Telangana High Court
Mr. T. Venkat Ram Reddy vs State Of Telangana on 22 March, 2024
Author: K. Lakshman
Bench: K. Lakshman
HON'BLE SRI JUSTICE K. LAKSHMAN
CRIMINAL PETITION Nos.4816, 8283 AND 8311 OF 2019
C
COMMON ORDER:
Heard Mr. N. Naveen Kumar, learned counsel for the petitioners in all the aforesaid Criminal Petitions, Mr. T. Pradyumna Kumar Reddy, learned senior counsel representing Mr. Kondaparthy Kiran Kumar, learned counsel for respondent No.2 in Crl.P. No.4816 of 2019, Mr. Dishit Bhattacharjee, learned counsel for respondent No.2 in Crl.P. No.8283 of 2019 and Mr. K. Sairam Murthy, learned counsel for respondent No.2 in Crl.P. No.8311 of 2019.
2. Criminal Petition No.4816 of 2019 is filed under Section - 482 of the Code of Criminal Procedure, 1973, to quash the proceedings in C.C. No.206 of 2017 on the file of III Special Magistrate, Erramanzil, Hyderabad, against the petitioners - accused Nos.2 and 3. Criminal Petition No.8283 of 2019 is filed by accused Nos.2 and 3 therein to quash the proceedings in C.C. No.498 of 2013 on the file of XI Special Magistrate, Hyderabad against them, while Criminal Petition No.8311 of 2019 is filed by the very same petitioners - accused Nos.2 and 3 to quash the proceedings in C.C. 2 KL, J CrlP No.4816 of 2019 &batch No.707 of 2013 on the file of XI Special Magistrate, Hyderabad against them.
3. The petitioners herein are arraigned as accused Nos.2 and 3 in all the aforesaid Calendar Cases i.e., C.C. No.206 of 2017, C.C. No.498 of 2013 and C.C. No.707 of 2013. Respondent No.2 herein in all the Criminal Petitions is different complainant banks i.e., Axis Bank Limited, ICICI Bank Limited and Canara Bank. For the sake of convenience, the parties are hereinafter referred to as they were arrayed in Crl.P. No.4816 of 2019.
4. The offence alleged against the petitioners herein is under Section - 138 read with 141 of the Negotiable Instruments Act, 1881 (for short 'Act, 1881'). Since the lis involved in all these petitions is one and the same, all these criminal petitions are being disposed of by way of common order.
5. Criminal Petition No.4816 of 2019 arises out of C.C. No.206 of 2017. The allegations levelled in the said C.C. are that accused No.1 - Deccan Chronicle Holdings Limited (DCHL) is a private limited company. Petitioner No.2 herein - accused No.2 is its Director and Authorized Signatory, while petitioner No.1 - accused No.3 and 3 KL, J CrlP No.4816 of 2019 &batch accused No.4 are Directors, who were actively involved in day-to-day activities of accused No.1 Company in its functions.
i) Respondent No.2 - Axis Bank Ltd. sanctioned certain additional loan facilities amounting to Rs.100.00 Crores for the purpose of meeting various requirements of the company (Cash Credit) against primary security of hypothecation of stock and current assets of the company and collateral security of immovable properties of the Company held under equitable mortgage and also against personal guarantee of accused Nos.3 and 4.
ii) The petitioners herein had issued five account payee cheques bearing Nos.064276; 064277; 064278; 064279 and 064280, all dated 05.11.2012 for Rs.16,67,00,000/- each, making a total amount of Rs.83,33,00,000/- towards part payment of the loan account of the DCHL maintained with Axis Bank. When the said cheques were presented for encashment, they were returned with an endorsement 'Account Blocked situation covered in 2125', and thereby the petitioners and other accused cheated the said Bank.
iii) After complying with due procedure laid down under the Negotiable Instruments Act, 1885 (for short 'Act, 1885'), the said 4 KL, J CrlP No.4816 of 2019 &batch Bank had filed a complaint under Section - 200 of Cr.P.C. and the same was taken as C.C. and the same is pending for trial.
6. Criminal Petition No.8283 of 2019 arising out of C.C. No.498 of 2013. The allegations levelled against the accused in the said C.C. are that the petitioners herein - accused Nos.2 and 3 and other accused are Chairman, Vice-Chairman, Additional Director and Directors of accused No.1 - DCHL. The petitioners herein are also personal guarantors for repayment of dues of the complainant therein - M/s. ICICI Bank Limited.
i) Pursuant to the Board Resolution dated 18.06.2012, M/s.
