Supreme Court of India
AJAY KUMAR RADHEYSHYAM GOENKAversusTOURISM FINANCE CORPORATION OF INDIA LTD.
- Citation
- 2023 INSC 232
- Decided
- 15 March 2023
- Disposal
- Dismissed
- Bench
- SANJAY KISHAN KAUL
Holding
The Supreme Court held that the IBC’s moratorium does not stay criminal proceedings and, while Section 32A extinguishes the corporate debtor’s liability after a resolution plan, the personal criminal liability of directors and signatories under Sections 138 and 141 of the NI Act continues.
Summary
The Tourism Finance Corporation of India advanced a Rs 30 crore loan to Rainbow Papers Ltd, whose Managing Director Ajay Kumar Goenka signed a post‑dated cheque that was later dishonoured. A demand notice under Section 138 of the Negotiable Instruments Act was issued and a criminal complaint was filed against the company and Goenka. While the insolvency application under the IBC was admitted and a resolution plan approved, Goenka sought discharge from the criminal case, arguing that the debt was extinguished under the IBC. The Supreme Court examined whether the moratorium under Section 14 of the IBC and the extinguishment of debt under Section 31 and Section 32A bar criminal proceedings against the corporate debtor and its directors. It held that Section 14 does not cover criminal proceedings and that Section 32A only shields the corporate debtor, not the individuals liable under Sections 138 and 141 of the NI Act. Consequently, the criminal prosecution against Goenka may continue, while the corporate debtor’s liability may be terminated if a new management takes over. The Court dismissed the appeals, leaving the criminal case against the director to proceed.
Issues considered
- Whether Section 14 of the Insolvency and Bankruptcy Code places criminal proceedings under Section 138 of the Negotiable Instruments Act in abeyance.
- Whether approval of a resolution plan under Section 31 of the IBC extinguishes the criminal liability of the corporate debtor and its signatories/directors under Sections 138 and 141 of the NI Act.
- Whether Section 32A of the IBC provides immunity to individuals such as designated partners or officers in default from prosecution.
- Whether clauses in a resolution plan can bar the criminal court from exercising jurisdiction over offences under the NI Act.
Legislation cited
- Code of Criminal Procedure, 1973s. 190, s. 200, s. 256, s. 257, s. 305, s. 482
- Insolvency and Bankruptcy Code, 2016s. 1(3), s. 13, s. 14, s. 15, s. 238, s. 29, s. 30, s. 31, s. 32A, s. 53, s. 61, s. 7, s. 8, s. 9
- Negotiable Instruments Act, 1881s. 138, s. 139, s. 141, s. 142, s. 147
Subjects
insolvencybankruptcycriminal liabilityNegotiable Instruments ActSection 138Section 141Section 14 IBCSection 31 IBCSection 32A IBCresolution plancorporate debtordirector liabilitymoratorium
Judgment
986 [2023]REPORTS
SUPREME COURT 4 S.C.R. 986 [2023] 4 S.C.R.
A AJAY KUMAR RADHEYSHYAM GOENKA
v.
TOURISM FINANCE CORPORATION OF INDIA LTD.
(Criminal Appeal No. 172 of 2023)
B MARCH 15, 2023
[SANJAY KISHAN KAUL, ABHAY S. OKA AND
J. B. PARDIWALA, JJ.]
Insolvency and Bankruptcy Code 2016 – ss. 1(3), 7, 8, 9, 13,
C 14, 15, 29, 30, 31, 32A, 53, 61, 238 – Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016 – Rule 6 –
Negotiable Instruments Act, 1881 – ss. 138, 139, 141, 142, 147 –
Code of Criminal Procedure, 1973 – ss. 190, 200, 256, 257, 305,
482 – A demand-cum-legal notice u/s. 138 of the NI Act was issued
on behalf of the respondent calling upon the company as accused
D no.1 and appellant herein as accused no.2 to settle the debt advanced
by way of corporate loan – Amount was not paid – Criminal
complaint was filed u/s.190 Cr.P.C. r/w. ss.138, 141 and 142 of the
NI Act – One company, styling itself as ‘operational creditor’, filed
an application u/s. 9 of 2016 Code r/w. r. 6 of IB Rules, 2016 with
E the request to initiate CIRP against the accused company, treating
it as the corporate debtor – Insolvency application was admitted –
Application filed for discharge of complaint case by appellant was
dismissed – Criminal revision was also dismissed – On appeal, held:
Per Sanjay Kishan Kaul, J. (For himself and Abhay S. Oka,J. ): A
bare reading of s.14 of the IBC would make it clear that the nature
F of proceedings which have to be kept in abeyance do not include
criminal proceedings, which is the nature of proceedings u/s. 138
of the N.I. Act – It cannot be said that the process under the IBC
whether u/s. 31 or ss. 38 to 41 which can extinguish the debt would
ipso facto apply to the extinguishment of the criminal proceedings
G – The Court cannot accept the plea that if proceedings against the
company come to an end then the appellant as the Managing
Director cannot be proceeded against – Per J.B. Pardiwala, J.
(Concurring): Where the proceedings u/s. 138 of the NI Act had
already commenced with the Magistrate taking cognizance upon
the complaint and during the pendency, the company gets dissolved,
H
986
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 987
FINANCE CORP. OF INDIA LTD.
the signatories/directors cannot escape from their penal liability u/ A
s. 138 of the NI Act by citing its dissolution – What is dissolved, is
only the company, not the personal penal liability of the accused
covered u/s. 141 of the NI Act – After passing of the resolution plan
u/s. 31 of the IBC by the adjudicating authority & in the light of the
provisions of s.32A of the IBC, the criminal proceedings u/s. 138 of
B
the NI Act will stand terminated only in relation to the corporate
debtor if the same is taken over by a new management – s.138
proceedings in relation to the signatories/directors who are liable/
covered by the two provisos to s. 32A(1) will continue in accordance
with law.
Dismissing the appeals, the Court C
Per SANJAY KISHAN KAUL, J. (For himself and ABHAY
S. OKA, J.)
HELD: 1. A bare reading of Section 14 of the IBC would
make it clear that the nature of proceedings which have to be D
kept in abeyance do not include criminal proceedings, which is
the nature of proceedings under Section 138 of the N.I. Act. It
cannot be said that the process under the IBC whether under
Section 31 or Sections 38 to 41 which can extinguish the debt
would ipso facto apply to the extinguishment of the criminal
proceedings. No doubt in terms of the Scheme under the IBC E
there are sacrifices to be made by parties to settle the debts, the
company being liquidated or revitalized. The Appellant has been
roped in as a signatory of the cheque as well as the Promoter and
Managing Director of the Accused company, which availed of the
loan. The loan agreement was also signed by him on behalf of the F
company. What the Appellant seeks is escape out of criminal
liability having defaulted in payment of the amount at a very early
stage of the loan. In fact, the loan account itself was closed. So
much for the bona fides of the Appellant. [Paras 16 and 17][997-
D-E, G-H; 998-A-B]
G
Per J.B. PARDIWALA, J. (Concurring)
HELD: 1. Section 141 of the NI Act states that if the person
committing an offence under Section 138 is a company, every
person who, at the time the offence was committed, was in charge
of, and was responsible to the company for the conduct of the
H
988 SUPREME COURT REPORTS [2023] 4 S.C.R.
A business of the company, as well as the company, shall be deemed
to be guilty of the offence and shall be liable to be proceeded
against and punished accordingly. The expression “as well” is
occurring in Section 141 of the NI Act. This expression means
“on par”. Therefore, the liability of such persons in charge of
and responsible to the company for the conduct of its business is
B
thus co-extensive. [Para 33][1007-H; 1008-A-B]
2. The creditor has no option but to join the process under
the IBC. Once the plan is approved, it would bind everyone under
the sun. The making of a claim and accepting whatever share is
allotted could be termed as an “Involuntary Act” on behalf of the
C creditor. The making of a claim under the IBC and accepting the
same and not making any claim, will not make any difference in
light of Section 31 of the IBC. Both the situations will lead to
Section 31 and the finality and binding value of the resolution
plan. At best, it could be said that from the cheque amount under
D Section 138 of the NI Act, the amount received under the
resolution plan may be deducted. [Paras 41, 42][1020-D-F]
3. It is true that by virtue of Section 238 of the IBC, the
provisions of the CrPC shall have effect notwithstanding anything
inconsistent therewith contained in any other law for the time
E being in force or any instrument having effect by virtue of any
such law. But, no provision of the IBC bars the continuation of
the criminal prosecution initiated against the directors and
officials. It is equally true that once the corporate debtor comes
under the resolution process, its erstwhile managing director(s)
cannot continue to represent the company. Section 305(2) of the
F CrPC states that where a corporation is the accused person or
one of the accused persons in an inquiry or trial, it may appoint a
representative for the purpose of the inquiry or trial and such
appointment need not be under the seal of the corporation.
Therefore, it is only the Resolution Professional who can
G represent the accused company during the pendency of the
proceedings under IBC. After the proceedings are over, either
the corporate entity may be dissolved or it can be taken over by
a new management in which event the company will continue to
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 989
FINANCE CORP. OF INDIA LTD.
exist. When a new management takes over, it will have to make A
arrangements for representing the company. If the company is
dissolved as a result of the resolution process, obviously
proceedings against it will have to be terminated. But even then,
its erstwhile directors may not be able to take advantage of the
situation. Where the proceedings under Section 138 of the NI
B
Act had already commenced and during the pendency the plan is
approved or the company gets dissolved, the directors and the
other accused cannot escape from their liability by citing its
dissolution. What is dissolved is only the company, not the
personal penal liability of the accused covered under Section 141
of the NI Act. They will have to continue to face the prosecution C
in view of the law laid down in Aneeta Hada [Paras 49, 50 and
52][1030-H; 1031-B-D; 1032-B-C]
4. While interpreting Sections 14, 31 & 32A resply of the
IBC vis-a-vis Sections 138 and 141 resply of the NI Act, the
principle of harmonious construction should be applied and D
followed. By permitting to proceed against the signatories/
directors even after the approval of the plan, what is achieved is
uniformity in the functioning of the law by removing the anomalous
and absurd situations, thereby, making it compliant with Article
14 of the Constitution. The said interpretation shields the
relevant provisions from attack of being manifestly arbitrary. [Para E
54][1033-C-E]
5. If the argument that extinguishment of debt under Section
31 of the IBC leads to the discharge of signatory/director under
Section 138 proceedings is accepted, the same will lead to conflict
in law as laid down compared to the guarantor’s liability wherein F
in spite of the plan being approved, the guarantor is held separately
liable for the remaining amount. If the guarantor does not get the
benefit of extinguishment of debt under Section 31 of the IBC,
then similarly for extinguishment of debt, the signatory/director
cannot get any benefit. If accepted, this may lead to uncertainty G
in the first Principles of law on interpretation of extinguishment
of debt. [Para 60][1034-G-H; 1035-A-B]
6. Section 30(2)(e) of the IBC requires the resolution
professional to approve the resolution plan, only if the same does
H
990 SUPREME COURT REPORTS [2023] 4 S.C.R.
A not violate any of the provisions of the law for the time being in
force. Thus, the clauses of the resolution plan cannot control the
Enactment/Rules in force. It is the resolution plan which has to
comply with the laws in force. In the case on hand, any clause
giving any effect to the corporate debtor under Section 138 NI
Act proceedings, cannot be used to protect the signatories/
B
directors under Section 138/141 NI Act. [Para 65][1039-F-G]
7. ‘Compounding’ and ‘quashing’ are not synonymous
terms. In law, they have different meanings and consequences.
They arise from different situations and operate in different fields
and stages. There is no apparent legal interdependence or
C interlink to the extent that one could exist only if the conditions
of the other were satisfied or vice-versa. Quashing is one of the
facets of inherent powers, while compounding of an offence being
a statutory expression contained under Section 320 the CrPC is
entirely a different concept. [Para 71][1040-E-F]
D 8. The expressions ‘compromise’ and ‘compounding’ are
not synonyms in criminal jurisprudence even though these
expressions are usually used without any distinction. Any dispute
can be compromised between the parties if the terms are not
illegal. But only a compoundable offence allowed by law can be
E compounded. A dispute relating to a crime can be compromised
even before the case is registered, and in that case, victim of the
crime may refuse to file a complaint. But if in spite of compromise,
if he files a complaint and court finds that what is compromised is
a compoundable offence, depending upon the facts and
circumstances of each case Magistrate can refuse to take
F cognizance, or acquit the accused as offence was compounded or
the complaint can be quashed in proceedings under Section 482
of the CrPC. In a compromise, consensus between the parties to
give and take is more important and in a compounding, decision
of the victim of the offence not to prosecute and not to continue
G with prosecution is more important. [Paras 72, 73][1040-F-H;
1041-A-B]
9. As per Section 138 of the NI Act, when the cheque was
dishonoured and a statutory notice demanding the cheque amount
was issued, the accused shall pay the cheque amount within 15
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 991
FINANCE CORP. OF INDIA LTD.
days from the date of receipt of the said notice. The moment the A
said 15 days expired, the cause of action arises. In other words,
the offence under Section 138 of the NI Act is complete. Once
the cause of action arose for the offence committed, the
complainant has to approach the criminal court within one month
to take penal action under Section 138 of the NI Act. To put it B
clearly, the complainant approaches the criminal court not for
recovery of the legally enforceable debt, but for taking penal action
under Section 138 of the NI Act for the offence already committed
by the accused by not making the payment of the cheque amount
despite the receipt of the statutory notice. The only question
before the criminal court is whether the cheque issued by the C
accused towards the discharge of his liability was dishonoured
and despite the service of demand notice, whether he had not
paid the amount. There is no bar contained in any of the provisions
of the IBC, and the NI Act from approaching the criminal court
to seek penal action under Section 138 of the NI Act. [Para D
75][1041-C-F]
10. Thus, the upshot of all the decisions referred to above
is where the proceedings under Section 138 of the NI Act had
already commenced with the Magistrate taking cognizance upon
the complaint and during the pendency, the company gets E
dissolved, the signatories/directors cannot escape from their
penal liability under Section 138 of the NI Act by citing its
dissolution. What is dissolved, is only the company, not the
personal penal liability of the accused covered under Section 141
of the NI Act. [Para 85][1051-G-H; 1052-A-B]
F
11. Final conclusions may be drawn as under: (a) After
passing of the resolution plan under Section 31 of the IBC by the
adjudicating authority & in the light of the provisions of Section
32A of the IBC, the criminal proceedings under Section 138 of
the NI Act will stand terminated only in relation to the corporate
G
debtor if the same is taken over by a new management. (b) Section
138 proceedings in relation to the signatories/directors who are
liable/covered by the two provisos to Section 32A(1) will continue
in accordance with law. [Para 86][1052-B-D]
H
992 SUPREME COURT REPORTS [2023] 4 S.C.R.
A In the Judgment of J.B. PARDIWALA, J.:
Swiss Ribbons Private Limited and Another v. Union of
India and Others (2019) 4 SCC 17 : [2019] 3 SCR
535; Committee of Creditors of Essar Steel India Limited
v. Satish Kumar Gupta and Others (2020) 8 SCC 531 :
B [2019] 16 SCR 275; P. Mohanraj and Others v. Shah
Brothers Ispat Private Limited (2021) 6 SCC 258; Ebix
Singapore Private Limited v. Committee of Creditors of
Educomp Solutions Limited and Another (2022) 2 SCC
401; Lalit Kumar Jain v. Union of India and Others
(2021) 9 SCC 321; Goa State Cooperative Bank Limited
C v. Krishna Nath A. and Others (2019) 20 SCC 38; State
Bank of India v. V. Ramakrishnan and Another (2018)
17 SCC 394 : [2018] 10 SCR 974; Vijay Kumar Jain v.
Standard Chartered Bank (2019) 20 SCC 455; JIK
Industries Limited and Others v. Amarlal V. Jumani and
D Another (2012) 3 SCC 255 : [2012] 3 SCR 114;
Narinder Garg and Others v. Kotak Mahindra Bank
Ltd. and Others (2022) SCC OnLine SC 517 – relied
on.
