The Allahabad High Court held that on commencement of the insolvency resolution process, the moratorium u/s 14 of I.B.C. prohibiting the proceeding u/s 138/141 N.I. Act will be applicable only against the corporate debtor and not against the natural persons like the directors of the company for their vicarious liability.
Brief Facts:
The respondent no. 2 filed a complaint under Section 138 of the Negotiable Instruments Act against the applicant and his company. The trial court, after perusal of the complaint and other evidence on record, issued a summon to the present applicant being the active director of the company. This was then challenged by the applicant in a revision petition which was rejected by the court. The present applicant has filed a challenging to these impugned orders.
Contentions of the Applicant:
The learned counsel appearing on behalf of the applicant contended that the applicant is the director of the company on whose behalf the cheque in question was issued and as the insolvency proceeding is going on against the company under the Insolvency and Bankruptcy Code, 2016, therefore, as per Section 14 of I.B.C. any proceeding including the proceeding u/s 138 N.I. Act cannot be executed or proceeded further against the company and the applicant, being the director, has not given any guarantee for any amount payable under the cheque in question. it was further submitted that no finding was recorded that the applicant being the director has an active role in day-to-day business.
Contentions of the Respondent:
The learned counsel appearing on behalf of the state submitted that Section 14 of I.B.C. prohibits the execution only against the company and not against the natural person and further submitted that specific allegations were made against the applicant who actively played a role in persuading opposite party No.2 to invest money in the company of the applicant.
Observations of the court:
The court noted that it is clear that the applicant, being director of the company, has played an active role in day to day business of the company and also persuaded opposite party No.2 to invest money in the liquor business. The court further referred to the decision in the case of P. Mohanraj and others vs. M/s Shah Brothers, wherein it was held that moratorium u/s 14 of I.B.C. is applicable against the corporate debtor and not against the natural person like the applicant and further the decision in the case of Narindar Garg and others vs. Kotak Mahindra Bank Ltd., wherein it was held 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.
The court concluded that it is clear that on commencement of the insolvency resolution process, the moratorium u/s 14 of I.B.C. prohibiting the proceeding u/s 138/141 N.I. Act will be applicable only against the corporate debtor and not against the natural persons like the directors of the company for their vicarious liability. The court stated that from the perusal of the complaint as well as the statement of opposite party No.2, it is clear that there are clear allegations against the applicant that he was actually involved in day to day business of the company in question, therefore, he is also liable as per Section 141 of N.I. Act.
The decision of the Court:
The court dismissed the petition.
Case Title: Gurmeher Singh vs State of U.P and Anr.
Coram: Hon’ble Mr. Justice Arun Kumar Singh Deshwa
Case No.: APPLICATION U/S 482 No. - 7597 of 2024
Advocate for the Petitioner: Chandrika Patel, Gunjan Jadwani
Advocate for the Respondent: G.A.
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