On the cheque being presented to the bankers of the Respondent i.e., HDFC Bank Limited, Nehru Place Branch, New Delhi, the cheque was returned vide Memo dated 07.04.2016 for the reason “ Account Closed ”. The amount was not paid and, thus, on 16.05.2016, Criminal Complaint No 632982/2016 was filed in the Court of Chief Metropolitan Magistrate, Saket Courts, New Delhi, under Section 190 of the Code of Criminal Procedure, 1973, read with Section 138, Section 141 and Section 142 of the NI Act. In terms of the Resolution Plan dated 26.05.2018, the Resolution Applicant (Kushal Limited) filed the Resolution Plan and during the course of meeting the Committee of Creditors on 05.06.2018, it was informed that the respondent herein could not be considered as a Secured Financial Creditor as per definitions contained in Section 3(30) and Section 3(31) of the IBC. Thus, it would not come within the purview of Section 14 of the IBC and, thus, the proceedings under Section 138 of the NI Act, 1881 could continue simultaneously.
The term ‘Debt’ would mean ‘legally enforceable debt’ under the Explanation to Section 138 of the NI Act and this may be read with Sections 2(6) and 2(8) of the IBC. It was submitted that the nature of the proceedings under Section 138 of the NI Act is primarily compensatory in nature and the punitive element is incorporated at enforcing the compensatory provisions. It was urged that the accused company along with the Appellant deliberately and with the mala fide intention gave the cheque to defraud the Respondent to take loan from it and subsequently to usurp the loan amount and hence had closed the bank account. The issue whether the respondent is a Secured Financial Creditor or an Unsecured Financial Creditor within the meaning of the said Code is not something we can deal with as that is the matter of the proceedings under the said Code or any appeal preferred therefrom.
Act proceedings arise from a default in financial debt, the proceedings under Section 138 should be taken as akin to civil proceedings rather than criminal proceedings. We are unable to accept the plea that if proceedings against the company come to an end then the Appellant as the Managing Director cannot be proceeded against. To say that under a scheme which may be approved, a part amount will be recovered or if there is no scheme a person may stand in a queue to recover debt would absolve the consequences under Section 138 of the N.I.
171 OF 2023 (@SLP (CRL) 446 OF 2020) J U D G M E N T J.B.
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This appeal by special leave is at the instance of the original accused No 2 in a complaint lodged by the respondent herein (original complainant) for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881 (for short, ‘the NI Act’) and is directed against the order passed by the Additional Sessions Judge-02 2 South East District, Saket Court, New Delhi dated 23.11.2019 in the Criminal Revision Application No 593 of 2019 by which the Additional Sessions Judge affirmed the order passed by the Metropolitan Magistrate – 09, SED dated 01.11.2019 rejecting the application filed by the appellant herein seeking discharge from the criminal proceedings i.e. 30,00,00,000/- (thirty crore) as a corporate loan to the Rainbow Papers Limited (Original Accused No 1/corporate debtor). On 16.05.2016, a complaint was lodged under Section 138 of the NI Act by the complainant against the corporate debtor and the appellant herein (Managing Director of the Corporate Debtor) for dishonour of the three cheques issued by the appellant herein for discharge of the debt in part to the tune of Rs. On 26.05.2018, the resolution applicant filed its resolution plan under the terms of which, the payment to the complainant was in full and final settlement of all its claims against the corporate debtor. As the resolution plan came to be approved by the NCLT, the appellant herein filed an application dated 20.07.2019 before the trial court, praying that he be discharged from the criminal proceedings. Once the debt itself gets extinguished either under Section 31 of the IBC or in the process from Sections 38 to 41 and 54 resply of the IBC, the basis of Section 138 of the NI Act no longer remains. The term debt would mean the ‘legally enforceable debt’ under the explanation to Section 138 of the NI Act. Permitting two proceedings to continue would therefore defeat either Section 31 or Section 53 of the IBC, as the case may be. Mohanraj (supra) considered the position of law as regards the continuation of the criminal proceedings under Section 138 of the NI Act vis-a-vis the proceedings under the IBC and answered the same in para 102 of the judgment. Goel that this Court drew a fine distinction between the corporate debtor and natural persons & ultimately held that while a corporate debtor would be protected from Section 138 proceedings during the period of moratorium, the natural persons would not enjoy such protection and Section 138 proceedings would continue against the natural persons. Rajiv Ranjan Dwivedi, the learned counsel appearing for the complainant by submitting that in the case on hand, the criminal proceedings under the NI Act were initiated much before the proceedings under the IBC came to be initiated.
