Richa Infrastructure Limited engaged in the construction of roads is in default in repayment of loans due to general slowdown in construction industry. Repeated follow-up by the financial institutions with the Corporate

CS Professional · Insolvency - Law and Practice · PYQS · December 2019
Richa Infrastructure Limited engaged in the construction of roads is in default in repayment of loans due to general slowdown in construction industry. Repeated follow-up by the financial institutions with the Corporate Debtor, 'Richa Infrastructure Ltd.' for submitting its specific plan for repayment of dues did not evoke any response. One of the financial creditors filed a case against Richa Infrastructure Ltd. before the Debt Recovery Tribunal. Richa Infrastructure Ltd. had issued some cheques to some Operational Creditors. All the cheques issued to creditors were dishonored/returned by the banker due to insufficient funds in the account. Consequently, Operational Creditors issued legal notices to Richa Infrastructure Ltd, with clear intimation that if due amount is not paid within 15 days from the date of receipt of legal notice, criminal complaint shall be filed against Richa Infrastructure Ltd. under the Negotiable Instrument Act, 1881 and criminal complaints were filed. After a joint lenders meeting, all the financial institutions unanimously decided to apply under the provisions of the Insolvency and Bankruptcy Code, 2016 to the National Company Law Tribunal (NCLT) for starting the process of Insolvency Resolution. Their application was admitted by NCLT on 30th June, 2018 and orders were issued for commencement of a moratorium period of 180 days, appointment of an Interim Resolution Professional and issue of public announcement inviting claims from all concerned. After public announcement and the responses thereto, following details were brought out: (1) Financial debts due to unsecured creditors (F1) - ₹15 Crores. (2) Workmen's due for the period of 24 months preceding the liquidation commencement date (F2) - ₹25 Crores. (3) Debts due to a secured creditor who has relinquished his security (F3) - ₹30 Crores. (4) Amount due to the Central Government (F4) - ₹27 Crores. (5) Debts due to a secured creditor after the enforcement of security interest (F5) - ₹36 Crores. Insolvency Resolution Professional (IRP) approached the promoters, directors and officials of Richa Infrastructure Ltd to provide the necessary information, documents, statutory records, books of accounts to verify the claims filed by creditors. The promoters, directors and officials of Richa Infrastructure Ltd. ignored the request of Resolution Professional. M/s ANG & Associates, Chartered Accountants were the Statutory Auditors of Richa Infrastructure Ltd. They audited the accounts for the financial year end March, 2018 of Richa Infrastructure Ltd. and submitted the Annual Accounts for approval of the Board of Directors. The Resolution Professional has appointed valuers and has received the valuation reports. The Resolution Professional then started the efforts to get resolution proposals. However during the normal resolution process period of 180 days, no resolution proposal could be finalized. The Committee of Creditors decided that Resolution Professional should get the extension as per the provisions of Insolvency and Bankruptcy Code, 2016. Based on the above facts, answer the following questions: Can criminal proceedings under Section 138 of Negotiable Instrument Act, 1881 continue even after initiation of Corporate Insolvency Resolution Process ? Examine the issue by referring to decided case law, if any.

Answer & Explanation:

Section 14(1) of the Insolvency and Bankruptcy Code, 2016 prohibits, inter alia , 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. From the provision and the words used therein, it becomes clear that the prohibition is not applicable to criminal proceedings which can continue to be pursued. The proceedings under Section 138 of the Negotiable Instruments Act, 1881 can thus continue even after initiation of CIRP. In the appeal of 'Shah Brothers Ispat (P) Ltd. Vs. P. Mohanraj' before the NCLAT, the very same question arose for consideration. The question was whether the order of moratorium covers a criminal proceeding under Section 138 of the Negotiable Instruments Act, 1881 which provides punishment of imprisonment or imposition of fine. It was held that the court of competent jurisdiction may proceed with the proceeding under Section 138 of Negotiable Instruments Act, 1881 even during the period of moratorium. It is pertinent to note that Section 14 of the Insolvency and Bankruptcy Code, 2016 prohibits any proceeding or judgment or decree of money claim against the Corporate Debtor after the order of moratorium which is passed on the insolvency commencement date. The Appellate Tribunal observed that Section 138 is a penal provision. The imposition of a fine cannot be held to be a money claim or recovery against the Corporate Debtor. As such the said section is not covered within the purview of Section 14 of the Insolvency and Bankruptcy Code, 2016. In fact, no criminal proceeding is covered under section 14 of the Code.

Topics: Corporate Insolvency Resolution Process (CIRP)

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