SECTION 14 OF THE IBC
29. This then brings us to the object sought to be achieved by Section 14 of the IBC. The Report of the Insolvency Law Committee of February, 2020 throws some light on Section 14. Paragraphs 8.2 and 8.11 thereof read as follows:
"8.2. The moratorium under Section 14 is intended to keep the corporate debtor's assets together during the insolvency resolution process and facilitating orderly completion of the processes envisaged during the insolvency resolution process and ensuring that the company may continue as a going concern while the creditors take a view on resolution of default. Keeping the corporate debtor running as a going concern during the CIRP helps in achieving resolution as a going concern as well, which is likely to maximize value for all stakeholders. In other jurisdictions too, a moratorium may be put in place on the advent of formal insolvency proceedings, including liquidation and reorganization proceedings. The UNCITRAL Guide notes that a moratorium is critical during reorganization proceedings since it facilitates the continued operation of the business and allows the debtor a breathing space to organize its affairs, time for preparation and approval of a reorganization plan and for other steps such as shedding unprofitable activities and onerous contracts, where appropriate."
xxx xxx xxx Page 28 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 8.11. Further, the purpose of the moratorium is to keep the assets of the debtor together for successful insolvency resolution, and it does not bar all actions, especially where countervailing public policy concerns are involved. For instance, criminal proceedings are not considered to be barred by the moratorium, since they do not constitute "money claims or recovery"
proceedings. In this regard, the Committee also noted that in some jurisdictions, laws allow regulatory claims, such as those which are not designed to collect money for the estate but to protect vital and urgent public interests, restraining activities causing environmental damage or activities that are detrimental to public health and safety to be continued during the moratorium period."
30. It can be seen that paragraph 8.11 refers to the very judgment under appeal before us, and cannot therefore be said to throw any light on the correct position in law which has only to be finally settled by this Court. However, paragraph 8.2 is important in that the object of a moratorium provision such as Section 14 is to see that there is no depletion of a corporate debtor's assets during the insolvency resolution process so that it can be kept running as a going concern during this time, thus maximising value for all stakeholders. The idea is that it facilitates the continued operation of the business of the corporate debtor to allow it breathing space to organise its affairs so that a new management may ultimately take over and bring the corporate debtor out of financial sickness, thus benefitting all stakeholders, which would include workmen of the corporate debtor. Also, the judgment of this Court in Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17 states the raison d'être for Section 14 in paragraph 28 as follows:
"28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again Page 29 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 protects the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends."
31. It can thus be seen that regard being had to the object sought to be achieved by the IBC in imposing this moratorium, a quasi-criminal proceeding which would result in the assets of the corporate debtor being depleted as a result of having to pay compensation which can amount to twice the amount of the cheque that has bounced would directly impact the corporate insolvency resolution process in the same manner as the institution, continuation, or execution of a decree in such suit in a civil court for the amount of debt or other liability. Judged from the point of view of this objective, it is impossible to discern any difference between the impact of a suit and a Section 138 proceeding, insofar as the corporate debtor is concerned, on its getting the necessary breathing space to get back on its feet during the corporate insolvency resolution process. Given this fact, it is difficult to accept that noscitur a sociis or ejusdem generis should be used to cut down the width of the expression "proceedings" so as to make such proceedings analogous to civil suits.
32. Viewed from another point of view, clause (b) of Section 14(1) also makes it clear that during the moratorium period, any transfer, encumbrance, alienation, or disposal by the corporate debtor of any of its assets or any legal right or beneficial interest therein being also interdicted, yet a liability in the form of compensation payable under Section 138 would somehow escape the dragnet of Section 14(1). While Section 14(1)(a) refers to monetary liabilities of the corporate debtor, Section 14(1)(b) refers to the corporate debtor's assets, and together, these two clauses form a scheme which shields the corporate debtor from pecuniary attacks against it in the moratorium period so that the corporate debtor gets breathing space to continue as a going concern in order to ultimately rehabilitate itself. Any crack in this shield is bound to have adverse consequences, given the object of Section 14, and cannot, by any process of interpretation, be allowed to occur.
SECTION 14 IN RELATION TO OTHER MORATORIUM SECTIONS IN THE IBC
33. Even otherwise, when some of the other provisions as to moratorium are seen in the context of individuals and firms, the provisions of Section 14 become even clearer. Thus, in Part III of the Page 30 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 IBC, which deals with insolvency resolution and bankruptcy for individuals and partnership firms, Section 81, which occurs in Chapter II thereof, entitled "Fresh Start Process", an interim moratorium is imposed thus:
"81. Application for fresh start order.--(1) When an application is filed under Section 80 by a debtor, an interim- moratorium shall commence on the date of filing of said application in relation to all the debts and shall cease to have effect on the date of admission or rejection of such application, as the case may be.
