LEGAL ISSUE: Whether the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) applies to proceedings under Section 138 of the Negotiable Instruments Act, 1881.

CASE TYPE: Insolvency and Criminal Law

Case Name: P. Mohanraj & Ors. vs. M/s. Shah Brothers Ispat Pvt. Ltd.

Judgment Date: 01 March 2021

Date of the Judgment: 01 March 2021

Citation: (2021) ibclaw.in 18 SC

Judges: R.F. Nariman, J., Navin Sinha, J., K.M. Joseph, J. (authored by R.F. Nariman, J.)

Can a corporate debtor use the moratorium under the Insolvency and Bankruptcy Code (IBC) to avoid cheque bounce cases? The Supreme Court of India recently addressed this important question, clarifying the relationship between the IBC’s moratorium and proceedings under Section 138 of the Negotiable Instruments Act. This judgment is crucial for understanding how insolvency laws interact with criminal proceedings related to financial defaults. The Supreme Court held that the moratorium under Section 14 of the IBC does apply to proceedings under Section 138 of the Negotiable Instruments Act against a corporate debtor.

Case Background

M/s. Shah Brothers Ispat Pvt. Ltd. (the respondent) supplied steel products to M/s. Diamond Engineering Pvt. Ltd. (the company) between 21 September 2015 and 11 November 2016. The company owed INR 24,20,91,054/-. The company issued 51 cheques to the respondent, which were dishonoured on 03 March 2017 due to insufficient funds.

The respondent issued a statutory demand notice on 31 March 2017 under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881, to the company and its three directors (appellants 1-3), demanding payment within 15 days. Subsequently, two more cheques were dishonoured on 28 April 2017, leading to a second demand notice on 05 May 2017.

As no payment was made, the respondent filed two criminal complaints against the company and the appellants on 17 May 2017 and 21 June 2017, before the Additional Chief Metropolitan Magistrate (ACMM), Kurla, Mumbai. Summons were issued on 12 February 2018.

Meanwhile, the respondent had also initiated insolvency proceedings against the company under the IBC. On 06 June 2017, the Adjudicating Authority admitted the application under Section 9 of the IBC, initiating the corporate insolvency resolution process (CIRP) and imposing a moratorium under Section 14 of the IBC. Consequently, the Adjudicating Authority stayed the criminal complaints on 24 May 2018.

The National Company Law Appellate Tribunal (NCLAT) set aside this stay, stating that Section 138 is a criminal provision and not a “proceeding” under Section 14 of the IBC. The Supreme Court then stayed the proceedings on 26 October 2018. On 30 September 2019, the Adjudicating Authority approved a resolution plan, lifting the moratorium. However, applications for withdrawal of the resolution plan and extension of time for its implementation are pending.

Timeline:

Date Event
21 September 2015 – 11 November 2016 Steel products supplied by the respondent to the company.
03 March 2017 51 cheques issued by the company were dishonoured.
21 March 2017 Statutory notice under Section 8 of the IBC issued by the respondent to the company.
31 March 2017 First statutory demand notice issued under Section 138/141 of the Negotiable Instruments Act, 1881.
28 April 2017 Two more cheques were dishonoured.
05 May 2017 Second statutory demand notice issued.
17 May 2017 and 21 June 2017 Two criminal complaints filed by the respondent.
06 June 2017 Adjudicating Authority admitted the application under Section 9 of the IBC and imposed a moratorium.
12 February 2018 Summons were issued by the ACMM to the company and the appellants.
24 May 2018 Adjudicating Authority stayed the criminal complaints.
26 October 2018 Supreme Court ordered a stay of further proceedings in the criminal complaints.
30 September 2019 Adjudicating Authority approved the resolution plan, lifting the moratorium.
October 2020 Application to extend time for implementation of the resolution plan filed.
08 February 2021 Next date of hearing before the Adjudicating Authority.
01 March 2021 Supreme Court Judgment

Course of Proceedings

The Additional Chief Metropolitan Magistrate (ACMM), Kurla, Mumbai, issued summons to the company and its directors based on the criminal complaints filed by the respondent. Subsequently, the Adjudicating Authority stayed the criminal proceedings due to the imposition of a moratorium under Section 14 of the IBC.

