Kerala High Court
Carnival Films Pvt. Ltd vs State Of Kerala on 12 February, 2025
Author: K. Babu
Bench: K. Babu
2025:KER:11187
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE K. BABU
WEDNESDAY, THE 12TH DAY OF FEBRUARY 2025 / 23RD MAGHA, 1946
OP(CRL.) NO. 790 OF 2024
(AGAINST THE ORDER DATED 10.09.2024 IN CC NO.996 OF
2021 OF SPECIAL COURT OF JUDICIAL MAGISTRATE OF FIRST CLASS
FOR TRIAL OF CASES U/S.138 NI ACT(JMFC XI),
THIRUVANANTHAPURAM)
PETITIONER/1ST ACCUSED:
CARNIVAL FILMS PVT. LTD
CARNIVAL HOUSE, BEHIND DINDOSHI FIRE STATION,
OFF. GENERAL A. K. VAIDYA MARG, MALAD (EAST),
MUMBAI, MAHARASHTRA, PIN - 400097, REPRESENTED BY
ITS RESOLUTION PROFESSIONAL, ASHOK KUMAR GULLA,
C/O RBSA RESTRUCTURING ADVISORS LLP, DLF CORPORATE
PARK, 4TH FLOOR, 4B TOWER, GURGAON,
HARYANA, PIN - 122001.
BY ADVS.ARUN SAMUEL
JITHIN BABU A
ANOOD JALAL K.J.
RESPONDENTS/STATE OF KERALA & COMPLAINANT:
1 STATE OF KERALA
REPRESENTED BY PUBLIC PROSECUTOR,
HIGH COURT OF KERALA, PIN - 682031.
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O.P.(Crl.)No.790 of 2024 2
2 MALABAR COMMERCIAL PLAZA PVT. LTD.
HAVING ITS REGISTERED OFFICE AT 41/2299,
3RD FLOOR, MALABAR GATE, RAM MOHAN ROAD,
PUTHIYARA P. O., CALICUT DISTRICT, KERALA,
PIN - 673004, REPRESENTED BY ITS AUTHORIZED
REPRESENTATIVE SHADULY HASSAN, AGED 39 YEARS,
S/O HASSAN T., RESIDING AT SAYOOK, KOODATHUMPOYIL,
KACHERI ROAD, KAKKODI P. O., CALICUT DISTRICT,
KERALA,PIN - 673611.
R1 BY P.P.SRI.G.SUDHEER
R2 BY ADV.SRI.M.SREEKUMAR
THIS OP (CRIMINAL) HAVING COME UP FOR ADMISSION ON
12.02.2025, THE COURT ON THE SAME DAY DELIVERED THE
FOLLOWING:
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O.P.(Crl.)No.790 of 2024 3
JUDGMENT
The prayers in this original petition are as follows:-
"(a) Set aside Exhibit P5 order passed by the Judicial
Magistrate of the First-Class, Thiruvananthapuram in
C.M.P.4843/2024 in C.C.No.996/2021 in the interest of
justice.
(b) Declare that Ext.P1 cannot be proceed against the
petitioner until the moratorium declared under section
14 of the Insolvency and Bankruptcy Code, 2016 in
terms of Ext.P2 is expired.
(c) Issue any other order, or direction, as the petitioner may
seek and this Hon'ble Court deems fit, in the facts and
circumstances of the case and allow this petition with all
costs."
2. The petitioner is a non-Government private limited
company incorporated with the Registrar of Companies, Gwalior
engaged in the business of motion picture, radio, television and other
entertainment activities.
3. In 2021, respondent No.2 filed a complaint numbered as
C.C.No.996/2021 against the petitioner and three others before the
Judicial First Class Magistrate Court-XII, Thiruvananthapuram alleging
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offence under Section 138 of the Negotiable Instruments Act, 1881.
The petitioner is accused No.1 in this case. Accused No.2 is the
petitioner's former Chief Executive Officer. Accused Nos.3 and 4 are
the petitioner's former Directors.