(2) During the interim-moratorium period,--
(i) any legal action or legal proceeding pending in respect of any of his debts shall be deemed to have been stayed; and
(ii) no creditor shall initiate any legal action or proceedings in respect of such debt.
(3) The application under Section 80 shall be in such form and manner and accompanied by such fee, as may be prescribed. (4) The application under sub-section (3) shall contain the following information supported by an affidavit, namely--
(a) a list of all debts owed by the debtor as on the date of the said application along with details relating to the amount of each debt, interest payable thereon and the names of the creditors to whom each debt is owed;
(b) the interest payable on the debts and the rate thereof stipulated in the contract;
(c) a list of security held in respect of any of the debts;
(d) the financial information of the debtor and his immediate family up to two years prior to the date of the application;
(e) the particulars of the debtor's personal details, as may be prescribed;
(f) the reasons for making the application;
(g) the particulars of any legal proceedings which, to the debtor's knowledge has been commenced against him;Page 31 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022
R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022
(h) the confirmation that no previous fresh start order under this Chapter has been made in respect of the qualifying debts of the debtor in the preceding twelve months of the date of the application."
35. When the language of Section 14 and Section 85 are contrasted, it becomes clear that though the language of Section 85 is only in respect of debts, the moratorium contained in Section 14 is not subject specific. The only light thrown on the subject is by the exception provision contained in Section 14(3)(a) which is that "transactions" are the subject matter of Section 14(1). "Transaction" is, as we have seen, a much wider expression than "debt", and subsumes it. Also, the expression "proceedings" used by the legislature in Section 14(1)(a) is not trammelled by the word "legal" as a prefix that is contained in the moratorium provisions qua individuals and firms. Likewise, the provisions of Section 96 and Section 101 are moratorium provisions in Chapter III of Part III dealing with the insolvency resolution process of individuals and firms, the same expression, namely, "debts" is used as is used in Section 85.
35.2 A legal action or proceeding in respect of any debt would, on its plain language, include a Section 138 proceeding. This is for the reason that a Section 138 proceeding would be a legal proceeding "in respect of" a debt. "In respect of" is a phrase which is wide and includes anything done directly or indirectly - see Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd., (2018) 2 SCC 674 (at page 709) and Giriraj Garg v. Coal India Ltd., (2019) 5 SCC 192 (at pages 202-203). This, coupled with the fact that the Section is not limited to 'recovery' of any debt, would indicate that any legal proceeding even indirectly relatable to recovery of any debt would be covered.
35.3 When the language of these Sections is juxtaposed against the language of Section 14, it is clear that the width of Section 14 is even greater, given that Section 14 declares a moratorium prohibiting what is mentioned in clauses (a) to (d) thereof in respect of transactions entered into by the corporate debtor, inclusive of transactions relating to debts, as is contained in Sections 81, 85, 96, and 101. Also, Section 14(1)(d) is conspicuous by its absence in any of these Sections. Thus, where individuals or firms are concerned, the recovery of any property by an owner or lessor, where such property is occupied by or in possession of the individual or firm can be recovered during the moratorium period, unlike the property of a corporate debtor.
36. For all these reasons, therefore, given the object and context of Page 32 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 Section 14, the expression "proceedings" cannot be cut down by any rule of construction and must be given a fair meaning consonant with the object and context. It is conceded before us that criminal proceedings which are not directly related to transactions evidencing debt or liability of the corporate debtor would be outside the scope of this expression.
THE INTERPLAY BETWEEN SECTION 14 AND SECTION 32-A OF THE IBC
38. Shri Mehta, however, strongly relied upon Section 32A(1) of the IBC, which was introduced by the Insolvency and Bankruptcy Code (Amendment) Act, 2020, to argue that the first proviso to Section 32A(1) would make it clear that "prosecutions" that had been instituted during the corporate insolvency resolution process against a corporate debtor will result in a discharge of the corporate debtor from the prosecution, subject to the other requirements of sub-section (1) having been fulfilled. According to him, therefore, a prosecution of the corporate debtor under Section 138/141 of the Negotiable Instruments Act can be instituted during the corporate insolvency resolution process, making it clear that such prosecutions are, therefore, outside the ken of the moratorium provisions contained in Section 14 of the IBC. Section 32A(1) of the IBC reads as follows:
"32A. Liability for prior offences, etc.--(1) Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under Section 31, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not--
(a) a promoter or in the management or control of the corporate debtor or a related party of such a person; or
(b) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court:
Provided that if a prosecution had been instituted during the Page 33 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 corporate insolvency resolution process against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan subject to requirements of this sub-section having been fulfilled:
Provided further that every person who was a "designated partner" as defined in clause (j) of Section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or an "officer who is in default", as defined in clause (60) of Section 2 of the Companies Act, 2013 (18 of 2013), or was in any manner incharge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence as per the report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor's liability has ceased under this sub-section."
