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Acceptance Of Corporate Insolvency Resolution Not A Ground To Quash Case Under Sec 138 NI Act

In Crl OP(MD)No.34996 of 2019, Mr.Ajay Kumar Bishnoi, Former Managing Director M/s.Tecpro Systems Ltd., vs M/s.Tap Engineering, application was filed before the Madras High Court to quash the application under Section 138 of the Negotiable Instruments Act, 1881 pending before the Fast Track Court -IV Magistrate as illegal, invalid and non est in the eyes of law and consequently direct the respondent/complainant to pursue their remedies as per the provision of Insolvency and Bankruptcy Code, 2016.

In this matter, eight cheques were issued by the applicant which bounced and on issued with a demand notice by the defendant, only partial payment was made. The defendant then filed complaint under under Section 138 r/w 141 of the Negotiable Instruments Act, 1881 was taken and summons were issued naming Tecpro Systems Limited was shown as the first accused and petitioner herein was shown as the second accused.

During the pendency of these complaints, Tecpro Systems Limited came under Corporate Insolvency Resolution Process following which resolution plan was accepted which planned for a change of management. The defendant was recognised as one of the operational creditor.

The petitioner's contention is that in view of the acceptance of the resolution plan by the Tribunal and the change in management, the impugned prosecution against the petitioner under Section 138 of the Negotiable Instruments Act, 1881 is liable to be quashed since according to the petitioner the resolution plan clearly states that all the outstanding negotiable instruments issued by the company or by any persons/entities on behalf of the company prior to the insolvency commencement date including demand promissory notes, cheques and letters of credit, shall stand terminated and the liability of the company and its current employees under such instruments shall stand extinguished and all the legal proceedings relating thereto shall stand irrevocably and unconditionally abated. The petitioner claimed that he cannot defend himself or conduct the case before the trial Court as he does not have access to any of the company records. Further, the cheques in question were not issued in the personal individual capacity of the petitioner. In fact, the cheques were issued by the authorized signatory. Therefore, no penal liability can be fastened on the petitioner herein. He also contended that the Insolvency and Bankruptcy Code, 2016 is a self contained enactment which has an overriding effect over other laws. Therefore, continuation of the impugned prosecution would only amount to an abuse of legal process. He, therefore, called upon this Court to quash the impugned proceedings.

The Madras High Court, referring to various judgments held that Section 233 of Insolvency and Bankruptcy Code, 2016 which protects action taken in good faith under the Code or the Rules or Regulations made thereunder employs the expression “no suit, prosecution or other legal proceeding”. But, in Section 14 the expression “suits or proceedings” alone is found. The expression “prosecution” is conspicuously absent in Section 14. When the legislature consciously included the expression “prosecution” elsewhere in the Code and omits it in Section 14 of the Code, the court decided that the omission is deliberate and intentional. The legislature did not intend to bar criminal prosecution even though moratorium has been declared.

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