ICICI Bank Limited had sanctioned Term Loan called Long Term Working Capital (LTWC) for an amount of Rs.3,500.0 million to DCHL. DCHL represented by petitioner No.2 herein and another executed a Corporate Rupee Loan Facility Agreement for the said amount. In order to secure the said loans, DCHL represented by petitioner No.2 herein and accused No.4 had executed a deed of hypothecation dated 18.06.2012 creating first pari-passu charge over the current and movable assets of the company. After availing the said facility, DCHL failed to repay the same. Therefore, the Bank had 5 KL, J CrlP No.4816 of 2019 &batch recalled all the loan facilities and declared an amount of Rs.511,71,15,341.67 ps. as due and payable to it.
ii) After repeated requests made by M/s. ICICI Bank, accused No.1 represented by the petitioners herein and other accused have issued a cheque bearing No.720040, dated 06.11.2012 for an amount of Rs.350.00 Crores drawn on Canara Bank, Prime Corporate Branch, Secunderabad in due discharge of part of liabilities towards outstanding dues of the LTWC facility to the said bank. Petitioner No.2 herein being the Vice-Chairman and authorized signatory of accused No.1 signed the said cheque.
iii) When the aforesaid cheque was presented on 21.11.2012 for encashment, the same was returned with an endorsement 'funds insufficient' vide cheque return memo dated 22.11.2012 issued by Canara Bank. Accused No.1 represented by petitioner No.2 herein having issued the cheque with a dishonest and mala fide intention failed to maintain sufficient funds. Thus, petitioner No.2 herein being the signatory of the cheque and petitioner No.1 herein and other accused being Directors of accused No.1 have committed an offence under Section - 138 read with 141 of the Act, 1881. 6
KL, J CrlP No.4816 of 2019 &batch
7. Criminal Petition No.8311 of 2019 arises out of C.C. No.707 of 2013. The allegations levelled against the petitioners - accused Nos.2 and 3 are that the petitioners herein and accused Nos.1 and 4 approached the complainant bank therein i.e., Canara Bank for sanction of credit facility of Rs.150.00 Crores for the purpose of running their business. Petitioner No.1 herein is the Chairman of M/s. DCHL and petitioner No.2 is its Vice-Chairman. Pursuant to the discussions held and the resolution passed by DCHL, Canara Bank sanctioned the short term corporate loan of Rs.150.00 Crores on 29.12.2011 to DCHL. Petitioner No.2 had executed various loan documents in favour of the Bank for credit facilities available by DCHL as per Board Resolution dated 16.12.2011.
i) The repayment of said loan was in five (05) monthly installments @ Rs.30.00 Crores each. Petitioner No.2 herein had given post dated cheques of DCHL for the entire loan amount and the fifth installment cheque bearing No.715309, dated 31.12.2012 for Rs.30.00 Crores drawn on Canara Bank, Prime Corporation Branch, Secunderabad when presented for encashment on 31.12.2012 was returned with an endorsement 'exceeds arrangement' by cheque return memo dated 31.12.2012.
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KL, J CrlP No.4816 of 2019 &batch
ii) Petitioner No.2, in the capacity of Authorized Director of DCHL had issued the aforesaid cheque in discharge of lawful debt payable by DCHL to the bank and petitioner No.1 herein being Chairman and other accused being Vice-Chairman did not maintain sufficient funds in the account of DCHL. Therefore, they have committed an offence under Section - 138 read with 141 of the Act, 1881.
8. The petitioners herein - accused Nos.2 and 3 in the aforesaid C.Cs. filed the present criminal petitions to quash the proceedings against them contending as follows:
i) Vide order dated 03.06.2019, the National Company Law Tribunal (NCLT) directed all Financial Creditors of DCHL including the aforesaid Banks to withdraw all action initiated against DCHL and waive all rights to proceed against it in future. In view of the same and as per Section - 31 of the Insolvency and Bankruptcy Code, 2016 (for short 'IBC'), the aforesaid Banks ought to have withdrawn the complaint, but they were not followed the said direction.8
KL, J CrlP No.4816 of 2019 &batch
ii) As per Section - 141 of N.I. Act, the petitioners herein are only vicariously liable for the acts of DCHL and have no personal liability as such. When all the proceedings against DCHL were directed to be withdrawn and waived by the NCLT, the proceedings against the petitioners herein cannot be continued. Thus, the petitioners cannot be prosecuted in personal capacity.