39. The raison d'être for the enactment of Section 32A has been stated by the Report of the Insolvency Law Committee of February, 2020, which is as follows:
"17. LIABILITY OF CORPORATE DEBTOR FOR OFFENCES COMMITTED PRIOR TO INITIATION OF CIRP 17.1. Section 17 of the Code provides that on commencement of the CIRP, the powers of management of the corporate debtor vest with the interim resolution professional. Further, the powers of the Board of Directors or partners of the corporate debtor stand suspended, and are to be exercised by the interim resolution professional. Thereafter, Section 29A, read with Section 35(1)(f), places restrictions on related parties of the corporate debtor from proposing a resolution plan and purchasing the property of the corporate debtor in the CIRP and liquidation process, respectively. Thus, in most cases, the provisions of the Code effectuate a change in control of the corporate debtor that results in a clean break of the corporate debtor from its erstwhile management. However, the legal form of the corporate debtor continues in the CIRP, and may be preserved in the resolution plan. Additionally, while the property of the corporate debtor may also change hands upon resolution or liquidation, such property also continues to exist, either as property of the corporate debtor, or in the hands of the purchaser.Page 34 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022
R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 17.2. However, even after commencement of CIRP or after its successful resolution or liquidation, the corporate debtor, along with its property, would be susceptible to investigations or proceedings related to criminal offences committed by it prior to the commencement of a CIRP, leading to the imposition of certain liabilities and restrictions on the corporate debtor and its properties even after they were lawfully acquired by a resolution applicant or a successful bidder, respectively.
Liability where a Resolution Plan has been Approved 17.3. It was brought to the Committee that this had created apprehension amongst potential resolution applicants, who did not want to take on the liability for any offences committed prior to commencement of CIRP. In one case, JSW Steel had specifically sought certain reliefs and concessions, within an annexure to the resolution plan it had submitted for approval of the Adjudicating Authority. Without relief from imposition of the such liability, the Committee noted that in the long run, potential resolution applicants could be disincentivised from proposing a resolution plan. The Committee was also concerned that resolution plans could be priced lower on an average, even where the corporate debtor did not commit any offence and was not subject to investigation, due to adverse selection by resolution applicants who might be apprehensive that they might be held liable for offences that they have not been able to detect due to information asymmetry. Thus, the threat of liability falling on bona fide persons who acquire the legal entity, could substantially lower the chances of its successful takeover by potential resolution applicants.
17.4. This could have substantially hampered the Code's goal of value maximisation, and lowered recoveries to creditors, including financial institutions who take recourse to the Code for resolution of the NPAs on their balance sheet. At the same time, the Committee was also conscious that authorities are duty bound to penalise the commission of any offence, especially in cases involving substantial public interest. Thus, two competing concerns need to be balanced.
xxx xxx xxx 17.6. Given this, the Committee felt that a distinction must be Page 35 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 drawn between the corporate debtor which may have committed offences under the control of its previous management, prior to the CIRP, and the corporate debtor that is resolved, and taken over by an unconnected resolution applicant. While the corporate debtor's actions prior to the commencement of the CIRP must be investigated and penalised, the liability must be affixed only upon those who were responsible for the corporate debtor's actions in this period. However, the new management of the corporate debtor, which has nothing to do with such past offences, should not be penalised for the actions of the erstwhile management of the corporate debtor, unless they themselves were involved in the commission of the offence, or were related parties, promoters or other persons in management and control of the corporate debtor at the time of or any time following the commission of the offence, and could acquire the corporate debtor, notwithstanding the prohibition under Section 29A.
17.7. Thus, the Committee agreed that a new Section should be inserted to provide that where the corporate debtor is successfully resolved, it should not be held liable for any offence committed prior to the commencement of the CIRP, unless the successful resolution applicant was also involved in the commission of the offence, or was a related party, promoter or other person in management and control of the corporate debtor at the time of or any time following the commission of the offence.
17.8. Notwithstanding this, those persons who were responsible to the corporate debtor for the conduct of its business at the time of the commission of such offence, should continue to be liable for such an offence, vicariously or otherwise, regardless of the fact that the corporate debtor's liability has ceased." (emphasis in original supplied)
40. This Court, in Manish Kumar v. Union of India, 2021 SCC OnLine SC 30, upheld the constitutional validity of this provision. This Court observed:
"280. We are of the clear view that no case whatsoever is made out to seek invalidation of Section 32A. The boundaries of this Court's jurisdiction are clear. The wisdom of the legislation is not open to judicial review. Having regard to the object of the Code, the experience of the working of the code, the interests of all stakeholders including most importantly the imperative need to attract resolution applicants who would not shy away from Page 36 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this this Court to interfere. The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away. They remain liable. The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate. We must also not overlook the principle that the impugned provision is part of an economic measure. The reverence courts justifiably hold such laws in cannot but be applicable in the instant case as well. The provision deals with reference to offences committed prior to the commencement of the CIRP. With the admission of the application the management of the corporate debtor passes into the hands of the Interim Resolution Professional and thereafter into the hands of the Resolution Professional subject undoubtedly to the control by the Committee of Creditors. As far as protection afforded to the property is concerned there is clearly a rationale behind it. Having regard to the object of the statute we hardly see any manifest arbitrariness in the provision."