4. M/s.Amar Constructions (operational creditor)
approached the National Company Law Tribunal (NCLT) by presenting
an insolvency petition on 28.11.2022 in terms of Section 9 of the
Insolvency and Bankruptcy Code, 2016 (for short `the Code') for
initiating the Corporate Insolvency Resolution Process against the
petitioner (corporate debtor). As a consequence thereof, the petitioner
has been admitted to the Insolvency Resolution Process. An interim
resolution professional has also been appointed. The NCLT, Indore
Bench, where the proceedings are pending, has declared a moratorium
under Section 14 of the Code vide order dated 22.3.2024 in
C.P.(IB)/81/MP/2022.
5. The petitioner filed C.M.P.No.4843 of 2024 before the
trial Court challenging the maintainability of the complaint against the
petitioner in the light of the declaration of moratorium. The learned
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Magistrate dismissed the application as per order dated 31.7.2024,
which is under challenge in this original petition.
6. The learned counsel for the petitioner submitted that
since Corporate Insolvency Resolution Process of the petitioner
company is underway before the NCLT and the Tribunal has declared a
moratorium under Section 14 of the Code, any proceedings, including
the prosecution under Section 138 of the N.I. Act, shall not be
continued as against the petitioner. The learned counsel relied on
P.Mohanraj and Others v. M/s.Shah Brothers Ispat Pvt. Ltd.
[(2021) 6 SCC 258] in support of his contention.
7. The learned counsel for the respondent, relying on Ajay
Kumar Radheyshyam Goenka v. Tourism Finance Corporation of
India Ltd. [(2023) 10 SCC 545] contended that the criminal
prosecution initiated against a natural person under Section 138 would
not stand terminated even after declaration of the moratorium under
Section 14 of the Code. The learned counsel also relied on
P.Mohanraj (supra) to support his contention.
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8. Admittedly, the petitioner is a corporate debtor. One
M/s.Amar Constructions (operational creditor) has approached the
NCLT, Indore Bench by presenting an insolvency petition against the
corporate debtor. The applicant therein filed CP(IB)/81/MP/2022
before the NCLT under Section 9 of the Code. The Tribunal has
declared a moratorium under Section 14 of the Code as per its order
dated 22.3.2024. Subsequently, as per order dated 16.5.2024, the
Tribunal appointed a resolution professional for the petitioner. The
Corporate Insolvency Resolution Process is now underway.
9. The contention of the petitioner is that in view of the
moratorium declared under Section 14 of Code, the present
proceedings initiated under Section 138 of the Negotiable Instruments
Act shall not be continued as against the petitioner.
10. Section 14 of the Code reads thus:-
"(14).Moratorium- (1) Subject to provisions of sub-
sections (2) and (3), on the insolvency commencement
date, the Adjudicating Authority 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 judgement, decree or order in any Court of
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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.
xx xx xx"
11. A Three-Judge Bench of the Supreme Court in
P.Mohanraj (supra) has considered the question whether a Section
138/141 proceeding under the Negotiable Instruments Act against a
corporate debtor is covered by Section 14(1)(a) of the Code. In
P.Mohanraj (supra), the Supreme Court held thus:-
"Whether natural persons are covered by Section 14 IBC
101. As far as the Directors/persons in management or
control of the corporate debtor are concerned, a Sections
138/141 proceeding against them cannot be initiated or
continued without the corporate debtor--see Aneeta Hada v.
Godfather Travels & Tours (P) Ltd., [(2012) 5 SCC 661 : (2012)
3 SCC (Civ) 350 : (2012) 3 SCC (Cri) 241]. This is because
Section 141 of the Negotiable Instruments 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 Court, therefore, in Aneeta Hada held as under :
(SCC pp. 686-88, paras 51, 56 & 58-59).
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"51. We have already opined that the decision in
Sheoratan Agarwal v. State of M.P., [(1984) 4 SCC
352 : 1984 SCC (Cri) 620] runs counter to the ratio laid
down in State of Madras v. C.V. Parekh, [(1970) 3 SCC
491 : 1971 SCC (Cri) 97] which is by a larger Bench
and hence, is a binding precedent. On the aforesaid
ratiocination, the decision in Anil Hada v. Indian Acrylic
Ltd., [(2000) 1 SCC 1 : 2001 SCC (Cri) 174] has to be
treated as not laying down the correct law as far as it
states that the Director or any other officer can be
prosecuted without impleadment of the Company.
