Tuesday 25 June 2024

How proceedings under S 138 NI Act and Insolvency and Bankruptcy code affects each other?

  Insolvency Proceedings under IBC:


  • Insolvency Proceedings: These are initiated to resolve cases where companies or individuals are unable to repay their debts. The objective is to either restructure the debt or liquidate the debtor's assets to repay creditors.


  • For corporate debtors, insolvency proceedings are initiated by filing an application with the National Company Law Tribunal (NCLT).
  • Once the application is admitted, a moratorium is imposed on the debtor, staying all legal proceedings, including suits and arbitration, against the debtor.

Interplay and Effect on Each Other:

A. Impact of Section 138 NI Act Proceedings on Insolvency Proceedings:

Continuation of Criminal Proceedings:

    • The moratorium imposed under Section 14 of the IBC stays civil suits and proceedings against the debtor, but criminal proceedings can continue. Therefore, proceedings under Section 138 for dishonor of cheques can proceed simultaneously with insolvency proceedings.

B. Impact of Insolvency Proceedings on Section 138 NI Act Proceedings:

  1. Moratorium under IBC:

    • The moratorium under Section 14 of the IBC does not apply to criminal proceedings. Thus, the prosecution of the debtor under Section 138 of the NI Act can continue despite the initiation of insolvency proceedings.
  2. Settlement and Resolution Plan:

    • During insolvency proceedings, the resolution professional may include the amounts owed under dishonored cheques in the claims submitted to the committee of creditors. If a resolution plan is approved, it may address these claims.
    • If the insolvency resolution results in a restructuring or repayment plan, it might impact the prosecution under Section 138. For example, if the debtor pays off the dishonored cheque as part of the resolution plan, the complainant may withdraw the complaint.

Judicial Interpretations:

  • Bombay High court: Cheque dishonour case U/S 138 of NI Act can not be stayed if moratorium is declared as per S 14 of insolvency and bankruptcy code.

    Criminal Writ Petition 1437 of 2017

    Decided On: 06.08.2018

    Tayal Cotton Pvt. Ltd. Vs. The State of Maharashtra and Ors.

    Hon'ble Judges/Coram:
    Mangesh S. Patil, J.

    Citation: 2019(1) MHLJ 312.

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