iii) There was compromise/settlement between the aforesaid banks and DCHL and, therefore, there is no legally enforceable debt existing. As such, the proceedings are liable to be quashed against the petitioners herein in the aforesaid CCs.
iv) The contents of the complaint lack the requirements of Section - 141 of the Act, 1881, and if such requirements are not prima facie satisfied for continuation of prosecution against the accused, the proceedings against the petitioners herein have to be quashed.
v) Criminal liability on account of dishonour of cheques extends to the Officers of the Company only when the 9 KL, J CrlP No.4816 of 2019 &batch conditions incorporated in Section - 141 of the Act, 1881 stand satisfied.
vi) No averments against the petitioners herein that they are In-charge of the conduct of the business of the Company or the persons responsible for managing the affairs of the Company to comply with the requirements of Section - 141 of the Act, 1881.
vii) Mere allegation that the petitioners are active participants of the company and are signatories for various documents would not per se fasten liability against them for the offence under Section - 138 of the Act, 1881. They placed reliance on the principle laid down by the Hon'ble Supreme Court in Ashok Shewakramani v. State of A.P. 1
viii) Omnibus allegation that the petitioners are involved and responsible for the day-to-day affairs of the company is not sufficient to contend that they have committed the aforesaid offence.
1 . (2023) 8 SCC 473 10 KL, J CrlP No.4816 of 2019 &batch
ix) Resolution Plan entered to withdraw all other claims pending against each other arising out of debt, as such, continuation of proceedings under the Act,1881 would be an abuse of process of law.
x) They relied upon the following Clauses of Resolution Plan:
(a) As per Clause 3.7.1, since all liabilities of the financial and operational creditors of the Corporate Debtor are being restructured and shall stand paid/assumed by the Resolution Applicant/SPV as per the Resolution Plan, all litigations, adjudications, inquiries, investigations or proceedings against the Corporate Debtor or the affairs of the Corporate Debtor shall stand settled at NIL value as against any amount determined to be paid by the Corporate Debtor;
(b) As per Clause - 3.7.2, without prejudice to the above, the existing promoters, existing shareholders, directors or other personnel of the Corporate Debtor shall continue to be liable for all the claims arising out 11 KL, J CrlP No.4816 of 2019 &batch of any proceedings prior to the effective date or the resolution applicant shall at no point of time be directly or indirectly held responsible or liable in relation thereto.
(c) As per Clause - 11.4, the Adjudicating Authority to pass necessary orders/give appropriate directions that the financial creditors shall withdraw all action initiated or suits or other proceedings for recovery filed by them against the Corporate Debtor and waive their rights to further proceedings against the Corporate Debtor in respect of existing claims.
(d) It was observed by the NCLT, Hyderabad Bench, in its orders dated 03.06.2019 that the relief sought in Clause - 11.4 can be granted in favour of the Resolution Applicant. However, the relief sought in Clause - 11.5 among others to stop the investigation by CBI or SFIO was not granted as the same is against the law.
(e) In view of the aforesaid Clauses of the Resolution Plan, the parties intend to withdraw all the claims 12 KL, J CrlP No.4816 of 2019 &batch pending against each other including that of the criminal proceedings, as such, in the light of the fact that liability against the Corporate Debtor is also settled by approval of the resolution plan. Therefore, continuation of proceedings against the Directors of the Corporate Debtor would be an abuse of process of law.
xi) Though compounding requires consent of both parties even in the absence of such consent, the Court in the interests of justice, on being satisfied that the complainant has been duly compensated can its discretion close the proceedings and discharge the accused.