Ajit Balse v. Ranga Karkere (2015) 15 SCC 748;
E Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset
Reconstruction Co. Ltd., (2021) 9 SCC 657; Manish
Kumar v. Union of India and Another (2021) 5 SCC 1;
Anil Hada v. Indian Acrylic Ltd. (2000) 1 SCC 1 : [1999]
5 Suppl. SCR 6 – referred to.
F Indorama Synthetics (I) Ltd., Nagpur v. State of
Maharashtra and others 2016 SCC OnLine Bom 2611
– referred to.
Case Law Reference
(2015) 15 SCC 748 referred to Para 20
G
(2021) 6 SCC 258 referred to Para 20
[2019] 3 SCR 535 relied on Para 40
[2019] 16 SCR 275 relied on Para 40
(2021) 9 SCC 657 referred to Para 40
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 993
FINANCE CORP. OF INDIA LTD.
(2022) 2 SCC 401 referred to Para 40 A
(2021) 5 SCC 1 referred to Para 44
[2012] 3 SCR 114 relied on Para 48
[1999] 5 Suppl. SCR 6 referred to Para 50
(2019) 20 SCC 38 referred to Para 62 B
[2018] 10 SCR 974 relied on Para 76
(2019) 20 SCC 455 referred to Para 78
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
172 of 2023. C
From the Judgment and Order dated 23.11.2019 of the Additional
Sessions Judge-02 South East District, Saket, New Delhi in Crl. Rev.
No. 784 of 2019.
With
D
Crl. A. Nos.170 and 171 of 2023.
Nikhil Goel, Aditya Sharma, Kartik Kaushal, Manoj Rajpoot, Advs.
for the Appellant.
Rajiv Ranjan Dwivedi, Ved Prakash, Manoj Kr. Jha, Ashish Kr.
Singh, Sunil Kumar, Advs. for the Respondent. E
The Judgments of the Court were delivered by
SANJAY KISHAN KAUL, J.
Factual Background:
1. M/s Rainbow Papers Limited (company incorporated and F
registered under the Companies Act, 1956), of which Ajay Kumar
Radheyshyam Goenka, the Appellant before us, was the Promoter and
Managing Director, sought loans from a public financial institution, Tourism
Finance Corporation of India Limited, the Respondent before us, to fulfil
its various corporate requirements. The proposal of the company was G
considered by the Respondent and approval was granted for a Term
Loan of Rs. 30.00 crores. In pursuance to the approval, a Loan
Agreement was executed on 27.03.2012 in New Delhi.
2. In order to satisfy its obligations under the Agreement, the
Accused company issued post-dated cheque of Rs. 25,47,945/- bearing H
994 SUPREME COURT REPORTS [2023] 4 S.C.R.
A cheque number 090656 dated 15.02.2016, drawn on Indian Overseas
Bank, Kalupur Circle Branch, Railway Pura, Ahmedabad, towards the
payment of one of the instalments. On the cheque being presented to
the bankers of the Respondent i.e., HDFC Bank Limited, Nehru Place
Branch, New Delhi, the cheque was returned vide Memo dated
07.04.2016 for the reason “Account Closed”.
B
3. On 19.04.2016, a demand-cum-legal notice under Section 138
of Negotiable Instruments Act, 1881, (hereinafter referred to as ‘the NI
Act’) was issued on behalf of the Respondent calling upon the company
as Accused no.1 and the Appellant herein as Accused no. 2 to settle the
debt advanced by way of corporate loan dated 27.03.2012. The Accused
C acknowledged their liability to pay the loan amount vide reply dated
28.04.2016. The amount was not paid and, thus, on 16.05.2016, Criminal
Complaint No. 632982/2016 was filed in the Court of Chief Metropolitan
Magistrate, Saket Courts, New Delhi, under Section 190 of the Code of
Criminal Procedure, 1973, read with Section 1381, Section 1412 and
D Section 1423 of the NI Act. The complaint was signed and verified by
Mr. N. Ramachandran, Deputy General Manager (Law) of the
Respondent company. An endeavor for mediation was made but was
not successful and, thus, the next date was scheduled before the
Magistrate for 15.01.2018. In the meantime, a development, which took
place, was that in 2017 M/s Neeraj Paper Agencies Limited, styling
E itself as ‘Operational Creditor’, filed an application under Section 9 of
the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as
‘IBC’) read with Rule 6 of Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016, (hereinafter referred to as ‘IB Rules,
2016’) with the request to initiate Corporate Insolvency Resolution
Process against the Accused company, treating it as the ‘Corporate
F
Debtor’. The National Company Law Tribunal vide order dated
12.09.2017 admitted the aforesaid insolvency application.
4. The Respondent herein filed its claim qua the debt, which was
the subject matter of the N.I. Act proceedings, on 13.10.2017. In terms
of the Resolution Plan dated 26.05.2018, the Resolution Applicant (Kushal
G Limited) filed the Resolution Plan and during the course of meeting the
Committee of Creditors on 05.06.2018, it was informed that the
respondent herein could not be considered as a Secured Financial Creditor
1
Dishonour of cheque for insufficiency, etc., of funds in the account.
2
Offences by companies.
H 3
Cognizance of offences.
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 995
FINANCE CORP. OF INDIA LTD. [SANJAY KISHAN KAUL, J.]
as per definitions contained in Section 3(30) and Section 3(31) of the A
IBC. In effect, on legal advice, the Respondent was opined as an
Unsecured Financial Creditor. This resulted in the Respondent filing
applications, in the form of objections, before the NCLAT where the
status was sought to be changed from the Unsecured to Secured Financial
Creditor.
B
5. Now turning back to the NIA proceedings, the Metropolitan
Magistrate passed an interim order dated 12.11.2018 dismissing the
application of the Appellant for exemption from personal appearance.
This, in turn, was predicated on the observations of NCLAT in Shah
Brothers Ispat Pvt. Ltd. Vs P. Mohan Raj &Ors, Company Appeal
(AT) Insolvency No.306 of 2018, opining that Section 138 of NI Act is C
a penal provision, which empowers the court of competent jurisdiction
to pass order of imprisonment or fine, which cannot be held to be
proceedings or any judgment or decree of money claim. Thus, it would
not come within the purview of Section 14 of the IBC and, thus, the
proceedings under Section 138 of the NI Act, 1881 could continue D
simultaneously.
6. The Appellant, thus, filed an application for discharge of the
Complaint Case in question herein in the present case, which was
dismissed by the Metropolitan Magistrate vide order dated 01.11.2019.
The Criminal Revision Petition preferred by the Appellant bearing E
Criminal Revision Petition No. 784 of 2019 also met with a similar fate
before the High Court and was dismissed with cost of Rs. 20,000/- to be
paid by the Appellant to the Respondent. It is this order, which is now,
sought to be assailed before us.
Appellant’s submissions: F
7. Mr. Nikhil Goel, learned counsel, sought to urge on behalf of
the appellant that the trigger of Section 138 of the NI Act, is the non-
payment of legally enforceable debt. Once the debt is itself extinguished,
either under Section 31 or in process from Sections 38 to 41 and 54 of
IBC, the basis of Section 138 of the NI Act disappears. We may note
G
that these provisions fall under Chapter III4 of the IBC.
8. The term ‘Debt’ would mean ‘legally enforceable debt’ under
the Explanation to Section 138 of the NI Act and this may be read with
Sections 2(6) and 2(8) of the IBC.
4
Liquidation Process H
996 SUPREME COURT REPORTS [2023] 4 S.C.R.
A 9. It was submitted that the nature of the proceedings under Section
138 of the NI Act is primarily compensatory in nature and the punitive
element is incorporated at enforcing the compensatory provisions.
Therefore, once recovery is made partly by the receipt of money and
partly by waiver, Section 138 of the NI Act should not be permitted to be
continued.
B
10. It was lastly urged that if the debt of the company is resolved
then the payment would be governed under the Resolution Plan. If the
debts are not resolved, then the assets of the company are to be distributed
in terms of Section 53 of the IBC.
C Plea of the Respondent:
11. On behalf of the Respondent, it was urged that the cheque
was given for repayment of the aforementioned loan amount of Rs.30
crore for which the accused company agreed to repay the principal
amount in two installments with first installment of Rs.10 crore payable
D on 31.03.2015 and the second installment of Rs.20 crore payable on
31.03.2016. The accused company had to pay interest @ 15 per cent
per annum on the said principal amount of loan and such interest was
payable monthly on the 15th day of every month, which was in consonance
with the dates and the cheque amount.
E 12. It was urged that the accused company along with the Appellant
deliberately and with the mala fide intention gave the cheque to defraud
the Respondent to take loan from it and subsequently to usurp the loan
amount and hence had closed the bank account. The Appellant being
the signatory was directly liable along with the accused company. The
Appellant was actively involved in the day to day affairs of the company
F as can be inferred from the aforementioned loan agreement signed by
him as well.
Our View:
13. We may note that on 20.09.2022 with some of the SLPs being
withdrawn, in respect of the SLPs in question, the interim order was
G
made absolute with the direction for urgent listing as criminal proceedings
had been stayed. Learned counsel for the parties stated that they will
file short synopsis not running into more than three pages each and will
not take more than 15-20 minutes each for their respective submissions.
On the conspectus of the aforesaid we heard the arguments on
H 17.01.2023 when we granted leave and reserved the judgment.
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 997
FINANCE CORP. OF INDIA LTD. [SANJAY KISHAN KAUL, J.]
14. The Appellant had submitted the synopsis in advance. The A
Respondent however, despite assuring that they would submit the synopsis
has not cared to do so and we have gone on the basis of the record. This
position is prevalent right till 12.03.2023 and we do not consider it
appropriate to wait any more. We assume that the Respondent is not
interested in rendering any further assistance to the Court by filing
B
synopsis. Fortunately for them, for the reasons to be recorded hereinafter,
they have not really suffered the consequences thereof.
15. The issue whether the respondent is a Secured Financial
Creditor or an Unsecured Financial Creditor within the meaning of the
said Code is not something we can deal with as that is the matter of the
proceedings under the said Code or any appeal preferred therefrom. C
The only issue with which we are concerned with is whether during the
pendency of the proceedings under the said Code which have been
admitted, the present proceedings under the N.I. Act can continue
simultaneously or not.
16. We have no hesitation in coming to the conclusion that the D
scope of nature of proceedings under the two Acts and quite different
and would not intercede each other. In fact, a bare reading of Section 14
of the IBC would make it clear that the nature of proceedings which
have to be kept in abeyance do not include criminal proceedings, which
is the nature of proceedings under Section 138 of the N.I. Act. We are E
unable to appreciate the plea of the learned counsel for the Appellant
that because Section 138 of the N.I. Act proceedings arise from a default
in financial debt, the proceedings under Section 138 should be taken as
akin to civil proceedings rather than criminal proceedings. We cannot
lose sight of the fact that Section 138 of the N.I. Act are not recovery
proceedings. They are penal in character. A person may face F
imprisonment or fine or both under Section 138 of the N.I. Act. It is not
a recovery of the amount with interest as a debt recovery proceedings
would be. They are not akin to suit proceedings.
17. It cannot be said that the process under the IBC whether
under Section 31 or Sections 38 to 41 which can extinguish the debt G
would ipso facto apply to the extinguishment of the criminal proceedings.
No doubt in terms of the Scheme under the IBC there are sacrifices to
be made by parties to settle the debts, the company being liquidated or
revitalized. The Appellant before us has been roped in as a signatory of
the cheque as well as the Promoter and Managing Director of the Accused H
998 SUPREME COURT REPORTS [2023] 4 S.C.R.
A company, which availed of the loan. The loan agreement was also signed
by him on behalf of the company. What the Appellant seeks is escape
out of criminal liability having defaulted in payment of the amount at a
very early stage of the loan. In fact, the loan account itself was closed.
So much for the bona fides of the Appellant.
B 18. We are unable to accept the plea that if proceedings against
the company come to an end then the Appellant as the Managing Director
cannot be proceeded against. We are unable to accept the plea that
Section 138 of the N.I. Act proceedings are primarily compensatory in
nature and that the punitive element is incorporated only at enforcing the
compensatory proceedings. The criminal liability and the fines are built
C on the principle of not honouring a negotiable instrument, which affects
trade. This is apart from the principle of financial liability per se. To say
that under a scheme which may be approved, a part amount will be
recovered or if there is no scheme a person may stand in a queue to
recover debt would absolve the consequences under Section 138 of the
D N.I. Act, is unacceptable.
19. We are, thus, conclusively of the view that the impugned order
takes the correct view in law and cannot be assailed before us.
Conclusion:
E 20. The appeals are accordingly dismissed but without costs before
us on account of what we have recorded in para 14.
J. B. PARDIWALA, J.
1. I have carefully, gone through the perspicuous opinion of my
F
esteemed brother Sanjay Kishan Kaul, J. I am entirely in agreement
with the discussion contained in the said judgment on all the cardinal
issues that have arisen for consideration in these proceedings. At the
same time, having regard to the fact that the issues involved are of
seminal importance, I am also inclined to pen down my thoughts.
G 2. For the sake of convenience, the Criminal Appeal No. 170 of
2023 (@ SLP (Crl) No. 417 of 2020) is treated as the lead matter.
3. This appeal by special leave is at the instance of the original
accused No. 2 in a complaint lodged by the respondent herein (original
complainant) for the offence punishable under Section 138 of the
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 999
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
Negotiable Instruments Act, 1881 (for short, ‘the NI Act’) and is directed A
against the order passed by the Additional Sessions Judge-02 South East
District, Saket Court, New Delhi dated 23.11.2019 in the Criminal
Revision Application No. 593 of 2019 by which the Additional Sessions
Judge affirmed the order passed by the Metropolitan Magistrate – 09,
SED dated 01.11.2019 rejecting the application filed by the appellant
B
herein seeking discharge from the criminal proceedings i.e. Complaint
Case No. 632984 of 2016 instituted by the respondent-complainant under
Section 138 of the NI Act.
4. It is necessary to clarify why the appellant challenged the
impugned order passed by the Additional Sessions Judge directly before
this Court invoking Article 136 of the Constitution of India. In this regard, C
the following averments made in the synopsis are reproduced hereinbelow:
“The petitioner is directly approaching this Hon’ble Court,
because the first two facets are already being considered by
this Hon’ble Court, in which view, the Hon’ble High Court is
not likely to entertain a quashing petition. This apart, a petition D
before any other court is likely to result in conflicting orders
and would be an exercise in futility. The earlier matters
pending before this Hon’ble Court also arose directly out of
the summons issued by the concerned Learned Magistrate.”
FACTUAL MATRIX E
5. The respondent herein, namely, the “Tourism Finance
Corporation of India Limited” (hereinafter shall be referred to as, ‘the
complainant’), had advanced a sum of Rs. 30,00,00,000/- (thirty crore)
as a corporate loan to the Rainbow Papers Limited (Original Accused
No. 1/corporate debtor). The appellant herein at the relevant point of F
time was the Managing Director of the company i.e. the corporate debtor.
