Rakesh Bhanot vs M/S Gurdas Agro Pvt. Ltd

2025 INSC 445 REPORTABLE

IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE/CIVIL ORIGINAL JURISDICTION

CRIMINAL APPEAL NO. 1607 OF 2025 (Arising out of SLP (Crl.) No. 6087 OF 2023)

RAKESH BHANOT … APPELLANT(S) VERSUS

M/S.GURDAS AGRO PVT. LTD. … RESPONDENT(S)

WITH

CRIMINAL APPEAL NO. 1608 OF 2025 (Arising out of SLP (Crl.) No. 9316 OF 2023)

SANDEEP GUPTA … APPELLANT(S)

VERSUS

SHRI RAM STEEL TRADERS AND ANOTHER … RESPONDENT(S)

WITH

CRIMINAL APPEAL NO. 1609 OF 2025 (Arising out of SLP (Crl.) No. 12328 OF 2023) [

RAKESH BHANOT … APPELLANT(S) VERSUS M/S.GURDAS AGRO PVT. LTD. … RESPONDENT(S)

Signature Not Verified WITH Digitally signed by CHANDRESH Date: 2025.04.04 16:28:38 IST Reason: CRIMINAL APPEAL NO. 1610 OF 2025 (Arising out of SLP (Crl.) No. 12327 OF 2023) 2

RAKESH BHANOT … APPELLANT(S) VERSUS

M/S.GURDAS AGRO PVT. LTD. … RESPONDENT(S)

WITH

CRIMINAL APPEAL NO. 1611 OF 2025 (Arising out of SLP (Crl.) No. 12329 OF 2023)

RAKESH BHANOT … APPELLANT(S)

VERSUS

M/S.GURDAS AGRO PVT. LTD. … RESPONDENT(S)

WITH

CRIMINAL APPEAL NO. 1612 OF 2025 (Arising out of SLP (Crl.) No. 6835 OF 2024)

SANJEEV NARULA … APPELLANT(S)

VERSUS

M/S. ELKAY INTERNATIONAL LTD. … RESPONDENT(S)

WITH

CRIMINAL APPEAL NO(S). 1613-1649 OF 2025 (Arising out of SLP (Crl.) Nos. 9104 – 9140 OF 2024)

M/S.SHIVA SHAKTI GRAINS (INDIA) PVT.LTD & ANR. ETC. .. APPELLANT(S)

VERSUS

M/S.KAUR CHAND MUNISH KUMAR ETC. … RESPONDENT(S)

WITH 3

W.P. (C) NO.469 OF 2024

VIJAY CHETAN LILARAMANI & ANOTHER … PETITIONER(S)

VERSUS

UNION OF INDIA AND OTHERS … RESPONDENT(S) WITH

CRIMINAL APPEAL NOS. 1650-1652 OF 2025 (Arising out of SLP (Crl.) NOS. 272-274 of 2025)

ASHOK B JESWANI AND ANOTHER ETC. … APPELLANT(S)

VERSUS

M/S.REDINGTON INDIA LIMITED … RESPONDENT(S)

WITH

CRIMINAL APPEAL NOS. 1653-1688 OF 2025 (Arising out of SLP (Crl.) NOS. 4822-4857 of 2025)

JITENDER SINGH SODHI AND ANOTHER ETC. … APPELLANT(S)

VERSUS

DEPUTY COMMISSIONER OF INCOME TAX AND ANOTHER ETC. … RESPONDENT(S)

WITH

CRIMINAL APPEAL NO. 1689 OF 2025 (Arising out of SLP (Crl.) No. 15852 OF 2024)

YOGESH JOGINDERNATH MEHRA AND ANR. … APPELLANT(S)

VERSUS

STATE OF MAHARASHTRA AND ANR. … RESPONDENT(S) 4

WITH

CRIMINAL APPEAL NO. 1690 OF 2025 (Arising out of SLP (Crl.) No. 15813 OF 2024)

YOGESH JOGINDERNATH MEHRA AND ANR. … APPELLANT(S)

VERSUS

STATE OF MAHARASHTRA AND ANR. … RESPONDENT(S)

WITH

CRIMINAL APPEAL NO. 1691 OF 2025 (Arising out of SLP (Crl.) No. 15933 OF 2024)

YOGESH JOGINDERNATH MEHRA AND ANR. … APPELLANT(S)

VERSUS

STATE OF MAHARASHTRA AND ANR. … RESPONDENT(S)

WITH

CRIMINAL APPEAL NO. 1692 OF 2025 (Arising out of SLP (Crl.) No. 15905 OF 2024)

YOGESH JOGINDERNATH MEHRA AND ANR. … APPELLANT(S)

VERSUS

STATE OF MAHARASHTRA AND ANR. … RESPONDENT(S) 5

JUDGMENT

R. MAHADEVAN, J.

Leave granted.

2. Since the facts and issues involved in all these cases are common, they are

clubbed together and disposed of, by this common judgment.