Needless to emphasise, the matter would stand on a
different footing where there is some legal impediment
and the doctrine of lex non cogit ad impossibilia gets
attracted.
xx xx xx
56. We have referred to the aforesaid passages only
to highlight that there has to be strict observance of the
provisions regard being had to the legislative
intendment because it deals with penal provisions and a
penalty is not to be imposed affecting the rights of
persons, whether juristic entities or individuals, unless
they are arrayed as accused. It is to be kept in mind
that the power of punishment is vested in the
legislature and that is absolute in Section 141 of the Act
which clearly speaks of commission of offence by the
Company. The learned counsel for the respondents
have vehemently urged that the use of the term "as
well as" in the section is of immense significance and, in
its tentacle, it brings in the Company as well as the
Director and/or other officers who are responsible for
the acts of the Company and, therefore, a prosecution
against the Directors or other officers is tenable even if
the Company is not arraigned as an accused. The words
"as well as" have to be understood in the context.
xx xx xx
58. Applying the doctrine of strict construction, we
are of the considered opinion that commission of
offence by the Company is an express condition
precedent to attract the vicarious liability of others.
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Thus, the words "as well as the Company" appearing in
the section make it absolutely unmistakably clear that
when the Company can be prosecuted, then only the
persons mentioned in the other categories could be
vicariously liable for the offence subject to the
averments in the petition and proof thereof. One cannot
be oblivious of the fact that the Company is a juristic
person and it has its own respectability. If a finding is
recorded against it, it would create a concavity in its
reputation. There can be situations when the corporate
reputation is affected when a Director is indicted.
59. In view of our aforesaid analysis, we arrive at
the irresistible conclusion that for maintaining the
prosecution under Section 141 of the Act, arraigning of
a company as an accused is imperative. The other
categories of offenders can only be brought in the
dragnet on the touchstone of vicarious liability as the
same has been stipulated in the provision itself. We say
so on the basis of the ratio laid down in C.V. Parekh
which is a three-Judge Bench decision. Thus, the view
expressed in Sheoratan Agarwal does not correctly lay
down the law and, accordingly, is hereby overruled. The
decision in Anil Hada is overruled with the qualifier as
stated in para 51. The decision in U.P. Pollution Control
Board v. Modi Distillery, [(1987) 3 SCC 684 : 1987 SCC
(Cri) 632] has to be treated to be restricted to its own
facts as has been explained by us hereinabove."
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
paras 51 and 59 in Aneeta Hada 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
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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."
12. In Ajay Kumar Radheyshyam Goenka (supra), the
Supreme Court observed thus:-
"17. We have no hesitation in coming to the conclusion
that the scope of nature of proceedings under the two Acts is
quite different and would not intercede each other. In fact, a
bare reading of Section 14 IBC would make it clear that the
nature of proceedings which have to be kept in abeyance do not
include criminal proceedings, which is the nature of proceedings
under Section 138 of the NI Act. We are unable to appreciate
the plea of the learned counsel for the appellant that because
Section 138 of the NI Act proceedings arise from a default in
financial debt, the proceedings under Section 138 should be
taken as akin to civil proceedings rather than criminal
proceedings. We cannot lose sight of the fact that Section 138
of the NI Act are not recovery proceedings. They are penal in
character. A person may face imprisonment or fine or both
under Section 138 of the NI Act. It is not a recovery of the
amount with interest as a debt recovery proceedings would be.
They are not akin to suit proceedings.
18. It cannot be said that the process under IBC whether
under Section 31 or Sections 38 to 41 which can extinguish the
debt would ipso facto apply to the extinguishment of the
criminal proceedings. No doubt in terms of the scheme under
IBC there are sacrifices to be made by parties to settle the
debts, the company being liquidated or revitalised. The
appellant before us has been roped in as a signatory of the
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cheque as well as the Promoter and Managing Director of the
accused Company, which availed of the loan. The loan
agreement was also signed by him on behalf of the Company.