The transaction between the parties took place on 31.03.2012. It appears
that an amount of Rs. 10.88 crore came to be repaid before the disputes
arose between the parties. Sometime in 2016, the complainant issued a
notice to the corporate debtor to settle the balance amount. On 16.05.2016, G
a complaint was lodged under Section 138 of the NI Act by the
complainant against the corporate debtor and the appellant herein
(Managing Director of the Corporate Debtor) for dishonour of the three
cheques issued by the appellant herein for discharge of the debt in part
to the tune of Rs. 57,00,000/- (fifty-seven lakhs).
H
1000 SUPREME COURT REPORTS [2023] 4 S.C.R.
A 6. The aforesaid complaint under Section 138 of the NI Act was
registered in the Court of the Chief Metropolitan Magistrate, Saket Court,
New Delhi.
7. In 2017, one of the operational creditors filed an application
under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for short,
B ‘the IBC’ or ‘the IBC, 2016’) before the NCLT, Ahmedabad, seeking to
initiate Corporate Insolvency Resolution Process (for short, ‘the CIRP’)
with respect to the corporate debtor.
8. The Insolvency application came to be admitted by the NCLT
on 12.09.2017.
C 9. On 3.10.2017, the complainant filed its claim of Rs. 22,50,00,000/
- crore (approximately) before the Interim Resolution Professional (for
short, ‘the IRP’).
10. On 26.05.2018, the resolution applicant filed its resolution plan
under the terms of which, the payment to the complainant was in full
D and final settlement of all its claims against the corporate debtor.
11. On 05.06.2018, the Committee of Creditors (for short, ‘the
CoC’) approved the resolution plan proposed by the resolution applicant.
The complainant was one of the members of the CoC.
12. On 23.07.2018, the complainant lodged his objections before
E the NCLT to the resolution plan in so far as it changed its status from
secured to unsecured creditor.
13. It appears that in the meantime, the appellant preferred an
application before the trial court seeking exemption from his personal
appearance invoking a moratorium under Section 14 of the IBC. The
F Magistrate vide order dated 12.11.2018 rejected the said application on
the ground that the criminal proceedings under the NI Act had nothing to
do with the proceedings under the IBC.
14. On 27.02.2019, the NCLT approved the resolution plan so far
as the corporate debtor is concerned.
G 15. As the resolution plan came to be approved by the NCLT, the
appellant herein filed an application dated 20.07.2019 before the trial
court, praying that he be discharged from the criminal proceedings. The
case of the appellant herein before the Magistrate was that as the debt
stood settled in the proceedings under the IBC, the criminal proceedings
H would not survive.
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1001
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
16. The trial court vide order dated 01.11.2019 rejected the A
aforesaid application essentially on the ground that it had no jurisdiction
to discharge an accused in a summons triable case.
17. In view of the aforesaid, the appellant herein filed the Criminal
Revision Application No. 593 of 2019 before the Additional Sessions
Court, challenging the order passed by the Magistrate dated 01.11.2019 B
referred to above. The appellant contended before the revisional court
that as the debt in connection with which the criminal proceedings had
been initiated, formed part of the approved resolution plan the outstanding
debt under the NI Act could be said to have stood settled.
18. The Additional Judge vide the impugned order dated 23.11.2019 C
rejected the Revision Application.
19. In such circumstances, referred to above, the appellant is here
before this Court with the present appeal.
THE SUBMISSIONS ON BEHALF OF THE APPELLANT
D
20. Mr. Nikhil Goel, the learned counsel appearing for the appellant
made the following submissions:
A. The trigger of Section 138 of the NI Act, is the non-payment
of legally enforceable debt. Once the debt itself gets
extinguished either under Section 31 of the IBC or in the
E
process from Sections 38 to 41 and 54 resply of the IBC,
the basis of Section 138 of the NI Act no longer remains.
The term debt would mean the ‘legally enforceable debt’
under the explanation to Section 138 of the NI Act. This
may be read with Section 2(6) & 2(8) resply of the IBC.
F
B. The liability is primarily of the company and prosecution of
natural persons under Section 141 of the NI Act is vicarious
to the prosecution of the company. It is for this reason that
a director cannot be prosecuted without making the
company as an accused. [See Ajit Balse v. Ranga
Karkere: (2015) 15 SCC 748.] G
C. The nature of proceedings under Section 138 of the NI Act
is primarily compensatory and the punitive element is
incorporated at enforcing the compensatory provisions.
(paras 53 & 63 resply in P. Mohanraj and Others v. Shah
Brothers Ispat Private Limited reported in (2021) 6 SCC H
1002 SUPREME COURT REPORTS [2023] 4 S.C.R.
A 258). Therefore, once recovery is made, partly by receipt
of money and partly by waiver, Section 138 of the NI Act
should not be permitted to be continued.
D. If the debt of the company is resolved then payments would
be governed under the resolution plan. If the debts are not
B resolved then the assets of the company are to be distributed
in terms of Section 53 of the IBC. Permitting two
proceedings to continue would therefore defeat either
Section 31 or Section 53 of the IBC, as the case may be.
E. Mr. Goel submitted that this Court in P. Mohanraj (supra)
C considered the position of law as regards the continuation
of the criminal proceedings under Section 138 of the NI
Act vis-a-vis the proceedings under the IBC and answered
the same in para 102 of the judgment. It was pointed out by
Mr. Goel that this Court drew a fine distinction between
the corporate debtor and natural persons & ultimately held
D that while a corporate debtor would be protected from
Section 138 proceedings during the period of moratorium,
the natural persons would not enjoy such protection and
Section 138 proceedings would continue against the natural
persons. However, according to Mr. Goel, this Court may
E not go in the correctness of such bifurcation as in the case
on hand, the proceedings are beyond the period of
moratorium. Mr. Goel pointed out that the question framed
in para 6 of the decision in P. Mohanraj (supra) is restricted
only to the applicability of Section 14 of the IBC to the
proceedings under Section 138 of the NI Act.
F
F. The principal argument of Mr. Goel is that if the IBC
proceedings have travelled beyond Section 14, the process
would either lead to acceptance of a resolution plan under
Section 31 of the IBC or liquidation of the company after
determination of the claims under Chapter III of the IBC.
G According to Mr. Goel, Section 31 of the IBC is applicable
to the present litigation.
21. In such circumstances referred to above, Mr. Goel prays that
there being merit in his appeal, the same may be allowed and the appellant
may be discharged from the criminal liability under Section 138 of the
H NI Act.
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1003
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
THE SUBMISSIONS ON BEHALF OF THE RESPONDENT A
(COMPLAINANT)
22. On the other hand, this appeal has been vehemently opposed
by Mr. Rajiv Ranjan Dwivedi, the learned counsel appearing for the
complainant by submitting that in the case on hand, the criminal
proceedings under the NI Act were initiated much before the proceedings B
under the IBC came to be initiated. In other words, cognizance was
taken by the learned Magistrate upon the complaint filed under Section
138 of the NI Act much before the scheme came to be approved under
the IBC. He would submit that the offence alleged to have been
committed by the appellant herein prior to the scheme would not get
automatically compounded only as a result of the said scheme. He would C
further submit that none of the provisions of the IBC bars the continuation
of the criminal prosecution initiated against the corporate debtor or its
directors or officials. According to the learned counsel, if the company
is dissolved as a result of the resolution process, the criminal proceedings
against it would stand terminated, however, the signatory to the cheque D
or its erstwhile directors are not entitled in law to take advantage of
such a situation created by operation of law.
23. The learned counsel appearing for the complainant, laid much
stress on Section 32A of the IBC, which states that every person who
was a ‘designated partner’ or an ‘officer who is in default’ or was in any E
manner in charge of/responsible to the corporate debtor for the conduct
of its business or associated with the corporate debtor in any manner
and who was directly or indirectly involved in the commission of such
offence in accordance with the report submitted or complaint filed by
the investigating authority shall continue to be liable to be prosecuted
and punished for such an offence committed by the corporate debtor F
notwithstanding that the corporate debtor’s liability has ceased under
the provision of Section 32A of the IBC.
24. In such circumstances, referred to above, the learned counsel
prays that there being no merit in the present appeal, the same may be
dismissed. G
ANALYSIS
25. Having heard the learned counsel appearing for the parties
and having gone through the materials on record, the seminal question of
law that falls for the consideration of this Court may be formulated as
under: H
1004 SUPREME COURT REPORTS [2023] 4 S.C.R.
A Whether in light of:
(i) the complainant having participated in the proceedings under
the IBC, 2016 by putting forward its claim and consenting
to accept some share as a creditor; coupled with
(ii) the approval of the resolution plan under Section 31 of the
B IBC, 2016; the signatory/director in charge of the day-to-
day affairs would stand discharged/relieved from the penal
liability under Section 138 of the NI Act?
26. Before adverting to the rival submissions canvassed on either
side, it is necessary to look into few relevant provisions of the NI Act as
C well as IBC, 2016.
27. Section 138 of the NI Act reads thus:
“138. Dishonour of cheque for insufficiency, etc., of funds in
the account.—
D Where any cheque drawn by a person on an account
maintained by him with a banker for payment of any amount
of money to another person from out of that account for the
discharge, in whole or in part, of any debt or other liability,
is returned by the bank unpaid, either because of the amount
of money standing to the credit of that account is insufficient
E
to honour the cheque or that it exceeds the amount arranged
to be paid from that account by an agreement made with that
bank, such person shall be deemed to have committed an
offence and shall, without prejudice to any other provision
of this Act, be punished with imprisonment for a term which
F may be extended to two years, or with fine which may extend
to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply
unless—
(a) the cheque has been presented to the bank within a
G period of six months from the date on which it is drawn or
within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as
the case may be, makes a demand for the payment of the
said amount of money by giving a notice in writing, to the
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1005
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
drawer of the cheque, within thirty days of the receipt of A
information by him from the bank regarding the return of
the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment
of the said amount of money to the payee or, as the case
may be, to the holder in due course of the cheque, within B
fifteen days of the receipt of the said notice.
Explanation.— For the purposes of this section, “debt of
other liability” means a legally enforceable debt or other
liability.”
28. Section 139 of the NI Act raises presumption. The same reads C
thus:
“139. Presumption in favour of holder.— It shall be presumed,
unless the contrary is proved, that the holder of a cheque
received the cheque of the nature referred to in section 138
for the discharge, in whole or in part, of any debt or other D
liability.”
29. Section 141 of the NI Act fastens vicarious liability upon every
person, who at the time of the offence, was in charge of and was
responsible to the company for the conduct of the business of the
company. Section 141 reads thus: E
“141. Offences by companies.— (1) If the person committing
an offence under section 138 is a company, every person
who, at the time the offence was committed, was in charge of,
and was responsible to, the company for the conduct of the
business of the company, as well as the company, shall be F
deemed to be guilty of the offence and shall be liable to be
proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall
render any person liable to punishment if he proves that the
offence was committed without his knowledge, or that he had G
exercised all due diligence to prevent the commission of such
offence:
Provided further that where a person is nominated as a
Director of a company by virtue of his holding any office or
employment in the Central Government or State Government H
1006 SUPREME COURT REPORTS [2023] 4 S.C.R.
A or a financial corporation owned or controlled by the Central
Government or the State Government, as the case may be, he
shall not be liable for prosecution under this Chapter.
(2) Notwithstanding anything contained in sub-section (1),
where any offence under this Act has been committed by a
B company and it is proved that the offence has been committed
with the consent or connivance of, or is attributable to, any
neglect on the part of, any director, manager, secretary or
other officer of the company, such director, manager, secretary
or other officer shall also be deemed to be guilty of that
offence and shall be liable to be proceeded against and
C punished accordingly.
Explanation.— For the purposes of this section, —
(a) “company” means any body corporate and includes a
firm or other association of individuals; and
D (b) “director”, in relation to a firm, means a partner in the
firm.”
30. Section 142 of the NI Act is in regard to the cognizance of
offence. The same reads thus:
“142. Cognizance of offences.— (1) Notwithstanding anything
E contained in the Code of Criminal Procedure, 1973 (2 of
1974),
(a) no court shall take cognizance of any offence punishable
under section 138 except upon a complaint, in writing, made
by the payee or, as the case may be, the holder in due course
F of the cheque;
(b) such complaint is made within one month of the date on
which the cause of action arises under clause (c) of the proviso
to section 138:
Provided that the cognizance of a complaint may be taken by
G the Court after the prescribed period, if the complainant
satisfies the Court that he had sufficient cause for not making
a complaint within such period.
(c) no court inferior to that of a Metropolitan Magistrate or
a Judicial Magistrate of the first class shall try any offence
H punishable under section 138.
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1007
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
(2) The offence under section 138 shall be inquired into and A
tried only by a court within whose local jurisdiction,—
(a) if the cheque is delivered for collection through an account,
the branch of the bank where the payee or holder in due
course, as the case may be, maintains the account, is situated;
or B
(b) if the cheque is presented for payment by the payee or
holder in due course, otherwise through an account, the
branch of the drawee bank where the drawer maintains the
account, is situated.
Explanation.— For the purposes of clause (a), where a cheque C
is delivered for collection at any branch of the bank of the
payee or holder in due course, then, the cheque shall be
deemed to have been delivered to the branch of the bank in
which the payee or holder in due course, as the case may be,
maintains the account.”
D
31. Section 147 of the NI Act provides that the offence under the
NI Act shall be compoundable. Section 147 reads thus:
“147. Offences to be compoundable.— Notwithstanding
anything contained in the Code of Criminal Procedure, 1973
(2 of 1974), every offence punishable under this Act shall be E
compoundable.”
32. The offence under Section 138 of the NI Act, is committed,
after the conditions set out therein are fulfilled. Thereafter, the payee of
the cheque has the option of prosecuting the drawer of the cheque by
instituting a complaint under Section 200 of the Code of Criminal F
Procedure, 1973 (for short, ‘the CrPC’) before the jurisdictional criminal
court. After cognizance of the offence is taken, the criminal court is
seized of the matter. The case will have to be disposed of in terms of the
provisions set out in the CrPC. If the complainant fails to turn up on any
hearing date, the Magistrate can invoke Section 256 of the CrPC and
acquit the accused. Under Section 257 of the CrPC, the complaint can G
be withdrawn at any point of time before the final order is passed. Under
Section 147 of the NI Act the offence can be compounded. The case
may end in acquittal or conviction at the conclusion of the trial.
33. Section 141 of the NI Act states that if the person committing
an offence under Section 138 is a company, every person who, at the H
1008 SUPREME COURT REPORTS [2023] 4 S.C.R.
A time the offence was committed, was in charge of, and was responsible
to the company for the conduct of the business of the company, as well
as the company, shall be deemed to be guilty of the offence and shall be
liable to be proceeded against and punished accordingly. The expression
“as well” is occurring in Section 141 of the NI Act. This expression
means “on par”. Therefore, the liability of such persons in charge of and
B
responsible to the company for the conduct of its business is thus co-
extensive.
SCHEME OF THE IBC, 2016
34. I shall now try to understand the scheme of the IBC.
C 35. It is a comprehensive Code enacted, as the Preamble states,
to “consolidate and amend the laws relating to reorganisation and
insolvency resolution of corporate persons, partnership firms and
individuals in a time bound manner for maximisation of value of
assets of such persons, to promote entrepreneurship, availability of
D credit and balance the interests of all the stakeholders including
alteration in the order of priority of payment of Government dues
and to establish an Insolvency and Bankruptcy Board of India,
and for matters connected therewith or incidental thereto”.
