Ajay Kumar Radheshyam Goenka Vs Tourism Finance Corporation Of India Ltd (Supreme Court)
SC held that where the proceedings under Section 138 of the NI Act had already commenced with the Magistrate taking cognizance upon the complaint and during the pendency, the company gets dissolved, the signatories/directors cannot escape from their penal liability under Section 138 of the NI Act by citing its dissolution. What is dissolved, is only the company, not the personal penal liability of the accused covered under Section 141 of the NI Act. Hon’ble SC held as under
(a) After passing of the resolution plan under Section 31 of the IBC by the adjudicating authority & in the light of the provisions of Section 32A of the IBC, the criminal proceedings under Section 138 of the NI Act will stand terminated only in relation to the corporate debtor if the same is taken over by a new management.
(b) Section 138 proceedings in relation to the signatories/directors who are liable/covered by the two provisos to Section 32A(1) will continue in accordance with law.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. I have carefully, gone through the perspicuous opinion of my esteemed brother Sanjay Kishan Kaul, J. I am entirely in agreement with the discussion contained in the said judgment on all the cardinal issues that have arisen for consideration in these proceedings. At the same time, having regard to the fact that the issues involved are of seminal importance, I am also inclined to pen down my thoughts.
2. For the sake of convenience, the Criminal Appeal No. 170 of 2023 (@ SLP (Crl) No. 417 of 2020) is treated as the lead matter.
3. This appeal by special leave is at the instance of the original accused No. 2 in a complaint lodged by the respondent herein (original complainant) for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881 (for short, ‘the NI Act’) and is directed against the order passed by the Additional Sessions Judge-02 South East District, Saket Court, New Delhi dated 23.11.2019 in the Criminal Revision Application No. 593 of 2019 by which the Additional Sessions Judge affirmed the order passed by the Metropolitan Magistrate – 09, SED dated 01.11.2019 rejecting the application filed by the appellant herein seeking discharge from the criminal proceedings i.e. Complaint Case No. 632984 of 2016 instituted by the respondent-complainant under Section 138 of the NI Act.
4. It is necessary to clarify why the appellant challenged the impugned order passed by the Additional Sessions Judge directly before this Court invoking Article 136 of the Constitution of India. In this regard, the following averments made in the synopsis are reproduced hereinbelow:
“The petitioner is directly approaching this Hon’ble Court, because the first two facets are already being considered by this Hon’ble Court, in which view, the Hon’ble High Court is not likely to entertain a quashing petition. This apart, a petition before any other court is likely to result in conflicting orders and would be an exercise in futility. The earlier matters pending before this Hon’ble Court also arose directly out of the summons issued by the concerned Learned Magistrate.”
FACTUAL MATRIX
5. The respondent herein, namely, the “Tourism Finance Corporation of India Limited” (hereinafter shall be referred to as, ‘the complainant’), had advanced a sum of Rs. 30,00,00,000/- (thirty crore) as a corporate loan to the Rainbow Papers Limited (Original Accused No. 1/corporate debtor). The appellant herein at the relevant point of time was the Managing Director of the company i.e. the corporate debtor. The transaction between the parties took place on 31.03.2012. It appears that an amount of Rs. 10.88 crore came to be repaid before the disputes arose between the parties. Sometime in 2016, the complainant issued a notice to the corporate debtor to settle the balance amount. On 16.05.2016, a complaint was lodged under Section 138 of the NI Act by the complainant against the corporate debtor and the appellant herein (Managing Director of the Corporate Debtor) for dishonour of the three cheques issued by the appellant herein for discharge of the debt in part to the tune of Rs. 57,00,000/-
(fifty-seven lakhs).
6. The aforesaid complaint under Section 138 of the NI Act was registered in the Court of the Chief Metropolitan Magistrate, Saket Court, New Delhi.
7. In 2017, one of the operational creditors filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for short, ‘the IBC’ or ‘the IBC, 2016’) before the NCLT, Ahmedabad, seeking to initiate Corporate Insolvency Resolution Process (for short, ‘the CIRP’) with respect to the corporate debtor.
8. The Insolvency application came to be admitted by the NCLT on 12.09.2017.
9. On 3.10.2017, the complainant filed its claim of Rs. 22,50,00,000/- crore (approximately) before the Interim Resolution Professional (for short, ‘the IRP’).
10. On 26.05.2018, the resolution applicant filed its resolution plan under the terms of which, the payment to the complainant was in full and final settlement of all its claims against the corporate debtor.
11. On 05.06.2018, the Committee of Creditors (for short, ‘the CoC’) approved the resolution plan proposed by the resolution applicant. The complainant was one of the members of the CoC.
12. On 23.07.2018, the complainant lodged his objections before the NCLT to the resolution plan in so far as it changed its status from secured to unsecured creditor.
13. It appears that in the meantime, the appellant preferred an application before the trial court seeking exemption from his personal appearance invoking a moratorium under Section 14 of the IBC. The Magistrate vide order dated 12.11.2018 rejected the said application on the ground that the criminal proceedings under the NI Act had nothing to do with the proceedings under the IBC.
