Proceedings Under Section 138 NI Act Have Nothing To Do With Insolvency Application Under The Code: NCLT

The Kolkata Bench of the National Company Law Tribunal recently ruled that disclosure of the fact of initiation of proceedings under Section 138 of the Negotiable Instruments Act in not necessary while filing an Application for Insolvency under the Insolvency and Bankruptcy Code, 2016.

"It is to be made clear that the proceedings under section 138 of Negotiable Instrument Act is a different proceeding and liability occurs when a cheque is dishonored," the Bench, comprising Judicial Members Mr. Vijai Pratap Singh and Ms. Manorama Kumari observed.

The Court was hearing an Application filed under Section 7 of the Insolvency and Bankruptcy Code and Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The Application had been filed by 10 Financial Creditors for initiation of corporate insolvency resolution process against M/s R.G. Shaw & Sons Pvt. Ltd. on account of its failure to make payments to several creditors, having incurred a debt of more than Rs. 3 crores.

The Corporate Debtor had opposed the Application contending that the Creditors had not come to the Tribunal with clean hands, having suppressed the fact that they had initiated proceedings under Section 138 of the Act.

The Tribunal, however, refused to accept this contention, observing that the fact, in fact, "supports the petitioners' case regarding default committed by the Corporate Debtor". It, thereafter, allowed the Application, declaring the moratorium under Section 14 of the Code.