36. The Statement of Objects and Reasons of the IBC indicates
E that the Legislature was of the opinion that the existing framework for
insolvency and bankruptcy was inadequate and ineffective and resulted
in undue delays in resolution. The IBC was proposed with the objective
of consolidating and amending the laws relating to reorganisation and
insolvency resolution of corporate persons, partnership firms and
individuals in a time bound manner for maximisation of the value of
F assets of such persons, to promote entrepreneurship, availability of
credit and balance the interests of all the stakeholders, including
alteration in the priority of payment of Government dues and to establish
an Insolvency and Bankruptcy Fund, and matters connected therewith
or incidental thereto. The IBC provides for designating the NCLT and
G the Debts Recovery Tribunal (DRT) as the adjudicating authorities for
corporate persons, firms and individuals for resolution of insolvency,
liquidation and bankruptcy. The IBC was published in the Gazette of
India dated 28.05.2016. Provisions of the IBC were, however, brought
into effect from different dates in terms of the proviso to Section 1(3)
of the IBC.
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1009
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
37. Section 7 of IBC lays down the procedure for the initiation of A
the corporate insolvency resolution process by the financial creditor or
any other person or more financial creditors jointly. The financial creditor
may file an application before the adjudicating authority along with the
proof of default and the name of a resolution professional proposed to
act as the interim resolution professional in respect of the corporate
B
debtor. Once the adjudicating authority is satisfied, as to the extent of
the default and is ensured that the application is complete and no
disciplinary proceedings are pending against the proposed resolution
professional, it shall admit the application.
38. Section 8 of the IBC provides that an operational creditor
may, on the occurrence of a default, deliver a demand notice of unpaid C
operational debt or copy of an invoice demanding payment of the amount
involved in the default to the corporate debtor in such form and manner
as may be prescribed.
39. Section 9 of the IBC stipulates that after the expiry of the
period of 10 days from the date of delivery of the notice or invoice D
demanding payment under sub-section (1) of Section 8 if the operational
creditor does not receive payment from the corporate debtor or notice
of the dispute under sub-section (2) of Section 8, it would be open for
the operational creditor to file an application before the adjudicating
authority for initiating a corporate insolvency resolution process.
E
40. After the initiation of the CIRP the following takes place:
(a) All the creditors are mandatorily required to put forward their
claims before the CIRP in light of the public announcement.
(b) In the aforesaid context, I must look into Sections 13 and 15
resply of the IBC. F
Sections 13 and 15 resply are reproduced hereinbelow:
“13. Declaration of moratorium and public announcement.—
(1) The Adjudicating Authority, after admission of the
application under section 7 or section 9 or section 10, shall,
by an order— G
(a) declare a moratorium for the purposes referred to in section
14;
(b) cause a public announcement of the initiation of corporate
insolvency resolution process and call for the submission of
claims under section 15; and H
1010 SUPREME COURT REPORTS [2023] 4 S.C.R.
A (c) appoint an interim resolution professional in the manner
as laid down in section 16.
(2) The public announcement referred to in clause (b) of sub-
section (1) shall be made immediately after the appointment
of the interim resolution professional.
B Xxx xxx xxx
15. Public announcement of corporate insolvency resolution
process.—
(1) The public announcement of the corporate insolvency
C resolution process under the order referred to in section 13
shall contain the following information, namely:—
(a) name and address of the corporate debtor under the
corporate insolvency resolution process;
(b) name of the authority with which the corporate debtor
D is incorporated or registered;
(c) the last date for submission of [claims, as may be
specified];
(d) details of the interim resolution professional who shall
be vested with the management of the corporate debtor
E and be responsible for receiving claims;
(e) penalties for false or misleading claims; and
(f) the date on which the corporate insolvency resolution
process shall close, which shall be the one hundred and
F eightieth day from the date of the admission of the
application under sections 7, 9 or section 10, as the case
may be.
(2) The public announcement under this section shall be made
in such manner as may be specified.”
G (c) It is important to note that the resolution professional has no
adjudicatory powers in regard to the claims unlike the liquidator. The
resolution professional only collates the claims. In this regard, the decision
of this Court in the case of Swiss Ribbons Private Limited and Another
v. Union of India and Others reported in (2019) 4 SCC 17 assumes
importance. I quote paras 88-91 of Swiss Ribbons (supra) as under:
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1011
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
Resolution professional has no adjudicating powers A
“88. It is clear from a reading of the Code as well as the
Regulations that the resolution professional has no
adjudicatory powers. Section 18 of the Code lays down the
duties of an interim resolution professional as follows:
“18. Duties of interim resolution professional.—(1) The B
interim resolution professional shall perform the following
duties, namely—
(a) collect all information relating to the assets, finances
and operations of the corporate debtor for determining
the financial position of the corporate debtor, including C
information relating to—
(i) business operations for the previous two years;
(ii) financial and operational payments for the
previous two years;
(iii) list of assets and liabilities as on the initiation D
date; and
(iv) such other matters as may be specified;
(b) receive and collate all the claims submitted by
creditors to him, pursuant to the public announcement
made under Sections 13 and 15; E
(c) constitute a Committee of Creditors;
(d) monitor the assets of the corporate debtor and
manage its operations until a resolution professional is
appointed by the Committee of Creditors;
F
(e) file information collected with the information utility,
if necessary; and
(f) take control and custody of any asset over which
the corporate debtor has ownership rights as recorded
in the balance sheet of the corporate debtor, or with
information utility or the depository of securities or any G
other registry that records the ownership of assets
including—
(i) assets over which the corporate debtor has
ownership rights which may be located in a foreign
country; H
1012 SUPREME COURT REPORTS [2023] 4 S.C.R.
A (ii) assets that may or may not be in possession of
the corporate debtor;
(iii) tangible assets, whether movable or immovable;
(iv) intangible assets including intellectual property;
B (v) securities including shares held in any subsidiary
of the corporate debtor, financial instruments,
insurance policies;
(vi) assets subject to the determination of ownership
by a court or authority;
C (g) to perform such other duties as may be specified by
the Board.
Explanation.—For the purposes of this section, the term
“assets” shall not include the following, namely—
D (a) assets owned by a third party in possession of the
corporate debtor held under trust or under contractual
arrangements including bailment;
(b) assets of any Indian or foreign subsidiary of the
corporate debtor; and
E (c) such other assets as may be notified by the Central
Government in consultation with any financial sector
regulator.”
89. Under the CIRP Regulations, the resolution professional
has to vet and verify claims made, and ultimately, determine
F the amount of each claim as follows:
“10. Substantiation of claims.—The interim resolution
professional or the resolution professional, as the case may
be, may call for such other evidence or clarification as he
deems fit from a creditor for substantiating the whole or
G part of its claim.
* * *
12. Submission of proof of claims.—(1) Subject to sub-
regulation (2), a creditor shall submit claim with proof on or
before the last date mentioned in the public announcement.
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1013
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
(2) A creditor, who fails to submit claim with proof within A
the time stipulated in the public announcement, may submit
the claim with proof to the interim resolution professional
or the resolution professional, as the case may be, on or
before the ninetieth day of the insolvency commencement
date. B
(3) Where the creditor in sub-regulation (2) is a financial
creditor under Regulation 8, it shall be included in the
committee from the date of admission of such claim:
Provided that such inclusion shall not affect the validity
of any decision taken by the committee prior to such C
inclusion.
13. Verification of claims.—(1) The interim resolution
professional or the resolution professional, as the case may
be, shall verify every claim, as on the insolvency
commencement date, within seven days from the last date of D
the receipt of the claims, and thereupon maintain a list of
creditors containing names of creditors along with the amount
claimed by them, the amount of their claims admitted and the
security interest, if any, in respect of such claims, and update
it. E
(2) The list of creditors shall be—
(a) available for inspection by the persons who
submitted proofs of claim;
(b) available for inspection by members, partners, F
Directors and guarantors of the corporate debtor;
(c) displayed on the website, if any, of the corporate
debtor;
(d) filed with the adjudicating authority; and
G
(e) presented at the first meeting of the committee.
14. Determination of amount of claim.—(1) Where the amount
claimed by a creditor is not precise due to any contingency
or other reason, the interim resolution professional or the
resolution professional, as the case may be, shall make the
H
1014 SUPREME COURT REPORTS [2023] 4 S.C.R.
A best estimate of the amount of the claim based on the
information available with him.
(2) The interim resolution professional or the resolution
professional, as the case may be, shall revise the amounts of
claims admitted, including the estimates of claims made under
B sub-regulation (1), as soon as may be practicable, when he
comes across additional information warranting such
revision.”
It is clear from a reading of these Regulations that the
resolution professional is given administrative as opposed to
C quasi-judicial powers. In fact, even when the resolution
professional is to make a “determination” under Regulation
35-A, he is only to apply to the adjudicating authority for
appropriate relief based on the determination made as follows:
“35-A. Preferential and other transactions.—(1) On or
D before the seventy-fifth day of the insolvency
commencement date, the resolution professional shall form
an opinion whether the corporate debtor has been
subjected to any transaction covered under Sections 43,
45, 50 or 66.
E (2) Where the resolution professional is of the opinion that
the corporate debtor has been subjected to any
transactions covered under Sections 43, 45, 50 or 66, he
shall make a determination on or before the one hundred
and fifteenth day of the insolvency commencement date,
under intimation to the Board.
F
(3) Where the resolution professional makes a determination
under sub-regulation (2), he shall apply to the adjudicating
authority for appropriate relief on or before the one
hundred and thirty-fifth day of the insolvency
commencement date.”
G
90. As opposed to this, the liquidator, in liquidation
proceedings under the Code, has to consolidate and verify
the claims, and either admit or reject such claims under
Sections 38 to 40 of the Code. Sections 41 and 42, by way of
contrast between the powers of the liquidator and that of the
H resolution professional, are set out hereinbelow:
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1015
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
“41. Determination of valuation of claims.—The liquidator A
shall determine the value of claims admitted under Section
40 in such manner as may be specified by the Board.
42. Appeal against the decision of liquidator.—A creditor
may appeal to the adjudicating authority against the
decision of the liquidator accepting or rejecting the claims B
within fourteen days of the receipt of such decision.”
It is clear from these sections that when the liquidator
“determines” the value of claims admitted under Section
40, such determination is a “decision”, which is quasi-
judicial in nature, and which can be appealed against to
C
the adjudicating authority under Section 42 of the Code.
91. Unlike the liquidator, the resolution professional cannot
act in a number of matters without the approval of the
Committee of Creditors under Section 28 of the Code,
which can, by a two-thirds majority, replace one resolution
professional with another, in case they are unhappy with D
his performance. Thus, the resolution professional is really
a facilitator of the resolution process, whose administrative
functions are overseen by the Committee of Creditors and
by the adjudicating authority.”
(d) Section 29 of the IBC deals with the information memorandum E
on the basis of which the resolution plan would be submitted. In this
regard, Regulation 36 of the Insolvency and Bankruptcy Board of India
(Insolvency Resolution Process for Corporate Persons) Regulations,
2016, assumes importance wherein Regulation 36(2)(d) covers the claims
of different kinds of creditors. Regulation 36(2)(d) reads thus:
F
“36. Information memorandum.-(1) Subject to sub-regulation
(4), the resolution professional shall submit the information
memorandum in electronic form to each member of the
committee within two weeks of his appointment, but not later
than fifty-fourth day from the insolvency commencement date,
whichever is earlier. G
(2) The information memorandum shall contain the following
details of the corporate debtor-
(a) xxxx
Xx xx xx H
1016 SUPREME COURT REPORTS [2023] 4 S.C.R.
A (d) a list of creditors containing the names of creditors, the
amounts claimed by them, the amount of their claims admitted
and the security interest, if any, in respect of such claims;…..”
(e) In the aforesaid context, I may look into the decision of this
Court in the case of Committee of Creditors of Essar Steel India
B Limited v. Satish Kumar Gupta and Others reported in (2020) 8 SCC
531, more particularly, paras 42-45 which read thus:
“42. Under Section 29(1) of the Code, the resolution
professional shall prepare an information memorandum
containing all relevant information, as may be specified, so
C that a resolution plan may then be formulated by a prospective
resolution applicant. Under Section 30 of the Code, the
resolution applicant must then submit a resolution plan to the
resolution professional, prepared on the basis of the information
memorandum. After this, the resolution professional must present
to the Committee of Creditors, for its approval, such resolution
D plans which conform to the conditions referred to in Section
30(2) of the Code — see Section 30(3) of the Code. If the
resolution plan is approved by the requisite majority of the
Committee of Creditors, it is then the duty of the resolution
professional to submit the resolution plan as approved by the
E Committee of Creditors to the Adjudicating Authority —
see Section 30(6) of the Code.
43. The aforesaid provisions of the Code are then fleshed out
in the 2016 Regulations. Under Chapter IV of the aforesaid
Regulations, claims by operational creditors, financial
F creditors, other creditors, workmen and employees are to be
submitted to the resolution professional along with proofs
thereof — see Regulations 7 to 12. Thereafter, under
Regulation 13, the resolution professional shall verify each
claim as on the insolvency commencement date, and thereupon
maintain a list of creditors containing the names of creditors
G along with the amounts claimed by them, the amounts admitted
by him, and the security interest, if any, in respect of such
claims, and constantly update the aforesaid list —
see Regulation 13(1).
44. Chapter X of the Regulations then deals with resolution
H plans that are submitted. Under Regulation 35, “fair value”
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1017
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
as defined by Regulation 2(1)(hb) [Under Regulation 2(1)(hb), A
Insolvency and Bankruptcy Board of India (Insolvency
Resolution Process for Corporate Persons) Regulations,
2016:” 2. (1)(hb) “fair value” means the estimated realisable
value of the assets of the corporate debtor, if they were to be
exchanged on the insolvency commencement date between a
B
willing buyer and a willing seller in an arm’s length transaction,
after proper marketing and where the parties had acted
knowledgeably, prudently and without compulsion;”] and
“liquidation value” as defined by Regulation 2(1)(k)
[Id. Under Regulation 2(1)(k):”2. (1)(k) “liquidation
value” means the estimated realisable value of the assets of C
the corporate debtor, if the corporate debtor were to be
liquidated on the insolvency commencement date;”] shall be
determined by two registered valuers appointed under
Regulation 27, which shall be handed over to the resolution
professional.
D
45. After receipt of the resolution plans in accordance with
the Code and the Regulations, the resolution professional shall
then provide the fair value and liquidation value to every
member of the Committee of Creditors — see Regulation 35(2).
Regulation 36 is important as it forms the basis for the
submission of a resolution plan. The information memorandum, E
spoken of by this regulation, must contain the following:
“36.(2)(a) assets and liabilities with such description,
as on the insolvency commencement date, as are generally
necessary for ascertaining their values.
F
Explanation.—”Description” includes the details such
as date of acquisition, cost of acquisition, remaining useful
life, identification number, depreciation charged, book
value, and any other relevant details.
(b) the latest annual financial statements; G
(c) audited financial statements of the corporate debtor
for the last two financial years and provisional financial
statements for the current financial year made up to a date
not earlier than fourteen days from the date of the
application;
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1018 SUPREME COURT REPORTS [2023] 4 S.C.R.
A (d) a list of creditors containing the names of creditors,
the amounts claimed by them, the amount of their claims
admitted and the security interest, if any, in respect of such
claims;
(e) particulars of a debt due from or to the corporate
B debtor with respect to related parties;
(f) details of guarantees that have been given in relation
to the debts of the corporate debtor by other persons,
specifying which of the guarantors is a related party;
(g) the names and addresses of the members or partners
C
holding at least one per cent stake in the corporate debtor
along with the size of stake;
(h) details of all material litigation and an ongoing
investigation or proceeding initiated by Government and
statutory authorities;
D
(i) the number of workers and employees and liabilities
of the corporate debtor towards them;
(j)-(k)***
(l) other information, which the resolution professional
E
deems relevant to the committee.””
