Dineshchandra Bhagwandas ... vs State Of Gujarat
2021 Latest Caselaw 7341 Guj

    R/SCR.A/8577/2019                           JUDGMENT DATED: 01/07/2021




             IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

      R/SPECIAL CRIMINAL APPLICATION NO. 8577 of 2019
                            With
CRIMINAL MISC.APPLICATION (FOR VACATING INTERIM RELIEF) NO.
                          1 of 2021
                              In
       R/SPECIAL CRIMINAL APPLICATION NO. 8577 of 2019

                                 With
       R/SPECIAL CRIMINAL APPLICATION NO. 8578 of 2019
                            With
CRIMINAL MISC.APPLICATION (FOR VACATING INTERIM RELIEF) NO.
                          1 of 2021
                              In
       R/SPECIAL CRIMINAL APPLICATION NO. 8578 of 2019



FOR APPROVAL AND SIGNATURE:

HONOURABLE MS. JUSTICE GITA GOPI

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1     Whether Reporters of Local Papers may be allowed
      to see the judgment ?

2     To be referred to the Reporter or not ?

3     Whether their Lordships wish to see the fair copy
      of the judgment ?

4     Whether this case involves a substantial question
      of law as to the interpretation of the Constitution
      of India or any order made thereunder ?

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                 DINESHCHANDRA BHAGWANDAS JARIWALA
                                Versus
                          STATE OF GUJARAT
================================================================
Appearance:
MR VISHWAS K SHAH (5364) for the Applicant(s) No. 1, 2
MS MOHINI K SHAH (775) for the Applicant(s) No. 1
MR NANDISH H THACKAR (7008) for the Respondent(s) No. 2
MS MONALI BHATT, ADDL. PUBLIC PROSECUTOR (2) for the
Respondent(s) No. 1


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      R/SCR.A/8577/2019                            JUDGMENT DATED: 01/07/2021



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     CORAM: HONOURABLE MS. JUSTICE GITA GOPI

                              Date : 01/07/2021

                             ORAL JUDGMENT

1. Both these petitions involve identical questions on law and facts and hence, they are decided by this common judgment.

2. RULE. Learned Additional Public Prosecutor Ms. Bhatt appearing for respondent No.1 and learned advocate Mr. Nandish Thackar appearing for respondent No.2 waive service of notice of rule on behalf of the respective respondents. With the consent of both the sides, the matters are heard today finally.

3. In Special Criminal Application No.8577 of 2019, the petitioners, original accused Nos.1 & 2, have challenged the order dated 27.08.2019 passed by the Court of learned Additional Chief Judicial Magistrate, Surat in Criminal Case No.54043 of 2015 below application Exhibit-70 whereby, the said application preferred by the petitioners seeking stay of the trial for a period of 180 days on the ground of the Company being under moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "IBC") came to be rejected.

3.1 In Special Criminal Application No.8578 of 2019, the petitioners, original accused Nos.1 & 2, have challenged the order dated 27.08.2019 passed by the same Court in Criminal Case No.26681 of 2015 below application Exhibit-92 whereby, the application filed on similar grounds also came to be rejected.

R/SCR.A/8577/2019 JUDGMENT DATED: 01/07/2021

4. For the purpose of narration of facts, Special Criminal Application No.8577 of 2019 is taken as the lead matter:-

The petitioners herein are the Directors of "Swiss Ribbons Private Limited", which is a company registered under the Companies Act, 1956. It is the say of the petitioners that some where in the year 2013, they had borrowed Rs.5,00,000/- from respondent No.2 herein for business purpose. In April 2015, the petitioners issued six post-dated cheques in favour of respondent No.2 totalling Rs.5,00,000/-. In June 2015, respondent No.2 deposited the cheques; however, the same were returned with the endorsement "Payment stopped by Drawer". On 06.07.2015 respondent No.2 sent a statutory demand notice to the petitioners, which, ultimately, culminated into the filing of a complaint under Section 138 of the NI Act. On 14.08.2015 the trial Court concerned issued process against the petitioners for the offence under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as the "NI Act").

4.1 In January 2018, on a petition filed by one of the Financial Creditors under Section 7 of the IBC, the Company was admitted for initiation of Corporate Insolvency Resolution Process (CIRP) and moratorium under Section 14 of the IBC was declared vide order dated 16.07.2019 passed by the National Company Law Tribunal, Mumbai Bench in CP (IB) No.1880 / NCLT / MB / 2018.

4.2 In August 2019, the petitioners preferred application Exhibit-70 before the trial Court praying for stay of the proceedings under the NI Act on the ground that the Company of which the petitioners are the Directors is under moratorium under Section 14 of the IBC and therefore, the trial

R/SCR.A/8577/2019 JUDGMENT DATED: 01/07/2021

of the case is required to be stayed for a period of 180 days. However, the said application came to be rejected by way of the impugned order. Hence, these petitions.