41. Section 32A cannot possibly be said to throw any light on the true interpretation of Section 14(1)(a) as the reason for introducing Section 32A had nothing whatsoever to do with any moratorium provision. At the heart of the Section is the extinguishment of criminal liability of the corporate debtor, from the date the resolution plan has been approved by the Adjudicating Authority, so that the new management may make a clean break with the past and start on a clean slate. A moratorium provision, on the other hand, does not extinguish any liability, civil or criminal, but only casts a shadow on proceedings already initiated and on proceedings to be initiated, which shadow is lifted when the moratorium period comes to an end. Also, Section 32A(1) operates only after the moratorium comes to an end. At the heart of Section 32A is the IBC's goal of value maximisation and the need to obviate lower recoveries to creditors as a result of the corporate debtor continuing to be exposed to criminal liability.
42. Unfortunately, the Section is inelegantly drafted. The second proviso to Section 32A(1) speaks of persons who are in any manner in charge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor and who are, directly or indirectly, involved in the commission of "such offence", i.e., the offence referred to in sub-section (1), "as per the report submitted or Page 37 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 complaint filed by the investigating authority ...". The report submitted here refers to a police report under Section 173 of the CrPC, and complaints filed by investigating authorities under special Acts, as opposed to private complaints. If the language of the second proviso is taken to interpret the language of Section 32A(1) in that the "offence committed" under Section 32A(1) would not include offences based upon complaints under Section 2(d) of the CrPC, the width of the language would be cut down and the object of Section 32A(1) would not be achieved as all prosecutions emanating from private complaints would be excluded. Obviously, Section 32A(1) cannot be read in this fashion and clearly includes the liability of the corporate debtor for all offences committed prior to the commencement of the corporate insolvency resolution process. Doubtless, a Section 138 proceeding would be included, and would, after the moratorium period comes to an end with a resolution plan by a new management being approved by the Adjudicating Authority, cease to be an offence qua the corporate debtor.
43. A section which has been introduced by an amendment into an Act with its focus on cesser of liability for offences committed by the corporate debtor prior to the commencement of the corporate insolvency resolution process cannot be so construed so as to limit, by a sidewind as it were, the moratorium provision contained in Section 14, with which it is not at all concerned. If the first proviso to Section 32A(1) is read in the manner suggested by Shri Mehta, it will impact Section 14 by taking out of its ken Section 138/141 proceedings, which is not the object of Section 32A(1) at all. Assuming, therefore, that there is a clash between Section 14 of the IBC and the first proviso of Section 32A(1), this clash is best resolved by applying the doctrine of harmonious construction so that the objects of both the provisions get subserved in the process, without damaging or limiting one provision at the expense of the other. If, therefore, the expression "prosecution" in the first proviso of Section 32A(1) refers to criminal proceedings properly so-called either through the medium of a First Information Report or complaint filed by an investigating authority or complaint and not to quasi-criminal proceedings that are instituted under Sections 138/141 of the Negotiable Instruments Act against the corporate debtor, the object of Section 14(1) of the IBC gets subserved, as does the object of Section 32A, which does away with criminal prosecutions in all cases against the corporate debtor, thus absolving the corporate debtor from the same after a new management comes in.
THE NATURE OF PROCEEDINGS UNDER CHAPTER XVII OF THE NEGOTIABLE INSTRUMENTS ACT Page 38 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022
44. This brings us to the nature of proceedings under Chapter XVII of the Negotiable Instruments Act. Sections 138 to 142 of the Negotiable Instruments Act were added by Chapter XVII by an Amendment Act of 1988. Section 138 reads as follows:
"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 extend 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
--
(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 or other liability" means a legally enforceable debt or other liability."
45. Section 138 contains within it the ingredients of the offence made out. The deeming provision is important in that the legislature is cognizant of the fact that what is otherwise a civil liability is now also deemed to be an offence, since this liability is made punishable by law.
Page 39 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 It is important to note that the transaction spoken of is a commercial transaction between two parties which involves payment of money for a debt or liability. The explanation to Section 138 makes it clear that such debt or other liability means a legally enforceable debt or other liability. Thus, a debt or other liability barred by the law of limitation would be outside the scope of Section 138. This, coupled with fine that may extend to twice the amount of the cheque that is payable as compensation to the aggrieved party to cover both the amount of the cheque and the interest and costs thereupon, would show that it is really a hybrid provision to enforce payment under a bounced cheque if it is otherwise enforceable in civil law. Further, though the ingredients of the offence are contained in the first part of Section 138 when the cheque is returned by the bank unpaid for the reasons given in the Section, the proviso gives an opportunity to the drawer of the cheque, stating that the drawer must fail to make payment of the amount within 15 days of the receipt of a notice, again making it clear that the real object of the provision is not to penalise the wrongdoer for an offence that is already made out, but to compensate the victim.
