S.96 Insolvency & Bankruptcy Code | When Proceeding Under NI Act Is Not In Respect Of Any Debt, It Can't Be Stayed: Punjab & Haryana High Court

The Punjab & Haryana High Court has made it clear that when proceeding under Negotiable Act (NI Act) is not debt then it cannot be stayed under Section 96 of the Insolvency and Bankruptcy Code (IBC).

According to Section 96 of the IBC, during the interim moratorium period, any legal action or proceeding pending in respect of 'any debt' shall be deemed to have been stayed. 

While dismissing the plea seeking quashing of proceeding under the NI Act, Justice Mahabir Singh Sindhu noted, "Since, proceedings in the present case under the NI Act are not in respect of any debt; rather penal in nature and can invite imprisonment for a term which may extend to two years or fine which may extend to twice the cheque amount or with both."

The Court was hearing a batch of petitions seeking quashing of the proceeding under the NI Act in view of Section 96 of IBC.

A complaint under Section 138 of the NI Act was filed before Sub Divisional Judicial Magistrate, Dera Bassi against a Company and its Directors, by the Income Tax Department on account of dishonour of cheque in 2015 for an amount of Rs.1 Crore.

It was alleged that a cheque was issued for discharging the liability towards payment of income tax due for the year 2012-13. 

Subsequently, in view of the Negotiable Instruments (Amendment) Ordinance 2015, the complaint was transferred by the SDJM to the Court of Chief Judicial Magistrate, Chandigarh, and ultimately it was entrusted to JMIC.

It was submitted despite various attempts, including summons/bailable warrants, petitioners did not come forward and ultimately in pursuance of the non-bailable warrants, both the petitioners joined proceedings and were released on bail.

After hearing the submissions, the Court noted that, "It is quite evident that petitioners are facing proceedings under Section 138 of the NI Act being Managing Director & Director, respectively of the Company and both were stated to be 'incharge of' and 'responsible' to the Company i.e. Ms. Kudos Chemie Pvt. Ltd. for the conduct of its business."

"It is noteworthy that Chapter XVII covering Sections 138 to 142 of the NI Act was inserted by way of an amendment...w.e.f. 01.04.1989 with an object “to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case of bouncing of cheques due to insufficiency of funds in the accounts or for the reason that it exceeds the arrangements made by the drawer, with adequate safeguards to prevent harassment of honest drawers,” said the Court.

Keeping in view the object of the amendment, the nature of proceedings under the NI Act were made penal in nature and for reference, the relevant part of Section 138, it added.

"Also noteworthy that under Section 141 of the NI Act, a Company as well as every person incharge thereof and responsible for conduct of its business have also been made liable for punishment," said the Court.

Reliance was placed on Apex Court's decision in Ajay Kumar Radheshyam Goenka Vs. Tourism Finance Corporation of India Ltd.,[ (2023) 10 SCC 545] wherein it was held that, "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 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."

Furthermore, Justice Sindhu highlighted that both the petitioners, along with Bank officials are facing prosecution for cheating, forgery and causing a loss of Rs.1301.67 crores to the Punjab National Bank...under Sections 120-B, 420, 467, 468 & 471 of the IPC & Section 13(2) read with 13(d) of Prevention of Corruption Act, 1988.

"Needless to say that present petition filed under Section 482 Cr.P.C. is neither an appeal, nor a revision; hence, such a recourse can be entertained only to give effect to any order under the Cr.P.C.; OR to prevent abuse of the process of any Court; OR otherwise to secure the ends of justice; but not in a routine manner," the Court observed.

While stating that the complaint under Section 138 of the NI Act is pending for the last 09 years, the Court observed, "notice of accusation was issued way back on 25.05.2016; cross-examination of the complainant was conducted on 04.06.2018, but the petitioners are delaying the proceedings on one pretext or the other. In such a scenario, this Court is of the considered opinion that present petition is complete misuse of the process of Court; hence, entertaining such a petition would not be in the interest of justice; rather it shall frustrate the same."

Consequently, the plea was dismissed.

Jitender Singh Sodhi and another v. Deputy Commissioner of Income Tax and another [along with other connected petitions]

Click here to read/download the order