The Punjab and Haryana High Court dismissed an application seeking to quash a proceeding under Section 138 of the Negotiable Instruments Act, 1881 alleging that two separate remedies for the same cause of action cannot be allowed.

While referring to Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation Of India Ltd, Criminal Appeal No. 172 of 2023, a bench of Justice Manjari Nehru Kaul observed, “…whereas recovery proceedings barred under Section 14 of the IBC are primarily civil in nature, the proceedings under Section 138 of the NI Act are criminal in nature, and both have a different set of purpose. Furthermore, the complainant approaches the Criminal Court not only for recovery of the legally enforceable debt but also 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”.

Advocate Viren Jain appeared for the petitioners.

The matter to be adjudicated upon by the Court was whether during the pendency of the proceedings under the IBC, the proceedings under the NI Act could continue simultaneously or not.

In the pertinent matter, the petitioners-directors of Shreeom Prime Foods Pvt. Ltd., contended that it is now undergoing a resolution process before the National Company Law Tribunal, Jaipur Bench and an interim resolution professional has already been appointed.

Further, it was contended that pursuant to the NCLT’s admission order, the petitioners have ceased to be the directors of the respondent company. However, the petitioners and respondent No. 2 Company have been summoned as accused under Section 138 of the NI Act.

Therefore, it was argued that by virtue of interim moratorium applied by the said order, the independent recovery as well as criminal proceedings cannot continue against the Directors by virtue of provisions of Sections 14 and 96 of the Insolvency and Bankruptcy Code, 2016

Furthermore, since the petitioners are no longer at the helm of affairs of the company, the amount due, if any cannot be honoured in the light of the interim moratorium order of the NCLT, and thus the petitioners cannot be summoned under Section 138 of the NI Act.

The Court, however, did not find merit in the petition, and noted 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 would not stand terminated.

Cause Title: Sachin Goyal and another v. Rajasthan Trading Co. and another (2023) ibclaw.in 213 HC

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Justice Manjari Nehru Kaul

Agatha Shukla