Reliance was placed on the principle laid down by the Apex Court in M/s. Meters and Instruments Private Limited v. Kanchan Mehta 2.
xii) Unlike that for other forms of crime, punishment herein is not a means of seeking retribution, but is more a means to ensure payment of money. The complainant's interest lies primarily in recovering the money rather than seeing 2 . (2018) 1 SCC 560 13 KL, J CrlP No.4816 of 2019 &batch the drawer of the cheque in jail. The threat of jail is only a mode to ensure recovery.
xiii) The object of the statute i.e., N.I. Act is to facilitate the smooth functioning of business transactions. The provision is necessary as in many transactions cheques were issued merely as a device to defraud the creditors. At the same time, it was also noted that the nature of the offence under Section - 138 was primarily related to a civil wrong and the 2002 Amendment specifically made it compoundable. The offence is also described as a regulatory offence.
xiv) Though the proceedings under Section - 138 of the Act, 1881 could not be treated as civil suits for recovery, the scheme of the provision, providing punishment with imprisonment or with a fine which could extend to twice the amount of the cheque or to both made the intention of the law clear.
xv) Since the CIRP proceedings are concluded with the consent of both the parties and the liability of the debt stands waived against the complainant herein, the 14 KL, J CrlP No.4816 of 2019 &batch impugned proceedings may be quashed as compounded between the parties. Reliance was placed on the principle laid down by the Apex Court in P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd. 3.
xvi) A complaint should also not be read with a pedantically hyper-technical approach to deny relief under Section - 482 of the Cr.P.C. to those impleaded as accused, who does not have any criminal liability in respect of the offence alleged in the complaint. A Director of a company who was not in-charge or responsible for the conduct of the business of the company at the relevant time, will not be liable under those provisions. It would be a travesty of justice to drag Directors, who may not even be connected with the issuance of a cheque or dishonour thereof, such as Director (Personnel), Director (Human Resources Development) etc., into criminal proceedings under the Act, 1881, only because of their designation. Reliance was placed on the principle laid 3 . (2021) 6 SCC 258 15 KL, J CrlP No.4816 of 2019 &batch down by the Apex Court in Sunita Palita v. Panchami Stone Quarry 4.
xvii) In case of a Director, the complaint should specifically spell out how and in what manner the Director was in- charge of or was responsible to be accused company for conduct of its business and mere bald statement that he or she was in-charge of and was responsible to the company for conduct of its business is not sufficient. Reliance was placed on the principle laid down by the Apex Court in Anita Malhotra v. Apparel Export Promotion Council 5.
xviii) A vicarious liability would be attracted only when the ingredients of Section 141 (1) of the Act, 1881 are satisfied. Merely because somebody is managing the affairs of the company per se he would not become in- charge of the conduct of the business of the company or the person responsible to the company for the conduct of the business of the company. Placed reliance on the 4 . (2022) 10 SCC 152 5 . (2012) 1 SCC 520 16 KL, J CrlP No.4816 of 2019 &batch principle laid down by the Apex Court in Siby Thomas v. Somany Ceramics Ltd. 6.
With the aforesaid submissions, the petitioners sought to quash the proceedings in the aforesaid C.Cs. against them.
9. Respondent No.2 bank in Crl.P. No.4816 of 2019 filed counter opposing for quashing the proceedings in the aforesaid petition by contending as follows:
i) The criminal petition filed by the petitioners is not maintainable as they have filed similar petition vide Crl.P. No.10180 of 2013 seeking to quash the proceedings in the very same C.C. No.206 of 2017 and the said petition was dismissed by this Court vide order dated 03.06.2014. Thus, the petitioners suppressed the factum of filing earlier petition. Even the criminal petition filed by the DCHL vide Crl.P. No.10179 of 2013 was also dismissed.
ii) While so, during pendency of trial in the aforesaid C.Cs., one of the financial creditors of the DCHL i.e., Canara Bank filed a Company Petition under Section - 7 of the IBC for initiating CIRP against the DCHL before the NCLT, Hyderabad Bench vide C.P. 6 . 2023 SCC OnLine SC 1299 17 KL, J CrlP No.4816 of 2019 &batch No.IB/41/7/HDB/2017 and the same was admitted vide order dated 05.07.2017. As per the provisions of IBC, moratorium was declared vide order dated 19.07.2017 and a public announcement of initiation of CIRP was caused. By virtue of declaration of moratorium under Section - 41 of IBC, all civil proceedings against DCHL i.e., Corporate Debtor, were stayed and no new proceedings could be instituted. Thus, Section - 41 of IBC has no bearing on initiation of criminal proceedings as proceedings under IBC are essentially civil in nature and cannot bar any criminal cases. Further, Section - 41 (d) of the Specific Relief Act, 1963 expressly states that no injunction can be granted to restrain any person from instituting or prosecuting any proceeding in a criminal matter. In support of the same, it has placed reliance on the decision in P. Mohanraj3.