3. All these appeals are filed against the orders passed by different High Courts,

which dismissed the petitions filed under Section 482 of the Criminal Procedure

Code, 19731 and thereby affirmed the orders passed by the trial Court rejecting the

applications filed for staying the proceedings under Section 138 of the Negotiable

Instruments Act, 18812, sine die till the conclusion of the proceedings initiated under

Section 94 of the Insolvency and Bankruptcy Code, 20163, before the National

Company Law Tribunal. A writ petition has also been filed for declaration and

direction that section 138 proceedings shall be deemed to be stayed during the

operation of the moratorium period under section 96 IBC. The details of the cases

are tabulated below:

1

For short, “Cr.P.C” 2 For short, “N.I. Act, 1881” 3 For short, “IBC” 6

Case No. Name of the Order impugned before Order impugned before parties this Court the High Court

SLP(Crl) Rakesh Bhanot Order dated 23.3.2023 Order dated 23.05.2022 No.6087 of v. M/s. Gurdas passed by the High Court passed by the Judicial 2023 Agro Pvt. Ltd of Punjab and Haryana, Magistrate First Class, Chandigarh in CRM – M Bathinda in complaint –37169/ 2022 (O&M) No. COMA 1059/2019

SLP(Crl) Sandeep Gupta Order dated 15.5.2023 Order dated 03.12.2021 No.9316 of v. M/s. Sri Ram passed by the High Court passed by the 2023 Steel Traders of Delhi at New Delhi, in Metropolitan Magistrate and another Crl.M.C. No.381 of 2022 Patiala House Courts, New Delhi, in CT No.12161/2018

SLP(Crl) Rakesh Bhanot Order dated 23.03.2023 Order dated 12.09.2022 No.12328 of v. M/s. Gurdas passed by the High Court passed by the Judicial 2023 Agro Pvt. Ltd of Punjab and Haryana, Magistrate First Class, Chandigarh in CRM – Bathinda in complaint M – 59371/ 2022 (O&M) No. COMA 89/2016

SLP(Crl) Order dated 07.02.2023 Order dated 23.05.2022 No.12327 of passed by the High Court passed by the Judicial 2023 of Punjab and Haryana, Magistrate First Class, Chandigarh in CRM – Bathinda in complaint M –39859/ 2022 (O&M) No. COMA 1060/2019

SLP(Crl) Order dated 23.03.2023 Order dated 23.05.2022 No.12329 of passed by the High Court passed by the Judicial 2023 of Punjab and Haryana, Magistrate First Class, Chandigarh in CRM – Bathinda in complaint M –39885/ 2022 (O&M) No. COMA 1061/2019

SLP(Crl) Sanjeev Narula Order dated 06.3.2024 Order dated 18.01.2024 No.6835 of v. M/s. Elkay passed by the High Court passed by the Judicial 2024 International Ltd of Punjab and Haryana, Magistrate First Class, Chandigarh in CRM – M Faridabad in complaint – 9799/ 2024 (O&M) No. NACT– 719/2016.

7 SLP (Crl) M/s. Shiva Order dated 12.03.2024 Complaint in No. Nos. 9104 - Shakti Grains passed by the High Court NACT– 704/2017 dated 9140 of 2024 (India) Pvt. Ltd of Punjab and Haryana, 21.11.2017 as well as the and Another Etc. Chandigarh in CRM – summoning orders dated v. M/s.Kaur M – 12807/ 2019 etc. 14.09.2018 issued by the Chand Munish cases Judicial Magistrate First Kumar Etc. Class, Sri Muktsar Sahib and all consequential proceedings.

W.P(C) No. Vijay Chetan (i)to declare that the 469/2024 Lilaramani and proceedings under another v. Union section 138 r/w 141 of of India and the Negotiable others Instruments Act, 1881, shall be covered under moratorium imposed by section 96 of the IBC or shall deemed to be stayed during operation of the - moratorium under section 96 of the IBC; and (ii)to direct that the trial pending before the Additional Chief Metropolitan Magistrate, Bengaluru in CC No. 54895/2023 stands deemed to be stayed, during the continuation of moratorium under the IBC. SLP(Crl) Ashok B. Order of the High Court Stay further proceedings Nos.272-274 Jeswani and of Madras dated with respect to the of 2025 another v. 07.12.2023 in Crl.OP. recovery of debt u/s. 138 M/s.Redington No. 24506 of 2023 and of the N.l. Act, 1881, qua India Ltd dated 06.06.2024 in Crl. the appellants in view of M. P. Nos.7782 and 7783 Sections 94, 96 and 101 of 2024 in Crl.RC of the IBC. No.911 of 2024 8

SLP(Crl) Jitender Singh Order dated 13.03.2024 Order dated 21.08.2023 Nos. 4822- Sodhi and passed by the High Court passed by the Judicial 4857 of 2025 another v. of Punjab and Haryana, Magistrate First Class, Deputy Chandigarh in Chandigarh, in Commissioner CRM – M – 52874/ 2023 Complaint No. NACT of Income Tax etc. cases /3656/2015 and another SLP(Crl) Yogesh Order dated 15.10.2024 Stay the proceedings in No.15852 of Jogindernath passed by the High Court CC No.186/SS/ 2018 2024 Mehra and of Bombay, in Criminal pending before the 30th another v. State Writ Petition (ST) No. Metropolitan Magistrate, of Maharashtra 11799 of 2024 Kurla, Mumbai and another SLP(Crl) Yogesh Order dated 15.10.2024 Stay the proceedings in No.15813 of Jogindernath passed by the High Court CC No.186/SS/ 2018 2024 Mehra and of Bombay, in Criminal pending before the 30th another v. State Writ Petition (ST) No. Metropolitan Magistrate, of Maharashtra 11800 of 2024 Kurla, Mumbai and another SLP(Crl) Yogesh Order dated 15.10.2024 Stay the proceedings in No.15933 of Jogindernath passed by the High Court CC No.186/SS/ 2018 2024 Mehra and of Bombay, in Criminal pending before the 30th another v. State Writ Petition (ST) No. Metropolitan Magistrate, of Maharashtra 11950 of 2024 Kurla, Mumbai and another SLP(Crl) Yogesh Order dated 15.10.2024 Stay the proceedings in No.15905 of Jogindernath passed by the High Court CC No.186/SS/ 2018 2024 Mehra and of Bombay, in Criminal pending before the 30th another v. State Writ Petition (ST) No. Metropolitan Magistrate, of Maharashtra 12390 of 2024 Kurla, Mumbai and another

4. The common legal question that arises for consideration herein is, whether the

proceedings initiated against the appellants / petitioners under Section 138 read with

Section 141 of the N.I. Act, 1881 should be stayed in view of the interim moratorium 9

under Section 96 IBC having come into effect upon the appellants / petitioners’ filing

applications under Section 94 IBC. In view of the commonality of issues involved

in all the cases, we need not necessarily review the facts of each case individually.

