In CRL.M.C. 381/2022-DEL HC- Only corporate debtor is protected by moratorium while signatories/directors cannot escape from their penal liability u/s 138 of NI Act by filing personal insolvency proceedings: Delhi HC
Justice Jasmeet Singh [15-05-2023]

Read Order:SANDEEP GUPTA Vs. SHRI RAM STEEL TRADERS & ANR 

Tulip Kanth

New Delhi, May 16, 2023: The Delhi High Court has observed that Section 96 of the IBC would not be applicable when the petitioner is arrayed as an accused in the complaint u/s 138 NI Act in his capacity as the Managing Director of the Respondent Company.

“The debt in the present case is not of the petitioner but that of Respondent No.2. Section 141 of the NI Act fastens liability on every officer of the company who was in management and control of the affairs of the company”, the Single-Judge Bench of Justice Jasmeet Singh stated. 

The facts of this case were such that the complaint, was filed by the first Respondent Shri Ram Steel Traders, against the second Respondent- Richa Industries Limited & the the Petitioner (Managing Director of the second Respondent) under Section 138 read with Section 141 and 142 of the Negotiable Instrument Act, 1881.

The first respondent alleged that the Petitioner and second Respondent approached Ram Steel Traders for purchase of steel. On placing of purchase orders, materials had been alleged to have been supplied to the second Respondent on credit and the second respondent issued a cheque for a sum of Rs 6 crore. This cheque was dishonored and hence the complaint was filed.

During the pendency of complaint, the petitioner started facing mounting liabilities and two of his creditors invoked their respective guarantees in 2019 that had been given by the Petitioner for credit facilities that had been availed from them. In view of such liabilities, and his incapacity to pay his liabilities, the Petitioner was constrained to approach the National Company Law Tribunal, Chandigarh Bench for devising an effective resolution plan in respect of his debts.

During the pendency of the NCLT proceedings, an application under Section 94 of the Insolvency and Bankruptcy Code was filed by the Petitioner for personal insolvency resolution process in respect of all his debt before the NCLT, Chandigarh Bench and the same has remained pending.

It was the petitioner’s case that immediately upon filing of an application under Section 94 of the IBC, an interim moratorium comes into existence in respect of all the debts of the concerned petitioner and any legal action or proceedings pending in respect of any debt shall be deemed to have been stayed.

The Bench noted that the proceedings pending before the MM were for bouncing of cheques issued by a company where petitioner was the Managing Director. The debt of the second Respondent company was not the personal debt of the petitioner and the petitioner was arrayed as an accused in his capacity as a Managing Director.

Noting that the petitioner had signed the cheque as the Managing Director of  the second Respondent and the judgment of P. Mohanraj vs M/S. Shah Brothers Ispat Pvt. Ltd. categorically states that the moratorium provisions u/s 14 IBC would apply only to the corporate debtor and the natural persons would continue to be liable, the Bench said, “The petitioner is the natural person and merely because he has filed personal insolvency proceedings, the same would not bring him under the ambit of Section 96 IBC vis-a-vis the pending complaint under section 138 NI Act.”

Observing that the petitioner was seemingly trying to escape his liability by trying to urge that his application u/s 94 of the IBC in his individual capacity would stay the complaint under section 138 NI Act against him,the Bench opined that the petitioner has been facing criminal proceedings for being signatory to the cheque which has been dishonoured and he is covered under natural person under section 141 NI Act.

The Bench further added that the provisions of Section 96 of the IBC would not be applicable in the facts of the present case as the petitioner was arrayed as an accused in the complaint u/s 138 NI Act in his capacity of the Managing Director of second Respondent company.

"Thus, what could be dissolved, is only the company, not the personal penal liability of the accused covered under Section 141 of the NI Act i.e., only the corporate debtor (i.e., the company) is protected by the moratorium while the signatories/directors cannot escape from their penal liability under Section 138 of the NI Act by filing personal insolvency proceedings", the Bench asserted.

Finding no illegality in the impugned order passed by the trial Court, the Bench dismissed the petition.