(f) On the basis of the information memorandum, the resolution
plan is submitted under Section 30(1) of the IBC.
(g) It is important to note that the operational creditors are
F mandatorily entitled to the liquidation value or the amount that the plan
entitles them if distributed in accordance with the waterfall mechanism
under Section 53 whichever is higher. (See Section 30 (2)(b))
(h) For dissenting financial creditors, they are mandatorily entitled
to the amount under Section 53 in the event of liquidation.
G
(i) The constitutional validity of the said provision was upheld by
this Court in the decision of Essar Steel India Limited (supra). (See
paras 128-131)
(j) If the plan fails to comply with the above, the resolution plan is
liable to be mandatorily rejected.
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1019
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
(k) Section 31 of the IBC deals with the approval of the resolution A
plan which shall bind everyone i.e. the corporate debtor, guarantors,
creditors, other stakeholders etc. Thus, whatever amount is allotted to
the creditor under the plan, the same will have to be accepted without
any option.
(l) The new avatar of the corporate debtor does not have to deal B
with the various “hydra heads”, i.e. multiple new claims popping up after
the approval of the plan (para 107 of the Essar Steel (supra)
(m) The aforesaid has been accepted as a “Clean Slate Theory”.
(See paras 93-94 of Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss
Asset Reconstruction Co. Ltd., (2021) 9 SCC 657). C
(n) This Court in Ebix Singapore Private Limited v. Committee
of Creditors of Educomp Solutions Limited and Another reported in
(2022) 2 SCC 401, has held that the resolution plan binds even the persons
who have not consented. Paras 115 & 117 resply read thus:-
D
“115. While the above observations were made in the context
of a scheme that has been sanctioned by the court, the
resolution plan even prior to the approval of the adjudicating
authority is binding inter se the CoC and the successful
resolution applicant. The resolution plan cannot be construed
E
purely as a “contract” governed by the Contract Act, in the
period intervening its acceptance by the CoC and the approval
of the adjudicating authority. Even at that stage, its binding
effects are produced by IBC framework. The BLRC Report
mentions that “[w]hen 75% of the creditors agree on a revival
plan, this plan would be binding on all the remaining F
creditors” [ 3.3.1, The Report of the Bankruptcy Law Reforms
Committee, Vol. I : Rationale and Design (November 2015),
p. 13, available at <https://ibbi.gov.in/BLRCReportVol1_
04112015.pdf> last accessed 20-8-2021.]. The BLRC Report
also mentions that, “the RP submits a binding agreement to
G
the adjudicator before the default maximum date” [Id, p. 92.].
We have further discussed the statutory scheme of IBC in
Sections I and J of this judgment to establish that a resolution
plan is binding inter se the CoC and the successful resolution
applicant. Thus, the ability of the resolution plan to bind those
H
1020 SUPREME COURT REPORTS [2023] 4 S.C.R.
A who have not consented to it, by way of a statutory procedure,
indicates that it is not a typical contract.
Xxx xxx xxx
117. ….. The terms of the resolution plan contain a commercial
bargain between the CoC and resolution applicant. There is
B also an intention to create legal relations with binding effect.
However, it is the structure of IBC which confers legal force
on the CoC-approved resolution plan. The validity of the
resolution plan is not premised upon the agreement or consent
of those bound (although as a procedural step IBC requires
C sixty-six per cent votes of creditors), but upon its compliance
with the procedure stipulated under IBC.”
(Emphasis supplied)
41. Thus, from the aforesaid, it is evident that the creditor has no
option but to join the process under the IBC. Once the plan is approved,
D it would bind everyone under the sun. The making of a claim and accepting
whatever share is allotted could be termed as an “Involuntary Act” on
behalf of the creditor. The making of a claim under the IBC and accepting
the same and not making any claim, will not make any difference in light
of Section 31 of the IBC. Both the situations will lead to Section 31 and
E the finality and binding value of the resolution plan.
42. Keeping the aforesaid discussion in mind, at best, it could be
said that from the cheque amount under Section 138 of the NI Act, the
amount received under the resolution plan may be deducted. (akin to
what happens to the guarantors)
F SECTION 32A OF THE IBC
43. P. Mohanraj (supra) has harmoniously construed Section 32A
with Section 14 of the IBC so as to apply to Section 138 NI Act,
proceedings. Section 32A(1) is very crucial and hence, is quoted below:-
“32A. Liability for prior offences, etc.—(1) Notwithstanding
G anything to the contrary contained in this Code or any other
law for the time being in force, the liability of a corporate
debtor for an offence committed prior to the commencement
of the corporate insolvency resolution process shall cease,
and the corporate debtor shall not be prosecuted for such an
H offence from the date the resolution plan has been approved
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1021
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
by the Adjudicating Authority under section 31, if the A
resolution plan results in the change in the management or
control of the corporate debtor to a person who was not—
(a) a promoter or in the management or control of the
corporate debtor or a related party of such a person; or
(b) a person with regard to whom the relevant investigating B
authority has, on the basis of material in its possession,
reason to believe that he had abetted or conspired for the
commission of the offence, and has submitted or filed a
report or a complaint to the relevant statutory authority or
court: C
Provided that if a prosecution had been instituted during
the corporate insolvency resolution process against such
corporate debtor, it shall stand discharged from the date
of approval of the resolution plan subject to requirements
of this sub-section having been fulfilled: D
Provided further that every person who was a “designated
partner” as defined in clause (j) of section 2 of the Limited
Liability Partnership Act, 2008 (6 of 2009), or an “officer
who is in default”, as defined in clause (60) of section 2 of
the Companies Act, 2013 (18 of 2013), or was in any E
manner incharge of, or responsible to the corporate debtor
for the conduct of its business or associated with the
corporate debtor in any manner and who was directly or
indirectly involved in the commission of such offence as
per the report submitted or complaint filed by the
investigating authority, shall continue to be liable to be F
prosecuted and punished for such an offence committed
by the corporate debtor notwithstanding that the corporate
debtor’s liability has ceased under this sub-section.”
44. Section 32A of the IBC has been upheld by this Court in
Manish Kumar v. Union of India and Another reported in (2021) 5 G
SCC 1. This Court has held that the said section does not permit the
wrong-doer to get away. Thus, if the argument of allowing the signatory/
director to go scot-free after the approval of the resolution plan is accepted
the same would run contrary to the legislative intent of Section 32A
which has been upheld by this Court as under:
H
1022 SUPREME COURT REPORTS [2023] 4 S.C.R.
A “326. We are of the clear view that no case whatsoever is
made out to seek invalidation of Section 32-A. The boundaries
of this Court’s jurisdiction are clear. The wisdom of the
legislation is not open to judicial review. Having regard to
the object of the Code, the experience of the working of the
Code, the interests of all stakeholders including most
B
importantly the imperative need to attract resolution applicants
who would not shy away from offering reasonable and fair
value as part of the resolution plan if the legislature thought
that immunity be granted to the corporate debtor as also its
property, it hardly furnishes a ground for this Court to
C interfere. The provision is carefully thought out. It is not as if
the wrongdoers are allowed to get away. They remain liable.
The extinguishment of the criminal liability of the corporate
debtor is apparently important to the new management to make
a clean break with the past and start on a clean slate. We
must also not overlook the principle that the impugned
D
provision is part of an economic measure. The reverence
courts justifiably hold such laws in cannot but be applicable
in the instant case as well. The provision deals with reference
to offences committed prior to the commencement of the CIRP.
With the admission of the application the management of the
E corporate debtor passes into the hands of the interim resolution
professional and thereafter into the hands of the resolution
professional subject undoubtedly to the control by the
Committee of Creditors. As far as protection afforded to the
property is concerned there is clearly a rationale behind it.
Having regard to the object of the statute we hardly see any
F
manifest arbitrariness in the provision.”
(Emphasis supplied)
45. In P. Mohanraj (supra), this Court in clear terms held that
Section 32A only protects the corporate debtor and not the signatories/
G directors etc. The prosecution against the signatories/directors would
continue. In P. Mohanraj (supra): -
a. The issue involved was whether the institution/continuation
of a proceeding under Section 138/141 of the NI Act, 1881
is said to be covered by Section 14 of the IBC, 2016.
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1023
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
b. That Section 138 proceedings can be said to be a “civil A
sheep” in a “criminal wolf’s” clothing.
i. The Court relied upon Kaushalya Devi Massand v.
Roopkishore Khore, (Para 59) [(2011)4 SCC 593]
and Meters & Instruments (P) Ltd. v. Kanchan
Mehta, (Para 63) [(2018)1 SCC 560] B
c. Section 138 proceedings are covered by Section 14 of the
IBC, 2016. (Para 67)
d. Moratorium under Section 14, IBC only applies to the
Corporate Debtor and does not apply to natural persons
mentioned under Section 141 of NI Act, 1881. The said C
conclusion is reached after considering Aneeta Hada v.
Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661.
(Para 102)
e. I quote para 102 of P. Mohanraj (supra) as under:
D
“102. Since the corporate debtor would be covered by the
moratorium provision contained in Section 14 IBC, by which
continuation of Sections 138/141 proceedings against the
corporate debtor and initiation of Sections 138/141
proceedings against the said debtor during the corporate
insolvency resolution process are interdicted, what is stated E
in paras 51 and 59 in Aneeta Hada ((2012) 5 SCC 661) would
then become applicable. The legal impediment contained in
Section 14 IBC would make it impossible for such proceeding
to continue or be instituted against the corporate debtor. Thus,
for the period of moratorium, since no Sections 138/141 F
proceeding can continue or be initiated against the corporate
debtor because of a statutory bar, such proceedings can be
initiated or continued against the persons mentioned in
Sections 141(1) and (2) of the Negotiable Instruments Act.
This being the case, it is clear that the moratorium provision
contained in Section 14 IBC would apply only to the corporate G
debtor, the natural persons mentioned in Section 141
continuing to be statutorily liable under Chapter XVII of the
Negotiable Instruments Act.”
(Emphasis supplied)
H
1024 SUPREME COURT REPORTS [2023] 4 S.C.R.
A 46. While dealing with the issue of Section 14, IBC, this Court
had the occasion to deal in detail with Section 32A also. The 2 nd proviso
to Section 32A(1) is a complete answer to the issue in question. The
said provision is discussed in detail from Paras 39-43 in P. Mohanraj’s
case. Paras 39 to 43 read thus:
B “39. The raison d’être for the enactment of Section 32-A has
been stated by the Report of the Insolvency Law Committee
of February 2020, which is as follows:
“17. LIABILITY OF CORPORATE DEBTOR FOR OFFENCES COMMITTED
PRIOR TO INITIATION OF CIRP [Recommendations contained
C herein have been implemented pursuant to Section 10 of
the Insolvency and Bankruptcy Code (Amendment)
Ordinance, 2019.]
17.1. Section 17 of the Code provides that on
commencement of the CIRP, the powers of management of
D the corporate debtor vest with the interim resolution
professional. Further, the powers of the Board of Directors
or partners of the corporate debtor stand suspended, and
are to be exercised by the interim resolution professional.
Thereafter, Section 29-A, read with Section 35(1)(f), places
restrictions on related parties of the corporate debtor from
E proposing a resolution plan and purchasing the property
of the corporate debtor in the CIRP and liquidation
process, respectively. Thus, in most cases, the provisions
of the Code effectuate a change in control of the corporate
debtor that results in a clean break of the corporate debtor
F from its erstwhile management. However, the legal form of
the corporate debtor continues in the CIRP, and may be
preserved in the resolution plan. Additionally, while the
property of the corporate debtor may also change hands
upon resolution or liquidation, such property also continues
to exist, either as property of the corporate debtor, or in
G the hands of the purchaser.
17.2. However, even after commencement of CIRP or after
its successful resolution or liquidation, the corporate debtor,
along with its property, would be susceptible to
investigations or proceedings related to criminal offences
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1025
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
committed by it prior to the commencement of a CIRP, A
leading to the imposition of certain liabilities and
restrictions on the corporate debtor and its properties even
after they were lawfully acquired by a resolution applicant
or a successful bidder, respectively.
Liability where a Resolution Plan has been approved B
17.3. It was brought to the Committee that this had created
apprehension amongst potential resolution applicants, who
did not want to take on the liability for any offences
committed prior to commencement of CIRP. In one case,
JSW Steel had specifically sought certain reliefs and C
concessions, within an annexure to the resolution plan it
had submitted for approval of the adjudicating authority.
[SBI v. Bhushan Steel Ltd., 2018 SCC OnLine NCLT 32305,
para 83(i)] Without relief from imposition of the such
liability, the Committee noted that in the long run, potential
resolution applicants could be disincentivised from D
proposing a resolution plan. The Committee was also
concerned that resolution plans could be priced lower on
an average, even where the corporate debtor did not
commit any offence and was not subject to investigation,
due to adverse selection by resolution applicants who might E
be apprehensive that they might be held liable for offences
that they have not been able to detect due to information
asymmetry. Thus, the threat of liability falling on bona fide
persons who acquire the legal entity, could substantially
lower the chances of its successful takeover by potential
resolution applicants. F
17.4. This could have substantially hampered the Code’s
goal of value maximisation, and lowered recoveries to
creditors, including financial institutions who take recourse
to the Code for resolution of the NPAs on their balance
sheet. At the same time, the Committee was also conscious G
that authorities are duty-bound to penalise the commission
of any offence, especially in cases involving substantial
public interest. Thus, two competing concerns need to be
balanced.
Xxx xxx xxx H
1026 SUPREME COURT REPORTS [2023] 4 S.C.R.
A 17.6. Given this, the Committee felt that a distinction must
be drawn between the corporate debtor which may have
committed offences under the control of its previous
management, prior to the CIRP, and the corporate debtor
that is resolved, and taken over by an unconnected
B resolution applicant. While the corporate debtor’s actions
prior to the commencement of the CIRP must be
investigated and penalised, the liability must be affixed
only upon those who were responsible for the corporate
debtor ’s actions in this period. However, the new
management of the corporate debtor, which has nothing
C to do with such past offences, should not be penalised
for the actions of the erstwhile management of the
corporate debtor, unless they themselves were involved
in the commission of the offence, or were related parties,
promoters or other persons in management and control
D of the corporate debtor at the time of or any time following
the commission of the offence, and could acquire the
corporate debtor, notwithstanding the prohibition under
Section 29-A. [For example, where the exemption under
Section 240-A is applicable.]
E 17.7. Thus, the Committee agreed that a new section should
be inserted to provide that where the corporate debtor is
successfully resolved, it should not be held liable for any
offence committed prior to the commencement of the CIRP,
unless the successful resolution applicant was also
involved in the commission of the offence, or was a related
F
party, promoter or other person in management and control
of the corporate debtor at the time of or any time following
the commission of the offence.
17.8. Notwithstanding this, those persons who were
G responsible to the corporate debtor for the conduct of its
business at the time of the commission of such offence,
should continue to be liable for such an offence,
vicariously or otherwise, regardless of the fact that the
corporate debtor’s liability has ceased.” (emphasis in
original and supplied)
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1027
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
40. This Court in Manish Kumar v. Union of India [(2021) 5 A
SCC 1], upheld the constitutional validity of this provision.