5. Learned advocate Mr. Vishwas Shah for the petitioners submitted that the proceeding under the NI Act would be covered by the moratorium declared under Section 14 of the IBC. He drew attention of the Court to the provisions of Section 14 of the IBC to submit that the institution of suit or proceedings, which include criminal proceeding similar to the one on hand, is expressly barred when a moratorium is declared under Section 14 of the IBC. He, therefore, submitted that the Court below seriously erred in law in rejecting the applications filed by the petitioners.

6. Learned advocate Mr. Nandish Thackar appearing for the respondent-complainant submitted that Section 138 of the NI Act is a penal provision, which empowers the trial Court concerned to pass an order of imprisonment or fine and such proceeding cannot be held to be proceeding or any judgment or decree of money claim. It was contended that imposition of fine cannot be held to be a money claim or recovery against the Corporate Debtor nor an order of punishment, if passed by the Court of competent jurisdiction on the Directors, would come within the purview of Section 14 of the IBC. It was, therefore, urged that no criminal proceeding is covered under Section 14 of the IBC.

6.1 In support of his submissions, learned advocate Mr. Thackar placed reliance upon a recent decision of the Apex Court in the case of P. Mohanraj and others V. Shah Brothers Ispat Pvt. Ltd., 2021 SCC OnLine SC 152, more particularly, on the observations made in para-

      R/SCR.A/8577/2019                              JUDGMENT DATED: 01/07/2021



103, which reads thus:-

"103. Since the corporate debtor would be covered by the moratorium provision contained in Section 14 of the IBC, by which continuation of Section 138/141 proceedings against the corporate debtor and initiation of Section 138/141 proceedings against the said debtor during the corporate insolvency resolution process are interdicted, what is stated in paragraphs 51 and 59 in Aneeta Hada (supra) would then become applicable. The legal impediment contained in Section 14 of the 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 Section 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 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 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instruments Act."

7. Learned Additional Public Prosecutor Ms. Bhatt supported the submissions advanced by learned advocate Mr. Thackar and requested that both the petitions may be rejected.

8. Having heard the learned advocates on both the sides, a very limited question arises for consideration in these two petitions - Whether the order of moratorium under Section 14 of the IBC interdicts a criminal proceeding under Section 138 of the NI Act or not ? Before we delve into the merits of the case, a reference to the provisions of Section 14 of the IBC is apposite.

"14. Moratorium. -

(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority

R/SCR.A/8577/2019 JUDGMENT DATED: 01/07/2021

shall by order declare moratorium for prohibiting all of the following, namely :-

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

(2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.

(3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

(4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process:

Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be."

R/SCR.A/8577/2019 JUDGMENT DATED: 01/07/2021

9. There is no quarrel on the issue that under the provisions of Section 14(1)(a) of the IBC, the institution of suits or continuation of pending suits or proceedings against the Corporate Debtor, including execution of any judgment, decree or order in any Court of Law, Tribunal, Arbitration panel or other authority, shall remain prohibited until the period when the moratorium remains in force. The moratorium under Section 14 is intended to keep the corporate debtor's assets together for successful insolvency resolution and hence, a criminal proceeding which may result in the assets of the corporate debtor being depleted as a result of having to pay compensation, which can amount to twice the amount of the cheque that has bounced, would directly impact the corporate insolvency resolution process in the same manner as the institution, continuation or execution of a decree in such suit in a civil Court for the amount of debt or other liability.

10. Section 141 of the NI Act speaks of persons in charge of and responsible to the company for the conduct of the business of the company "as well as the company". The words "as well as the company" appearing in Section 141 of NI Act make it absolutely clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be held vicariously liable for the offence. The legal impediment contained in Section 14 of the IBC would make it impossible for such proceeding to continue against the corporate debtor. Thus, during the period of moratorium, such proceeding can continue against the persons mentioned in Section 141(1) and (2) of the NI Act.

11. The complaint under Section 138 of the NI Act was filed in 2015 against the company and the petitioners herein, who have been arraigned as original accused Nos.2 & 3, for being the Directors of the company.

R/SCR.A/8577/2019 JUDGMENT DATED: 01/07/2021

The petitioners, being the Directors of the company, could be dealt with vicariously under the NI Act. Considering the above aspects, this Court is of the opinion that the trial Court has not committed any error in rejecting the applications (Exhibit-70 & 92) filed by the petitioners.

12. In the result, both the petitions are dismissed. Rule is discharged. Interim relief granted earlier stands vacated in both the petitions.

In view of the above order, the Criminal Misc. Applications filed by the complainant for vacation of interim relief will not survive. They stand disposed of accordingly.

( GITA GOPI, J )

PRAVIN KARUNAN