The learned counsel appearing for the complainant, laid much stress on Section 32A of the IBC, which states that every person who was a ‘designated partner’ or an ‘officer who is in default’ or was in any manner in charge of/responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence in accordance with the report submitted or complaint filed by the investigating authority shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor’s liability has ceased under the provision of Section 32A of the IBC. Having heard the learned counsel appearing for the parties and having gone 7 through the materials on record, the seminal question of law that falls for the consideration of this Court may be formulated as under: Whether in light of: (i) the complainant having participated in the proceedings under the IBC, 2016 by putting forward its claim and consenting to accept some share as a creditor; coupled with (ii) the approval of the resolution plan under Section 31 of the IBC, 2016; the signatory/director in charge of the day-to-day affairs would stand discharged/relieved from the penal liability under Section 138 of the NI Act?
— 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, — It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability.” Section 141 of the NI Act fastens vicarious liability upon every person, who at the time of the offence, was in charge of and was responsible to the company for the conduct of the business of the company.
— (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), (a) no court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque; (b) such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138: Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period. (2) The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction, — (a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or (b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated. — Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), every offence punishable under this Act shall be compoundable.” The offence under Section 138 of the NI Act, is committed, after the conditions set out therein are fulfilled. Section 141 of the NI Act states that 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. The IBC provides for designating the NCLT and the Debts Recovery Tribunal (DRT) as the adjudicating authorities for corporate persons, firms and individuals for resolution of insolvency, liquidation and bankruptcy. The financial creditor may file an application before the adjudicating authority along with the proof of default and the name of a resolution professional proposed to act as the interim resolution professional in respect of the corporate debtor.
— (1) The Adjudicating Authority, after admission of the application under section 7 or section 9 or section 10, shall, by an order— (a) declare a moratorium for the purposes referred to in section 14; (b) cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims under section 15; and (c) appoint an interim resolution professional in the manner as laid down in section 16. — (1) The public announcement of the corporate insolvency resolution process under the order referred to in section 13 shall contain the following information, namely:— (a) name and address of the corporate debtor under the corporate insolvency resolution process; (b) name of the authority with which the corporate debtor is incorporated or registered; (c) the last date for submission of [claims, as may be specified]; (d) details of the interim resolution professional who shall be vested with the management of the corporate debtor and be responsible for receiving claims; (e) penalties for false or misleading claims; and (f) the date on which the corporate insolvency resolution process shall close, which shall be the one hundred and eightieth day from the date of the admission of the application under sections 7, 9 or section 10, as the case may be. (2) The public announcement under this section shall be made in such manner as may be specified.” (c) It is important to note that the resolution professional has no adjudicatory powers in regard to the claims unlike the liquidator. The interim resolution professional shall perform the following duties, namely— (a) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to— (i) business operations for the previous two years; (ii) financial and operational payments for the previous two years; (iii) list of assets and liabilities as on the initiation date; and (iv) such other matters as may be specified; (b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under Sections 13 and 15; (c) constitute a Committee of Creditors; (d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the Committee of Creditors; (e) file information collected with the information utility, if necessary; and (f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including— (i) assets over which the corporate debtor has ownership rights which may be located in a foreign country; (ii) assets that Substantiation of claims.—The interim resolution professional or the resolution professional, as the case may be, may call for such other evidence or clarification as he deems fit from a creditor for substantiating the whole or part of its claim. Verification of claims.—(1)
The interim resolution professional or the resolution professional, as the case may be, shall verify every claim, as on the insolvency commencement date, within seven days from the last date of the receipt of the claims, and thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims, and update it. (2) The interim resolution professional or the resolution professional, as the case may be, shall revise the amounts of claims admitted, including the estimates of claims made under sub-regulation (1), as soon as may be practicable, when he comes across additional information warranting such revision.” (2) Where the resolution professional is of the opinion that the corporate debtor has been subjected to any transactions covered under Sections 43, 45, 50 or 66, he shall make a determination on or before the one hundred and fifteenth day of the insolvency commencement date, under intimation to the Board. Appeal against the decision of liquidator.—A creditor may appeal to the adjudicating authority against the decision of the liquidator accepting or rejecting the claims within fourteen days of the receipt of such decision.” 16
