Analysis of Liability of Corporate Debtors in Section 138 Proceedings During Moratorium

The court’s recent decision delves into the intricate legal aspects surrounding the liability of corporate debtors in Section 138 proceedings during a moratorium period. By analyzing past precedent and statutory provisions, the court sheds light on the complexities of initiating proceedings against corporate entities in such scenarios. This analysis is crucial for understanding the interplay between the Negotiable Instruments Act, the Insolvency and Bankruptcy Code, and the concept of moratorium in corporate insolvency proceedings.

Facts

The appellant filed a Criminal Original Petition under Section 482 of the Code seeking to quash proceedings initiated under Section 138 of the Negotiable Instruments Act.
The appellant argued that the debt in question was not enforceable and was in the nature of a security.
The challenge was rejected, leading to the filing of the instant appeal.
The appellant claimed that a moratorium was issued by NCLT, preventing institution or continuation of suits against the corporate debtor.
The statutory notice under Section 138 of the Negotiable Instruments Act was issued on 21.12.2017.
Learned counsel argues that the proceedings under Section 138 of the Negotiable Instruments Act could not be initiated against the Corporate-debtor.
The learned counsel points out that the moratorium disclosed in the document dated 2.1.2018 should have prevented the institution of proceedings against the Corporate-debtor.
The submission is that due to the moratorium, the Section 138 proceedings against the Corporate-debtor were not legally permissible.

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Analysis

The Bombay High Court and the Calcutta High Court judgments in Tayal Cotton (P) Ltd. v. State of Maharashtra, 2018 SCC OnLine Bom 2069 and MBL Infrastructures Ltd. v. Manik Chand Somani, 2019 SCC OnLine Cal 9097 respectively, were disagreed with.
Sections 138/141 proceedings against a corporate debtor fall under Section 14(1)(a) IBC as per the decision of the court.
The decision in P. Mohanraj case was followed by another three-Judge Bench in Gimpex Private Ltd. v. Manoj Goel, 2021 SCC Online SC 925 : 2021 (12) SCALE 269.
The liability of a corporate debtor in proceedings initiated under Section 138 of the Act during the moratorium was analyzed in P. Mohanraj & Others v. Shah Brothers Ispat Private Ltd., (2021) 6 SCC 3258.
The civil appeal has been allowed and the judgment under appeal has been set aside.
Sections 138/141 proceedings will continue against both the Company and the appellants.
Proceedings were allowed to continue against natural persons in a similar past case, but in the current case, the complaint was filed only against the corporate entity.
Moratorium period has ended in this case.
The exception in the decision of this Court in P. Mohanraj does not apply as no natural person was accused in this case.
The corporate debtor, the appellant, cannot be proceeded against under Section 138 of the Act.
The proceedings initiated against the appellant are to be quashed.