iii) Even assuming without admitting that this respondent bank waived all its rights in terms of the approved Resolution Plan, such waiver would be hit by operation of law under Sections - 23 and 24 of the Indian Contract Act, 1872, which makes a contract void, where the object and consideration are not lawful. Section - 23 of the Indian Contract Act, expressly states that consideration or object of the agreement is unlawful if permitted, it would defeat the provision of 18 KL, J CrlP No.4816 of 2019 &batch any law or the Court regards it as immoral or opposed to public policy. As stated above, an agreement which is civil in nature foregoing or waiving one or any of the rights available under law to the complainant to prosecute the accused for a punishable offence under law is void to that extent. In fact, the Resolution Plan is under challenge before the NCLAT and it is subject to the outcome of Company Appeals filed by IDBI Bank and Canara Bank.
iv) Unless the offence committed is subsequently decriminalized ex post facto, a person accused of such offence is liable to be prosecuted. Thus, the subsequent event of approval of Resolution Plan does not change the status of offence as on the date of its commission and in no way creates a ground for quashing the proceedings against the petitioners.
v) There are many triable issues and the petitioners herein have to face trial and prove their innocence. The matters are posted for trial and quashment of the proceedings in the said C.Cs. at this stage is impermissible. Reliance was placed on the principle laid down by the Apex Court in Ajay Kumar Radheyshyam Goenka v. Tourism 19 KL, J CrlP No.4816 of 2019 &batch Finance Corporation of India Limited 7 and Anjali Rathi v. Today Homes & Infrastructure Pvt. Ltd. 8, and also Ashok B. Jeswani v. Redington India Ltd. 9 rendered by Madras High Court. With the aforesaid contentions, respondent banks sought to dismiss all the aforesaid criminal petitions.
10. Mr. N. Naveen Kumar, learned counsel for the petitioners in all the aforesaid Criminal Petitions, Mr. T. Pradyumna Kumar Reddy, learned senior counsel representing Mr. Kondaparthy Kiran Kumar, learned counsel for respondent No.2 in Crl.P. No.4816 of 2019, Mr. Dishit Bhattacharjee, learned counsel for respondent No.2 in Crl.P. No.8283 of 2019 and Mr. K. Sairam Murthy, learned counsel for respondent No.2 in Crl.P. No.8311 of 2019 made their respective submissions extensively, and this Court gave thoughtful consideration to the same.
11. In the light of the aforesaid submissions, it is relevant to extract Section - 141 of the Act, 1881 and the same is as under:
"141. Offences by companies.-- (1) If the person committing an offence under section 138 is a company, every 7 . (2023) 10 SCC 545 8 . 2021 SCC OnLine SC 729 9 . (2023) IBCLaw.In 1015 HC 20 KL, J CrlP No.4816 of 2019 &batch person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:
Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.
(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.21
KL, J CrlP No.4816 of 2019 &batch Explanation :--For the purposes of this Section,--
(a) "company" means anybody corporate and includes a firm or other association of individuals; and
(b) "director", in relation to a firm, means a partner in the firm."
12. In all the complaints, it is stated by the complainants - banks that DCHL is represented by its Authorized Signatory and Director, Mr.T. Vinayak Ravi Reddy. The said DCHL is arraigned as accused No.1, while Mr. T. Vinayak Ravi Reddy as accused No.2 and Mr. T. Venkatram Reddy as accused No.3, Director and Guarantor of DCHL. In the said complaints, it is specifically averred that accused No.1 is a private limited company and accused No.2 is the Director and Authorized Signatory and accused Nos.3 and 4 are the Directors of accused No.1 Company who are actively involved in day-to-day activities of the Company in its functions and, as such, they are responsible for the acts of the Company. It is also specifically mentioned that accused Nos.3 and 4 stood as personal guarantors for the said loan. Therefore, there is specific assertion in the complaint that petitioner No.1 - Mr. T. Vinayak Ravi Reddy is the Director and Authorized Signatory of DCHL. He only signed the cheques in 22 KL, J CrlP No.4816 of 2019 &batch dispute. Therefore, he cannot contend that he is not responsible for the day-to-day affairs of accused No.1 company and the proceedings in the aforesaid C.Cs. cannot go on is unsustainable.