This Court observed : (SCC pp. 170-71, para 326)
“326. We are of the clear view that no case whatsoever is
made out to seek invalidation of Section 32-A. The
boundaries of this Court’s jurisdiction are clear. The wisdom B
of the legislation is not open to judicial review. Having
regard to the object of the Code, the experience of the
working of the Code, the interests of all stakeholders
including most importantly the imperative need to attract
resolution applicants who would not shy away from offering
reasonable and fair value as part of the resolution plan if C
the legislature thought that immunity be granted to the
corporate debtor as also its property, it hardly furnishes a
ground for this Court to interfere. The provision is carefully
thought out. It is not as if the wrongdoers are allowed to
get away. They remain liable. The extinguishment of the D
criminal liability of the corporate debtor is apparently
important to the new management to make a clean break
with the past and start on a clean slate. We must also not
overlook the principle that the impugned provision is part
of an economic measure. The reverence courts justifiably
hold such laws in cannot but be applicable in the instant E
case as well. The provision deals with reference to offences
committed prior to the commencement of the CIRP. With
the admission of the application the management of the
corporate debtor passes into the hands of the interim
resolution professional and thereafter into the hands of F
the resolution professional subject undoubtedly to the
control by the Committee of Creditors. As far as protection
afforded to the property is concerned there is clearly a
rationale behind it. Having regard to the object of the
statute we hardly see any manifest arbitrariness in the
provision.” G
41. Section 32-A cannot possibly be said to throw any light
on the true interpretation of Section 14(1)(a) as the reason
for introducing Section 32-A had nothing whatsoever to do
with any moratorium provision. At the heart of the section is
H
1028 SUPREME COURT REPORTS [2023] 4 S.C.R.
A the extinguishment of criminal liability of the corporate debtor,
from the date the resolution plan has been approved by the
adjudicating authority, so that the new management may make
a clean break with the past and start on a clean slate. A
moratorium provision, on the other hand, does not extinguish
any liability, civil or criminal, but only casts a shadow on
B
proceedings already initiated and on proceedings to be
initiated, which shadow is lifted when the moratorium period
comes to an end. Also, Section 32-A(1) operates only after
the moratorium comes to an end. At the heart of Section 32-A
is the IBC’s goal of value maximisation and the need to obviate
C lower recoveries to creditors as a result of the corporate debtor
continuing to be exposed to criminal liability.
42. Unfortunately, Section 32-A is inelegantly drafted. The
second proviso to Section 32-A(1) speaks of persons who are
in any manner in charge of, or responsible to the corporate
D debtor for the conduct of its business or associated with the
corporate debtor and who are, directly or indirectly, involved
in the commission of “such offence” i.e. the offence referred
to in sub-section (1), “as per the report submitted or complaint
filed by the investigating authority …”. The report submitted
E here refers to a police report under Section 173 CrPC, and
complaints filed by investigating authorities under special
Acts, as opposed to private complaints. If the language of the
second proviso is taken to interpret the language of Section
32- A(1) in that the “offence committed” under Section 32-
A(1) would not include offences based upon complaints under
F Section 2(d) CrPC, the width of the language would be cut
down and the object of Section 32-A(1) would not be achieved
as all prosecutions emanating from private complaints would
be excluded. Obviously, Section 32-A(1) cannot be read in
this fashion and clearly incudes the liability of the corporate
G debtor for all offences committed prior to the commencement
of the corporate insolvency resolution process. Doubtless, a
Section 138 proceeding would be included, and would, after
the moratorium period comes to an end with a resolution plan
by a new management being approved by the adjudicating
authority, cease to be an offence qua the corporate debtor.
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1029
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
43. A section which has been introduced by an amendment A
into an Act with its focus on cesser of liability for offences
committed by the corporate debtor prior to the commencement
of the corporate insolvency resolution process cannot be so
construed so as to limit, by a sidewind as it were, the
moratorium provision contained in Section 14, with which it
B
is not at all concerned. If the first proviso to Section 32-A(1)
is read in the manner suggested by Shri Mehta, it will impact
Section 14 by taking out of its ken Sections 138/141
proceedings, which is not the object of Section 32-A(1) at all.
Assuming, therefore, that there is a clash between Section 14
IBC and the first proviso of Section 32-A(1), this clash is best C
resolved by applying the doctrine of harmonious construction
so that the objects of both the provisions get subserved in the
process, without damaging or limiting one provision at the
expense of the other. If, therefore, the expression
“prosecution” in the first proviso of Section 32-A(1) refers to
D
criminal proceedings properly so-called either through the
medium of a first information report or complaint filed by an
investigating authority or complaint and not to quasi-criminal
proceedings that are instituted under Sections 138/141 of the
Negotiable Instruments Act against the corporate debtor, the
object of Section 14(1) IBC gets subserved, as does the object E
of Section 32-A, which does away with criminal prosecutions
in all cases against the corporate debtor, thus absolving the
corporate debtor from the same after a new management
comes in.”
(Emphasis applied) F
Thus, the heart of the matter is the second proviso appended to
Section 32A(1)(b) of the IBC which provides statutory recognition of
the criminal liability of the persons who are otherwise vicariously liable
under Section 141 of NI Act, in the context of Section 138 offence.
46. Thus, Section 32A broadly leads to: G
a. Extinguishment of the criminal liability of the corporate
debtor, if the control of the corporate debtor goes in the
hands of the new management which is different from the
original old management.
H
1030 SUPREME COURT REPORTS [2023] 4 S.C.R.
A b. The prosecution in relation to “every person who was a
“designated partner” as defined in clause (j) of Section
2 of the Limited Liability Partnership Act, 2008 (6 of
2009), or an “officer who is in default”, as defined in
clause (60) of Section 2 of the Companies Act, 2013
(18 of 2013), or was in any manner in charge of, or
B
responsible to the corporate debtor for the conduct of its
business or associated with the corporate debtor in any
manner and who was directly or indirectly involved in
the commission of such offence” shall be proceeded and
the law will take it’s own course. Only the corporate debtor
C (with new management) as held in Para 42 of P. Mohanraj
will be safeguarded.
c. If the old management takes over the corporate
debtor (for MSME Section 29A does not apply (see 240A),
hence for MSME old management can takeover) the
D corporate debtor itself is also not safeguarded from
prosecution under Section 138 or any other offences.
47. Thus, I am of the view that by operation of the provisions of
the IBC, the criminal prosecution initiated against the natural persons
under Section 138 read with 141 of the NI Act read with Section 200 of
E the CrPC would not stand terminated.
48. In JIK Industries Limited and Others v. Amarlal V. Jumani
and Another reported in (2012) 3 SCC 255, this Court held that the
sanction of a scheme under Section 391 of the Companies Act, 1956 will
not lead to any automatic compounding of offence under Section 138 of
F the NI Act without the consent of the complainant. Neither Section 14
nor Section 31 of the IBC can produce such a result. The binding effect
contemplated by Section 31 of the IBC is in respect of the assets and
management of the corporate debtor. No clause in the resolution plan
even if accepted by the adjudicating authority/appellate tribunal can take
away the power and jurisdiction of the criminal court to conduct and
G
dispose of the proceedings before it in accordance with the provisions of
the CrPC.
49. It is true that by virtue of Section 238 of the IBC, the provisions
of the CrPC shall have effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in force or any
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1031
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
instrument having effect by virtue of any such law. But, no provision of A
the IBC bars the continuation of the criminal prosecution initiated against
the directors and officials.
50. It is equally true that once the corporate debtor comes under
the resolution process, its erstwhile managing director(s) cannot continue
to represent the company. Section 305(2) of the CrPC states that where B
a corporation is the accused person or one of the accused persons in an
inquiry or trial, it may appoint a representative for the purpose of the
inquiry or trial and such appointment need not be under the seal of the
corporation. Therefore, it is only the Resolution Professional who can
represent the accused company during the pendency of the proceedings
under IBC. After the proceedings are over, either the corporate entity C
may be dissolved or it can be taken over by a new management in which
event the company will continue to exist. When a new management
takes over, it will have to make arrangements for representing the
company. If the company is dissolved as a result of the resolution process,
obviously proceedings against it will have to be terminated. But even D
then, its erstwhile directors may not be able to take advantage of the
situation. This is because, this Court in Aneeta Hada (supra), even while
overruling its decision in Anil Hada v. Indian Acrylic Ltd. reported
in (2000) 1 SCC 1, as not laying down the correct law in so far as Anil
Hada (supra) states that the director or any other officer can be
prosecuted without impleadment of the company, proceeded to hold that E
the matter would stand on a different footing where there is some legal
impediment as the doctrine of lex non cogit ad impossibilia gets
attracted. It was specifically observed that the decision in Anil
Hada (supra) is overruled with the qualifier as stated in para 51.
Considering the same, the ratio of the decision of this Court in Ajit Balse F
(supra) upon which strong reliance is placed on behalf of the appellant is
of no avail.
51. What follows from the aforesaid is that for difficulty in
prosecuting the corporate debtor under Section 138 of the NI Act after
the approval of the resolution plan under the IBC, we need not let the G
natural persons i.e., the signatories to the cheques/directors of the
corporate debtor escape prosecution. How can one allow the natural
persons to escape liability on such specious plea? In such a situation the
Latin maxim Lex Non Cogit Ad Impossibilia is attracted which means
law does not compel a man to do which he cannot possibly perform.
H
1032 SUPREME COURT REPORTS [2023] 4 S.C.R.
A Broom’s “Legal Maxims” contains several illustrative cases in support
of the maxim. This maxim has been referred to with approval by this
Court in State of Rajasthan v. Shamsher Singh reported in 1985 supp
SCC 416.
52. Thus, where the proceedings under Section 138 of the NI Act
B had already commenced and during the pendency the plan is approved
or the company gets dissolved, the directors and the other accused cannot
escape from their liability by citing its dissolution. What is dissolved is
only the company, not the personal penal liability of the accused covered
under Section 141 of the NI Act. They will have to continue to face the
prosecution in view of the law laid down in Aneeta Hada (supra). Where
C
the company continues to remain even at the end of the resolution process,
the only consequence is that the erstwhile directors can no longer
represent it.
FEW OF THE ABSURD SITUATIONS THAT MAY ARISE
IF SECTION 138 PROCEEDINGS IN RELATION TO THE
D
SIGNATORIES/DIRECTORS ARE HELD TO BE NOT
MAINTAINABLE AFTER THE RESOLUTION PLAN IS
APPROVED
53. If the argument that the signatories/directors are not liable
to be proceeded under Section 138/141 of the NI Act once the
E
resolution plan is approved, the same may lead to the following absurd
situations:
i. If during the lifetime of the Section 14 moratorium order,
some of the accused are convicted under Section 138 of
F the NI Act, they will have to be released in appeal once the
resolution plan is approved. Thus, then, no purpose would
be served by proceeding further against the co-accused
under Section 138 during the moratorium.
ii. If the resolution plan is not approved and the corporate
G debtor goes under liquidation in such circumstances under
Section 35(1)(k) of the IBC the liquidator can represent
the corporate debtor. Thus, the prosecution under Section
138/141 continues. This may lead to absurd situations in
working of the IBC and its impact on Section 138
proceedings.
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1033
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
iii. At the end of the liquidation, the distribution will take place A
under Section 53 of the IBC. Therein everyone, including
the creditors will get their share as per the waterfall
mechanism statutorily decided and the same would be
binding and mandatory. Thereafter, the corporate debtor is
dissolved under Section 54 of the IBC after selling of the B
assets under liquidation. Now during the said period, the
prosecution might have been completed and appeals would
be pending. Then it would be argued that because under
the liquidation the amount is accepted, the prosecution against
the signatory/director cannot continue after the dissolution
of the corporate debtor. C
54. Thus, while interpreting Sections 14, 31 & 32A resply of the
IBC vis-a-vis Sections 138 and 141 resply of the NI Act, the principle
of harmonious construction should be applied and followed. By
permitting to proceed against the signatories/directors even after the
D
approval of the plan, what is achieved is uniformity in the functioning
of the law by removing the anomalous and absurd situations, thereby,
making it compliant with Article 14 of the Constitution. The said
interpretation shields the relevant provisions from attack of being
manifestly arbitrary.
E
55. The distinction between a strict construction and a more free
one has disappeared in the modern times and now mostly the question is,
“what is the true construction of the statute?” A passage in Craies on
Statue Law 7th Edn. reads to the following effect:-
“The distinction between a strict and a liberal construction F
has almost disappeared with regard to all classes of statutes,
so that all statutes, whether penal or not, are now construed
by substantially the same rules. ‘All modern Acts are framed
with regard to equitable as well as legal principles.’ “A
hundred years ago”, said the court in Lyons’ case, “statutes
G
were required to be perfectly precise and resort was not had
to a reasonable construction of the Act, and thereby criminals
were often allowed to escape. This is not the present mode of
construing Acts of Parliament. They are construed now with
reference to the true meaning and real intention of the
legislature.” H
1034 SUPREME COURT REPORTS [2023] 4 S.C.R.
A 56. At page-532 of the same book, observations of Sedgwick are
quoted as under:
“The more correct version of the doctrine appears to be that
statutes of this class are to be fairly construed and faithfully
applied according to the intent of the legislature without
B unwarrantable severity on the one hand or unjustifiable lenity
on the other, in cases of doubt the courts inclining to mercy.”
ARGUMENT THAT AS THE DEBT STOOD
EXTINGUISHED BY VIRTUE OF SECTION 31 OF THE CODE,
THE CRIMINAL PROCEEDINGS U/S. 138 OF THE NI ACT
C CANNOT CONTINUE AS REGARDS THE DIRECTOR/
SIGNATORY.
57. The argument that as the debt stood extinguished by virtue of
Section 31 of the IBC, the proceedings under Section 138 of the NI Act
cannot continue as regards the director/signatory, would run contrary to
D the line of reasoning assigned by this Court that the “Involuntary Act” of
the principal debtor would not absolve the guarantors.
58. This Court in Lalit Kumar Jain v. Union of India and Others
reported in (2021) 9 SCC 321 has held that the approval of the resolution
plan per se does not operate as a discharge of guarantors’ liability. That
E is because:
a. an involuntary act of the principal debtor leading to loss of
security, would not absolve a guarantor of its liability.
b. a discharge which the principal debtor may secure by
operation of law in bankruptcy (or in liquidation
F proceedings in the case of a company) does not
absolve the surety of his liability.
59. The same principle is applicable to the signatory/director in
the case of Section 138/141 proceedings. The signatory/director cannot
take benefit of discharge obtained by the corporate debtor by operation
G of law under the IBC.