46. Likewise, under Section 139, a presumption is raised that the holder of a cheque received the cheque for the discharge, in whole or in part, of any debt or other liability. To rebut this presumption, facts must be adduced which, on a preponderance of probability (not beyond reasonable doubt as in the case of criminal offences), must then be proved. Section 140 is also important, in that it shall not be a defence in a prosecution for an offence under Section 138 that the drawer had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in that Section, thus making it clear that strict liability will attach, mens rea being no ingredient of the offence. Section 141 then makes Directors and other persons statutorily liable, provided the ingredients of the section are met. Interestingly, for the purposes of this Section, explanation (a) defines "company" as meaning any body corporate and includes a firm or other association of individuals.
47. We have already seen how the language of Sections 96 and 101 would include a Section 138/141 proceeding against a firm so that the moratorium stated therein would apply to such proceedings. If Shri Mehta's arguments were to be accepted, under the same Section, namely, Section 141, two different results would ensue - so far as bodies corporate, which include limited liability partnerships, are concerned, the moratorium provision contained in Section 14 of the IBC would not apply, but so far as a partnership firm is concerned, being covered by Sections 96 and 101 of the IBC, a Section 138/141 proceeding would be stopped in its tracks by virtue of the moratorium Page 40 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 imposed by these Sections. Thus, under Section 141(1), whereas a Section 138 proceeding against a corporate body would continue after initiation of the corporate insolvency resolution process, yet, the same proceeding against a firm, being interdicted by Sections 96 and 101, would not so continue. This startling result is one of the consequences of accepting the argument of Shri Mehta, which again leads to the position that inelegant drafting alone cannot lead to such startling results, the object of Sections 14 and 96 and 101 being the same, namely, to see that during the insolvency resolution process for corporate persons/individuals and firms, the corporate body/firm/individual should be given breathing space to recuperate for a successful resolution of its debts - in the case of a corporate debtor, through a new management coming in; and in the case of individuals and firms, through resolution plans which are accepted by a committee of creditors, by which the debtor is given breathing space in which to pay back his/its debts, which would result in creditors getting more than they would in a bankruptcy proceeding against an individual or a firm.
48. Section 142 is important and is set out hereunder:
"142. Cognizance of offences.--(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),
--
(a) no court shall take cognizance of any offence punishable under Section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque;
(b) such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to Section 138:
Provided that the cognizance of a complaint may be taken by the court after the prescribed period, if the complainant satisfies the court that he had sufficient cause for not making a complaint within such period.
(c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under Section 138.
(2) The offence under Section 138 shall be inquired into and tried only by a court within whose local jurisdiction,--Page 41 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022
R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022
(a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or
(b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated.
Explanation.--For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account."
49. A cursory reading of Section 142 will again make it clear that the procedure under the CrPC has been departed from. First and foremost, no court is to take cognizance of an offence punishable under Section 138 except on a complaint made in writing by the payee or the holder in due course of the cheque - the victim. Further, the language of Section 142(1)(b) would again show the hybrid nature of these provisions inasmuch as a complaint must be made within one month of the date on which the "cause of action" under clause (c) of the proviso to Section 138 arises. The expression "cause of action" is a foreigner to criminal jurisprudence, and would apply only in civil cases to recover money. Chapter XIII of the CrPC, consisting of Sections 177 to 189, is a chapter dealing with the jurisdiction of the criminal courts in inquiries and trials. When the jurisdiction of a criminal court is spoken of by these Sections, the expression "cause of action" is conspicuous by its absence.
50. By an Amendment Act of 2002, various other sections were added to this Chapter. Thus, under Section 143, it is lawful for a Magistrate to pass a sentence of imprisonment for a term not exceeding one year and a fine exceeding INR 5,000/- summarily. This provision is again an important pointer to the fact that the payment of compensation is at the heart of the provision in that a fine exceeding INR 5000/-, the sky being the limit, can be imposed by way of a summary trial which, after application of Section 357 of the CrPC, results in compensating the victim up to twice the amount of the bounced cheque. Under Section 144, the mode of service of summons is done as in civil cases, eschewing the mode contained in Sections 62 to 64 of the CrPC. Likewise, under Section 145, evidence is to be given by the complainant on affidavit, as it is given in civil proceedings, Page 42 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 notwithstanding anything contained in the CrPC. Most importantly, by Section 147, offences under this Act are compoundable without any intervention of the court, as is required by Section 320(2) of the CrPC.
