A Supreme Court Bench of Justices U.U. Lalit & Aniruddha Bose on Monday issued Notice to Attorney General on a petition seeking a bar on proceedings instituted under section 138 of Negotiable Instruments Act, 1881 towards a Company on account of its declaration of insolvency.
Relying on BSI Ltd. & Anr. Vs. Gift Holdings Pvt. Ltd. & Anr., Counsel appearing for the Petitioner (company) submitted that since a Division Bench of the National Company Law Tribunal (NCLT) at Chennai had insinuated a "moratorium" vide order dated 10th July 2017, the statutory notice under section 138 stood interdicted against the company.
The Counsel for Petitioner substantiated his arguments by referring to the Order of NCLT which declared that there shall be a prohibition on all of the following till completion of the corporate insolvency resolution process vis-à-vis section 14 of the Insolvency & Bankruptcy Code 2016: -
"(a) The institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
(b) Transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
(c) Any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);
(d) The recovery of any property by an owner or lessor where such property is occupied or in the possession of the corporate debtor"
In light of above, the Counsel for Petitioner-Company further contended that since the complaint under section 138 of Negotiable Instruments Act was instituted following the issuance of moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016, the Company could not have paid the requisite amount represented by the cheques.
The Bench deeming it appropriate to consider the issue at hand, pertaining to whether there shall lie a statutory bar to initiate the proceedings under Section 138 of Negotiable Instruments Act against the petitioner when the petitioner was declared as insolvent, issued Notice to the Attorney General for India.
"Considering the issues that arise for our consideration, we deem it appropriate to issue notice to the learned Attorney General for India so that any Law Officer can assist this Court on the next occasion".
The Petitioner Company had sought the same prayer in the High Court of Madras wherein the Bench of Justice G.K. Ilathiraiyan dismissed the Petition. It was held that Section 138 of the Negotiable Instruments Act is a penal provision, which empowers the court of competent jurisdiction to pass order of imprisonment or fine.
The order further laid down that,
"It is seen from the above provision, the criminal proceedings is not covered under the prohibition and as such the petitioner cannot have a shelter under Section 14 of Insolvency and Bankruptcy Code."
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