Other Laws-Negotiable Instruments Act (NI Act) 1881 Vs. IBC

The protection under Section 32A of IBC is restricted only to Corporate Debtor and not to its Directors who were in-charge of the affairs of the Company when the offence committed or the signatory of the cheque – Vasan Healthcare Pvt. Ltd. Vs. India Infoline Finance Ltd. – Madras High Court

Hon’ble Madras High Court held that from the law laid in Ajay Kumar Radheyshyam Goenka vs. Tourism Finance Corporation of India Ltd. (2023) ibclaw.in 30 SC, it is clear that the Corporate Debtor cannot be prosecuted for the prior liability after the approval of the Resolution Plan. At the same time, it is to be bear in mind the protection under Section 32A of Insolvency & Bankruptcy Code, 2016 is restricted only to the Corporate Debtor and not to its Directors who were in-charge of the affairs of the Company when the offence committed or the signatory of the cheque.

The protection under Section 32A of IBC is restricted only to Corporate Debtor and not to its Directors who were in-charge of the affairs of the Company when the offence committed or the signatory of the cheque – Vasan Healthcare Pvt. Ltd. Vs. India Infoline Finance Ltd. – Madras High Court Read Post »

Company Director or Authorised Signatory of cheque is not a Drawer in terms of Section 143A of NI Act and cannot be directed to pay interim compensation under Section 143A – Shri Gurudatta Sugars Marketing Pvt. Ltd. Vs. Prithviraj Sayajirao Deshmukh and Ors. – Supreme Court

In this Landmark Judgment, the Hon’ble Supreme Court upheld the ratio of Lyka Labs Limited and Anr. v. The State of Maharashtra and Anr. (2023) ibclaw.in 131 HC and held that:

(i) The general rule against vicarious liability in criminal law underscores that individuals are not typically held criminally liable for acts committed by others unless specific statutory provisions extend such liability.
(ii) The High Court rightly emphasized that liability under Section 141 arises from the conduct or omission of the individual involved, not merely their position within the company.
(iii) The distinction between legal entities and individuals acting as authorized signatories is crucial.
(iv) This principle, fundamental to corporate law, ensures that while authorized signatories can bind the company through their actions, they do not merge their legal status with that of the company.
(v) The drawer under Section 143A of NI Act refers specifically to the issuer of the cheque, not the authorized signatories.
(vi) The judgment in Aneeta Hada v. Godfather Travels & Tours Pvt. Ltd. (2017) ibclaw.in 821 SC nowhere lays down that directors or authorised signatories would come under the ambit of ‘drawer’ for the purposes of Section 143A.
(vii) An authorized signatory is not a drawer of the cheque, as established in N. Harihara Krishnan Vs. J. Thomas (2017) ibclaw.in 964 SC.

Company Director or Authorised Signatory of cheque is not a Drawer in terms of Section 143A of NI Act and cannot be directed to pay interim compensation under Section 143A – Shri Gurudatta Sugars Marketing Pvt. Ltd. Vs. Prithviraj Sayajirao Deshmukh and Ors. – Supreme Court Read Post »

Merely because of initiation of proceedings under the Insolvency and Bankruptcy Code, 2016 the signatory of the cheque cannot escape from his liability | Section 96 of IBC does not bar on Court’s direction to deposit an amount as a condition precedent for suspension of sentence under NI Act, 1881 – Anurodh Mittal Vs. Rehat Trading Company and Anr. – Madhya Pradesh High Court

Hon’ble High Court refers P. Mohanraj & Ors. v. Shah Brothers Ispat Pvt. Ltd. (2021) ibclaw.in 24 SC and Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd. (2023) ibclaw.in 30 SC judgments and holds that considering the totality of facts and circumstances of the case and in view of the fact that merely because of initiation of proceedings under the Code, 2016 the signatory of the cheque cannot escape from his liability, it is held that conviction recorded by Trial Court was not bad on account of initiation of proceedings under the Code, 2016.

Merely because of initiation of proceedings under the Insolvency and Bankruptcy Code, 2016 the signatory of the cheque cannot escape from his liability | Section 96 of IBC does not bar on Court’s direction to deposit an amount as a condition precedent for suspension of sentence under NI Act, 1881 – Anurodh Mittal Vs. Rehat Trading Company and Anr. – Madhya Pradesh High Court Read Post »

On the dishonour of cheques issued in the name of Company under CIRP, Directors cannot be said to be in control and management of the affairs of the company and cannot be prosecuted – Varun Vs. Toolika Pandey – Delhi High Court

Hon’ble High Court held that post the issuance of the moratorium, it is the Insolvency Resolution Professional who has the authority to operate the bank accounts of the company, and on the dishonour of the cheques issued in the name of the company under CIRP, the accused persons/directors therein cannot be said to be in control and management of the affairs of the company, and, therefore, cannot be prosecuted.

On the dishonour of cheques issued in the name of Company under CIRP, Directors cannot be said to be in control and management of the affairs of the company and cannot be prosecuted – Varun Vs. Toolika Pandey – Delhi High Court Read Post »

Moratorium under Section 14 of IBC prohibiting the proceeding under Section(s) 138/141 Negotiable Instruments Act, 1881 will not be applicable against the Directors of the Corporate Debtor – Gurmeher Singh Vs. State of U.P. and Anr. – Allahabad High Court

Hon’ble Allahabad High Court referring the judgments in P. Mohanraj and Ors. v. Shah Brothers Ispat Pvt. Ltd. (2021) ibclaw.in 24 SC and Narindar Garg and others vs. Kotak Mahindra Bank Ltd. and Ors. (2022) ibclaw.in 29 SC held that on commencement of insolvency resolution process, the moratorium under Section 14 of IBC prohibiting the proceeding under Section(s) 138/141 Negotiable Instruments Act, 1881 will be applicable only against the corporate debtor and not against the natural persons like the directors of the company for their vicarious liability.

Moratorium under Section 14 of IBC prohibiting the proceeding under Section(s) 138/141 Negotiable Instruments Act, 1881 will not be applicable against the Directors of the Corporate Debtor – Gurmeher Singh Vs. State of U.P. and Anr. – Allahabad High Court Read Post »

Can application under Section 9 of the IBC be rejected due to pendency of civil suit in the Negotiable Instruments Act, 1881? – Palaparty Abhishek Vs. Binjusaria Ispat Pvt. Ltd. and Anr. – Supreme Court

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Can application under Section 9 of the IBC be rejected due to pendency of civil suit in the Negotiable Instruments Act, 1881? – Palaparty Abhishek Vs. Binjusaria Ispat Pvt. Ltd. and Anr. – Supreme Court Read Post »

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.

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 Read Post »

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