60. If the argument that extinguishment of debt under Section 31
of the IBC leads to the discharge of signatory/director under Section
138 proceedings is accepted, the same will lead to conflict in law as laid
down compared to the guarantor’s liability wherein in spite of the plan
H being approved, the guarantor is held separately liable for the remaining
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1035
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
amount. If the guarantor does not get the benefit of extinguishment of A
debt under Section 31 of the IBC, then similarly for extinguishment of
debt, the signatory/director cannot get any benefit. If accepted, this
may lead to uncertainty in the first Principles of law on
interpretation of extinguishment of debt. In Lalit Kumar Jain
(supra) this Court held as under:
B
“122. It is therefore, clear that the sanction of a resolution
plan and finality imparted to it by Section 31 does not per se
operate as a discharge of the guarantor’s liability. As to the
nature and extent of the liability, much would depend on the
terms of the guarantee itself. However, this Court has
indicated, time and again, that an involuntary act of the C
principal debtor leading to loss of security, would not absolve
a guarantor of its liability. In Maharashtra SEB [Maharashtra
SEB v. Official Liquidator, (1982) 3 SCC 358] the liability of
the guarantor (in a case where liability of the principal debtor
was discharged under the Insolvency law or the Company D
law), was considered. It was held that in view of the
unequivocal guarantee, such liability of the guarantor
continues and the creditor can realise the same from the
guarantor in view of the language of Section 128 of the
Contract Act, 1872 as there is no discharge under Section
134 of that Act. This Court observed as follows: (SCC pp. E
362-63, para 7)
“7. Under the bank guarantee in question the Bank
has undertaken to pay the Electricity Board any sum up to
Rs 50,000 and in order to realise it all that the Electricity
Board has to do is to make a demand. Within forty-eight F
hours of such demand the Bank has to pay the amount to
the Electricity Board which is not under any obligation to
prove any default on the part of the Company in liquidation
before the amount demanded is paid. The Bank cannot
raise the plea that it is liable only to the extent of any loss G
that may have been sustained by the Electricity Board owing
to any default on the part of the supplier of goods i.e. the
Company in liquidation. The liability is absolute and
unconditional. The fact that the Company in liquidation
i.e. the principal debtor has gone into liquidation also
H
1036 SUPREME COURT REPORTS [2023] 4 S.C.R.
A would not have any effect on the liability of the Bank i.e.
the guarantor. Under Section 128 of the Contract Act, 1872,
the liability of the surety is coextensive with that of the
principal debtor unless it is otherwise provided by the
contract. A surety is no doubt discharged under Section
134 of the Contract Act, 1872 by any contract between the
B
creditor and the principal debtor by which the principal
debtor is released or by any act or omission of the creditor,
the legal consequence of which is the discharge of the
principal debtor. But a discharge which the principal debtor
may secure by operation of law in bankruptcy (or in
C liquidation proceedings in the case of a company) does
not absolve the surety of his liability (see Jagannath
Ganeshram Agarwale v. Shivnarayan Bhagirath [1939 SCC
OnLine Bom 65 : AIR 1940 Bom 247] ; see also Fitzgeorge,
In re [Fitzgeorge, In re, (1905) 1 KB 462]).””
D (Emphasis supplied)
LITIGANT CANNOT TAKE ADVANTAGE OF ITS OWN
WRONG (NULLUS COMMODUM CAPERE POTEST DE
INJURIA SUA PROPRIA)
61. This Court while upholding the validity of Section 32A, IBC
E (Manish Kumar’s case) has held that “The provision is carefully
thought out. It is not as if the wrongdoers are allowed to get away.”
That is a very important object and the same should not be permitted to
be defeated by accepting the argument that permits the Signatory/
Director to enjoy the fruits of their own wrong.
F 62. In an interesting case titled Goa State Cooperative Bank
Limited v. Krishna Nath A. and Others reported in (2019) 20 SCC 38,
the facts were that the liquidation proceedings were required to be
completed within a fixed number of years, but failed. Thereafter the
borrowers claimed in the recovery suit that now no recovery could be
G made. This Court held that the defaulters cannot take benefit of their
own action. The disbursement of loan in an arbitrary manner and failure
to recover was the very fulcrum on the basis of which the winding up of
the Society was ordered. I quote the relevant observations as under:-
“21. It is apparent that on the termination of the liquidation
proceedings, liability of the members for the debts taken by
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1037
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
them does not come to an end. There is no such provision in A
the Act providing once winding-up period is over, the liability
of the members for loans obtained by them which is in their
hands, and for which recovery proceedings are pending shall
come to an end. No automatic termination of recovery
proceedings against the members is contemplated. On the
B
other hand, on completion of the period fixed to liquidate the
Society, final report has to be submitted as to the amount
standing to the credit of the Society in liquidation after paying
off its liabilities including the share or interest of members.
Thus, even in the case of liquidation the accountability
remains towards surplus and liabilities do not come to an end. C
Even if the period fixed for liquidation of Society is over, that
does not terminate the proceedings for recovery which have
been initiated and appeals are pending.
Xxx xxx xxx
24. The concept of restitution is a common law principle and D
it is a remedy against unjust enrichment or unjust benefit.
The court cannot be used as a tool by a litigant to perpetuate
illegality. A person who is on the right side of the law, should
not have a feeling that in case he is dragged in litigation, and
wins, he would turn out to be a loser and wrongdoer as a real E
gainer, after 20 or 30 years. Thus, the members who have
obtained stay in appeal or on recovery proceedings or the
case is pending, cannot take advantage of the fact that the
period fixed for the Liquidator under the Act is over.
25. Once a report has been submitted, the Registrar has to F
take action in terms of the report and in such circumstances
when the proceedings for recovery are pending against the
members and the Society has taken loan from the banks for
its member, the actual money has to go to the creditor i.e. to
the bank who is going to be benefitted by recovery of public
money in the hands of members. In such cases it would be G
appropriate for the Registrar to send notice of the proceedings
to a person who is to be benefitted from the recovery. In the
instant case, the Bank itself is a prime lender-cum- liquidator.
The proceedings cannot come to the end. Thus, in our
considered opinion, it is open to the bank to continue with H
1038 SUPREME COURT REPORTS [2023] 4 S.C.R.
A the recovery proceedings and make recoveries from the
defaulting members. Merely on the liquidation of the Society,
or the factum that the period fixed for liquidation is over,
liability of the members for the loans cannot be said to have
been wiped off. The disbursement of loan in an arbitrary
manner and failure to recover was the very fulcrum on the
B
basis of which winding up of the Society was ordered.”
(Emphasis supplied)
TERMS OF THE RESOLUTION PLAN CANNOT
CONTROL THE ENACTMENT/RULES
C 63. Before I proceed to comment on the aforesaid, it is necessary
to look into the relevant clauses of the resolution plan upon which strong
reliance is sought to be placed on behalf of the appellant. The relevant
clauses read thus:
“Part K: Extinguishment of Claims/Rights
D
1. Save and except specifically dealt with under this Resolution
Plan, no other payments or settlements (of any kind) shall be
made to any other Person in respect of claims filed under the
CIRP (including, for the avoidance of doubt, any unverified
portion of their claim) and all claims against the Corporate
E Debtor along with any related legal proceedings, including
criminal proceedings, and other penal proceedings, shall
stand irrevocably and unconditionally abated, settled and
extinguished in perpetuity on the Effective Date, and with
effect from the Appointed Date.
F 2. The payment to Persons contemplated in this Resolution
Plan shall be the Corporate Debtors and Resolution
Applicant’s full and final performance and satisfaction of all
its obligations to such Persons and all Claims (including, for
the avoidance of doubt, any unverified portion of their Claims)
of such Persons against the Corporate Debtor shall stand
G
irrevocably and unconditionally settled and extinguished in
perpetuity on the Effective Date and with effect from the
Appointed Date.
3. …Accordingly, the Resolution Applicant and the Corporate
Debtor shall have no responsibility or liability in respect of
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1039
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
any claims against the Corporate Debtor attributable to the A
period prior to the Effective Date other than any payments to
be made under this Resolution Plan and all claims along with
any related legal proceedings, including criminal proceedings
and other penal proceedings, shall stand irrevocably and
unconditionally abated, settled and extinguished in perpetuity.
B
Xxx xxx xxx
6. On the Effective Date and with effect from the Appointed
Date, all the outstanding negotiable instruments issued by
Director/promoter or Corporate Debtor or by any Person on
behalf of the Corporate Debtor for any dues of Corporate C
Debtor including demand promissory notes, post-dated
cheques and letters of credit, shall stand terminated and the
Corporate Debtor’s liability under such instruments shall stand
extinguished.”
(Emphasis supplied) D
64. I have referred to Section 31 of the IBC and Ebix Singapore
(supra) to explain that the resolution plan is binding on the creditors who
have not consented to it. This is a very important factor, which indicates
that the complainant under Section 138 NI Act is bound by the approved
resolution plan, even though he may not have consented to it (if he is E
part of the CoC) or likes it. If he is not a part of the CoC, then also it is
binding on him.
65. Section 30(2)(e) of the IBC requires the resolution
professional to approve the resolution plan, only if the same does
not violate any of the provisions of the law for the time being in F
force. Thus, the clauses of the resolution plan cannot control the
Enactment/Rules in force. It is the resolution plan which has to comply
with the laws in force. In the case on hand, any clause giving any effect
to the corporate debtor under Section 138 NI Act proceedings, cannot
be used to protect the signatories/directors under Section 138/141 NI
Act. G
66. Section 61(3)(i) of the IBC provides for an appeal against an
order approving a resolution plan if it contravenes any provision of law.
“61. Appeals and Appellate Authority.—
xxx xxx xxx H
1040 SUPREME COURT REPORTS [2023] 4 S.C.R.
A (3) An appeal against an order approving a resolution plan
under Section 31 may be filed on the following grounds,
namely:
(i) the approved resolution plan is in contravention of
the provisions of any law for the time being in force;….”
B
67. The complainant-creditor of Section 138 NI Act proceedings
may or may not have any role to play in the approval of the resolution
plan and majority of Section 138 creditors may be small players unlike
big financial creditors.
C 68. The terms of the resolution plan cannot run contrary to the
enactment i.e. the IBC or any other plenary law or rules.
69. Thus, the said clauses of the resolution plan have no role to
play in answering the neat question of law, which is dependent on the
interpretation of various provisions of the IBC and NI Act.
D 70. It was also sought to be argued on behalf of the appellant that
the plain reading of the clauses of the resolution plan referred to above,
would indicate that the respondent (complainant) could be said to have
compounded the offence punishable under Section 138 of the NI Act.
71. ‘Compounding’ and ‘quashing’ are not synonymous terms. In
E law, they have different meanings and consequences. They arise from
different situations and operate in different fields and stages. There is
no apparent legal interdependence or interlink to the extent that one
could exist only if the conditions of the other were satisfied or vice-
versa. Quashing is one of the facets of inherent powers, while
F compounding of an offence being a statutory expression contained under
Section 320 the CrPC is entirely a different concept.
72. The expressions ‘compromise’ and ‘compounding’ are not
synonyms in criminal jurisprudence even though these expressions are
usually used without any distinction. Any dispute can be compromised
G between the parties if the terms are not illegal. But only a compoundable
offence allowed by law can be compounded. A dispute relating to a
crime can be compromised even before the case is registered, and in
that case, victim of the crime may refuse to file a complaint. But if in
spite of compromise, if he files a complaint and court finds that what is
compromised is a compoundable offence, depending upon the facts and
H
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1041
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
circumstances of each case Magistrate can refuse to take cognizance, A
or acquit the accused as offence was compounded or the complaint can
be quashed in proceedings under Section 482 of the CrPC.
73. In a compromise, consensus between the parties to give and
take is more important and in a compounding, decision of the victim of
the offence not to prosecute and not to continue with prosecution is B
more important.
74. I am of the view that the clauses as contained in the resolution
plan referred to above, only extinguishes the liability of the corporate
debtor and not the natural persons.
75. As per Section 138 of the NI Act, when the cheque was C
dishonoured and a statutory notice demanding the cheque amount was
issued, the accused shall pay the cheque amount within 15 days from
the date of receipt of the said notice. The moment the said 15 days
expired, the cause of action arises. In other words, the offence under
Section 138 of the NI Act is complete. Once the cause of action arose D
for the offence committed, the complainant has to approach the criminal
court within one month to take penal action under Section 138 of the NI
Act. To put it clearly, the complainant approaches the criminal court not
for recovery of the legally enforceable debt, but for taking penal action
under Section 138 of the NI Act for the offence already committed by
the accused by not making the payment of the cheque amount despite E
the receipt of the statutory notice. The only question before the criminal
court is whether the cheque issued by the accused towards the discharge
of his liability was dishonoured and despite the service of demand notice,
whether he had not paid the amount. There is no bar contained in any of
the provisions of the IBC, and the NI Act from approaching the criminal F
court to seek penal action under Section 138 of the NI Act.
FEW RELEVANT DECISIONS ON THE SUBJECT
76. In State Bank of India v. V. Ramakrishnan and Another
reported in (2018) 17 SCC 394, this Court held that:-
G
“31. The Insolvency Law Committee, appointed by the Ministry
of Corporate Affairs, by its Report dated 26-3-2018, made
certain key recommendations…..
32. The Committee insofar as the moratorium under Section
14 is concerned, went on to find:…
H
1042 SUPREME COURT REPORTS [2023] 4 S.C.R.
A “5.11. Further, since many guarantees for loans of corporates
are given by its promoters in the form of personal guarantees,
if there is a stay on actions against their assets during a CIRP,
such promoters (who are also corporate applicants) may file
frivolous applications to merely take advantage of the stay
and guard their assets. In the judgments analysed in this
B
relation, many have been filed by the corporate applicant
under Section 10 of the Code and this may corroborate the
above apprehension of abuse of the moratorium provision.
The Committee concluded that Section 14 does not intend to
bar actions against assets of guarantors to the debts of the
C corporate debtor and recommended that an explanation to
clarify this may be inserted in Section 14 of the Code. The
scope of the moratorium may be restricted to the assets of the
corporate debtor only.”
Xxx xxx xxx
D 25. Section 31 of the Act was also strongly relied upon by the
respondents. This section only states that once a resolution
plan, as approved by the Committee of Creditors, takes effect,
it shall be binding on the corporate debtor as well as the
guarantor. This is for the reason that otherwise, under Section
E 133 of the Contract Act, 1872, any change made to the debt
owed by the corporate debtor, without the surety’s consent,
would relieve the guarantor from payment. Section 31(1), in
fact, makes it clear that the guarantor cannot escape payment
as the resolution plan, which has been approved, may well
include provisions as to payments to be made by such
F guarantor. This is perhaps the reason that Annexure VI(e) to
Form 6 contained in the Rules and Regulation 36(2) referred
to above, require information as to personal guarantees that
have been given in relation to the debts of the corporate
debtor. Far from supporting the stand of the respondents, it is
G clear that in point of fact, Section 31 is one more factor in
favour of a personal guarantor having to pay for debts due
without any moratorium applying to save him.
Xxx xxx xxx
26.1. Section 14 refers only to debts due by corporate debtors,
H who are limited liability companies, and it is clear that in the
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1043
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
vast majority of cases, personal guarantees are given by A
Directors who are in management of the companies. The object
of the Code is not to allow such guarantors to escape from an
independent and co-extensive liability to pay off the entire
outstanding debt, which is why Section 14 is not applied to
them. …”
B
(Emphasis supplied)
77. In Committee of Creditors of Essar Steel India Limited v.
Satish Kumar Gupta and Others reported in (2020) 8 SCC 531, this
Court held that:
“106. Following this judgment in V. Ramakrishnan case (2018) C
17 SCC 394, it is difficult to accept Shri Rohatgi’s argument
that that part of the resolution plan which states that the claims
of the guarantor on account of subrogation shall be
extinguished, cannot be applied to the guarantees furnished
by the erstwhile Directors of the corporate debtor. So far as
the present case is concerned, we hasten to add that we are D
saying nothing which may affect the pending litigation on
account of invocation of these guarantees. However, NCLAT
judgment being contrary to Section 31(1) of the Code and
this Court’s judgment in V. Ramakrishnan case (2018) 17 SCC
394, is set aside.” E
(Emphasis supplied)
78. In Vijay Kumar Jain v. Standard Chartered Bank reported
in (2019) 20 SCC 455, this Court held that:
“19.3… we find that Section 31(1) of the Code would make it
clear that such members of the erstwhile Board of Directors, F
who are often guarantors, are vitally interested in a resolution
plan as such resolution plan then binds them. Such plan may
scale down the debt of the principal debtor, resulting in scaling
down the debt of the guarantor as well, or it may not. The
resolution plan may also scale down certain debts and not G
others, leaving guarantors of the latter kind of debts exposed
for the entire amount of the debt.
