Upon commencement of the Corporate Insolvency Resolution Process (CIRP) in ABC Ltd. under IBC, a complaint was found to be pending under section 138 of the Negotiable Instruments Act, 1881 against Mr. X, Chairman and Man

Section 14 of the Insolvency & Bankruptcy Code details the moratorium protection given to the corporate debtor. The entire period of corporate insolvency resolution professional is covered under this moratorium, during which all suits, legal proceedings, and recovery actions against the corporate debtor are held in abeyance to give time to the corporate debtor to resolve its status. However, the proceeding in moratorium do not include criminal prosecution. In Mr. Ajay Kumar Bishnoi Vs. M/s Tap Engineering and Other [Criminal Original Petition No. 34996 of 2019) , the corporate debtor underwent insolvency resolution while a complaint was pending under section 138 of the Negotiable Instruments Act, 1881. Further, during this time, a resolution plan for the corporate debtor was approved with a change in management and control. The Managing Director (MD) of the erstwhile corporate debtor sought to quash the prosecution under section 138 in view of the approval of the resolution plan. The High Court confirmed that the moratorium under section 14 of the IBC prohibits proceedings, but such proceedings do not include criminal prosecution. In Alchemist Asset Reconstruction Company Limited Vs. Hotel Gaudavan Private Limited [(2018) 16 SCC 94] , the Supreme Court affirmed that once a moratorium is imposed under the IBC, any proceeding initiated against the corporate debtor is non-est (does not exist) in law. The Hon'ble Supreme Court in the case of P. Mohanraj & Ors vs Shah Brothers Ispat Pvt. Ltd. [AIR 2021 SC 1308] was concerned with the question whether the institution or continuation of a proceeding under Section 138 of Negotiable Instruments Act, 1881 for dishonor of cheque can be said to be covered by the moratorium provision under Section 14 of the IBC. The Supreme Court after exhaustively dealing with various provisions of the IBC and the judicial precedents, authoritatively held that the proceedings under Section 138 of NI Act against the corporate debtor were covered by Section 14(1)(a) of the IBC. In essence, the Supreme Court held that during the subsistence of the moratorium period as envisaged under Section 14 of the IBC, the proceedings for cheque dishonor, which are quasi-criminal in nature, would be liable to be stayed. One of the reasons for such a finding was that in a proceeding for dishonor of cheques, the corporate debtor, if convicted, may be directed to pay compensation which can amount to twice the amount of the cheque which has bounced. Accordingly, payment of such compensation would in fact lead to depletion of the assets of the corporate debtor thereby directly impacting the corporate insolvency resolution process. One clarification provided by the Supreme Court in the above case was that though the moratorium would be applicable to the corporate debtor but that would not absolve the directors/persons in charge of and responsible for the conduct of the business of the corporate debtor from being prosecuted for the offence of dishonor of cheque. The Hon'ble Supreme Court in the matter of Ajay Kumar Radheyshyam Goenka vs tourism Finance Corporation of India [MANU/SC/0244/2023] was concerned with a case where the managing director of a company (for which the resolution plan was approved by the NCLT) sought to seek his discharge from the proceedings under section 138 of the Negotiable Instruments Act. The seminal question of law framed by the Supreme Court was whether after the approval of the resolution plan of the corporate debtor, the managing director who signed the cheque, would stand discharged from the penal liability under Section 138 of the NI Act. The Supreme Court answered the question in the negative and held that the person who signed the cheque would continue to remain liable for the offence. Another pertinent observation made by the Court was as under- "... 16.. In fact, a bare reading of Section 14 of IBC would make it clear that the nature of proceedings which have to be kept in abeyance do not include criminal proceedings, which is the nature of proceedings under Section 138 of the N.I. Act..." In view of the above, Mr. X will not be able to get the prosecution quashed under Section 14 of IBC.