Moratorium During Insolvency Process Does Not Bar Cheque Dishonour Proceedings Against Persons Referred U/S 141 Of NI Act: Kerala High Court

The Kerala High Court yesterday (on February 12), observed that during the Corporate Insolvency Resolution Process, initiation of cheque dishonour proceedings, due to the moratorium, is prohibited only against the corporate debtor and not against the persons referred under Section 141 of the Negotiable Instruments Act (N.I. Act). In other words, the accused persons in charge of and responsible to the company for the conduct of the business will continue to be liable for cheque dishonour offences. “(i) When the Corporate Insolvency Resolution Process of the company is underway, the corporate debtor would be covered by the moratorium provision contained in Section 14 of the Code by which continuation of Section 138/141 proceedings against the corporate debtor and initiation of Section 138/141 proceedings against the said debtor during the corporate insolvency resolution process are interdicted. (ii) The moratorium provision under Section 14 of the Code would apply only to the corporate debtor. (iii) The natural persons referred to in Section 141 of the N.I.Act continues to be statutorily liable under Chapter XVII of the N.I. Act.,” the Bench of Justice K Babu held. The facts of the present case are such that the respondent had filed a complaint against the petitioner company under Section 138 (Dishonour of cheque) of the Act. Petitioner's former Chief Executive Officer and former Directors were also impleaded. Following this, in an insolvency petition, the NCLT initiated a Corporate Insolvency Resolution Process against the petitioner and declared the moratorium. Pertinently, inter-alia, the moratorium prohibits the continuation of pending suits or proceedings against the corporate debtor. Against this backdrop, the petitioner company challenged Section 138 proceedings before the Trial Court. It argued that given the moratorium, these proceedings should not be continued. However, the Trial Court dismissed its plea. Against this order, the present petition was filed. The Court after perusing the arguments, referred to a thread of precedents, including Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd. (2023) 10 SCC 545. Therein, the Supreme Court had held once the proceedings for cheque dishonour have commenced, the signatories/Directors of the company cannot escape from their penal liability 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., the Court said. In view of this, the Court concluded that the moratorium provision would apply only to the corporate debtor and the natural persons referred to in Section 141 of the N.I. act will continue to be statutorily liable. As a result, the court while setting the impugned order aside, clarified that the proceedings against the corporate debtor were deferred until the moratorium was lifted. Further, the Trial Court was given the liberty to proceed against the natural persons. Appearances: Petitioner: Advocates Arun Samuel ,Jithin Babu A, Anood Jalal K.J. Respondents: Advocates P.P.Sri.G.Sudheer, Sri.M.Sreekumar Case Name: CARNIVAL FILMS PVT. LTD v. STATE OF KERALA and anotherCitation: 2025 LiveLaw (Ker) 106

Moratorium During Insolvency Process Does Not Bar Cheque Dishonour Proceedings Against Persons Referred U/S 141 Of NI Act: Kerala High Court

Gyanvi Khanna

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