Whether Proceedings Under NI Act Become Infructuous If Creditor Opts IBC?: Delhi High Court Issues Notice

Background Facts

In 2015, M/s. Caldron Graphics (“Operational Creditor/Supplier”) supplied Latex 360 printer along with ONYX RIP Software to Perfact Color Digital Prints Pvt. Ltd (“Corporate Debtor”) for an amount of Rs. 14,89,200/-. The Corporate Debtor issued a cheque of Rs. 13,89,200/- in favour of the Operational Creditor on 30.07.2016. The Cheque were signed by Mr. Ashwani Arya (Petitioner No. 1) in the capacity of Director of the Corporate Debtor. The cheque was dishonoured with remarks “insufficient funds”.

In view of the same, the Operational Creditor initiated proceedings under Section 138 of Negotiable Instruments Act, 1881 (“NI Act”) before the Ld. Metropolitan Magistrate, Saket Court. The Court of Ld. Metropolitan Magistrate issued summons to the Director of Corporate Debtor on 13.01.2017.

Subsequently in 2019, the Operational Creditor filed a petition under Section 9 of Insolvency and Bankruptcy Code, 2016 (“IBC”), seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor, over the same operational debt and default.

On 09.12.2019 the Adjudicating Authority initiated CIRP against the Corporate Debtor and moratorium was imposed. The Operational Creditor filed its claim with the Resolution Professional. Subsequently, the Corporate Debtor was admitted into Liquidation on 25.02.2022. The Operational Creditor filed its claim before the Liquidator as well.

Mr. Ashwani Arya, the Suspended Director of the Corporate Debtor, filed a petition under Section 482 of the Code of Criminal Procedure, 1973 (“CrPC”) before the Delhi High Court, seeking quashing of the Summons dated 13.01.2017.

The Suspended Director argued that the proceedings under the NI Act cannot be pursued further by the Operational Creditor, since it has already availed remedy under the IBC and also filed its claim before the Resolution Professional as well as the Liquidator.

When the Operational Creditor initiated CIRP for the resolution of the Corporate Debtor and chose to recover its dues through the provisions of IBC, the criminal complaint ought to have become infructuous. Nonetheless, the Operational Creditor continued to pursue the NI Act proceedings against the Director of Corporate Debtor.

Further, the proceedings under the IBC cannot be reversed as the same is initiated as per procedure established for the benefit of the creditors of the Corporate Debtor and has now attained finality after the commencement of the liquidation process.

The Operational Creditor cannot avail both the remedies under the NI Act as well as IBC to get its dues recovered and which is abuse of process of law.

Notice Issued

The Bench being has issued notice to the Operational Creditor, while passing the following order:

“This is a petition seeking quashing of summons dated 13.01.2017 and complaint number 636539/2016 filed by respondent No.1 before learned MM, Saket Court, New Delhi. the company i.e. respondent No. 2 is under liquidation and hence complaint u/s 138 cannot be prosecuted further. Issue notice to respondent Nos. 1 and 2, on the petitioner taking steps within 1 week from today, returnable on 24.05.2023.”

Case Title: Ashwani Arya &Anr. vs. Rajat Mitra Proprietor M/s. Caldron Graphics

Case No.: CRL MC No. 1376/2023

Counsel for Petitioners: Mr. Brijesh Kumar Tamber, Mr. Prateek Kushwaha, and Mr. Yashu Rustagi.

Click Here To Read/Download Order