It is clear from these sections that when the liquidator “determines” the value of claims admitted under Section 40, such determination is a “decision”, which is quasi-judicial in nature, and which can be appealed against to the adjudicating authority under Section 42 of the Code. Thus, the resolution professional is really a facilitator of the resolution process, whose administrative functions are overseen by the Committee of Creditors and by the adjudicating authority.” (d) Section 29 of the IBC deals with the information memorandum on the basis of which the resolution plan would be submitted. Under Section 29(1) of the Code, the resolution professional shall prepare an information memorandum containing all relevant information, as may be specified, so that a resolution plan may then be formulated by a prospective resolution applicant. If the resolution plan is approved by the requisite majority of the Committee of Creditors, it is then the duty of the resolution professional to submit the resolution plan as approved by the Committee of Creditors to the Adjudicating Authority — see Section 30(6) of the Code. (1)(hb) “fair value” means the estimated realisable value of the assets of the corporate debtor, if they were to be exchanged on the insolvency commencement date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion;”] and “liquidation value” as defined by Regulation 2(1)(k) [Id. The information memorandum, spoken of by this regulation, must contain the following: “ 36.(2)(a) assets and liabilities with such description, as on the insolvency commencement date, as are generally necessary for ascertaining their values. 18 (b) the latest annual financial statements; (c) audited financial statements of the corporate debtor for the last two financial years and provisional financial statements for the current financial year made up to a date not earlier than fourteen days from the date of the application; (d) a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims; (e) particulars of a debt due from or to the corporate debtor with respect to related parties; (f) details of guarantees that have been given in relation to the debts of the corporate debtor by other persons, specifying which of the guarantors is a related party; (g) the names and addresses of the members or partners holding at least one per cent stake in the corporate debtor along with the size of stake; (h) details of all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities; (i) the number of workers and employees and liabilities of the corporate debtor towards them; (j)-(k) *** (l) other information, which the resolution professional deems relevant to the committee.”” (f) On the basis of the (See Section 30 (2) (b)) (h) For dissenting financial creditors, they are mandatorily entitled to the amount under Section 53 in the event of liquidation.
Committee of Creditors of Educomp Solutions Limited and Another reported in (2022) 2 SCC 401, has held that the resolution plan binds even the persons who have not consented. While the above observations were made in the context of a scheme that has been sanctioned by the court, the resolution plan even prior to the approval of the adjudicating authority is binding inter se the CoC and the successful resolution applicant. The BLRC Report mentions that “[w]hen 75% of the creditors agree on a revival plan, this plan would be binding on all the remaining creditors” [ 3.3.1, The Report of the Bankruptcy Law Reforms Committee, Vol. However, it is the structure of IBC which confers legal force on the CoC-approved resolution plan. Liability for prior offences, etc.—(1) Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not— (a) a promoter or in the management or control of the corporate debtor or a related party of such a person; or (b) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or court: Provided that if a prosecution had been instituted during the corporate insolvency resolution process against such corporate debtor, it shall stand 21 discharged from the date of approval of the resolution plan subject to requirements of this sub-section having been fulfilled: Provided further that every person who was a “designated partner Thus, if the argument of allowing the signatory/director to go scot-free after the approval of the resolution plan is accepted the same would run contrary to the legislative intent of Section 32A which has been upheld by this Court as under: “326.
The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate. The issue involved was whether the institution/continuation of a proceeding under Section 138/141 of the NI Act, 1881 is said to be covered by Section 14 of the IBC, 2016. Moratorium under Section 14, IBC only applies to the Corporate Debtor and does not apply to natural persons mentioned under Section 141 of NI Act, 1881. Since the corporate debtor would be covered by the moratorium provision contained in Section 14 IBC, by which continuation of Sec- tions 138/141 proceedings against the corporate debtor and initiation of Sections 138/141 proceedings against the said debtor during the cor- porate insolvency resolution process are interdicted, what is stated in paras 51 and 59 in Aneeta Hada ((2012) 5 SCC 661) would then be- come applicable. Section 17 of the Code provides that on commencement of the CIRP, the powers of management of the corporate debtor vest with the interim resolution professional. However, even after commencement of CIRP or after its successful resolution or liquidation, the corporate debtor, along with its property, would be susceptible to investigations or proceedings related to criminal offences committed by it prior to the commencement of a CIRP, leading to the imposition of certain liabilities and restrictions on the corporate debtor and its properties even after they were lawfully acquired by a resolution applicant or a successful bidder, respectively. Bhushan Steel Ltd., 2018 SCC OnLine NCLT 32305, para 83(i)]
Without relief from imposition of the such liability, the Committee noted that in the long run, potential resolution applicants could be disincentivised from proposing a resolution plan.