* * *
67. A conspectus of these judgments would show that the gravamen of a proceeding under Section 138, though couched in language making the act complained of an offence, is really in order to get back through a summary proceeding, the amount contained in the dishonoured cheque together with interest and costs, expeditiously and cheaply. We have already seen how it is the victim alone who can file the complaint which ordinarily culminates in the payment of fine as compensation which may extend to twice the amount of the cheque which would include the amount of the cheque and the interest and costs thereupon. Given our analysis of Chapter XVII of the Negotiable Instruments Act together with the amendments made thereto and the case law cited hereinabove, it is clear that a quasi-criminal proceeding that is contained in Chapter XVII of the Negotiable Instruments Act would, given the object and context of Section 14 of the IBC, amount to a "proceeding" within the meaning of Section 14(1)(a), the moratorium therefore attaching to such proceeding.
QUASI-CRIMINAL PROCEEDINGS
68. Shri Lekhi, learned Additional Solicitor General, took strong objection to the use of the expression "quasi-criminal" to describe proceedings under Section 138 of the Negotiable Instruments Act, which, according to him, can only be described as criminal proceedings. This is for the reason that these proceedings result in imprisonment or fine or both, which are punishments that can be imposed only in criminal proceedings as stated by Section 53 of the Indian Penal Code. It is difficult to agree with Shri Lekhi. There are many instances of acts which are punishable by imprisonment or fine or both which have been described as quasi-criminal. One instance is the infraction of Section 630 of the Companies Act, 1956. This section reads as follows:
"630. Penalty for wrongful withholding of property.--(1) If any officer or employee of a company--
(a) wrongfully obtains possession of any property of a company;
or
(b) having any such property in his possession, wrongfully withholds it or knowingly applies it to purposes other than those Page 43 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 expressed or directed in the articles and authorised by this Act;
he shall, on the complaint of the company or any creditor or contributory thereof, be punishable with fine which may extend to ten thousand rupees.
(2) The Court trying the offence may also order such officer or employee to deliver up or refund, within a time to be fixed by the Court, any such property wrongfully obtained or wrongfully withheld or knowingly misapplied or in default, to suffer imprisonment for a term which may extend to two years."
* * * CASE LAW UNDER PROVISIONS OF OTHER STATUTES
87. Shri Mehta then relied strongly upon judgments under Section 22(1) of the SICA and under Section 446(2) of the Companies Act, 1956. He relied upon BSI Ltd. v. Gift Holdings (P) Ltd., (2000) 2 SCC 737, which judgment held that the expression "suit" in Section 22(1) of the SICA would not include a Section 138 proceeding. The Court was directly concerned with only this expression and, therefore, held:
"19. The said contention is also devoid of merits. The word "suit"
envisaged in Section 22(1) cannot be stretched to criminal prosecutions. The suit mentioned therein is restricted to "recovery of money or for enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company". As the suit is clearly delineated in the provision itself, the context would not admit of any other stretching process.
20. A criminal prosecution is neither for recovery of money nor for enforcement of any security etc. Section 138 of the NI Act is a penal provision the commission of which offence entails a conviction and sentence on proof of the guilt in duly conducted criminal proceedings. Once the offence under Section 138 is completed the prosecution proceedings can be initiated not for recovery of the amount covered by the cheque but for bringing the offender to penal liability. What was considered in Maharashtra Tubes Ltd. vs. State Industrial & Investment Corpn of Maharashtra Ltd. [(1993) 2 SCC 144] is whether the remedy provided in Section 29 or Section 31 of the State Finance Corporation Act, 1951 could be pursued notwithstanding the ban contained in Section 22 of SICA. Hence the legal principle Page 44 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 adumbrated in the said decision is of no avail to the appellants.
21. In the above context it is pertinent to point out that Section 138 of the NI Act was introduced in 1988 when SICA was already in vogue. Even when the amplitude of the word "company" mentioned in Section 141 of the NI Act was widened through the explanation added to the Section, Parliament did not think it necessary to exclude companies falling under Section 22 of SICA from the operation thereof. If Parliament intended to exempt sick companies from prosecution proceedings, necessary provision would have been included in Section 141 of the NI Act. More significantly, when Section 22(1) of SICA was amended in 1994 by inserting the words "and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company"
Parliament did not specifically include prosecution proceedings within the ambit of the said ban."
This case is wholly distinguishable as the word "proceedings" did not come up for consideration at all. Further, given the object of Section 22(1) of the SICA, which was amended in 1994 by inserting the words that were interpreted by this Court, parliament restricted proceedings only to suits for recovery of money etc., thereby expressly not including prosecution proceedings, as was held by this Court. The observations contained in paragraph 20, that Section 138 of the Negotiable Instruments Act is a penal provision in a criminal proceeding cannot now be said to be good law given the march of events, in particular, the amendments of 2002 and 2018 to the Negotiable Instruments Act, as pointed out hereinabove, and the later judgments of this Court interpreting Chapter XVII of the Negotiable Instruments Act.
