Soni Satti
A Supreme Court Bench of Justices Rohinton Nariman, Navin Sinha and KM Joseph in an appeal against a July 2018 judgment of the National Company Law Appellate Tribunal (NCLAT) ruled that when an order of moratorium is passed under the Insolvency and Bankruptcy Code (IBC), parallel proceedings under Section 138 of the Negotiable Instruments Act (NI Act) against the Corporate Debtor cannot be allowed to continue as the same will be covered by the bar under Section 14 of the IBC (M/S Shah Brothers Ispat Pvt Ltd v P Mohanraj)’’
Background of the case: The National Company Law Tribunal (NCLT), Chennai had initiated Corporate Insolvency Resolution Process (CIRP) against Diamond Engineering Chennai Limited (Corporate Debtor) on June 6, 2017 on a petition by Shah Brothers Ispat Private Limited (Respondents in Supreme Court) and moratorium was imposed.
Shah Brothers Ispat Private Limited (respondents in Supreme Court) had earlier filed a complaint under Section 138 before the Metropolitan Magistrate Court, Kurla Mumbai against the appellants P Mohanraj and others (Appellants/Directors of Corporate Debtor).
The NCLT directed Shah Brothers to withdraw the complaint under Section 138 of NI Act treating it as a proceeding filed after order of moratorium with observation that such action amounts to misuse of the process of law.
Shah Brothers appealed to the NCLAT against the NCLT order. The question before the NCLAT was whether the order of moratorium will cover a criminal proceeding under Section 138 of NI Act.
The NCLAT ruled that Section 138 is a penal provision, which empowers the court of competent jurisdiction to pass order of imprisonment or fine, which cannot be held to be proceeding or any judgment or decree of money claim.
“Imposition of fine cannot be held to be a money claim or recovery against the Corporate Debtor nor order of imprisonment, if passed by the court of competent jurisdiction on the Directors, they cannot come within the purview of Section 14. In fact, no criminal proceeding is covered under Section 14 of I&B Code,” the NCLAT ruled.