Given this, the Committee felt that a distinction must be drawn between the corporate debtor which may have committed offences under the control of its previous management, prior to the CIRP, and the corporate debtor that is resolved, and taken over by an unconnected resolution applicant. Thus, the Committee agreed that a new section should be inserted to provide that where the corporate debtor is successfully resolved, it should not be held liable for any offence committed prior to the 25 commencement of the CIRP, unless the successful resolution applicant was also involved in the commission of the offence, or was a related party, promoter or other person in management and control of the corporate debtor at the time of or any time following the commission of the offence. Having regard to the object of the Code, the experience of the working of the Code, the interests of all stakeholders including most importantly the imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this Court to interfere. The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate.
Having regard to the object of the statute we hardly see any manifest arbitrariness in the provision.” Section 32-A cannot possibly be said to throw any light on the true in- terpretation of Section 14(1)(a) as the reason for introducing Section 32-A had nothing whatsoever to do with any moratorium provision. If the language of the second proviso is taken to interpret the language of Section 32- A(1) in that the “offence committed” under Section 32-A(1) would not include offences based upon complaints under Section 2(d) CrPC, the width of the language would be cut down and the object of Section 32-A(1) would not be achieved as all prosecutions emanating from private complaints would be excluded. A section which has been introduced by an amendment into an Act with its focus on cesser of liability for offences committed by the corporate debtor prior to the commencement of the corporate insolvency resolution process cannot be so construed so as to limit, by a sidewind as it were, the moratorium provision contained in Section 14, with which it is not at all concerned. If harmonious, therefore, the ex- pression “prosecution” in the first proviso of Section 32-A(1) refers to 27 criminal proceedings properly so-called either through the medium of a first information report or complaint filed by an investigating authority or complaint and not to quasi-criminal proceedings that are instituted under Sections 138/141 of the Negotiable Instruments Act against the corporate debtor, the object of Section 14(1) IBC gets subserved, as does the object of Section 32-A, which does away with criminal prosecutions in all cases against the corporate debtor, thus absolving the corporate debtor from the same after a new management comes in.” (Emphasis applied)
Thus, the heart of the matter is the second proviso appended to Section 32A(1) (b) of the IBC which provides statutory recognition of the criminal liability of the persons who are otherwise vicariously liable under Section 141 of NI Act, in the con- text of Section 138 offence. If the old management takes over the corporate debtor (for MSME Section 29A does not apply (see 240A), hence for MSME old manage- ment can takeover) the corporate debtor itself is also not safeguarded from prosecution under Section 138 or any other offences. It is true that by virtue of Section 238 of the IBC, the provisions of the CrPC 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. 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.
Considering the same, the ratio of the decision of this Court in Ajit Balse (supra) upon which strong reliance is placed on behalf of the appellant is of no avail. If the argument that the signatories/directors are not liable to be proceeded under Section 138/141 of the NI Act once the resolution plan is approved, the same may lead to the following absurd situations: 30 i. If the resolution plan is not approved and the corporate debtor goes under liq- uidation in such circumstances under Section 35(1)(k) of the IBC the liquida- tor can represent the corporate debtor. No during the said period, the prosecution might have been completed and appeals would be pending.
‘All modern Acts are framed with regard to equitable as well as legal principles.’ “A hundred years ago”, said the court in Lyons’ case, “statutes were required to be perfectly precise and resort was not had to a reasonable construction of the Act, and thereby criminals were often allowed to escape. The argument that as the debt stood extinguished by virtue of Section 31 of the IBC, the proceedings under Section 138 of the NI Act cannot continue as regards the di- rector/signatory, would run contrary to the line of reasoning assigned by this Court that the “Involuntary Act” of the principal debtor would not absolve the guarantors. If the argument that extinguishment of debt under Section 31 of the IBC leads to the discharge of signatory/director under Section 138 proceedings is accepted, the same will lead to conflict in law as laid down compared to the guarantor’s liability 32 wherein in spite of the plan being approved, the guarantor is held separately liable for the remaining amount. It was held that in view of the unequivocal guarantee, such liability of the guarantor continues and the creditor can realise the same from the guarantor in view of the language of Section 128 of the Con- tract Act, 1872 as there is no discharge under Section 134 of that Act. Under the bank guarantee in question the Bank has undertaken to pay the Electricity Board any sum up to Rs 50,000 and in order to re- alise it all that the Electricity Board has to do is to make a demand. But a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liqui- dation proceedings in the case of a company) does not absolve the surety 33 of his liability (see Jagannath Ganeshram Agarwale v. and Others reported in (2019) 20 SCC 38, the facts were that the liquidation proceedings were required to be completed within a fixed number of years, but failed. Even if the period fixed for liquidation of Society is over, that does not terminate the proceedings for recovery which have been initiated and appeals are pending. Thus, the members who have obtained stay in appeal or on recovery proceedings or the case is pending, cannot take advantage of the fact that the period fixed for the Liquidator under the Act is over.
