Whether a criminal complaint preferred u/s 138 of the Negotiable Instrument Act can be stayed, if an order of Moratorium is passed u/s 14 of the Insolvency and Bankruptcy Code, 2016?

1. Whether a criminal complaint preferred u/s 138 of the Negotiable Instrument Act can
be stayed, if an order of Moratorium is passed u/s 14 of the Insolvency and
Bankruptcy Code, 2016?
Section 14(1) of the Insolvency Bankruptcy Code, 2016 (IBC) reads as under...
14. (1) Subject to provisions of sub­sections (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 Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 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.
Section 33(5) of the IBC reads as under...
Subject to section 52, when a liquidation order has been passed, no suit or
other legal proceeding shall be instituted by or against the corporate
debtor.
Provided that a suit or other legal proceeding may be instituted by the
liquidator, on behalf of the corporate debtor, with the prior approval of the
Adjudicating Authority.
Section 446(1) of the Companies Act, 2013 provides as under...
When a winding up order has been made or the Official Liquidator has
been appointed as provisional liquidator, no suit or other legal proceeding

2. shall be commenced or if pending at the date of the winding up order, shall
be proceeded with, against the company, except by leave of the Court and
subject to such terms as the Court may impose.
In section 14(1)(a) of the IBC words 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 have been used. Whereas under Section 33(5) words suit or other
legal proceeding shall be instituted by or against the corporate debtor have been used. And;
under Section 446(1) of the Companies Act words no suit or other legal proceeding shall be
commenced or if pending at the date of the winding up order, shall be proceeded with, against
the company have been used. Simple reading of these Sections leads to the serious
confusion. Therefore, this confusion has to be resolved by taking into consideration ratio
laid down by the High Courts and NCLAT.
Hon’ble Delhi High Court in Power Grid Corporation Of India Ltd v/s. Jyoti
Structures Ltd., 2017 SCC Online Delhi 12189 has interpreted terms “proceedings”
“including” and “against the corporate debtor” used under Section 14 as under:
14. Hence for following reasons I conclude the present proceeding would
not be hit by the embargo of Section 14(1)(a) viz.,
(a) ‘proceedings’ do not mean ‘all proceedings’;
(b) moratorium under section 14(1)(a) of the code is intended to prohibit
debt recovery actions against the assets of corporate debtor;
(c) continuation of proceedings under section 34 of the Arbitration Act
which do not result in endangering, diminishing, dissipating or adversely
impacting the assets of corporate debtor are not prohibited under section
14(1)(a) of the code;
(d) term ‘including’ is clarificatory of the scope and ambit of the term
‘proceedings’;
(e) the term ‘proceeding’ would be restricted to the nature of action that
follows it i.e. debt recovery action against assets of the corporate debtor;
(f) the use of narrower term “against the corporate debtor” in section
14(1)(a) as opposed to the wider phase “by or against the corporate

3. debtor” used in section 33(5) of the code further makes it evident that
section 14(1)(a) is intended to have restrictive meaning and applicability
(g) the Arbitration Act draws a distinction between proceedings under
section 34 (i.e. objections to the award) and under section 36 (i.e. the
enforceability and execution of the award). The proceedings under section
34 are a step prior to the execution of an award. Only after determination
of objections under section 34, the party may move a step forward to
execute such award and in case the objections are settled against the
corporate debtor, its enforceability against the corporate debtor then
certainly shall be covered by moratorium of section 14(1)(a).
In the case of Indorama Synthetics India Ltd. v/s. State of Maharashtra, 2016 SCC
Online Bom 2611 Hon'ble Division Bench of Bombay High Court while considering a similar
provision contained in sub­section (1) of section 446 of the Companies Act it has
interpreted the words ‘Suit or other proceeding’ contained in Section 446(1) of the
Companies Act and held that ‘Suit or other proceeding’ does not include a criminal
complaint filed under section 138 of the N.I. Act.
Hon’ble Bombay High Court in the matter of Tayal Cotton Pvt. Ltd. v/s. State of
Maharastra, 2018 SCC Online Bom 2069 interpreted the clause (a) of Section 14 (1) that
word ‘proceedings’ used therein and even the words ‘order’ and ‘in Court of law’ will have
to be interpreted as a proceeding arising in the nature of a suit and orders passed in such
proceedings and suits. Apart from the fact that the Legislature has not conspicuously used
the words ‘criminal’ as an adjective to the word ‘proceedings’ and as an adjective to the
noun Court of law, it must be assumed that the Legislature in its wisdom has consciously
omitted to use such adjectives since it must have intended to prohibit only the suits and
execution of the judgments and decrees or a proceeding of the like nature. Therefore,
applying the principle of interpretation, one cannot put any other interpretation on this
provision contained in Section 14 of the Code except that it only prohibits a suit or a
proceeding of a like nature and does not include any criminal proceeding.
In view of the above referred ratios, it appears that section 14 of the IBC is not
applicable to the criminal proceeding or any penal action taken pursuant to the criminal
proceeding or any act having essence of crime or crime proceeds:

4. In the matter of Varrsana Ispat Limited v/s. Deputy Director Directorate of Enforcement,
NCLAT held that the Prevention of Money Laundering Act, 2002 relates to proceeds of crime
and the offence relates to money­laundering resulting confiscation of property derived from,
or involved in, money laundering and for matters connected therewith or incidental
thereto. Thus, as the Prevention of Money Laundering Act, 2002 or provisions therein
relates to proceeds of crime, the Section 14 of the Code is not applicable to such proceeding.
The same view has been taken in the matter of Shah Brothers Ispat Pvt. Ltd. v/s. P.
Mohanraj & Ors. where NCLAT held that as Section 138 the Negotiable Instrument Act,
1881 is a penal provision, which empowers the court of competent jurisdiction to pass
order of imprisonment or fine, which cannot be held to be proceeding or any judgment or
decree of money claim. Imposition of fine cannot held to be a money claim or recovery
against the Corporate Debtor nor order of imprisonment, if passed by the court of
competent jurisdiction on the Directors, they cannot come within the purview of Section
14. In fact no criminal proceeding is covered under Section 14 of Code.
Another argument that may be raised, praying stay of the criminal proceedings is, if
as held in the above referred ratios that ‘Suit or other proceeding’ contained in Section 14
of the IBC does not include a criminal complaint filed under section 138 of the N.I. Act and
same is allowed to be continued what is going to be the effect is the case is resulted into
conviction. In this circumstance, Company can be ordered to pay fine or compensation, if
fine is not imposed on it. Company cannot be ordered to undergo sentence. Whereas the
director/s of the company can be directed to undergo sentence and pay fine or can be
directed to undergo sentence and pay compensation or can be directed to undergo sentence
and pay fine and out of the fine amount, convict director/s is/are may be ordered to pay
compensation. In such cases, the company has to pay fine or compensation, if fine is not
imposed on it. Director/s is/are not personally held responsible but under the tortious
liability director/s has/have been convicted. Obvious under such circumstance the
defaulting company will have to pay amount of fine and/or compensation and director/s
is/are not going to make payment of the fine and/or compensation out of his/their pocket.
That is so, same will trigger Section 14 of the IBC.
This argument shall also not make good in view if the ratio laid down in he case of
BSI Ltd. v/s. Gift Holding (P) Ltd., 2000 (2) SCC 737 wherein it has been held that such
contention is premature and far­fetched as the occasion to realise fine from accused
Company or Director will arise only in case they are convicted and sentenced of fine is

5. imposed on them.
Hon'ble Supreme Court in the case of BSI Ltd. (supra) while interpreting Section 22
of the Sick Indusrtila Companies (Special Provisions) Act, 1985 (SICA) which para materia
to Section 14(1)(a) of the IBC has observed that, section 22 of the SICA only deals with
proceedings for recovery of money or for enforcement of any security or a guarantee in
respect of any loans or advance granted to the company and a proceedings for winding up
of the company. The section does not refer to any criminal proceeding and pendency of
proceeding under Section 22(1) of SICA alone is not sufficient to get absolved from the
liability under Section 138 of the NI Act. It is further held that Section 22 of the SICA does
not create any legal impediment for instituting and proceeding with a criminal case on the
allegations of an offence under Section 138 of the NI Act against a company or its
Directors. Section 22 of the SICA creates an embargo against disposal of assets of the
company for recovery of its debts. The purpose of such an embargo is to preserve the assets
of the company from being attached or sold for realisation of dues of the creditors. The
section does not bar payment of money by the company or its directors to other persons for
satisfaction of their legally enforceable dues.
At this stage reference is required to made to ratio laid down in the case of Kusum
Ingots & Alloys Ltd. v/s. Pennar Peterson Securities Ltd., 2000 (2) SCC 745. Hon'ble
Supreme Court while interpreting Section 22­A of the SICA which para materia to Section
14(1)(b) of the IBC has observed as under...
The question that remains to be considered is whether Section 22­A of SICA
affects a criminal case for an offence under Section 138 NI Act. In the said
section provision is made enabling the Board to make an order in writing to
direct the sick industrial company not to dispose of, except with the consent
of the Board, any of its assets ­ (a) during the period of preparation or
consideration of the scheme under Section 18; and (b) during the period
beginning with the recording of opinion by the Board for winding up of the
company under sub­section (1) of Section 20 and up to commencement of
the proceedings relating to the winding up before the concerned High Court.
This exercise of the power by the Board is conditioned by the prescription
that the Board is of the opinion that such a direction is necessary in the

6. interest of the sick industrial company or its creditors or shareholders or in
the public interest. In a case in which the BIFR has submitted its report
declaring a company as 'sick' and has also issued a direction under Section
22­A restraining the company or its directors not to dispose of any of its
assets except with consent of the Board then the contention raised on behalf
of the appellants that a criminal case for the alleged offence under Section
138 NI Act cannot be instituted during the period in which the restraint
order passed by the BIFR remains operative cannot be rejected outright.
Whether the contention can be accepted or not will depend on the facts and
circumstances of the case. Take for instance, before the date on which the
cheque was drawn or before expiry of the statutory period of 15 days after
notice, a restraint order of the BIFR under Section 22­A was passed against
the company then it cannot be said that the offence under Section 138 NI Act
was completed. In such a case it may reasonably be said that the
dishonouring of the cheque by the bank and failure to make payment of the
amount by the company and/or its Directors is for reasons beyond the
control of the accused. It may also be contended that the amount claimed by
the complainant is not recoverable from the assets of the company in view of
the ban order passed by the BIFR. In such circumstances it would be unjust
and unfair and against the intent and purpose of the statute to hold that the
Directors should be compelled to face trial in a criminal case.
If the ratio laid down in the case of Kusum Ingots And Alloys Ltd. (supra) is taken
into consideration, it leads us to the conclusion that, if before the date on which the cheque
was drawn or before expiry of the statutory period of 15 days after notice, an order under
Section 14 of the IBC was passed against the company then it cannot be said that the
offence under Section 138 NI Act was completed. In such a case it may reasonably be said
that the dishonouring of the cheque by the bank and failure to make payment of the
amount by the company and/or its Directors is for reasons beyond the control of the
accused. It is also to be noted that the amount claimed by the complainant is not
recoverable from the assets of the company in view of the moratorium order passed u/s 14
of the IBC. In such circumstances it would be unjust and unfair and against the intent and
purpose of the statute to hold that the Directors should be compelled to face trial in a
criminal case.