The NCLAT overturned this stay, arguing that Section 138 of the Negotiable Instruments Act is a criminal provision and thus not subject to the moratorium. This decision was then appealed to the Supreme Court, which initially stayed the proceedings.

Legal Framework

The core legal issue revolves around Section 14 of the Insolvency and Bankruptcy Code, 2016, which deals with the imposition of a moratorium. Section 14(1) states:

“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.”

The Court also considered Chapter XVII of the Negotiable Instruments Act, 1881, specifically Section 138, which deals with the dishonour of cheques.

Section 138 of the Negotiable Instruments Act, 1881 states:
“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.”

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The interplay between these provisions forms the crux of the legal debate.

Arguments

The appellants argued that the term “proceedings” in Section 14(1)(a) of the IBC should be interpreted broadly to include all proceedings, whether civil or criminal, that could result in the execution of a judgment against the corporate debtor. They contended that since a Section 138 proceeding aims to recover the amount of a bounced cheque, it falls within the scope of the moratorium. They also argued that Section 138 is quasi-criminal in nature, with the primary object being compensation, and should thus be covered.

The respondent argued that Section 14 of the IBC should not include criminal proceedings. They relied on the principle of ejusdem generis and noscitur a sociis, stating that the term “proceedings” should be interpreted in line with the preceding term “suits,” implying civil proceedings. They argued that Section 138 of the Negotiable Instruments Act is a criminal provision, primarily intended to punish a wrong, and should not be stayed by the IBC moratorium.

The Additional Solicitor General, appearing for the Union of India, argued that Section 138 is a purely criminal offense, and thus, outside the purview of Section 14 of the IBC. They also relied upon the rule of noscitur a sociis, and stated that Section 32A of the IBC was introduced to exclude criminal proceedings.

Main Submission Sub-Submissions Party
Scope of “Proceedings” under Section 14(1)(a) of IBC “Proceedings” should include all proceedings against the corporate debtor, civil or criminal, that could result in execution of any judgment. Appellants
Given the object of Section 14, there is no reason to curtail the meaning of the expression “proceedings”. Appellants
Section 138 proceeding is quasi-criminal in nature, whose dominant object is compensation. Appellants
Interpretation of Section 14 of IBC Criminal proceedings cannot be included within Section 14. Respondent
The expression “proceedings” takes its colour from the previous expression “suits,” and must necessarily be civil in nature. Respondent
Section 138 of the Negotiable Instruments Act is a criminal proceeding whose primary object is to make what was once a civil wrong punishable by a jail sentence and/or fine. Respondent
Nature of Section 138 Proceedings Section 138 is a purely criminal offence which results in imposition of a jail sentence or fine or both. Union of India
The intent manifest in Section 14 of the IBC is reinforced by the introduction of Section 32A to the IBC. Union of India
Section 138 proceedings are not proceedings for the recovery of a debt, they cannot fall within the moratorium provisions set out by Sections 14 or 81 or 101. Union of India

Issues Framed by the Supreme Court

The main issue before the Supreme Court was:

  1. Whether the institution or continuation of a proceeding under Section 138/141 of the Negotiable Instruments Act can be said to be covered by the moratorium provision, namely, Section 14 of the IBC.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Issue Court’s Decision
Whether Section 138/141 proceedings are covered by Section 14 of the IBC? The Supreme Court held that Section 138 proceedings are indeed covered by Section 14(1)(a) of the IBC. The Court reasoned that the object of Section 14 is to protect the assets of the corporate debtor, and a Section 138 proceeding, which can result in the depletion of assets, should be stayed during the moratorium.

Authorities

The Supreme Court considered various authorities, categorized by the legal points they addressed:

Rules of Interpretation

  • State of Assam v. Ranga Mahammad, (1967) 1 SCR 454: Applied the rule of noscitur a sociis to interpret the term “posting” in Article 233 of the Constitution.
  • Jagdish Chander Gupta v. Kajaria Traders (India) Ltd., (1964) 8 SCR 50: Discussed the application of ejusdem generis, stating it is not always necessary to apply this rule.
  • Rajasthan State Electricity Board v. Mohan Lal, (1967) 3 SCR 377: Held that the expression “other authorities” in Article 12 of the Constitution does not take colour from the preceding words.
  • CBI v. Braj Bhushan Prasad, (2001) 9 SCC 432: Discussed the doctrine of noscitur a sociis and its relevance in statutory interpretation.
  • Godfrey Phillips India Ltd. v. State of U.P., (2005) 2 SCC 515: Applied the rule of noscitur a sociis to the meaning of “luxury” in Entry 62 of List 2 of the Seventh Schedule to the Constitution of India.
  • Vikram Singh v. Union of India, (2015) 9 SCC 502: Discussed the application of ejusdem generis and stated that it is a rule of construction and not a rule of law.
  • Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416: Laid down the limits of the application of the rule of construction that is contained in the expression “noscitur a sociis”.

