Ganesh Chandra Bamrana and Ors. v. Rukmani Gupta

1. The present petitions are filed seeking quashing of the summoning order dated 01.04.2022 (hereafter ‘the impugned order’) passed by the learned Metropolitan Magistrate (‘MM’), Rouse Avenue Court, Delhi in CC No.9170/2020 for the offence under Section 138 of the Negotiable Instruments Act, 1881 (‘NI Act’), and all consequential proceedings arising therefrom.

2. Briefly stated, the case of the petitioners is that Petitioner No.1 being the suspended director and Petitioner No.2 being the Authorised Signatory of the accused company had issued six cheques on behalf of the company in compliance of the order 24.07.2019 passed by the National Consumer Disputes Redressal Commission in Execution Application 93/2017.

3. Subsequently, two cheques dated 23.07.2019 amounting to ₹5,00,000/- each were presented to the Bank and were duly honoured. Thereafter, the company was admitted to Corporate Insolvency Resolution Process (‘CIRP’) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) and moratorium under Section 14 of the IBC was imposed on 31.10.2019.

4. The cheques in question bearing nos.787733 and 787753 dated 15.01.2020 and 15.03.2020 respectively for a sum of ₹10,00,000/- each were presented for enchashment and the same were returned by the bank as dishonoured for the reason ‘Drawer Signature to operate account not received’.

5. Consequently, the complaint being – CC No. 9170/2020 was filed by the respondent.

6. The learned counsel for the petitioners submits that in view of the moratorium, the cheques were incapable of encashment and hence, the petitioners cannot be held liable for offence under Section 138 of the NI Act. He submits that by virtue of Section 17 of the IBC, from the date of appointment of the IRP, the management of the affairs of the corporate debtor vest in the IRP and the petitioners ceased to have any role in the affairs of the company.

7. He submits that the offence under Section 138 of the NI Act was committed on the date when the petitioners were neither “in charge of” nor “responsible for the conduct of the business of the company”.

8. The limited issue to be addressed in this case is whether proceedings under Section 138 of the NI Act can continue against individuals after the commencement of the CIRP proceedings against the accused company.

9. It is evident that insolvency proceedings against the company were initiated under the provisions of the IBC, and an order under Section 14 of the IBC was issued on 31.10.2019. The IBC explicitly provides that when a corporate debtor is undergoing proceedings before the adjudicating authority (NCLT), the control and management of the corporate debtor are vested in the Interim Resolution Professional (‘IRP’).

10. It is undisputed that the cheques in question were dated 15.01.2020 and 15.03.2020, respectively. However, the IRP was appointed on 31.10.2019, prior to these dates. Consequently, the account was blocked due to the order issued by the NCLT, and this cannot be attributed to the account holder. As a result of the NCLT’s order, the authority and control of the account holder over the account ceased to exist.

11. A coordinate bench of this Court in Govind Prasad Todi & Anr. V. Govt. of NCT of Delhi & Anr.: 2023 SCC OnLine Del 3717, quashed the summoning order in similar circumstances, observing that once a moratorium under Section 14 of the IBC is in effect, proceedings under Section 138 of the NI Act against the corporate debtor cannot continue. It was held as under: “11. In the present case, admittedly, the corporate insolvency resolution process proceedings were admitted against M/s. Ajanta on February 4, 2020. In my opinion in view of the corporate insolvency resolution process proceeding, the moratorium under section 14 kicks in on the same day. The corporate insolvency resolution process vide e-mail dated February 7, 2020 had, in accordance with the provisions of the Insolvency and Bankruptcy Code, directed all the financial institutions not to permit any debit transactions from the account of M/s. Ajanta without written approval. The relevant portion of the e-mail reads as under: “… To not to allow any debit transactions from the account without written approval or instructions of the interim resolution professional…”

13. As is clear from the above, once the corporate insolvency resolution process proceedings have been admitted, the proceedings against the corporate debtor cannot continue. The only question that remains to be answered is whether the petitioners can continue to be prosecuted under section 138 of the Negotiable Instruments Act, in view of them being natural persons.

15. Since from the date of the admission of the corporate insolvency resolution process proceedings, it was the interim resolution professional who was in-charge of and responsible for the conducting the business of the company at the time when the cheques were presented for encashment, it is thus clear that the role of the natural persons had ceased.

16. The instrument, namely, the cheque on the basis of which the complaint was filed could not have been encashed by the financial institutions in view of the mandate of section 14 of the Insolvency and Bankruptcy Code read with sections 17 and 18 of the Insolvency and Bankruptcy Code.

18. On the basis of the combined reading, it is the interim resolution professional who had the authority to operate the bank accounts and on the date of presentation, the petitioners cannot be stated to be in control and management of the affairs of M/s. Ajanta.” (emphasis supplied)