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Cheque Bounce proceedings against a company subjected to Moratorium under IBC

The NCLAT in Shah Bros. Ispat V. P. Mohanraj [Company Appeal (AT) (Insolvency) No. 306 of 2018) in relation to Section 138 of the Negotiable Instruments Act, 1888 (“Act”) and Section 14 of the Insolvency and Bankruptcy Code, 2016(IBC) allowed the parallel continuation of proceedings under the Act against a company subjected to moratorium while undergoing resolution process under the IBC.

Background –

Shah Brothers Ispat Pvt. Ltd. (“the Appellant”) herein has filed Company Petition No. 507/IB/2017 before the Hon’ble National Company Law Tribunal, Chennai Bench (“NCLT”) against M/s. Diamond Engineering Chennai Pvt. Ltd. (“Corporate Debtor”) for a debt of Rs. 24, 80, 33, 430 (Rupees twenty four crore eighty lakh thirty three thousand four hundred thirty). In view of the nonpayment of debt by P. Mohanraj (“the Respondents”), the Hon’ble NCLT vide its order dated June 6, 2017 admitted the Company Petition and appointed the Interim Resolution Professional. Moratorium was also declared and Corporate Insolvency Resolution Process (“CIRP”) was initiated against the Corporate Debtor. Before the commencement of the CIRP, the Appellant had filed CC No. 552/SS/2017 before the Learned Metropolitan Magistrate, 59th Court, Kurla, Mumbai.  After the commencement of the CIRP, the Appellant filed CC No. 690/ SS/ 2017.

In MA/102/IB/2018 in CP/507/IB/2017 filed by the Respondents, the Hon’ble NCLT by its order dated May 24, 2018 has held that the Appellant had filed proceedings against Corporate Debtor inspite of the order of moratorium dated June 6, 2017. Further, the Appellant was directed to withdraw the aforesaid complaints forthwith, failing which appropriate order would be passed for violation of the moratorium.


The court while considering the issue of Whether the order of moratorium will cover a criminal proceeding under Section 138 of the Act? Observed that “Section 138 is a penal provision, which empowers the Court of competent jurisdiction to pass order of imprisonment or fine, which cannot be held to be proceeding or any judgment or decree of money claim. Imposition of fine cannot held to be a money claim or recovery against the Corporate Debtor nor order of imprisonment, if passed by the court of competent jurisdiction on the Directors, they cannot come within the purview of Section 14. In fact no criminal proceeding is covered under Section 14 of I&B Code”.

The major precise for allowing parallel continuation of proceedings was that the moratorium does not cover criminal proceedings, but it is submitted that while this position might be true, proceedings under the NI Act cannot be classified as criminal proceedings in strict sense.

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