Object of IBC and Moratorium

  • Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17: Explained the purpose of the IBC and the moratorium under Section 14.
  • State Bank of India v. V. Ramakrishnan, (2018) 17 SCC 394: Discussed the application of moratorium provisions to guarantors.

Nature of Section 138 Proceedings

  • CIT v. Ishwarlal Bhagwandas, (1966) 1 SCR 190: Distinguished between civil and criminal proceedings.
  • Goaplast (P) Ltd. v. Chico Ursula D’Souza, (2003) 3 SCC 232: Discussed the object of Section 138 of the Negotiable Instruments Act.
  • Vinay Devanna Nayak v. Ryot Sewa Sahakari Bank Ltd., (2008) 2 SCC 305: Referred to the object of Section 138 and the need for strict liability.
  • Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663: Dealt with the compounding provision under Section 147 of the Negotiable Instruments Act.
  • JIK Industries Ltd. v. Amarlal V. Jumani, (2012) 3 SCC 255: Discussed the historical background of compounding offenses.
  • Kaushalya Devi Massand v. Roopkishore Khore, (2011) 4 SCC 593: Stated that an offence under Section 138 is almost in the nature of a civil wrong.
  • R. Vijayan v. Baby, (2012) 1 SCC 260: Referred to Chapter XVII of the Negotiable Instruments Act as blurring the line between civil and criminal jurisdictions.
  • Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129: Discussed the territorial jurisdiction for filing cheque dishonour complaints.
  • Lafarge Aggregates & Concrete India (P) Ltd. v. Sukarsh Azad, (2014) 13 SCC 779: Stated that the object of the Negotiable Instruments Act is not merely penal but to ensure payment.
  • Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560: Summarized the case law on the object of Section 138.
  • M. Abbas Haji v. T.N. Channakeshava, (2019) 9 SCC 606: Stated that proceedings under Section 138 are quasi-criminal proceedings.
  • H.N. Jagadeesh v. R. Rajeshwari, (2019) 16 SCC 730: Alluded to the quasi-criminal nature of the offence under Section 138.
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Other Quasi-Criminal Proceedings

  • Abhilash Vinodkumar Jain v. Cox & Kings (India) Ltd., (1995) 3 SCC 732: Examined a petition under Section 630 of the Companies Act, 1956, describing it as quasi-criminal.
  • Andre Paul Terence Ambard v. Attorney-General of Trinidad and Tobago, AIR 1936 PC 141: Referred to contempt of court proceedings as quasi-criminal.
  • Niaz Mohd. v. State of Haryana, (1994) 6 SCC 332: Spoke of the hybrid nature of civil contempt.
  • T.N. Godavarman Thirumulpad (102) v. Ashok Khot, (2006) 5 SCC 1: Discussed the nature of contempt proceedings.
  • Sahdeo v. State of U.P., (2010) 3 SCC 705: Referred to the “quasi-criminal” nature of contempt proceedings.
  • Maninderjit Singh Bitta v. Union of India, (2012) 1 SCC 273: Referred to civil and criminal contempt.
  • Kanwar Singh Saini v. High Court of Delhi, (2012) 4 SCC 307: Stated that contempt proceedings are “quasi-criminal”.
  • T.C. Gupta v. Bimal Kumar Dutta, (2014) 14 SCC 446: Stated that contempt proceedings are “quasi-criminal”.