13. As far as petitioner No.2 is concerned, he is not only a Director, but also stood as personal guarantor to the loan taken by accused No.1 Company - DCHL and, therefore, he is also responsible for day-to-day affairs of the Company. Therefore, the contention of the petitioners that they are not responsible for the day-to-day affairs of accused No.1 Company and that there is no specific averment in the complaint that they are responsible for day-to-day affairs of the Company and that they have not committed the aforesaid offence is also unsustainable. However, it is a factual aspect and triable issue, which has to be considered by the trial Court after full-fledged trial and the petitioners have to face trial and prove the same.
14. It is relevant to note that petitioner No.2 - Mr. T. Venkatram Reddy (Accused No.3) and accused No.4 in C.C. No.206 of 2017 have filed a criminal petition vide Crl.P. No.10180 of 2013 seeking to quash the proceedings in C.C. No.500 of 2013 against them. Similarly, accused No.1 - DCHL and petitioner No.1 herein - 23
KL, J CrlP No.4816 of 2019 &batch Mr. T. Vinayak Ravi Reddy (Accused No.2) in C.C. No.206 of 2017 have filed separate criminal petition vide Crl.P. No.10179 of 2013 seeking to quash the proceedings in the very same C.C. viz., C.C. No.500 of 2013 against them. Vide common order dated 03.06.2014, the High Court of Judicature for the States of Telangana and Andhra Pradesh at Hyderabad, dismissed both the said petitions.
15. In the said criminal petitions, accused Nos.1 to 4 including the petitioners herein specifically contended that the cheques were not issued towards clearance of any legally enforceable debt, but towards security without date mentioned in the cheque. To fasten liability against the accused for the offence under Section - 138 of the Act, 1881, a specific role has to be attributed to the accused in the complaint showing as to how and in what manner the Managing Director or Directors were responsible for the conduct of the business of the Company. It is further contended by the petitioners - accused therein that it is generally mentioned that the accused are actively involved in day-to-day activities of the Company and its function and, therefore, they are not responsible for the acts of the Company. Such a vague and general allegation according to the accused is not sufficient to prosecute them for the offence under Section - 138 read 24 KL, J CrlP No.4816 of 2019 &batch with 141 of the Act, 1881. Considering the said contentions and also the principle laid down by the Apex Court in K.K. Ahuja v. V.K. Vora 10, National Small Industries Corporation Limited v. Harmeet Singh Paintal 11 and A.K. Singhania v. Gujarat State Fertilizer Co. Ltd. 12, the said criminal petitions were dismissed.
16. As discussed above, in the aforesaid Calendar Cases also, there is specific assertion that petitioner No.2 - accused No.3 is also Director of accused No.1 Company stood as personal guarantor to the subject loan as he is responsible for the day-to-day affairs of accused No.1 Company.
17. It is further contended that Canara Bank and IDBI Bank have filed petitions under Section - 7 of the Insolvency and Bankruptcy Code, 2016, and the NCLT, Hyderabad Bench admitted the same, therefore, the present proceedings cannot go on against the petitioners herein. It is the specific contention of the complainant - bank that the order of NCLT, Hyderabad Bench is not worked out and that there are subsequent proceedings. Therefore, on the said ground, the proceedings cannot be quashed. Protection is only to Corporate 10 . (2009) 10 SCC 48 11 . (2010) 3 SCC 330 12 . AIR 2014 SC 71 25 KL, J CrlP No.4816 of 2019 &batch Debtor, but not to the individuals. However, appeals filed by the banks are pending before the NCLT.
18. In P. Mohanraj3, wherein the petitioners are Corporate Debtors have filed an application under Section - 9 of the Insolvency and Bankruptcy Code, a Three-Judge Bench of the Apex Court considering the said facts held that the proceedings initiated under Section - 138 of the Act, 1881 falls within the scope of Section 14 (1)
(a) of the Insolvency and Bankruptcy Code. In paragraph No.102 of the said judgment, the Apex Court made it clear that interim moratorium in a Corporate Debtor's application will not extend to the natural persons, who are prosecuted under Section - 138/142 of the Act, 1881. Section - 14 of the Insolvency and Bankruptcy Code will apply only to the Corporate Debtor, the natural persons mentioned in Section - 141 of the Act, 1881 continue to be statutorily liable. Paragraph No.102 of the said judgment is extracted as under:
"102. Since the corporate debtor would be covered by the moratorium provision contained in Section 14 IBC, by which continuation of Sections 138/141 proceedings against the corporate debtor and initiation of Sections 138/141 proceedings against the said debtor during the corporate insolvency resolution process are interdicted, what is stated in 26 KL, J CrlP No.4816 of 2019 &batch paras 51 and 59 in Aneeta Hada [Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 : (2012) 3 SCC (Civ) 350 : (2012) 3 SCC (Cri) 241] would then become applicable. The legal impediment contained in Section 14 IBC would make it impossible for such proceeding to continue or be instituted against the corporate debtor. Thus, for the period of moratorium, since no Sections 138/141 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 Sections 141(1) and (2) of the Negotiable Instruments Act.