5. However, for ease of reference, the facts leading to the appeal arising out of

S.L.P (Crl.) No.6087 of 2023, in a nutshell are as under:

5.1. The respondent viz., M/s Gurdas Agro Pvt. Ltd. filed a complaint under

Section 138 of the N.I. Act, 1881, against M/s Arjun Mall Retail Holdings Pvt. Ltd.

through its Director- Kiran Bhanot, Kiran Bhanot (wife of the appellant), Rakesh

Bhanot (appellant herein), and Arjun Bhanot (their son). It was alleged in the

complaint that the accused issued four cheques each for Rs.50,00,000/- drawn on

UCO Bank, Mid Corporate Industrial Area, Ludhiana, in order to discharge their

legally enforceable liability. When the cheques were presented for encashment, the

same were returned with the endorsement "Funds Insufficient". After issuance of a

legal notice and upon the failure of the accused to make payment within the

stipulated time, the respondent / complainant preferred a complaint under Section

138 of the N.I. Act, 1881. The said complaint was taken on file as COMA

No.1059/2019 and is pending adjudication before the Judicial Magistrate First Class,

Bhatinda.

10

5.2. During the pendency of the aforesaid proceedings under section 138 of the

N.I. Act, 1881, the appellant Rakesh Bhanot filed an application in CP(IB)

No.147/CHD/PB/2021 under Section 94 IBC before the National Company Law

Tribunal, Chandigarh Bench, for personal insolvency. His wife, who is a co-accused,

also filed a similar application. The said applications are pending adjudication.

Pending the said proceedings, the appellant moved an application before the trial

Court for adjourning the section 138 proceedings sine die, in view of the pendency

of section 94 IBC petition as well as the injunctive provision as envisaged under

section 96 IBC.

5.3. The trial Court, vide order dated 23.05.2022, rejected the aforesaid

application. Aggrieved by the same, the appellant approached the High Court of

Punjab and Haryana, Chandigarh, by filing a criminal petition bearing No.CRM-M-

37169-2022 (O&M) under Section 482 Cr.P.C. By order dated 23.03.2023, the said

criminal petition came to be dismissed by the High Court. Challenging the same, the

appellant is before us with the present appeal.

6. The other appeals as well as the writ petition arising out of similar set of facts,

have been filed by the respective appellants / petitioners before this court. 11

7. The learned counsel appearing for all the parties, including the applicant(s) /

intervenor(s), made detailed submissions with respect to the issues at hand. In order

to avoid repetition, they are concisely outlined as under:

7.1. On the side of the appellants / petitioners

(i) There is a complete and unequivocal bar on continuation of proceedings of

the N.I. Act, 1881, in view of pendency of the insolvency proceedings before the

National Company Law Tribunal, as envisaged under Section 96 IBC.

(ii) Once the proceedings under Section 94 IBC have been initiated before the

Adjudicating Authority for personal insolvency resolution process, on account of the

appellants / petitioners having become personally insolvent, necessarily all further

proceedings under Section 138 of the N.I. Act, 1881, would remain stayed in terms

of Section 96(1)(b) IBC.

(iii) The legislative intent behind the IBC is to provide a structured framework for

debt resolution, while ensuring that debtors are afforded a fair opportunity to

reorganize their financial affairs. The moratorium is designed to prevent creditors

from taking coercive actions that could further destabilize the debtors' financial

situation.

12

(iv) There is fine distinction in the statute between “Corporate Insolvency

Resolution Process” and “Personal Insolvency Resolution Process”. In case, where

a Company is a corporate debtor and insolvency proceedings are initiated against

such corporate debtor under Section 7 or Section 9 IBC, the Adjudicating Authority

under Section 14(1) IBC passes an order to declare a moratorium. On the other hand,

Section 94 IBC provides for a situation wherein a debtor may approach the

Adjudicating Authority for initiation of Personal Insolvency Resolution Process.

Similarly, Section 95 IBC provides for a situation wherein a creditor may approach

the Adjudicating Authority for initiation of Personal Insolvency Resolution Process

against an individual. Section 96(1) IBC provides that in either case, whether under

Section 94 or Section 95, (a) Interim moratorium comes into effect on the date of the

application itself; (b) This moratorium is in respect of all debts; (c) This moratorium

shall cease to have effect on the date of admission of such application; (d) During

this period, all pending legal action or proceedings in respect of any debt shall be

deemed to have been stayed; (e) Creditors of debt shall not initiate any legal action

or proceeding in respect of any debt.

(v) In the present case, the moratorium came into effect in a proceeding under

Section 96 IBC and not under Section 14 IBC. However, the High Court erroneously 13

relied on the judgment in P.Mohanraj v. Shah Brothers Ispat Pvt. Ltd.4, as in that

case, this court was concerned only with the proceedings under section 14 IBC and

not section 96 IBC. Hence, the observations made therein can be read only in the

context of a moratorium under section 14 IBC.