Case Laws under other statutes

  • BSI Ltd. v. Gift Holdings (P) Ltd., (2000) 2 SCC 737: Held that the word “suit” in Section 22(1) of SICA does not include a Section 138 proceeding.
  • Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd., (2000) 2 SCC 745: Followed the judgment in BSI Ltd. v. Gift Holdings (P) Ltd.
  • S.V. Kandeakar v. V.M. Deshpande, (1972) 1 SCC 438: Explained why income tax proceedings are outside the purview of Section 446(2) of the Companies Act, 1956.
  • Sudarshan Chits (I) Ltd. v. O. Sukumaran Pillai, (1984) 4 SCC 657: Clarified the scope of Section 446(2) of the Companies Act, 1956.
  • Central Bank of India v. Elmot Engineering Co., (1994) 4 SCC 159: Clarified the scope of Section 446(2) of the Companies Act, 1956.
  • D.K. Kapur v. Reserve Bank of India, 2001 SCC OnLine Del 67 : (2001) 58 DRJ 424 (DB): Referred to Section 446(1) and (2) of the Companies Act, 1956.
  • Indorama Synthetics (I) Ltd. v. State of Maharashtra, 2016 SCC OnLine Bom 2611 : (2016) 4 Mah LJ 249: Held that Section 138 proceedings are not included in Section 446 of the Companies Act.
  • Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd., 2017 SCC OnLine Del 12189 : (2018) 246 DLT 485: Held that a Section 34 application to set aside an award under the Arbitration and Conciliation Act, 1996 would not be covered by Section 14 of the IBC.
  • Inderjit C. Parekh v. V.K. Bhatt, (1974) 4 SCC 313: Dealt with a moratorium provision in the Bombay Relief Undertakings (Special Provisions) Act, 1958.
  • Deputy Director, Directorate of Enforcement Delhi v. Axis Bank, 2019 SCC OnLine Del 7854 : (2019) 259 DLT 500: Held that an offence under the Prevention of Money-Laundering Act could not be covered under Section 14(1)(a).

Liability of Directors

  • Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661: Held that for maintaining prosecution under Section 141 of the Negotiable Instruments Act, arraigning the company as an accused is imperative.

Judgment

The Supreme Court held that the term “proceedings” under Section 14(1)(a) of the IBC should be interpreted broadly to include Section 138 proceedings. The Court reasoned that the objective of the moratorium is to prevent the depletion of a corporate debtor’s assets, and a Section 138 proceeding, which can result in a liability, would directly impact the corporate insolvency resolution process.

The Court emphasized that the nature of Section 138 proceedings is quasi-criminal, with a significant focus on compensation to the complainant. It also noted that the provisions of Section 138 are a hybrid, designed to enforce a civil liability through a criminal process.

Submission Court’s Treatment
The object of Section 14 is to preserve the assets of the corporate debtor and should include all proceedings. The Court agreed that the object of Section 14 is to preserve the assets of the corporate debtor and that a Section 138 proceeding, which can result in the depletion of assets, should be stayed during the moratorium.
Section 138 proceedings are criminal in nature, and thus, should not be covered by the moratorium. The Court disagreed, stating that Section 138 proceedings are quasi-criminal and compensatory in nature, thus, should be covered by the moratorium.
Section 32A of the IBC implies that criminal proceedings are outside the ambit of Section 14. The Court held that Section 32A cannot be used to limit the scope of Section 14, as it is focused on extinguishing the criminal liability of the corporate debtor after a resolution plan has been approved.

The Court also clarified that the moratorium under Section 14 of the IBC applies only to the corporate debtor, and not to the directors or other persons mentioned in Section 141 of the Negotiable Instruments Act.

The Court observed that Section 138 of the Negotiable Instruments Act is a hybrid provision to enforce payment under a bounced cheque if it is otherwise enforceable in civil law. The court also observed that Section 138 proceedings are essentially to get back the amount of the dishonoured cheque along with interest and costs.

The Court rejected the reliance on previous judgments under SICA and the Companies Act, stating that the language, object, and context of those provisions are different from Section 14 of the IBC.

How each authority was viewed by the Court?

The Court considered various authorities and how it was used by the court for its reasoning for resolving the issue.

