If demand notice u/s 138 of NI Act, 1881 is issued before moratorium sets in or winding up proceedings are initiated and cognizance of the offence is taken subsequent to the moratorium or winding up proceedings kicking in, the prosecution against Corporate Debtor and its Directors cannot be allowed to be continued – Re- Catmoss Retail Pvt. Ltd. – Delhi High Court
In this important judgment, Hon’ble High Court of Delhi holds that:
(i) It has been a consistent legal proposition that if the demand notice and the cognizance of complaint under Section 138 of the NI Act is taken after initiation of winding up proceedings and/or IBC proceedings, the proceedings under Section 138 of the NI Act cannot continue not only against the corporate debtor but also its directors.
(ii) This Court in an earlier case titled Govind Prasad Todi & Another v. Govt. of NCT of Delhi rightly distinguished the aspect in the case P. Mohanraj & Ors. v. Shah Brothers Ispat Pvt. Ltd. (2021) ibclaw.in 24 SC, wherein 51 cheques were issued by the company in favour of the respondent towards the amounts payable from 21.09.2015 to 11.11.2016 and it was a case where statutory notice of demand under Section 138 read with Section 141 of the NI Act was issued on 21.03.2017 while the commencement of CIRP under Section 14 of the IBC came to be enforced on 06.06.2017. It was a case where the cheques had got dishonoured and even demand notices were issued prior to the moratorium kicking in.
(iii) In other words, if the statutory demand notice is issued before the moratorium sets in or winding up proceedings are initiated and cognizance of the offence is taken subsequent to the moratorium or winding up proceedings kicking in, the prosecution against the corporate debtor and its directors cannot be allowed to be continued.