Personal Criminal Liability Of Directors U/S 138 NI Act Survives Corporate Liquidation Under IBC: Himachal Pradesh High Court

The Himachal Pradesh High Court has reiterated that liquidation of a company under the IBC does not shield its directors from personal criminal liability in cheque bounce cases under Section 138 of the Negotiable Instruments Act, 1881(“N.I Act”) “15. ….Therefore, the orders passed by the learned Trial Court ordering the continuation of the proceedings against accused nos. 2 and 3 cannot be faulted.” Justice Rakesh Kainthla dismissed two petitions filed under Section 482 CrPC by M/s Ram Hari Motors Pvt. Ltd., a company under liquidation, and its directors, who sought a complete stay and quashing of a Section 138 NI Act complaint initiated by the State Bank of India. In 2013, SBI sanctioned an E-DFS facility of ₹3.50 crore to M/s Ram Hari Motors Pvt. Ltd. for its Chevrolet dealership. The company defaulted, and subsequently, on 31.05.2013, a cheque for ₹2 crore, signed by its CMD, was issued in favour of the bank. When presented, it was dishonoured with the remark “funds insufficient”. SBI served a statutory notice and, upon non-payment, a complaint under Section 138 NI Act was filed in June 2016 against the company and its directors, alleged to be active directors-cum-guarantors responsible for the day-to-day affairs. Cognisance was taken and notice of accusation served in 2018. Meanwhile, NCLT, Chandigarh, admitted CIRP in 2020 and later ordered the liquidation of the company. Relying on the moratorium, the accused sought a stay of the criminal case. The Trial Court stayed proceedings only against the company but directed continuation against the individual directors. Aggrieved, they approached the High Court. The High Court held that the proceedings under N. I Act are covered under moratorium as per IBC, but the said moratorium only applies to the corporate debtor and not to the natural person. Therefore trial court was right in staying the proceedings against the company and not the directors, who were managing the day-to-day affairs of the company and signed the cheque. Petitioners also assailed the cognisance orders issued by the trial court after an inordinate delay. The High Court held that the directors could have approached the court in a timely manner when the summons or notice of accusation was served upon them, and now the court cannot exercise its inherent jurisdiction to quash the proceedings because there is no rarity in the case, and the directors may invoke the revisional jurisdiction. “17. In the present case, the petitioners had a remedy of approaching the Court when they were ordered to be summoned or when notice of accusation was put to them, but they failed to avail that remedy. It was laid down in Minakshi Bala v. Sudhir Kumar, (1994) 4 SCC 142: 1994 SCC (Cri) 1181 that once the Competent Court has framed the charges, the person aggrieved may invoke the revisional jurisdiction, and the High Court should not exercise its inherent jurisdiction under Section 482 of Cr.P.C., except in rare cases. 19. Thus, in these circumstances, there is no reason to quash the proceedings pending before the learned Trial Court. Hence, the present petitions fail, and are ordered to be dismissed.” Case Name: M/s Ram Hari Motors Pvt.Ltd &Anr. v. State Bank of India Case No.: Cr. MMO No. 1107 of 2024 and Cr. MMO No. 1108 of 2024 Judge: Rakesh Kainthla For Petitioner: Mr Sumit Raj For Respondents: Mr Arvind Sharma Order Date: 30.10.2025 Click Here To Read/Download The Order

Personal Criminal Liability Of Directors U/S 138 NI Act Survives Corporate Liquidation Under IBC: Himachal Pradesh High Court

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Personal Criminal Liability Of Directors U/S 138 NI Act Survives Corporate Liquidation Under IBC: Himachal Pradesh High Court

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