The Supreme Court has clearly belaboured that the initiation of insolvency process for recovering a debt would not absolve an accused from criminal liability in cheque dishonour cases.
A Bench comprising of Justice Sanjay Kishan Kaul, Justice Abhay S Oka and Justice JB Pardiwala reiterated that under Section 138 of the Negotiable Instruments (NI) proceedings are not recovery or suit , but penal in character.
The majority opinion signed by Justice Kaul and Justice Oka said that Section 138 of the N.I. Act proceedings are primarily compensatory in nature and that the punitive element is incorporated only at enforcing the compensatory proceedings is unacceptable.
The bench said that the criminal liability and the fines are built on the principle of not honouring a negotiable instrument, which affects trade.
The Court had upheld a Delhi High Court order which refused to set aside a magistrate order rejecting the discharge application of the present appellant in a ₹30 crore default case.
The Bench said it disagrees with contention that if proceedings against the company under the Insolvency and Bankruptcy Code (IBC) come to an end, then a managing director cannot be proceeded against in the criminal case.
The top court was approached by the appellant contending that once the debt involved was extinguished under the IBC, the basis of Section 138 of the NI Act disappears. It was pointed out that the National Company Law Appellate Tribunal (NCLAT) had admitted the insolvency application.
The respondent-creditor counsel argued that the appellant had deliberately and with mala fide intentions given a cheque to defraud it.
The Court at the outset noted that scope of proceedings under the two Acts were quite different and do not intercede each other.
The Bench opined that possible recovery of the debt in question would not ipso facto apply ‘to the extinguishment of the criminal proceedings’. It called into question the conduct and bonafides of the appellant.
The appeal was accordingly, dismissed, but without costs, as the respondent had not filed a synopsis in the case.
Justice Pardiwala stated that the clauses in the concerned resolution plan only extinguished the liability of the corporate debtor (company), and not the individual accused.