(vi) Further, the reliance placed in the decision in Ajay Kumar Radheyshyam

Goenka v. Tourism Finance Corporation of India Ltd.5, is misconceived, since the

said judgement merely holds that the moratorium under Section 14 IBC shall not

protect the signatories and the directors of the corporate debtor because the said

moratorium is only with respect to the corporate debtor, and not the individuals.

(vii) Once the application under Section 94 or 95 IBC has been admitted, Section

101 IBC states that “the debtor shall not transfer, alienate, encumber, or dispose of

any of his assets of his legal rights or beneficial interest therein” thereby imposing

an express bar on the individual/director/signatory/cheque from making any

payment in relation to the dishonoured cheque. Thus, when the law prohibits

payment, it would create a dichotomy to simultaneously proceed against the said

individual under Section 138 read with Section 141 of the N.I. Act 1881 for

dishonour of the cheque and failure to make the payment to purge/compound the

4 (2021) 6 SCC 258 5 (2023) 10 SCC 545 14

said offence. Hence, the appellants / petitioners cannot be penalised for not

performing an act expressly barred by law.

(viii) In State Bank of India v. V.Ramakrishnan6 while adjudicating on the

applicability of moratorium under Section 14 IBC to personal guarantors, it was held

by this Court that personal guarantors are covered by the moratorium under Section

96 IBC, while stating the protection of moratorium under these sections 96 and

101 IBC is far greater than the moratorium under section 14 IBC.

(ix) The IBC must prevail over Section 138/141 of the N.I. Act, 1881, for the want

of the non-obstante provision of Section 238. Further, it will override anything

inconsistent contained in any other enactment, including the Income-Tax Act, 1961.

Reference can be in this connection made to Dena Bank vs. Bhikhabhai Prabhudas

Parekh and Co. & Ors.7, which made it clear that income-tax dues, being in the

nature of Crown debts, do not take precedence even over secured creditors, who are

private persons.

(x) Reference was made to the decision in Dilip B. Jiwrajka vs. Union of India8,

wherein, while upholding the constitutional validity of Sections 95-100 IBC, this

6 (2018) 17 SCC 394 7 (2000) 5 SCC 694 8 (2023) SCC OnLine SC 1530) : (2024) 5 SCC 435 15

court explained the concept of a moratorium under Section 14 of Part II vis-à-vis

interim moratorium under Section 96 of Chapter III of Part III. Ultimately, it was

inter alia concluded that the purpose of the interim moratorium under section 96 is

to protect the debtor from further legal proceedings.

(xi) Thus, according to the learned counsel, the proceedings under section 138 r/w

141 of the N.I. Act, 1881, which is concerned with the dishonour of the alleged

cheques under the signatures of the appellants / petitioners, would undoubtedly fall

within the prohibition contained in section 96 IBC. However, the Courts below erred

in rejecting the petitions filed for staying the 138 proceedings till the conclusion of

the insolvency proceedings pending before the Tribunal. Hence, the impugned

orders passed by them are liable to be set aside.

7.2. On the side of the applicant(s) / intervenor(s)

Since the decision on the question of law involved herein, shall impact on the

applicants / intervenors undergoing insolvency proceedings, they sought to make

their submissions.

(i) The Insolvency and Bankruptcy Code, 2016 (IBC) was enacted in order to

consolidate and amend the laws relating to reorganisation and insolvency resolution

of corporate persons, partnership firms and individuals in a time bound manner for

maximization of value of assets of such persons, to promote entrepreneurship, 16

availability of credit and balance the interests of all the stakeholders. Further, it was

enacted with an object to maximize the wealth of person undergoing insolvency

proceedings, to enable a purposeful and constructive interpretation.

(ii) On initiation of insolvency proceedings under IBC, Section 14 provides for a

moratorium during which all legal proceedings against the insolvent Company stand

stayed. Whereas, on the filing/initiation of personal insolvency, moratorium under

Sections 96 and 101 IBC come into effect. When the moratorium comes into effect,

then, no legal proceeding against him can be initiated for recovery of any debt.

Generally, when an individual is prosecuted even for dishonour of cheque, then in

effect, he is being prosecuted for "non-payment of debt". As such, such legal

proceedings are covered under Sections 96 and 101 IBC and the same do not lie/

cannot be continued. Therefore, all types of debt recovery proceedings are stayed

and all types of assets of the individual are pooled to pay-off the debts.

(iii) During moratorium under section 14 IBC, the Company is protected from any

civil or legal proceedings including Section 138 of the N.I. Act, 1881 proceedings.

Similarly, when the resolution of debts of an individual takes place under the aegis

of personal insolvency under IBC, in such a situation, continuing with the offence

of cheque dishonour case shall double jeopardize the individual, since he has already

utilized all his assets to enter into a resolution and shall have no means to 17

compound/settle the offence of cheque dishonour and shall be forced to face criminal

prosecution. Therefore, similar protection under Section 96 IBC ought to be granted

to the individual under personal insolvency as is available to the Company under

Section 14 IBC on the initiation of insolvency process.

(iv) The proceedings under Section 138 / 141 of the N.I. Act, 1881 qua the

Directors are civil in nature and should be considered as such for the cases which lie

under Section 96/101 IBC. The role of Directors has to be specific, meaning thereby

that the liability under Section 138/141 of the N.I. Act, 1881, is vicarious in nature.

Similarly, the offences under all the statutes, whether under the Companies Act,

Income Tax Act, or any other Act, where punishment may be imposed by way of

fine, must be considered under the domain of the provisions of section 96/101 IBC.

