Pending Cheque-Bounce Case Not A Bar To Admitting Insolvency Plea: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai has recently ruled that the pendency of cheque-bounce proceedings under the Negotiable Instruments Act does not prevent initiation of insolvency proceedings, while admitting an application filed by Rexel India Private Limited seeking to commence the corporate insolvency resolution process against Proto D Industries Private Limited.

The coram of Judicial Member Nilesh Sharma and Technical Member Sameer Kakar held that proceedings under the NI Act cannot override or obstruct the IBC framework.

It stated,  “It is an established legal position that proceedings under Section 138 of the NI Act are quasi criminal in nature, aimed solely at determining whether the accused has committed the statutory offence of dishonour of cheque....The scope and object of criminal proceedings are materially distinct from those of proceedings before this Tribunal. This Tribunal, on the other hand, is empowered to determine civil consequences affecting the corporate debtor, its management, creditors, and stakeholders. Owing to this fundamental difference in jurisdiction, object, and standard of proof, the findings or pendency of a criminal prosecution cannot operate as res judicata in subsequent civil or IBC proceedings.”

Rexel had filed the plea in July 2024 seeking initiation of insolvency over unpaid operational dues of Rs 5.82 crore arising from supplies made to Proto D between April and May 2023. The tribunal noted that the invoices carried a 45-day credit period, were acknowledged by Proto D, and were followed by repeated reminders.

It recorded that Proto D had issued several cheques to clear the dues, all of which were returned with the remark “payment stopped by drawer.” It further relied on an undertaking dated 24 July 2023 executed by Proto D's directors, which admitted liability for Rs 6.31 crore and agreed to pay interest at 12% per annum.

Despite this written admission, no payment was made. Rexel issued a demand notice on 12 April 2024, but Proto D neither replied nor produced any contemporaneous material disputing the debt. Before the Tribunal, Proto D argued that proceedings under the NI Act arising from the same transactions were pending before the Judicial Magistrate First Class at Pune and therefore the insolvency plea was barred by res judicata. It also alleged that Rexel's claim was inflated and that certain supplies were defective.

The tribunal rejected these defences, noting that Proto D had not raised any dispute prior to the demand notice and had produced no document to establish one. It described the allegations as “only bald averments” and held that they were “moonshine in nature.”

Addressing the plea of res judicata, the tribunal reproduced Section 11 of the Civil Procedure Code and held that the essential requirements of identity of issues, identity of subject matter and final adjudication by a competent court had not been satisfied. It added that the NI Act prosecution had not resulted in any adjudication and therefore could not bar the insolvency proceedings.

The tribunal concluded that “the prior criminal proceedings neither bar nor restrict the jurisdiction of this Tribunal to adjudicate the present application on its own merits.”

Holding that default was established and that the application was complete in terms of Section 9, the tribunal admitted Rexel's plea, declared a moratorium under Section 14 of the Code and appointed insolvency professional Rishabh Sethi as the Interim Resolution Professional.

Rexel has been directed to deposit Rs 3 lakh towards initial CIRP expenses, which will be treated as interim finance.

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