Signatory Of Cheque Cannot Escape From His Liability On Mere Initiation Of Proceedings Under IBC: Madhya Pradesh HC Upholds Conviction In Cheque Bounce Case
The Madhya Pradesh High Court upheld the conviction under Section 138 Negotiable Instruments Act, 1881 while observing that merely because of the initiation of proceedings under the Insolvency and Bankruptcy Code, 2016 the signatory of the cheque cannot escape from his liability.
The Court was hearing an appeal under Section 482 CrPC seeking to quash the condition to deposit the amount imposed in the impugned order against the Petitioner in the application under Section 389 CrPC seeking suspension of the execution of sentence during the pendency of the appeal.
The bench of Justice Gurpal Singh Ahluwalia observed, “…in view of the fact that merely because of initiation of proceedings under the Code, 2016 the signatory of the cheque cannot escape from his liability, it is held that conviction recorded by Trial Court was not bad on account of initiation of proceedings under the Code, 2016.”
Advocate Akshat Agrawal appeared for the Appellant and Panel Lawyer Dilip Parihar appeared for the Respondent.
Brief Facts-
The Court convicted the applicant Anurodh Mittal under Section 138 of the Negotiable Instruments Act, sentencing him to 6 months in jail and ordering compensation of Rs. 68.69L. The applicant, as a guarantor for M/s Shree Geeta Textiles Private Limited, which defaulted on debt payments, filed an appeal and an application under Section 389 of Cr.P.C. The borrower had initiated an insolvency resolution process under Section 94 of the Insolvency Bankruptcy Code, 2016, before the NCLT. According to Section 96 of the Code, an interim moratorium began and was effective on the conviction date and during the appeal, making the conviction and compensation order contrary to the Code.
The Court mentioned the Supreme Court decision in Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Limited, reported in (2023) 10 SCC 545 and quoted, “We have no hesitation in coming to the conclusion that the scope of nature of proceedings under the two Acts is quite different and would not intercede each other. In fact, a bare reading of Section 14 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 NI Act.”
The Court further quoted, “We cannot lose sight of the fact that Section 138 of the NI Act are not recovery proceedings. They are penal in character. A person may face imprisonment or fine or both under Section 138 of the NI 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.”
The Court said that the Appellate Court did not commit any mistake by directing the applicant to deposit the amount as a condition precedent for suspension of sentence.
Accordingly, the Court said that no case is made out warranting interference.
Finally, the Court dismissed the application.
Cause Title: Anurodh Mittal v. Rehat Trading Company
Appearance:
Appellant: Adv. Akshat Agrawal and Adv. Himanshu Agrawal
Respondent: Panel Lawyer Dilip Parihar