* * * WHETHER NATURAL PERSONS ARE COVERED BY SECTION 14 OF THE IBC
101. As far as the Directors/persons in management or control of the corporate debtor are concerned, a Section 138/141 proceeding against them cannot be initiated or continued without the corporate debtor - see Aneeta Hada (supra). This is because Section 141 of the Negotiable Instruments Act speaks of persons in charge of, and responsible to the Page 45 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 company for the conduct of the business of the company, as well as the company. The Court, therefore, in Aneeta Hada vs. Godfather Travels and Tours (P) Ltd (2012) 5 SCC 661 held as under:
"51. We have already opined that the decision in Sheoratan Agarwal [(1984) 4 SCC 352 : 1984 SCC (Cri) 620] runs counter to the ratio laid down in State of Madras vs. C.V. Parekh [(1970) 3 SCC 491 : 1971 SCC (Cri) 97] which is by a larger Bench and hence, is a binding precedent. On the aforesaid ratiocination, the decision in Anil Hada vs. Indian Acrylic Ltd. [(2000) 1 SCC 1 :
2001 SCC (Cri) 174] has to be treated as not laying down the correct law as far as it states that the Director or any other officer can be prosecuted without impleadment of the company. Needless to emphasise, the matter would stand on a different footing where there is some legal impediment and the doctrine of lex non cogit ad impossibilia gets attracted."
xxx xxx xxx "56. We have referred to the aforesaid passages only to highlight that there has to be strict observance of the provisions regard being had to the legislative intendment because it deals with penal provisions and a penalty is not to be imposed affecting the rights of persons, whether juristic entities or individuals, unless they are arrayed as accused. It is to be kept in mind that the power of punishment is vested in the legislature and that is absolute in Section 141 of the Act which clearly speaks of commission of offence by the company. The learned counsel for the respondents have vehemently urged that the use of the term "as well as" in the Section is of immense significance and, in its tentacle, it brings in the company as well as the Director and/or other officers who are responsible for the acts of the company and, therefore, a prosecution against the Directors or other officers is tenable even if the company is not arraigned as an accused. The words "as well as" have to be understood in the context."
xxx xxx xxx "58. Applying the doctrine of strict construction, we are of the considered opinion that commission of offence by the company is an express condition precedent to attract the vicarious liability of others. Thus, the words "as well as the company" appearing in the Section make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in Page 46 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. One cannot be oblivious of the fact that the company is a juristic person and it has its own respectability. If a finding is recorded against it, it would create a concavity in its reputation. There can be situations when the corporate reputation is affected when a Director is indicted.
59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in State of Madras vs. C.V. Parekh [(1970) 3 SCC 491 : 1971 SCC (Cri) 97] which is a three- Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal vs. State of M.P. [(1984) 4 SCC 352 : 1984 SCC (Cri) 620] does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada vs. Indian Acrylic Ltd [(2000) 1 SCC 1 : 2001 SCC (Cri) 174] is overruled with the qualifier as stated in para 51. The decision in U. P. Pollution Control Board vs. Modi Distillery [(1987) 3 SCC 684 : 1987 SCC (Cri) 632] has to be treated to be restricted to its own facts as has been explained by us hereinabove."
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.
Page 47 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022
CONCLUSION
103. In conclusion, disagreeing with the Bombay High Court and the Calcutta High Court judgments in Tayal Cotton Pvt. Ltd. v. State of Maharashtra, 2018 SCC OnLine Bom 2069 : (2019) 1 Mah LJ 312 and M/s MBL Infrastructure Ltd. v. Manik Chand Somani, 2019 SCC Online Cal 9097, respectively, we hold that a Section 138/141 proceeding against a corporate debtor is covered by Section 14(1)(a) of the IBC.
104. Resultantly, the civil appeal is allowed and the judgment under appeal is set aside. However, the Section 138/141 proceedings in this case will continue both against the company as well as the appellants for the reason given by us in paragraph 77 above as well as the fact that the insolvency resolution process does not involve a new management taking over. We may also note that the moratorium period has come to an end in this case."
[30] Considering the aforesaid judgement of the Hon'ble Supreme Court in the case of P. Mohanraj (supra), evidently, the said proceedings were initiated and meant for Section 14 of the I.B.C. i.e. during the period of moratorium. The purpose of Section 14 of the I.B.C., as it appears, is very loud and clear that during the period till finalization of Resolution Plan, the situation of the "Corporate Debtor" shall remain unchanged and to see that at the time of finalizing the Resolution Plan, the assets, etc. of the "Corporate Debtor" be preserved as it is. Thus, while granting the protection to the "Corporate Debtor", the Hon'ble Supreme Court has, in clear terms, held that even during the period of moratorium, the natural persons i.e. those who were managing the "Corporate Debtor", shall continue to face the prosecution / proceedings.
The Hon'ble Supreme Court has stayed the prosecution during the Page 48 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 moratorium against the "Corporate Debtor" only.
