IBC Proceedings Don’t Shield Directors from Cheque Bounce Prosecution: SC

Abhaykumar Anandkumar Bhambore & Anr. Vs Ortho Relief Hospital And Research Centre & Anr. (Supreme Court of India)

The dispute arose from a complaint under Section 138 of the Negotiable Instruments Act, 1881, filed after a cheque issued towards repayment of a ₹15 lakh loan was dishonoured. The cheque, issued by a director on behalf of a company, was returned unpaid on 14.12.2018, and a complaint was subsequently filed on 18.02.2019. Prior to this, insolvency proceedings had already been initiated against the company under the Insolvency and Bankruptcy Code, 2016 (IBC), with a moratorium imposed and later liquidation ordered.

The Trial Court discharged the directors on the ground that, post-liquidation, they ceased to hold their positions and could not be held liable. However, the High Court set aside this discharge, holding that proceedings under Section 138 of the NI Act are independent of insolvency proceedings under the IBC and can continue despite such proceedings.

The central issue before the High Court was whether prior initiation of insolvency proceedings under the IBC would bar or frustrate proceedings under Section 138 of the NI Act. The Court examined multiple Supreme Court rulings, including those clarifying the scope of Sections 14 and 32A of the IBC. It noted that while Section 14 imposes a moratorium on proceedings against the corporate debtor, this protection is limited to the company and does not extend to natural persons such as directors.