(v) Thus, according to the learned counsel, the benefit of moratorium under

Section 96 IBC and Section 101 IBC be extended to the individuals against criminal

proceedings pending under Section 138 of N.I. Act, 1881, as the same is in

consonance with the scope and intent of the legislature.

7.3. On the side of the respondents

(i) The IBC is meant to resolve genuine financial distress, and not to shield

individuals from criminal liability.

18

(ii) Furthermore, the interim moratorium under Section 96 IBC is intended to

operate in respect of debt as opposed to a debtor and that the purpose of interim

moratorium under Section 96 is to restrain the initiation or continuation of legal

action or proceedings against the debt. The words used both in clause (b) (i) and

clause (b) (ii) of Section 96(1) are “in respect of any debt” and therefore, moratorium

would strictly apply to the security interest created by the debtors / appellants /

petitioners herein in their personal capacity, wherein personal guarantee is given in

respect of a debt and in no manner can be stretched to include the criminal

proceedings under Section 138 of the N.I. Act, 1881, since the same is not qua the

debt, but is built on the principle of not honouring the cheques, when presented for

encashment which in turn attract the criminal liability and fines.

(iii) The interim moratorium under Section 96 IBC will not apply to the criminal

proceedings under Section 138 of the N.I. Act, 1881 and hence, there is no bar for

continuation of the said proceedings. In this regard, reference was made to the

decisions of this Court in P.Mohanraj (supra), and Narinder Garg and Others v.

Kotham Mahindra Bank Ltd., and Others9.

9 (2022) SCC OnLine SC 517 19

(iv) Reliance was also placed on the Report of the Insolvency Law Committee of

2020, Chapter V of which explained the scope of moratorium, and according to

which, the moratorium provisions under Part III IBC were not meant to stay actions

against the corporate debtor or other third parties involved in the debt. Therefore,

the Committee agreed that the moratorium and interim moratorium under Part III

should be interpreted only to be limited to the ‘debtor’ and its assets.

(v) Section 138 of the N.I. Act, 1881, was enacted to enhance the credibility of

cheques in commercial transactions and penalize the wilful dishonour of such

instruments. It criminalizes the act of dishonouring cheques due to insufficiency of

funds or other similar reasons. Section 141 extends liability to individuals who were

in charge of and responsible for the conduct of the company’s business at the time

of the offence. On the other hand, the appellants / petitioners attempted to use the

insolvency proceedings before the National Company Law Tribunal in order to stay

the section 138 proceedings pending before the trial court. Thus, they cannot absolve

themselves of personal liability merely by citing insolvency proceedings under the

IBC.

(vi) As reiterated in P. Mohanraj (supra), “proceedings under Section 138/141 of

the N.I. Act, 1881 are distinct and operate independently of insolvency 20

proceedings.” Any contrary interpretation would render creditors powerless and

undermine the effectiveness of the N.I. Act, 1881.

(vii) Whether moratorium is under Section 14 or Section 96 IBC, the provision of

section 141 is equally applicable and remains the same. The judgement of this court

in P.Mohanraj (supra) holding that "it is clear that the moratorium provision

contained in Section 14 IBC would apply only to the corporate debtor, the natural

persons mentioned in Section 141 continuing to be statutorily liable under Chapter

XVII of the Negotiable Instruments Act", would be applicable in the case of

moratorium under Section 96 IBC as well.

(viii) On proper appreciation of facts, the courts below rightly dismissed the

petitions filed by the appellants and hence, the same need not be interfered with by

this court.

8. We have considered the contentions made by the learned counsel appearing

for all the parties and also perused the materials available on record.

9. Vide order dated 16.05.2023 in SLP (Crl) No.6087 of 2023 titled “Rakesh

Bhanot v. M/s Gurdas Agro Pvt. Ltd.”, this Court granted an order of stay of further

proceedings in COMA No.1059 of 2019. Following the same, an order of interim 21

stay of further proceedings pending before the trial Court was subsequently granted

in all other connected matters as well.

10. At the outset, it will be useful to refer to the relevant provisions of law

connected to the issues at hand, which are as follows:

(A) The Insolvency and Bankruptcy Code, 2016.

“14. Moratorium —

(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:--

(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 Securitization 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 by or in the possession of the corporate debtor.

[Explanation.--For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period;] (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.

[(2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services 22

critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified;] [(3) The provisions of sub-section (1) shall not apply to— [(a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;]

(b) a surety in a contract of guarantee to a corporate debtor.]. (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process:

Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be.“

“Section 94 - Application by Debtor to Initiate Insolvency Resolution Process:

“(1) A debtor who commits a default may apply, either personally or through a resolution professional, to the Adjudicating Authority for initiating the insolvency resolution process, by submitting an application.

(2) Where the debtor is a partner of a firm, such debtor shall not apply under this Chapter to the Adjudicating Authority in respect of the firm unless all or a majority of the partners of the firm file the application jointly.

(3) An application under sub-section (1) shall be submitted only in respect of debts which are not excluded debts.

(4) A debtor shall not be entitled to make an application under sub-

section (1) if he is—(a) an undischarged bankrupt; (b) undergoing a fresh start process;(c) undergoing an insolvency resolution process; or (d) undergoing a bankruptcy process.

(5) A debtor shall not be eligible to apply under sub-section (1) if an application under this Chapter has been admitted in respect of the debtor during the period of twelve months preceding the date of submission of the application under this section.

23

(6) The application referred to in sub-section (1) shall be in such form and manner and accompanied with such fee as may be prescribed.”

“96. Interim-moratorium—

(1) When an application is filed under Section 94 or Section 95—

(a) an interim moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application; and

(b) during the interim moratorium period—

(i) any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed; and

(ii) the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt.