  • State of Assam v. Ranga Mahammad, (1967) 1 SCR 454: The Court distinguished the application of noscitur a sociis in this case, noting that the context and positioning of words were different.
  • Jagdish Chander Gupta v. Kajaria Traders (India) Ltd., (1964) 8 SCR 50: The Court noted that the rule of ejusdem generis is not always to be applied when words showing particular classes are followed by general words.
  • Rajasthan State Electricity Board v. Mohan Lal, (1967) 3 SCR 377: The Court stated that there must be a distinct genus or category for the application of ejusdem generis.
  • CBI v. Braj Bhushan Prasad, (2001) 9 SCC 432: The Court stated that the doctrine of noscitur a sociis has much relevance in understanding the import of words in a statutory provision.
  • Godfrey Phillips India Ltd. v. State of U.P., (2005) 2 SCC 515: The Court noted that the maxim of noscitur a sociis may be a treacherous one unless the “societas” to which the “socii” belong, are known.
  • Vikram Singh v. Union of India, (2015) 9 SCC 502: The Court stated that the rule of ejusdem generis is a rule of construction and not a rule of law.
  • Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416: The Court clarified that noscitur a sociis cannot be applied when wider words have been deliberately used in a residuary provision.
  • Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17: The Court used this case to highlight the primary focus of the legislation to ensure revival and continuation of the corporate debtor.
  • State Bank of India v. V. Ramakrishnan, (2018) 17 SCC 394: The Court distinguished this case by stating that the difference between these provisions and Section 14 was not examined qua moratorium provisions as a whole in relation to corporate debtors vis-à-vis individuals/firms.
  • CIT v. Ishwarlal Bhagwandas, (1966) 1 SCR 190: The Court highlighted this case to show that a civil proceeding is not necessarily a proceeding which begins with the filing of a suit and culminates in execution of a decree.
  • Goaplast (P) Ltd. v. Chico Ursula D’Souza, (2003) 3 SCC 232: The Court used this case to highlight the object behind introduction of Chapter XVII containing Sections 138 to 142.
  • Vinay Devanna Nayak v. Ryot Sewa Sahakari Bank Ltd., (2008) 2 SCC 305: The Court used this case to highlight the object of Section 138 to regulate financial promises and promote greater vigilance in financial matters.
  • Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663: The Court used this case to highlight that with respect to the offence of dishonour of cheques, it is the compensatory aspect of the remedy which should be given priority over the punitive aspect.
  • JIK Industries Ltd. v. Amarlal V. Jumani, (2012) 3 SCC 255: The Court used this case to highlight the historical background of compounding of offences.
  • Kaushalya Devi Massand v. Roopkishore Khore, (2011) 4 SCC 593: The Court used this case to highlight that the gravity of a complaint under the Negotiable Instruments Act cannot be equated with an offence under the provisions of the Penal Code, 1860 or other criminal offences.
  • R. Vijayan v. Baby, (2012) 1 SCC 260: The Court used this case to highlight that Chapter XVII of the Act is a unique exercise which blurs the dividing line between civil and criminal jurisdictions.
  • Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129: The Court used this case to highlight the fact that parliament was aware that they were converting civil liability intoa criminal offence.
  • Lafarge Aggregates & Concrete India (P) Ltd. v. Sukarsh Azad, (2014) 13 SCC 779: The Court used this case to highlight the fact that the object of the Negotiable Instruments Act is not merely penal but to ensure that payment is made.
  • Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560: The Court used this case to summarise the case law relating to the object of Section 138.
  • M. Abbas Haji v. T.N. Channakeshava, (2019) 9 SCC 606: The Court used this case to highlight that proceedings under Section 138 are quasi-criminal proceedings.
  • H.N. Jagadeesh v. R. Rajeshwari, (2019) 16 SCC 730: The Court used this case to highlight the quasi-criminal nature of the offence under Section 138.
  • Abhilash Vinodkumar Jain v. Cox & Kings (India) Ltd., (1995) 3 SCC 732: The Court used this case to highlight that a petition under Section 630 of the Companies Act, 1956 is quasi-criminal in nature.
  • Andre Paul Terence Ambard v. Attorney-General of Trinidad and Tobago, AIR 1936 PC 141: The Court used this case to highlight that contempt of court proceedings are quasi-criminal.
  • Niaz Mohd. v. State of Haryana, (1994) 6 SCC 332: The Court used this case to highlight the hybrid nature of civil contempt.