The disbursement of loan in an arbitrary manner and failure to recover was the very fulcrum on the basis of which winding up of the Society was ordered.” (Emphasis supplied) TERMS OF THE RESOLUTION PLAN CANNOT CONTROL THE ENACTMENT/RULES 63. The payment to Persons contemplated in this Resolution Plan shall be the Corporate Debtors and Resolution Applicant’s full and final performance and satisfaction of all its obligations to such Persons and all Claims (includ- ing, for the avoidance of doubt, any unverified portion of their Claims) of such Persons against the Corporate Debtor shall stand irrevocably and un- conditionally settled and extinguished in perpetuity on the Effective Date and with effect from the Appointed Date. … Accordingly, the Resolution Applicant and the Corporate Debtor shall have no responsibility or liability in respect of any claims against the Corporate Debtor attributable to the period prior to the Effective Date other than any payments to be made under this Resolution Plan and all claims along with any related legal proceedings, including criminal proceedings and other penal proceedings, shall stand irrevocably and unconditionally abated, settled and extinguished in perpetuity. This is a very important factor, which indicates that the complainant under Section 138 NI Act is bound by the approved resolution plan, even though he may not have consented to it (if he is part of the CoC) or likes it. — xxx xxx xxx (3) An appeal against an order approving a resolution plan under Sec- tion 31 may be filed on the following grounds, namely: (i) the approved resolution plan isin contravention of the provisions of any law for the time being in force;….” The complainant-creditor of Section 138 NI Act proceedings may or may not have any role to play in the approval of the resolution plan and majority of Section 138 creditors may be small players unlike big financial creditors. Quashing is one of the facets inherent powers, while compounding of an offence being a statutory expression contained under Section 320 the CrPC is entirely a different concept.
As per Section 138 of the NI Act, when the cheque was dishonoured and a statu- tory notice demanding the cheque amount was issued, the accused shall pay the cheque amount within 15 days from the date of receipt of the said notice. To put it clearly, the complainant approaches the criminal court not for recovery of the legally enforceable debt, but for taking penal ac- tion under Section 138 of the NI Act for the offence already committed by the accused by not making the payment of the cheque amount despite the receipt of the statutory no- tice. The Committee concluded that Section 14 does not intend to bar actions against assets of guarantors to the debts of the corporate debtor and recommended that an explanation to clarify this may be inserted in Section 14 of the Code. Section 31(1), in fact, makes it clear that the guarantor cannot escape payment as the resolution plan, which has been approved, may well include provisions as to payments to be made by such guarantor. Section 14 refers only to debts due by corporate debtors, who are limited liability companies, and it is clear that in the vast majority of cases, 39 personal guarantees are given by Directors who are in management of the companies.
we find that Section 31(1) of the Code would make it clear that such members of the erstwhile Board of Directors, who are often guarantors, are vitally interested in a resolution plan as such resolution plan then binds them. However, this Court has indicated, time and again, that an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability…..” (Emphasis supplied) 80.
Therefore, the offence which has already been committed prior to the scheme does not get automatically compounded only as a result of the said scheme. Ltd., AIR 1970 SC 1041], this Court cannot accept the appellant’s contention that the scheme under Section 391 of the Companies Act will have the effect of automatically compounding the offence under the NI Act. The absence of special procedure relating to compounding, the procedure relating to compounding under Section 320 shall automatically apply in view of clear mandate of sub-section (2) of Section 4 of the Code. State of Maharashtra and others 41 reported in 2016 SCC OnLine Bom 2611, the question that arose before the Bombay High Court was whether the expression “suit or other proceedings” mentioned in Section 446(1) of the Companies Act, 1956 would include criminal proceedings under Section 138 NI Act. Hence, it follows that the provisions of section 446(1) of the Companies Act can have apparently and in essence no application to the proceedings under section 138 of Negotiable Instruments Act, as it is not a suit or proceeding having direct bearing on the proceedings for winding-up or the assets of the Company. Act can override the provisions of Companies Act, as it is a very special provision incorporated in the Negotiable Instruments Act, though the Companies Act contains certain special provisions in order to safeguard the rights of the Company under liquidation?’ Xxx xxx xxx 28.
Case Title: AJAY KUMAR RADHEYSHYAM GOENKA Vs. TOURISM FINANCE CORPORATION OF INDIA LTD. (2023 INSC 232)
Case Number: Crl.A. No.-000172-000172 / 2023
