Imposition Of Moratorium Under IBC Does Not Bar Complaints Against Natural Persons: Madras High Court
The Madras High Court in a Bench comprising of Justice N. Sathish Kumar in M/s. Nag Leather Pvt. Ltd. v. M/s. Muzain Hides held that as long as a moratorium under Section 14 of the Insolvency and Bankruptcy Code is imposed, proceedings under Section 138/141 of the Negotiable Instruments Act cannot be initiated against the Corporate Debtor. These proceedings, however, can be...
The Madras High Court in a Bench comprising of Justice N. Sathish Kumar in M/s. Nag Leather Pvt. Ltd. v. M/s. Muzain Hides held that as long as a moratorium under Section 14 of the Insolvency and Bankruptcy Code is imposed, proceedings under Section 138/141 of the Negotiable Instruments Act cannot be initiated against the Corporate Debtor. These proceedings, however, can be initiated against natural persons as mentioned in Section 141.
Section 14 imposes a moratorium, prohibiting suits or proceedings from being filed against the Corporate Debtor from the insolvency commencement date.
Section 141 (1) and (2) provides for persons who can be proceeded against when an offence under Section 138 of the Negotiable Instruments Act is committed. Section 141(1) allows the claimant to proceed against every person who was in charge of and was responsible to the company for conduct of its business as well as the company.
Section 141(2) provides that once it is proved that an offence under Section 138 has been committed with the consent or connivance or is attributable to the neglect of any director, manager, secretary or other officer of the company, such person shall also be deemed to be guilty of the offence and shall be proceeded against and punished accordingly.
A petition was filed under Section 482 of Code of Criminal Procedure to quash complaints filed against the Petitioners for offences under Section 138, 141 and 142 of the Negotiable Instruments Act for amount due to the Respondent.
The counsel for the Petitioners alleged that since the Corporate Insolvency Resolution Process was initiated against the accused Company before the complaint was filed under the Negotiable Instruments Act, the complaint cannot be entertained in light of the moratorium imposed and the Supreme Court judgment in the case of P.Mohanraj and Others v. Shah Brothers Ispat Pvt. Ltd.
Accepting the contention of the Petitioners and relying on the case of P. Mohanraj, the Court quoted from the judgment-
"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 Instrument 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.''
The Bench allowed the Petition and quashed proceedings under Section 138/141 of the Negotiable Instruments Act, 1881 against Petitioner no. 1, who was the Corporate Debtor undergoing CIRP under the Code.
Noting that the moratorium would apply only in respect of the Corporate Debtor, and not in respect of the directors/ management, the Court allowed the Respondent to proceed against Petitioners no. 2 and 3, them being natural persons.
Case Title: M/s. Nag Leather Pvt. Ltd. v. M/s. Muzain Hides
Citation: 2022 LiveLaw (Mad) 37
Citation: Crl. O.P. Nos.17954, 17976, 24110, 25561 & 25573 of 2018 and Crl.M.P.Nos.9357, 9358, 9381, 9382, 13607, 13610, 14587, 14589, 14607 & 14608 of 2018
Counsel for all Petitioners: Mr.T.P.Prabakaran
Counsel for Respondent: Mr.M.Guruprasad