(2) Where the application has been made in relation to a firm, the interim moratorium under sub-section (1) shall operate against all the partners of the firm as on the date of the application.

(3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.”

“101. Moratorium.—

(1) When the application is admitted under Section 100, a moratorium shall commence in relation to all the debts and shall cease to have effect at the end of the period of one hundred and eighty days beginning with the date of admission of the application or on the date the Adjudicating Authority passes an order on the repayment plan under Section 114, whichever is earlier.

(2) During the moratorium period—

(a) any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed;

(b) the creditors shall not initiate any legal action or legal proceedings in respect of any debt; and 24

(c) the debtor shall not transfer, alienate, encumber or dispose of any of his assets or his legal rights or beneficial interest therein;

(3) Where an order admitting the application under Section 96 has been made in relation to a firm, the moratorium under sub-section (1) shall operate against all the partners of the firm.

(4) The provisions of this Section shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.”

10.1. From the above provisions, it is clear that the term “Corporate Person”

includes a company as defined under Section 2(20) of the Companies Act, 2013, and

a Limited Liability Partnership. However, there is a subtle difference in the

protection available to the Directors and the Partners. In case of a partnership firm,

the interim moratorium protects not only the firm, but also the partners. But in case

of a company, such protection is available only to the company and not to its

directors. That apart, the object of interim moratorium can be no different from that

of the moratorium specified under Section 14. It is also clear from Section 14 that

the protection from legal action during the period of moratorium is not available to

the surety or in other words, to a personal guarantor. The use of the words “all the

debts” and “in respect of any debt” in Sub-section (1) of Section 96 is not without a

purpose, as the moratorium is intended to offer protection only against civil claim to

recover the debt. Hence, such period of moratorium prescribed under Section 14 or 25

96 is restricted in its applicability only to protection against civil claims which are

directed towards recovery and not from criminal action.

(B) Negotiable Instruments Act, 1881.

“138. Dishonour of cheque for insufficiency, etc., of funds in the account.—

Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for [a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless—

(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, [within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation.—For the purposes of this section, “debt of other liability” means a legally enforceable debt or other liability.

26

141. Offences by companies.—

(1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:

[Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.]

(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Explanation.—For the purposes of this section, —

(a) “company” means any body corporate and includes a firm or other association of individuals; and

(b) “director”, in relation to a firm, means a partner in the firm.”

10.2. The above provisions specifically relate to cheque dishonour cases, and the

persons responsible for such dishonour, may be criminally prosecuted and subjected

to penal action, as per the conditions specified under the N.I. Act, 1881. 27

11. Admittedly, the appellants / petitioners are facing trial for the offence under

section 138 / 141 of the N.I. Act, 1881, at the instance of the respondents /

complainants. While so, they initiated the personal insolvency proceedings under the

IBC and sought exemption from the section 138 proceedings before the trial Court,

referring to interim moratorium provided under Section 96 IBC. It is to be noted that

upon the application being admitted, the moratorium provisions under the IBC offer

protection only to the corporate debtor, i.e., the company, and do not extend

protection against civil liability to personal guarantors by specific exclusion or to

any individual who is prosecuted for committing a criminal act.

12. The legislative intent behind the Insolvency and Bankruptcy Code (IBC) is to

provide a structured framework for the resolution of corporate debtors' financial

distress, facilitating their rehabilitation and ensuring the maximization of asset value.

The application under Section 94 or 95 would fall under Chapter III of the IBC. An

application under Section 94, when taken out by a debtor in the capacity of a personal

guarantor of a company, to declare him/her as insolvent, is to be disposed by

following the procedures in Sections 97 to 119. The application filed under

Section 94 is scrutinized by the Resolution Professional and a report is submitted as

contemplated under Section 99 recommending either the approval or rejection of the

application. The interim moratorium which commences on the presentation of the 28

application will expire on the admission of the application by an order of the

adjudicating authority under Section 100. Upon admission, the moratorium under

Section 101 comes into operation. The interim moratorium under Section 96 and the

moratorium under Section 101 IBC are designed to offer a breathing space to the

corporate debtor, allowing them to reorganize their financial affairs without the

immediate threat of creditor actions. However, this moratorium is not intended to

shield individuals from personal criminal liabilities arising from their actions outside

the scope of corporate debt restructuring. The respective appellants / petitioners,

having filed insolvency applications as personal guarantors under Section 94 IBC,

cannot extend this protection to avoid prosecution under Section 138 of the

N.I. Act, 1881. Upon filing of the application under section 94 IPC, a moratorium

comes into effect, designed to protect the debtors from any legal actions concerning

their debts. Specifically, Section 96 IBC provides that any legal proceedings pending

against the debtor concerning any debt shall be deemed to have been stayed. The

term “any legal action or proceedings” does not mean “every legal action or

proceedings”. In sub-clauses 96 (b) (i) and (ii), the term “legal action or proceedings”

are followed by the term “in respect of any debt”. The term “legal action or

proceedings” would have to be understood to include such legal action or

proceedings relating to recovery of debt by invoking the principles of noscitur a

sociius.The purpose of interim moratorium contemplated under Section 96 is to be 29

derived from the object of the act, which is not to stall the proceedings unrelated to

the recovery of the debt. The protection is not available against penal actions, the

object of which is to not recover any debt. This moratorium serves as a critical

mechanism, allowing the debtor to reorganize their financial affairs without the

immediate threat of creditor actions. The clear and unequivocal language of this

provision reflects the legislative intent to provide a protective shield for debtors

during the insolvency process.