[31] In my view, when the Hon'ble Supreme Court has not stayed the prosecution against the natural persons i.e. the Directors of the "Corporate Debtor", while moratorium period, the situation cannot be allowed contrary merely because the Resolution Plan is approved under Section 31 of the I.B.C. At this juncture, in my considered opinion, Section 32A of the I.B.C. is worth keeping in mind. Section 32A of the I.B.C. says that from the date the Resolution Plan has been approved by the adjudicating authority under Section 31 of the I.B.C., the liability of a "Corporate Debtor" for an offence committed prior to commencement of the corporate insolvency resolution process ceased and the "Corporate Debtor" shall not be prosecuted for such an offence from the date of approval of the Resolution Plan. It is pertinent to note that in Section 32A of the I.B.C., there is no mention about the natural person. What has been mentioned is "Corporate Debtor". Thus, if the relevant provisions of the I.B.C. i.e. Sections 14, 31 and 32A are read together, it would be apparent that the legislature has thought it fit to protect the "Corporate Debtor" during the commencement of moratorium period till the finalization of Resolution Plan and even after the finalization of Resolution Plan. The legislature has not all through out included the natural persons. Thus, the legislature has consciously kept the natural Page 49 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 persons out from the statutory protection. It would be, therefore, wholly illogical if the ratio laid down by the Hon'ble Supreme Court, as argued by the learned advocate for the applicants, is not applicable in the instant case merely because that was decided at the stage of Section 14 i.e. moratorium. In my view, when the Hon'ble Supreme Court has not granted protection to the natural persons at the stage of moratorium, how the said statutory protection can be granted merely because the Resolution Plan is approved under Section 31 of the I.B.C., more particularly, when Section 32A of the I.B.C. has, in no uncertain terms, not included within its sweep i.e. the Directors / natural persons. There cannot be any different consideration for the natural persons in Section 14 and Section 31 of the I.B.C. If the legislature has not covered the term "natural person" or "Ex-Director" in the entire body of the provisions of Sections 14, 31, or 32A of the I.B.C., this Court would not be justified in interpreting the said provisions, which would be amounting to rewrite the provisions of the Act. It is pertinent to note that the I.B.C., 2016 came to be amended and Section 32A inserted later on. However, while amending the Act, consciously, the legislature has used language "Corporate Debtor" only. Hence, if the contention of the applicants is accepted that P. Mohanraj (supra) is only applicable during the period of moratorium and not after the Resolution Plan is approved, Page 50 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 then it would be adding the word in the language of the Act, which, this Court, certainly, cannot do so. As such, the said interpretation of the learned advocate for the applicants, if accepted, would be contrary to the principle of interpretation of statute.
[32] In the instant case, admittedly, the prosecution was filed on 11 th September 2019 and as it appears from the available record, the learned N.C.L.T., Ahmedabad was pleased to pass an order dated 30 th September 2019 appointing one Mr. Manishkumar Bhagat as an Interim Resolution Professional. Thus, the prosecution is said to have instituted prior to effective commencement of CIRP proceedings. Further, it appears that on 16th March 2021, the learned N.C.L.T., Ahmedabad has approved the Resolution Plan submitted by the N.A. ROTO Machines & Moulds India.
The bare perusal of the Resolution Plan is also self-explanatory. Clause
(vi) of Part J of the Resolution Plan was relied upon by the learned advocate for the applicants, to contend that no proceedings can be initiated or continued, is also misconceived. In the said clause (vi) itself, it is said that the protection is granted to the "Corporate Debtor" only and by way of Note below the provisions of the said clause (vi), it is made abundantly clear that immunity is only given to "Corporate Debtor" and resolution applicant; not to the suspended Directors and promoters and the right against the suspended Directors and promoters Page 51 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022 R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 is protected, meaning thereby, even the adjudicating authority, while approving the Resolution Plan, has also in clear terms approved the rights and contentions against the suspended Directors and promoters i.e. the present applicants. Therefore, in my considered opinion, even as per the Resolution Plan approved by the adjudicating authority i.e. the learned N.C.L.T., Ahmedabad, no protection has been given to the present applicants who are the suspended Directors and promoters, etc and the said order has attained its finality as the applicants herein have not challenged or disputed the same before any forum.
[33] In view of the aforesaid discussion, in my considered opinion, the proceedings under Section 138 of the Act cannot be quashed or terminated qua the erstwhile Directors (natural persons) merely because Resolution Plan approved under Section 31 of the I.B.C. I answer the question accordingly.
[34] Resultantly, all the Criminal Miscellaneous Applications are dismissed. Notice stands discharged. Interim relief stands vacated forthwith.
[35] Consequently, all the connected Criminal Miscellaneous Applications also stand disposed of.
(NIRAL R. MEHTA,J) CHANDRESH Page 52 of 52 Downloaded on : Fri Dec 23 23:44:57 IST 2022