19.4. The regulations also make it clear that these persons
are vitally interested in resolution plans as they affect them.”
(Emphasis supplied) H
1044 SUPREME COURT REPORTS [2023] 4 S.C.R.
A 79. In Lalit Kumar Jain (supra), this Court held that:
“122. It is therefore, clear that the sanction of a resolution
plan and finality imparted to it by Section 31 does not per se
operate as a discharge of the guarantor’s liability. As to the
nature and extent of the liability, much would depend on the
B terms of the guarantee itself. However, this Court has
indicated, time and again, that an involuntary act of the
principal debtor leading to loss of security, would not absolve
a guarantor of its liability…..”
(Emphasis supplied)
C 80. In JIK Industries Limited and Others v. Amarlal V. Jumani
and Another reported in (2012) 3 SCC 255, this Court held that:
“19. In the instant appeal in most of the cases the offence
under the NI Act has been committed prior to the scheme.
Therefore, the offence which has already been committed prior
D to the scheme does not get automatically compounded only
as a result of the said scheme. Therefore, even by relying on
the ratio of the aforesaid judgment in J.K. (Bombay) (P)
Ltd. [J.K. (Bombay) (P) Ltd. v. New Kaiser-I-Hind Spg. And
Wvg. Co. Ltd., AIR 1970 SC 1041], this Court cannot accept
E the appellant’s contention that the scheme under Section 391
of the Companies Act will have the effect of automatically
compounding the offence under the NI Act.
Xxx xxx xxx
27. The compounding of an offence is always controlled by
F statutory provision. There are various features in the
compounding of an offence and those features must be
satisfied before it can be claimed by the offender that the
offence has been compounded. Thus, compounding of an
offence cannot be achieved indirectly by the sanctioning of a
scheme by the Company Court.
G
Xxx xxx xxx
70. In the instant case no special procedure has been
prescribed under the NI Act relating to compounding of an
offence. In the absence of special procedure relating to
H compounding, the procedure relating to compounding under
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1045
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
Section 320 shall automatically apply in view of clear A
mandate of sub-section (2) of Section 4 of the Code.
Xxx xxx xxx
83. For the reasons aforesaid, this Court is unable to accept
the contentions of the learned counsel for the appellant(s)
that as a result of sanction of a scheme under Section 391 of B
the Companies Act there is an automatic compounding of
offences under Section 138 of the NI Act even without the
consent of the complainant.”
(Emphasis supplied)
81. In Indorama Synthetics (I) Ltd., Nagpur v. State of C
Maharashtra and others reported in 2016 SCC OnLine Bom 2611, the
question that arose before the Bombay High Court was whether the
expression “suit or other proceedings” mentioned in Section 446(1) of
the Companies Act, 1956 would include criminal proceedings under Section
138 NI Act. It was held that:- D
“17. Thus, the main object of section 138 of N.I. Act, which
can be inferred, is to safeguard the credibility of commercial
transactions and to prevent bouncing of cheques by providing
a personal criminal liability against the drawer of the cheque
in public interest. No civil liability or any liability against the E
assets of the drawer of the cheque is contemplated under
section 138 of the N.I. Act. Hence, it follows that the provisions
of section 446(1) of the Companies Act can have apparently
and in essence no application to the proceedings under section
138 of Negotiable Instruments Act, as it is not a suit or
proceeding having direct bearing on the proceedings for F
winding-up or the assets of the Company.
xxx xxx xxx
24. Thus, the sum and substance of all these judicial decisions
is that the provisions of section 446(1) of the Companies Act
G
are to be invoked judiciously only when it has got any concern
with either the winding-up proceedings or with the assets of
the Company. The expression “suit or other proceedings”,
therefore, as used in section 446(1) of the Companies Act,
has to be construed accordingly and not to be interpreted so
liberally and widely so as to include each and every H
1046 SUPREME COURT REPORTS [2023] 4 S.C.R.
A proceeding of whatsoever nature initiated against the
Company, including even the criminal proceedings like for
the offence under section 138 of N.I. Act, which has got no
bearing on the winding-up proceedings of the Company and
are not concerned with, directly with the assets of the
Company, but are mainly dealing with the penal and personal
B
liability of the Directors of the Company.
25. The conflict involved in the case can also be looked into
from another aspect ‘as to whether the provisions of section
138 of N.I. Act can override the provisions of Companies Act,
as it is a very special provision incorporated in the Negotiable
C Instruments Act, though the Companies Act contains certain
special provisions in order to safeguard the rights of the
Company under liquidation?’
Xxx xxx xxx
D 28. If one considers the provisions of section 138 of the N.I.
Act, which are introduced subsequently by way of amendment
in the said Act, in the year 1988, it being a subsequent Statute,
it will necessarily override the provisions of General Statute,
like, the Companies Act.
E Xxx xxx xxx
30. Thus, there is a long line of decisions making the position
clear that the expression ‘suit or legal proceedings’, used in
section 446(1) of the Companies Act, can mean only those
proceedings which can have a bearing on the assets of the
F companies in winding-up or have some relation with the issue
in winding-up. It does not mean each and every civil
proceedings, which has no bearing on the winding-up
proceedings, or criminal offences where the Director of the
Company is presently liable for penal action.”
(Emphasis supplied)
G
82. In Manish Kumar (supra), this Court upheld Section 32A of
the IBC and stated thus:
“318. The first proviso in sub-section (1) declares that if there
is approval of a resolution plan under Section 31 and a
H prosecution has been instituted during the CIRP against the
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1047
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
corporate debtor, the corporate debtor will stand discharged. A
This is, however, subject to the condition that the requirements
in sub-section (1), which have been elaborated by us, have
been fulfilled. In other words, if under the approved resolution
plan, there is a change in the management and control of the
corporate debtor, to a person, who is not a promoter, or in
B
the management and control of the corporate debtor, or a
related party of the corporate debtor, or the person who
acquires control or management of the corporate debtor, has
neither abetted nor conspired in the commission of the
offence, then, the prosecution, if it is instituted after the
commencement of the CIRP and during its pendency, will stand C
discharged against the corporate debtor. Under the second
proviso to sub-section (1), however, the designated partner
in respect of the liability partnership or the officer in default,
as defined under Section 2(60) of the Companies Act, 2013,
or every person, who was, in any manner, in charge or D
responsible to the corporate debtor for the conduct of its
business, will continue to be liable to be prosecuted and
punished for the offence committed by the corporate debtor.
This is despite the extinguishment of the criminal liability of
the corporate debtor under sub-section (1). Still further, every
person, who was associated with the corporate debtor in any E
manner, and, who was directly or indirectly involved in the
commission of such offence, in terms of the report submitted
and report filed by the investigating authority, will continue
to be liable to be prosecuted and punished for the offence
committed by the corporate debtor. F
319. Thus, the combined reading of the various limbs of sub-
section (1) would show that while, on the one hand, the
corporate debtor is freed from the liability for any offence
committed before the commencement of the CIRP, the statutory
immunity from the consequences of the commission of the G
offence by the corporate debtor is not available and the
criminal liability will continue to haunt the persons, who were
in charge of the assets of the corporate debtor, or who were
responsible for the conduct of its business or those who were
associated with the corporate debtor in any manner, and who
H
1048 SUPREME COURT REPORTS [2023] 4 S.C.R.
A were directly or indirectly involved in the commission of the
offence, and they will continue to be liable.
Xxx xxx xxx
326. We are of the clear view that no case whatsoever is made
out to seek invalidation of Section 32-A. The boundaries of
B this Court’s jurisdiction are clear. The wisdom of the
legislation is not open to judicial review. Having regard to
the object of the Code, the experience of the working of the
Code, the interests of all stakeholders including most
importantly the imperative need to attract resolution applicants
who would not shy away from offering reasonable and fair
C
value as part of the resolution plan if the legislature thought
that immunity be granted to the corporate debtor as also its
property, it hardly furnishes a ground for this Court to
interfere. The provision is carefully thought out. It is not as if
the wrongdoers are allowed to get away. They remain liable.
D The extinguishment of the criminal liability of the corporate
debtor is apparently important to the new management to
make a clean break with the past and start on a clean slate.
We must also not overlook the principle that the impugned
provision is part of an economic measure. The reverence
courts justifiably hold such laws in cannot but be applicable
E
in the instant case as well. The provision deals with reference
to offences committed prior to the commencement of the CIRP.
With the admission of the application the management of the
corporate debtor passes into the hands of the interim resolution
professional and thereafter into the hands of the resolution
F professional subject undoubtedly to the control by the
Committee of Creditors. As far as protection afforded to the
property is concerned there is clearly a rationale behind it.
Having regard to the object of the statute we hardly see any
manifest arbitrariness in the provision.
G 327…..Significantly every person who was associated with
the corporate debtor in any manner and who was directly or
indirectly involved in the commission of the offence in terms
of the report submitted continues to be liable to be prosecuted
and punished for the offence committed by the corporate
debtor.”
H (Emphasis supplied)
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1049
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
83. In P. Mohanraj (supra) Full Bench of this Court held thus: A
“41. Section 32-A cannot possibly be said to throw any light
on the true interpretation of Section 14(1)(a) as the reason
for introducing Section 32-A had nothing whatsoever to do
with any moratorium provision. At the heart of the section is
the extinguishment of criminal liability of the corporate debtor, B
from the date the resolution plan has been approved by the
adjudicating authority, so that the new management may
make a clean break with the past and start on a clean slate. A
moratorium provision, on the other hand, does not extinguish
any liability, civil or criminal, but only casts a shadow on
proceedings already initiated and on proceedings to be C
initiated, which shadow is lifted when the moratorium period
comes to an end. Also, Section 32-A(1) operates only after
the moratorium comes to an end. At the heart of Section 32-A
is the IBC’s goal of value maximisation and the need to
obviate lower recoveries to creditors as a result of the D
corporate debtor continuing to be exposed to criminal liability.
42. Unfortunately, Section 32-A is inelegantly drafted. The
second proviso to Section 32-A(1) speaks of persons who are
in any manner in charge of, or responsible to the corporate
debtor for the conduct of its business or associated with the E
corporate debtor and who are, directly or indirectly, involved
in the commission of “such offence” i.e. the offence referred
to in sub-section (1), “as per the report submitted or complaint
filed by the investigating authority …”. The report submitted
here refers to a police report under Section 173 CrPC, and
complaints filed by investigating authorities under special F
Acts, as opposed to private complaints. If the language of the
second proviso is taken to interpret the language of Section
32-A(1) in that the “offence committed” under Section 32-
A(1) would not include offences based upon complaints under
Section 2(d) CrPC, the width of the language would be cut G
down and the object of Section 32-A(1) would not be achieved
as all prosecutions emanating from private complaints would
be excluded. Obviously, Section 32-A(1) cannot be read in
this fashion and clearly incudes the liability of the corporate
debtor for all offences committed prior to the commencement
H
1050 SUPREME COURT REPORTS [2023] 4 S.C.R.
A of the corporate insolvency resolution process. Doubtless, a
Section 138 proceeding would be included, and would, after
the moratorium period comes to an end with a resolution plan
by a new management being approved by the adjudicating
authority, cease to be an offence qua the corporate debtor.
B 43….the expression “prosecution” in the first proviso of
Section 32-A(1) refers to criminal proceedings properly so-
called either through the medium of a first information report
or complaint filed by an investigating authority or complaint
and not to quasi-criminal proceedings that are instituted under
Sections 138/141 of the Negotiable Instruments Act against
C the corporate debtor, the object of Section 14(1) IBC gets
subserved, as does the object of Section 32-A, which does
away with criminal prosecutions in all cases against the
corporate debtor, thus absolving the corporate debtor from
the same after a new management comes in.
D Xxx xxx xxx
45. Section 138 contains within it the ingredients of the offence
made out. The deeming provision is important in that the
legislature is cognizant of the fact that what is otherwise a
civil liability is now also deemed to be an offence, since this
E liability is made punishable by law. It is important to note that
the transaction spoken of is a commercial transaction between
two parties which involves payment of money for a debt or
liability. The Explanation to Section 138 makes it clear that
such debt or other liability means a legally enforceable debt
F or other liability. Thus, a debt or other liability barred by the
law of limitation would be outside the scope of Section 138.
This, coupled with fine that may extend to twice the amount
of the cheque that is payable as compensation to the aggrieved
party to cover both the amount of the cheque and the interest
and costs thereupon, would show that it is really a hybrid
G provision to enforce payment under a bounced cheque if it is
otherwise enforceable in civil law. Further, though the
ingredients of the offence are contained in the first part of
Section 138 when the cheque is returned by the bank unpaid
for the reasons given in the section, the proviso gives an
H opportunity to the drawer of the cheque, stating that the
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM 1051
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
drawer must fail to make payment of the amount within 15 A
days of the receipt of a notice, again making it clear that the
real object of the provision is not to penalise the wrongdoer
for an offence that is already made out, but to compensate
the victim.”
(Emphasis supplied) B
84. In Narinder Garg and Others v. Kotak Mahindra Bank
Ltd. and Others reported in (2022) SCC OnLine SC 517, this Court
held that:
“3. In P. Mohanraj v. Shah Brothers Ispat Private Limited,
(2021) 6 SCC 258, a Bench of three-Judges of this Court C
considered the matter whether a corporate entity in respect
of which moratorium had become effective could be proceeded
against in terms of Sections 138 and 141 of the Negotiable
Instruments Act, 1881 (“the Act” for short).
4. A subsidiary issue was also about the liability of natural D
persons like a Director of the Company. In paragraph 77 of
its judgment, this Court observed that the moratorium
provisions contained in Section 14 of the Insolvency and
Bankruptcy Code, 2016 would apply only to the corporate
debtor and that the natural persons mentioned in Section 141 E
of the Act would continue to be statutorily liable under the
provisions of the Act.
5. It is submitted by Mr. Gopal Sankaranarayanan, learned
Senior Advocate that the resolution plan having been accepted
in which the dues of the original complainant also figure, the F
effect of such acceptance would be to obliterate any pending
trial under Sections 138 and 141 of the Act.
6. The decision rendered in P. Mohanraj is quite clear on the
point and, as such, no interference in this petition is called
for.”
G
(Emphasis supplied)
85. Thus, the upshot of all the decisions referred to above is where
the proceedings under Section 138 of the NI Act had already commenced
with the Magistrate taking cognizance upon the complaint and during
the pendency, the company gets dissolved, the signatories/directors cannot H
1052 SUPREME COURT REPORTS [2023] 4 S.C.R.
A escape from their penal liability under Section 138 of the NI Act by
citing its dissolution. What is dissolved, is only the company, not the
personal penal liability of the accused covered under Section 141 of the
NI Act.
86. I may draw my final conclusions as under:
B (a) After passing of the resolution plan under Section 31 of the
IBC by the adjudicating authority & in the light of the
provisions of Section 32A of the IBC, the criminal
proceedings under Section 138 of the NI Act will stand
terminated only in relation to the corporate debtor if the
C same is taken over by a new management.
(b) Section 138 proceedings in relation to the signatories/
directors who are liable/covered by the two provisos to
Section 32A(1) will continue in accordance with law.
87. In view of the aforesaid discussion, the appeal fails and is
D hereby dismissed.
88. The connected appeals also fail and are hereby dismissed.
89. Pending application(s), if any, shall stand disposed of.
E Ankit Gyan Appeals dismissed.
(Assisted by : Adityaraj Patodia and Mahendra Yadav, LCRAs)
F
G
H
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