  • T.N. Godavarman Thirumulpad (102) v. Ashok Khot, (2006) 5 SCC 1: The Court used this case to highlight that contempt proceedings are quasi-criminal in nature.
  • Sahdeo v. State of U.P., (2010) 3 SCC 705: The Court used this case to highlight the “quasi-criminal” nature of contempt proceedings.
  • Maninderjit Singh Bitta v. Union of India, (2012) 1 SCC 273: The Court used this case to highlight that contempt is of two kinds, civil and criminal.
  • Kanwar Singh Saini v. High Court of Delhi, (2012) 4 SCC 307: The Court used this case to highlight that contempt proceedings are “quasi-criminal”.
  • T.C. Gupta v. Bimal Kumar Dutta, (2014) 14 SCC 446: The Court used this case to highlight that contempt proceedings are “quasi-criminal”.
  • BSI Ltd. v. Gift Holdings (P) Ltd., (2000) 2 SCC 737: The Court distinguished this case by stating that the language, object and context of Section 22(1) of SICA is different from Section 14 of the IBC.
  • Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd., (2000) 2 SCC 745: The Court distinguished this case by stating that the language, object and context of Section 22(1) of SICA is different from Section 14 of the IBC.
  • S.V. Kandeakar v. V.M. Deshpande, (1972) 1 SCC 438: The Court distinguished this case by stating that the language, object and context of Section 446(2) of the Companies Act, 1956 is different from Section 14 of the IBC.
  • Sudarshan Chits (I) Ltd. v. O. Sukumaran Pillai, (1984) 4 SCC 657: The Court distinguished this case by stating that the language, object and context of Section 446(2) of the Companies Act, 1956 is different from Section 14 of the IBC.
  • Central Bank of India v. Elmot Engineering Co., (1994) 4 SCC 159: The Court distinguished this case by stating that the language, object and context of Section 446(2) of the Companies Act, 1956 is different from Section 14 of the IBC.
  • D.K. Kapur v. Reserve Bank of India, 2001 SCC OnLine Del 67 : (2001) 58 DRJ 424 (DB): The Court distinguished this case by stating that the language, object and context of Section 446(1) and (2) of the Companies Act, 1956 is different from Section 14 of the IBC.
  • Indorama Synthetics (I) Ltd. v. State of Maharashtra, 2016 SCC OnLine Bom 2611 : (2016) 4 Mah LJ 249: The Court distinguished this case by stating that the language, object and context of Section 446 of the Companies Act, 1956 is different from Section 14 of the IBC.
  • Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd., 2017 SCC OnLine Del 12189 : (2018) 246 DLT 485: The Court distinguished this case by stating that the language, object and context of Section 14 of the IBC is different from the Arbitration and Conciliation Act, 1996.
  • Inderjit C. Parekh v. V.K. Bhatt, (1974) 4 SCC 313: The Court distinguished this case by stating that the language, object and context of this statute is different from Section 14 of the IBC.
  • Deputy Director, Directorate of Enforcement Delhi v. Axis Bank, 2019 SCC OnLine Del 7854 : (2019) 259 DLT 500: The Court distinguished this case by stating that the language, object and context of PMLA is different from Section 14 of the IBC.
  • Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661: The Court used this case to clarify that the moratorium under Section 14 of the IBC applies only to the corporate debtor, and not to the directors or other persons mentioned in Section 141 of the Negotiable Instruments Act.
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Conclusion

The Supreme Court’s ruling in P. Mohanraj & Ors. vs. M/s. Shah Brothers Ispat Pvt. Ltd. has clarified the interplay between the IBC and the Negotiable Instruments Act. The Court’s decision to include Section 138 proceedings within the scope of the IBC moratorium provides significant protection to corporate debtors undergoing insolvency resolution. This judgment ensures that the assets of the corporate debtor are not depleted during the moratorium period, thus facilitating a more effective resolution process.

However, it is important to note that the moratorium does not extend to the directors or other persons mentioned in Section 141 of the Negotiable Instruments Act. They can still be prosecuted for the dishonor of cheques.

Flowchart of the Process

Supply of Goods/Services
↓
Issuance of Cheques
↓
Dishonor of Cheques
↓
Demand Notice under Section 138 NI Act
↓
Filing of Criminal Complaint under Section 138 NI Act
↓
Admission of Insolvency Application under IBC
↓
Imposition of Moratorium under Section 14 IBC
↓
Stay of Section 138 NI Act Proceedings against Corporate Debtor
↓
Resolution Plan Approval (Moratorium Lifted)

Source: Supreme Court Clarifies Moratorium Under IBC Does Not Bar Section 138 NI Act Proceedings Against Corporate Debtors (2021)