13. On the other hand, the proceedings under Section 138 of the N.I. Act, 1881,

pertain to the dishonor of cheques issued by the respective appellants / petitioners in

their personal capacity. These proceedings are distinct from the corporate insolvency

proceedings and are aimed at upholding the integrity of commercial transactions by

holding individuals accountable for their personal actions. The scope and nature of

the proceedings under the IBC may result in extinguishment of the actual debt by

restructuring or through the process of liquidation. But such extinguishment will not

absolve its directors from the criminal liability. Section 141 of the N.I. Act, 1881

enables the prosecution of the persons in charge of the affairs and responsible for the

conduct of the business of the company along with the company. The statutory

liability against the directors under Section 138 of the N.I. Act, 1881, is personal and

hence, continues to bind natural persons, irrespective of any moratorium applicable 30

to the corporate debtor. The acceptance of the resolution plan under Section 31 IBC

or its implementation thereof will have no effect on the prosecution under Section

138 of the N.I. Act, 1881. Similarly, the acceptance of the report by the resolution

professional under Section 100 and the moratorium under Section 101, which

reprises Section 96, will not bar the continual of any criminal action. The cause of

action for prosecution under Section 138 of NI Act commences on the dishonor of

the cheque and the failure to pay the amount unpaid because of dishonour, within 15

days from the date of receipt of notice demanding payment. It is pertinent to mention

here that the prosecution can be only with respect to the amount unpaid by dishonour

of the cheque irrespective of the actual debt. The distinction between the right to sue

based on a dishonoured cheque by initiating a civil suit and launching a prosecution

under Section 138 of the Negotiable Instruments Act is significant. In case of former,

the interim moratorium can operate, but not in case of later.

14. In Mohanraj case, the dishonoured cheques were issued by the company and

hence, the complainant initiated the section 138 proceedings against the company

and its directors. The question that arose for consideration was, whether the

institution or continuation of a proceeding under section 138/141 of the

N.I. Act, 1881, can be said to be covered by the moratorium provision,

namely, section 14 IBC. The petitioners in the connected writ petitions therein, were

the erstwhile Directors/persons in charge of and responsible for the conduct of the 31

business of the corporate debtor and they were all premised upon the fact that Section

138 proceedings are covered by Section 14 IBC and hence, cannot continue against

the corporate debtor and consequently, against the petitioners therein. This Court,

after a detailed analysis of the provisions relating to moratorium under sections 14,

96 and 101 IBC, concluded that the moratorium provision contained in Section 14

IBC would apply only to the corporate debtor, and the natural persons mentioned

therein, continuing to be statutorily liable under the N.I. Act, 1881. In doing so, it

was clarified that the moratorium under the IBC does not extend to criminal

proceedings. Further, it was emphasized that the IBC's objective is to address the

corporate debtor’s financial distress and should not be misconstrued as a means to

avoid personal criminal accountability. For better appreciation, the relevant portion

of the said judgment is extracted hereunder:-

“102. Since the corporate debtor would be covered by the moratorium provision contained in Section 14 of the IBC, by which continuation of Section 138/141 proceedings against the corporate debtor and initiation of Section 138/141 proceedings against the said debtor during the corporate insolvency resolution process are interdicted, what is stated in paragraphs 51 and 59 in Aneeta Hada (supra) would then become applicable. The legal impediment contained in Section 14 of the IBC would make it impossible for such proceeding to continue or be instituted against the corporate debtor. Thus, for the period of moratorium, since no Section 138/141 proceeding can continue or be initiated against the corporate debtor because of a statutory bar, such proceedings can be initiated or continued against the persons mentioned in Section 141(1) and (2) of the Negotiable Instruments Act. This being the case, it is clear that the moratorium provision contained in Section 14 of the IBC would apply only to the corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instruments Act.” 32

15. Similarly, in Narinder Garg (supra), this Court reiterated that the IBC's

moratorium does not bar criminal proceedings under Section 138 of the NI Act. For

better appreciation, the relevant portion of the said judgment is extracted hereunder:-

“4. A subsidiary issue was also about the liability of natural persons like a Director of the Company. In paragraph 77 of its judgment, this Court observed that the moratorium provisions contained in Section 14 of the Insolvency and Bankruptcy Code, 2016 would apply only to the corporate debtor and that the natural persons mentioned in Section 141 of the Act would continue to be statutorily liable under the provisions of the Act.”

16. Even recently, a larger bench of this Court in Ajay Kumar Radheyshyam

Goenka v. Tourism Finance Corpn. of India Ltd.10, of which one of us

(J.B. Pardiwala, J) is a member, after considering the scope and object of the IBC

and the interplay with the N.I. Act, 1881 in detail, has held as follows:

“72. It is true that by virtue of Section 238 IBC, the provisions of Cr.P.C (to be read as Code) shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. But, no provision of IBC bars the continuation of the criminal prosecution initiated against the Directors and officials.

73. It is equally true that once the corporate debtor comes under the resolution process, its erstwhile Managing Director(s) cannot continue to represent the company. Section 305(2)CrPC states that where a corporation is the accused person or one of the accused persons in an inquiry or trial, it may appoint a representative for the purpose of the inquiry or trial and such appointment need not be under the seal of the corporation. Therefore, it is only the resolution professional who can represent the accused Company during the pendency of the proceedings under IBC.

