Madras High Court affirms: Protection of Moratorium under section 14 of I&B Code is extended only to Corporate Debtor and not to the persons involved in its affairs vis-à-vis. the proceedings under section 138 of the Negotiable Instruments Act, 1881

The Accused No. 3 being the Managing Director of the Accused No. 1 Company filed a Petition before the Hon’ble Madras High Court under section 482 of Cr.P.C. for quashing of the Criminal Complaint filed inter alia against him by the Respondent being the Complainant therein, for an offence under section 138 of the Negotiable Instruments Act, 1881 (“NI Act”).

A cheque was issued by the Accused No. 2 on behalf of the Accused Company as part payment towards the goods supplied by the Complainant. Upon presentation of the said cheque, the same was returned with an endorsement “Account Blocked”. In view thereof, a statutory notice under section 138 of the NI Act was issued by the Respondent/Complainant to the Accused and subsequently, a Complaint was filed in respect thereof.

Admittedly, two of the financial creditors of the Accused Company had also initiated proceedings before the NCLT, wherein an order of admission was passed, and the moratorium had come into effect.

The Petitioner/Accused contended that the cheque was issued after the management of the Accused Company had been taken over by the Interim Resolution Professional. Therefore, the Petitioner/Accused was not in charge of the management/business of the Accused Company and was in no way connected with the Accused Company and the Complaint against him was liable to be quashed.

Further to considering of the above submissions, the Hon’ble Bench also discussed inter alia the decisions given in the cases of M/s Indorama Synthetics (I) Ltd. vs. State of Maharashtra and Anr., M/s. Nag Leathers Pvt. Ltd. vs J.L. Sobhana, Jik Industries Ltd. & Ors. vs. Amarlal v. Jumani & Anr. etc. and held that the issue as to whether by operation of provisions of I&B Code, the criminal prosecution under section 138 r/w 141 of the NI Act, r/w section 200 of Cr. P.C. can be terminated was not something that had not been dealt and decided before. In fact, in view of the judgement of the Hon’ble Supreme Court in P. Mohanraj vs. M/s. Shah Brothers Ispat Pvt. Ltd., wherein it was held that section 138 r/w 141 proceeding against the Corporate Debtor is covered by section 14(1) (a) of I&B Code, however, the moratorium order would not cover the persons other than the Corporate Debtor; it is clear that in respect of the persons other that the Corporate Debtor viz. the Director or the Managing Director, as the case may be, Section 14 of I&B Code would not apply to the proceedings under section 138 NI Act.

In view thereof, the Hon’ble Madras High Court did not find it appropriate to intervene in and/or quash the trial proceedings against the Accused persons associated with the Corporate Debtor. In view thereof, the plea of the Petitioner/Accused was negated by the Hon’ble High Court.