Telangana High Court
Mr. T Vinayak Ravi 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.
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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
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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
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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
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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.
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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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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.
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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
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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.
. (2023) 8 SCC 473
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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
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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
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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
. (2018) 1 SCC 560
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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
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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
. (2021) 6 SCC 258
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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
. (2022) 10 SCC 152
. (2012) 1 SCC 520
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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.
. 2023 SCC OnLine SC 1299
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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
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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
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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
. (2023) 10 SCC 545
. 2021 SCC OnLine SC 729
. (2023) IBCLaw.In 1015 HC
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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.
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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
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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 -
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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
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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
. (2009) 10 SCC 48
. (2010) 3 SCC 330
. AIR 2014 SC 71
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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
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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
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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
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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
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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