What the appellant seeks is escape out of criminal liability
having defaulted in payment of the amount at a very early
stage of the loan. In fact, the loan account itself was closed. So
much for the bona fides of the appellant."
13. In Ajay Kumar Radheyshyam Goenka the Apex
Court further held thus:-
"108. Thus, the upshot of all the decisions referred to above is
where the proceedings under Section 138 of the NI Act had
already commenced with the Magistrate taking cognizance upon
the complaint and during the pendency, the company gets
dissolved, the signatories/Directors cannot escape from their
penal liability under Section 138 of the NI Act by citing its
dissolution. What is dissolved, is only the company, not the
personal penal liability of the accused covered under Section
141 of the NI Act.
109. I may draw my final conclusions as under:
109.1. After passing of the resolution plan under Section 31 IBC
by the adjudicating authority & in the light of the provisions of
Section 32-A IBC, the criminal proceedings under Section 138 of
the NI Act will stand terminated only in relation to the corporate
debtor if the same is taken over by a new management.
109.2. Section 138 proceedings in relation to the signatories/
Directors who are liable/covered by the two provisos to Section
32-A(1) will continue in accordance with law."
14. This Court in Jacob Samson v. State of Kerala (2023
KHC 3349) reiterated the principles underlined by the Supreme Court.
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Thus, the conclusions are the following:-
(i) When the Corporate Insolvency Resolution Process of the company
is underway, the corporate debtor would be covered by the moratorium
provision contained in Section 14 of the Code 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.
(ii) The moratorium provision under Section 14 of the Code would
apply only to the corporate debtor.
(iii) The natural persons referred to in Section 141 of the N.I.Act
continues to be statutorily liable under Chapter XVII of the N.I. Act.
15. Therefore, the order impugned stands set aside. All
further proceedings in C.C.No.996 of 2021 on the file of the Judicial
First Class Magistrate Court-XII, Thiruvananthapurm against the
petitioner (corporate debtor)/accused No.1 shall stand deferred till the
moratorium is lifted by the competent authority. The learned
Magistrate is at liberty to proceed against the natural persons.
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16. This Court in O.P.(Crl.)No.730 of 2023 had directed the
learned Magistrate to expedite the trial in the Calendar Case. The
learned Magistrate may proceed with the case against the natural
persons in compliance with the directions of this Court in O.P.
(Crl.)No.730 of 2023.
The Original Petition is disposed of as above.
Sd/-
K.BABU
Judge
TKS
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APPENDIX OF OP(CRL.) 790/2024
PETITIONER EXHIBITS
Exhibit P1 A TRUE COPY OF THE COMPLAINT NUMBERED AS
C.C.NO.996/2021 DATED FILED BY THE RESPONDENT
AGAINST THE PETITIONER BEFORE THE JUDICIAL
FIRST-CLASS MAGISTRATE'S COURT-XII,
THIRUVANANTHAPURAM.
Exhibit P2 A TRUE COPY OF THE ORDER DATED 22/03/2024
PASSED BY THE NATIONAL COMPANY LAW TRIBUNAL,
INDORE BENCH IN CP(IB)/81/MP/2022.
Exhibit P3 A TRUE COPY OF THE APPLICATION NUMBERED AS
C. M. P. NO.4843/2024 DATED 31/07/2024 FILED
BY THE PETITIONER AGAINST THE RESPONDENT IN
THE COMPLAINT BEFORE THE TRIAL COURT.
Exhibit P4 A TRUE COPY OF THE OBJECTION DATED 07/08/2024
FILED BY THE RESPONDENT AGAINST THE
PETITIONER AS REGARDS EXT.P3.
Exhibit P5 A TRUE COPY OF THE ORDER DATED 10/09/2024
PASSED BY THE TRIAL COURT IN C. M. P. NO.
4843/2024 IN C. C. NO. 996/2021.
TKS
