Section 138 NI Act Proceedings Against Corporate Debtor For Cheque Dishonour is Covered Under Section 14 IBC

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Case Title :P Mohanraj and others v M/s Shah Brothers Ispat Ltd and connected cases

Coram: Justices RF Nariman, Navin Sinha and KM Joseph

Case No: CA 10355 of 2018

Court Held: “We hold that a Section 138/141 NI Act proceeding against a corporate debtor is covered by Section 14(1)(a) of the IBC”, Justice RF Nariman said reading out the operative portion of the judgment.

“…for the period of moratorium, since no Section138/141 proceeding can continue or be initiated against the corporate debtor because of a statutory bar, such proceedings can be initiated or continued against the persons mentioned in Section 141(1) and (2) of the Negotiable Instruments Act.

This being the case, it is clear that the moratorium provision contained in Section 14 of the IBC would apply only to the corporate debtor, the natural persons mentioned in Section 141continuing to be statutorily liable under Chapter XVII of the Negotiable Instruments Act”.

“Given our analysis of Chapter XVII of the Negotiable Instruments Act together with the amendments made thereto and the case-law cited hereinabove, it is clear that a quasi-criminal proceeding that is contained in Chapter XVII of the Negotiable Instruments Act would, given the object and context of Section14 of the IBC, amount to a “proceeding” within the meaning of Section14(1)(a), the moratorium, therefore, attaching to such proceeding”.


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