NCLAT- Proceedings under Section 138 of NI Act doesn’t Cover Moratorium Order under I&B Code

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August 23, 2018

Case name: Shah Brothers Ispat Pvt. Ltd. v. P. Mohanraj & Ors.

In this case, the National Company Law Appellate Tribunal was primarily concerned with the issue whether the order of moratorium will cover a criminal proceeding under Section 138 of NI Act, which provides punishment of imprisonment for a term which may extend to three years or with fine which may extend to twice the amount of cheque or with both?

While deciding the aforesaid issue, the Tribunal delved into the law relating to moratorium as enumerated under Section 14 of the Insolvency and Bankruptcy Code, 2016 (Code).

The Respondent in the case submitted that the proceeding under Section 138 of the Negotiable Instrument Act i.e. dishonor of cheque due to insufficient funds,  is covered by clause of Sub-section (1)(a) of Section 14 of I&B Code, therefore, proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority cannot proceed.

The NCLAT in the case while brushing aside the Respondent’s contention noted that as Section 138 of NI Act is a penal provision, it empowers the court of competent jurisdiction to pass order of imprisonment or fine, which cannot be held to be proceeding or any judgment or decree of money claim.

It was also opined by the Tribunal that imposition of fine cannot held to be a money claim or recovery against the Corporate Debtor nor order of imprisonment, if passed by the court of competent jurisdiction on the Directors, thus offence under Section 138 of NI Act does not come within the purview of Section 14 of the Code. Infact no criminal proceeding is covered under Section 14 of I&B Code.

NCLAT’s order can be accessed here.