Mere Initiation Of Proceedings Under IBC Doesn't Bar Liability Of Signatory Of Cheque Under Negotiable Instruments Act: Madhya Pradesh High Court

Brief Facts:

The Applicant approached the Madhya Pradesh High Court (“High Court”) and filed an application under Section 482 of Cr.P.C. seeking relief of the examination of records in a case pending before the II Additional Session Judge and the quashing of a condition to deposit Rs.13,73,890. This condition was imposed in an application under Section 389 CrPC seeking suspension of the execution of the sentence, including the order to pay compensation, during the pendency of the appeal. The Petitioner argued that this condition was affected by an interim moratorium as per Section 96 of the Insolvency and Bankruptcy Code, 2016, initiated by the National Company Law Tribunal, Indore Bench.

The Applicant was convicted under Section 138 of the Negotiable Instruments Act and was directed to undergo a jail sentence of 6 months with compensation amounting to Rs.68,69,457.24. The Applicant, being aggrieved by this judgment, filed an appeal along with an application under Section 389 of Cr.P.C.

It was contended by the Applicant that he was the guarantor of M/s Shree Geeta Textiles Private Limited, which defaulted on payments of borrowed debts. Consequently, the borrower moved an application under Section 94 of the Insolvency Resolution Process of the Insolvency Bankruptcy Code, 2016 before the National Company Law Tribunal, Indore Bench, for initiating/undergoing the insolvency resolution process. It argued that as per Section 96 of the Code, 2016, an interim moratorium begins from the date of filing regarding personal insolvency. Therefore, the interim moratorium was in effect on the date of the judgment of conviction and it persists until the date of the appeal filing. Consequently, the conviction and the direction to pay compensation, as conditions precedent for the suspension of sentence, were argued to be in contrary to Section 96 of the IBC.

Observations by the High Court:

The High Court referred to the decision of the Supreme Court in Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Limited, reported in (2023) 10 SCC 545 where the SC underscored the differentiation between the proceedings under the Insolvency and Bankruptcy Code and those under the Negotiable Instruments Act. It emphasized that the nature of these proceedings is distinct and does not overlap. It held that the proceedings under Section 138 of the NI Act are criminal in nature, not akin to civil proceedings, and therefore, not subject to the provisions of the IBC.

Moreover, the Supreme Court emphasized that the approval of a resolution plan under the IBC doesn't absolve individuals, such as signatories to cheques or directors of corporate debtors, from criminal liability under Section 138 of the NI Act. The maxim "lex non cogit ad impossibilia" (law does not compel a man to do that which he cannot possibly perform) was referred by the SC to highlight that the dissolution of the company doesn't dissolve the personal penal liability of the accused.

Therefore, the High Court held that the mere initiation of proceedings under the IBC, couldn't serve as a ground for the signatory of the cheque to evade liability. Therefore, it upheld the conviction recorded by the Trial Court and held that it wasn't invalidated by the initiation of proceedings under the IBC. Consequently, the High Court upheld that the Appellate Court didn't err in directing the Applicant to deposit Rs. 13,73,890 as a condition precedent for the suspension of the sentence.

Case Title: Anurodh Mittal Vs Rehat Trading Company

Case Number: MISC. CRIMINAL CASE No. 17782 of 2024

Advocate for the Applicant: Akshat Agarwal

Advocate for the Respondent: Dilip Parihar

Date of Judgment: 22.05.2024

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