NEW DELHI: The Supreme Court has said that if the company is in moratorium under the Insolvency and Bankruptcy Code, its director cannot be prosecuted for dishonour of cheques.
SC Ruling: Directors Protected from Cheque Bounce Cases During IBC Moratorium
The court said such a director is suspended and he would not be able to make repayment.
A bench of Justices Sudhanshu Dhulia and Ahsanuddin Amanullah allowed an appeal filed by Vishnoo Mittal, director of M/s Xalta Food and Beverages Private Limited, the corporate debtor against the Punjab and Haryana High Courts order of December 21, 2021.
IBC Moratorium Shields Directors from Cheque Dishonour Liability: Supreme Court
The court set aside the High Court's order, which declined to quash the proceedings against him for the dishonour of cheques issued to complainant M/s Shakti Trading Company for the sum of over Rs 11 lakh.
In its judgment, the court pointed out return of the cheques dishonoured simpliciter does not create an offence under Section 138 NI Act and Clause (c) of the proviso makes it clear that cause of action arises only when demand notice is served and payment is not made within the stipulated 15-day period.
In the case, the court said that the High Court ought to have quashed the case against the appellant by exercising its power under Section 482 of the CrPC.
The High Court had relied upon the judgment of the Supreme Court in 'P Mohan Raj Vs M/S Shah Brothers Ispat Pvt Ltd' (2021) wherein it was held that the immunity granted by the moratorium order issued under Section 14 of the IBC can only be obtained by a corporate debtor and not by a natural person such as the present appellant, who was the director of the corporate debtor.
"However, in our opinion, the High Court erred in relying on P Mohan Raj since the facts of that case were completely different and the present case is thus distinguishable from it," the bench said.
The court noted in the present case, on July 25, 2018, the moratorium was imposed and management of the corporate debtor was taken over by the interim resolution professional (IRP) as per Section 17 of the IBC.
"The bare reading of the provision showed that the appellant did not have the capacity to fulfil the demand raised by the respondent by way of the notice issued under clause (c) of the proviso to Section 138 NI Act," the bench said.
The court further pointed out, when the notice was issued to the appellant, he was not in charge of the corporate debtor as he was suspended from his position as the director of the corporate debtor as soon as IRP was appointed on July 25, 2018.
"Therefore, the powers vested with the board of directors were to be exercised by the IRP in accordance with the provisions of IBC. All the bank accounts of the corporate debtor were operating under the instructions of the IRP, hence, it was not possible for the appellant to repay the amount in light of Section 17 of the IBC," the bench said.
With the imposition of the moratorium, the IRP had made a public announcement inviting the claims from the creditors of the corporate debtor and the respondent has filed a claim with the IRP, the court also noted.
The court quashed the summoning order and pending complaint case against the appellant before a Chandigarh court.