10 (2023) 10 SCC 545 : (2024) 1 SCC (Cri) 128 : 2023 SCC OnLine SC 266 33

After the proceedings are over, either the corporate entity may be dissolved or it can be taken over by a new management in which event the company will continue to exist. When a new management takes over, it will have to make arrangements for representing the company. If the company is dissolved as a result of the resolution process, obviously proceedings against it will have to be terminated. But even then, its erstwhile Directors may not be able to take advantage of the situation. This is because, this Court in Aneeta Hada [Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 : (2012) 3 SCC (Civ) 350 : (2012) 3 SCC (Cri) 241] , even while overruling its decision in Anil Hada v. Indian Acrylic Ltd. [Anil Hada v. Indian Acrylic Ltd., (2000) 1 SCC 1 : 2001 SCC (Cri) 174] , as not laying down the correct law insofar as Anil Hada [Anil Hada v. Indian Acrylic Ltd., (2000) 1 SCC 1 : 2001 SCC (Cri) 174] states that the Director or any other officer can be prosecuted without impleadment of the company, proceeded to hold that the matter would stand on a different footing where there is some legal impediment as the doctrine of lex non cogit ad impossibilia gets attracted. It was specifically observed that the decision in Anil Hada [Anil Hada v. Indian Acrylic Ltd., (2000) 1 SCC 1 :

2001 SCC (Cri) 174] is overruled with the qualifier as stated in para 51. Considering the same, the ratio of the decision of this Court in Ajit Balse [Ajit Balse v. Ranga Karkere, (2015) 15 SCC 748 : (2016) 3 SCC (Civ) 465 : (2016) 3 SCC (Cri) 379] upon which strong reliance is placed on behalf of the appellant is of no avail.

74. What follows from the aforesaid is that for difficulty in prosecuting the corporate debtor under Section 138 of the NI Act after the approval of the resolution plan under IBC, we need not let the natural persons i.e. the signatories to the cheques/Directors of the corporate debtor escape prosecution. How can one allow the natural persons to escape liability on such specious plea? In such a situation the Latin maxim lex non cogit ad impossibilia is attracted which means law does not compel a man to do which he cannot possibly perform. Broom's Legal Maxims contains several illustrative cases in support of the maxim. This maxim has been referred to with approval by this Court in State of Rajasthan v. Shamsher Singh [State of Rajasthan v. Shamsher Singh, 1985 Supp SCC 416 : 1985 SCC (Cri) 421] .

75. Thus, where the proceedings under Section 138 of the NI Act had already commenced and during the pendency the plan is approved or the company gets dissolved, the Directors and the other accused cannot escape from their liability by citing its dissolution. What is dissolved is only the company, not the personal penal liability of the accused covered under Section 141 of the NI Act. They will have to continue to face the prosecution in view of the law laid down in Aneeta Hada [Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 : (2012) 3 SCC (Civ) 350 : (2012) 3 SCC (Cri) 241] . Where the company continues to remain even at the 34

end of the resolution process, the only consequence is that the erstwhile Directors can no longer represent it.

……………

81. This Court in Lalit Kumar Jain v. Union of India [Lalit Kumar Jain v. Union of India, (2021) 9 SCC 321 : (2021) 4 SCC (Civ) 527] has held that the approval of the resolution plan per se does not operate as a discharge of guarantors' liability. That is because:

(a) an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability.

(b) a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the case of a company) does not absolve the surety of his liability.

82. The same principle is applicable to the signatory/Director in the case of Sections 138/141 proceedings. The signatory/Director cannot take benefit of discharge obtained by the corporate debtor by operation of law under IBC. ……

Litigant cannot take advantage of its own wrong (Nullus commodum capere potest de injuria sua propria)

84. This Court while upholding the validity of Section 32-A IBC (Manish Kumar case [Manish Kumar v. Union of India, (2021) 5 SCC 1 : (2021) 3 SCC (Civ) 50] ) has held that “The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away.” That is a very important object and the same should not be permitted to be defeated by accepting the argument that permits the signatory/Director to enjoy the fruits of their own wrong.”

17. For the foregoing discussion, we are of the opinion that the object of

moratorium or for that purpose, the provision enabling the debtor to approach the

Tribunal under Section 94 is not to stall the criminal prosecution, but to only

postpone any civil actions to recover any debt. The deterrent effect of Section 138 is

critical to maintain the trust in the use of negotiable instruments like cheques in

business dealings. Criminal liability for dishonoring cheques ensures that 35

individuals who engage in commercial transactions are held accountable for their

actions, however subject to satisfaction of other conditions in the N.I. Act, 1881.

Therefore, allowing the respective appellants / petitioners to evade prosecution

under Section 138 by invoking the moratorium would undermine the very purpose

of the N.I. Act, 1881, which is to preserve the integrity and credibility of commercial

transactions and the personal responsibility persists, regardless of the insolvency

proceedings and its outcome.

18. In view thereof, the contention of the appellants that the decisions relied on

by the High Court dealt with the proceedings under section 14 IBC and not the

proceedings under section 96 IBC, cannot be countenanced by us. Furthermore, the

decision in Dilip B. Jiwrajka (supra) is not relevant to the facts of the present case,

as the issue therein was relating to the constitutional validity of certain provisions of

the IBC and the applicability of moratorium to a proceedings under Section 138 of

the N.I. Act, 1881 was not the subject matter.

19. For the foregoing discussion, the prayer of the appellants / petitioners to stay

the prosecution under Section 138 of the N.I. Act, 1881, relying on the interim

moratorium under Section 96 IBC, cannot be entertained. Therefore, the judgments

/ orders passed by the different High Courts affirming the orders of the trial court, 36

which had rightly refused to stay the section 138 proceedings, need not be interfered

with by us.

20. In fine, all the criminal appeals and writ petition are dismissed.

21. Pending application(s), if any, shall stand closed.

.....................................J. [J.B. Pardiwala]

.....................................J. [R. Mahadevan] NEW DELHI APRIL 01, 2025.