This being the case, it is clear that the moratorium provision contained in Section 14 IBC would apply only to the corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instruments Act."
19. It is relevant to note that in Ajay Kumar Radheyshyam Goenka7, a Three-Judge Bench of the Apex Court considered the judgment rendered by it in P. Mohanraj3 and reiterated that if the guarantor does not get the benefit of extinguishment of debt under Section - 31 of the Insolvency and Bankruptcy Code, then similarly for extinguishment of debt, the Signatory/Director cannot get any benefit. If the argument that the Signatories/Directors are not liable to be proceeded under Sections - 138/141 of the Act, 1881 once the 27 KL, J CrlP No.4816 of 2019 &batch resolution plan is approved, the same may lead to absurd situations. The moratorium given to the Corporate Debtor under Chapter - II will not cover the individuals, who are the Guarantors of Directors. Similarly, the moratorium given to an individual under Chapter - III will not cover the proceedings initiated against them as Directors or Guarantors of any Company, which is not a Corporate Debtor under the Code. In Ashok B. Jeswani9, the Madras High Court also considered the said aspects.
20. In Anjali Rathi8, the Apex Court considered the principle laid down by it in P. Mohanraj3 and clarified that the petitioners therein would not be prevented by the moratorium under Section - 14 of the of the Insolvency and Bankruptcy Code from initiating proceedings against the promoters of the first respondent Corporate Debtor therein in relation to honoring the settlements reached before this Court. However, the Apex Court held that it cannot issue such a direction relying on a Resolution Plan which is still pending approval before an Adjudicating Authority.
21. As discussed above, in P. Mohanraj3, the Apex Court clarified that the protective ambit of Section - 14 of the Insolvency 28 KL, J CrlP No.4816 of 2019 &batch and Bankruptcy Code, exclusively shields the Corporate Debtor and does not extend to its Signatories or Directors. The Court explicitly stated that the moratorium under Section - 14 of the Insolvency and Bankruptcy Code, is applicable solely to the Corporate Debtor, while individuals outlined in Section - 141 of the Act, 1881, including Signatories and Directors, retain their statutory liability. The Apex Court affirmed that the initiation of criminal proceedings against natural persons under Section - 138 read with 141 of the Act, 1881 is not terminated by the Insolvency and Bankruptcy Code. Consequently, the Resolution Plan, as delineated in its Clauses, may signify the withdrawal of legal proceedings against the Corporate Debtor in relation to existing claims. Corporate Debtor's relief from legal proceedings does not automatically absolve natural persons associated with it, such as Directors, from their liabilities. They shall persist in their capacity and remain subject to criminal proceedings, thereby distinguishing their legal standing from that of the Corporate Debtor.
22. In the light of the above said principle, coming to the case on hand, as discussed above, the petitioners herein are facing criminal 29 KL, J CrlP No.4816 of 2019 &batch proceedings as Director and Authorized Signatory and Signatory of the cheque and Director of accused No.1 Company respectively under 'natural person' as defined under Section - 141 of the Act, 1881. Therefore, they are liable for prosecution.
23. As discussed above, there are many triable issues. Therefore, the petitioners herein cannot seek quashment of proceedings in the aforesaid C.Cs. against them. Thus, viewed from any angle, the petitioners have not made out any ground to quash the proceedings and, therefore, the criminal petitions fails and the same are liable to be dismissed.
24. All these Criminal Petitions are accordingly dismissed. As a sequel, miscellaneous petitions, if any, pending in the criminal petitions shall stand closed.
_________________ K. LAKSHMAN, J 22nd March, 2024 Mgr