14. On 27.02.2019, the NCLT approved the resolution plan so far as the corporate debtor is concerned.
15. As the resolution plan came to be approved by the NCLT, the appellant herein filed an application dated 20.07.2019 before the trial court, praying that he be discharged from the criminal proceedings. The case of the appellant herein before the Magistrate was that as the debt stood settled in the proceedings under the IBC, the criminal proceedings would not survive.
16. The trial court vide order dated 01.11.2019 rejected the aforesaid application essentially on the ground that it had no jurisdiction to discharge an accused in a summons triable case.
17. In view of the aforesaid, the appellant herein filed the Criminal Revision Application No. 593 of 2019 before the Additional Sessions Court, challenging the order passed by the Magistrate dated 01.11.2019 referred to above. The appellant contended before the revisional court that as the debt in connection with which the criminal proceedings had been initiated, formed part of the approved resolution plan the outstanding debt under the NI Act could be said to have stood settled.
18. The Additional Judge vide the impugned order dated 23.11.2019 rejected the Revision Application.
19. In such circumstances, referred to above, the appellant is here before this Court with the present appeal.
THE SUBMISSIONS ON BEHALF OF THE APPELLANT
20. Nikhil Goel, the learned counsel appearing for the appellant made the following submissions:
A. The trigger of Section 138 of the NI Act, is the non-payment of legally enforceable debt. Once the debt itself gets extinguished either under Section 31 of the IBC or in the process from Sections 38 to 41 and 54 resply of the IBC, the basis of Section 138 of the NI Act no longer remains. The term debt would mean the ‘legally enforceable debt’ under the explanation to Section 138 of the NI Act. This may be read with Section 2(6) & 2(8) resply of the IBC.
B. The liability is primarily of the company and prosecution of natural persons under Section 141 of the NI Act is vicarious to the prosecution of the company. It is for this reason that a director cannot be prosecuted without making the company as an accused. [See Ajit Balse v. Ranga Karkere: (2015) 15 SCC 748.]
C. The nature of proceedings under Section 138 of the NI Act is primarily compensatory and the punitive element is incorporated at enforcing the compensatory provisions. (paras 53 & 63 resply in Mohanraj and Others v. Shah Brothers Ispat Private Limited reported in (2021) 6 SCC 258). Therefore, once recovery is made, partly by receipt of money and partly by waiver, Section 138 of the NI Act should not be permitted to be continued.
D. If the debt of the company is resolved then payments would be governed under the resolution plan. If the debts are not resolved then the assets of the company are to be distributed in terms of Section 53 of the IBC. Permitting two proceedings to continue would therefore defeat either Section 31 or Section 53 of the IBC, as the case may be.
E. Goel submitted that this Court in P. Mohanraj (supra) considered the position of law as regards the continuation of the criminal proceedings under Section 138 of the NI Act vis-a-vis the proceedings under the IBC and answered the same in para 102 of the judgment. It was pointed out by Mr. Goel that this Court drew a fine distinction between the corporate debtor and natural persons & ultimately held that while a corporate debtor would be protected from Section 138 proceedings during the period of moratorium, the natural persons would not enjoy such protection and Section 138 proceedings would continue against the natural persons. However, according to Mr. Goel, this Court may not go in the correctness of such bifurcation as in the case on hand, the proceedings are beyond the period of moratorium. Mr. Goel pointed out that the question framed in para 6 of the decision in P. Mohanraj (supra) is restricted only to the applicability of Section 14 of the IBC to the proceedings under Section 138 of the NI Act.
F. The principal argument of Mr. Goel is that if the IBC proceedings have travelled beyond Section 14, the process would either lead to acceptance of a resolution plan under Section 31 of the IBC or liquidation of the company after determination of the claims under Chapter III of the IBC. According to Mr. Goel, Section 31 of the IBC is applicable to the present litigation.
21. In such circumstances referred to above, Mr. Goel prays that there being merit in his appeal, the same may be allowed and the appellant may be discharged from the criminal liability under Section 138 of the NI Act.
THE SUBMISSIONS ON BEHALF OF THE RESPONDENT (COMPLAINANT)
22. On the other hand, this appeal has been vehemently opposed by Mr. Rajiv Ranjan Dwivedi, the learned counsel appearing for the complainant by submitting that in the case on hand, the criminal proceedings under the NI Act were initiated much before the proceedings under the IBC came to be initiated. In other words, cognizance was taken by the learned Magistrate upon the complaint filed under Section 138 of the NI Act much before the scheme came to be approved under the IBC. He would submit that the offence alleged to have been committed by the appellant herein prior to the scheme would not get automatically compounded only as a result of the said scheme. He would further submit that none of the provisions of the IBC bars the continuation of the criminal prosecution initiated against the corporate debtor or its directors or officials. According to the learned counsel, if the company is dissolved as a result of the resolution process, the criminal proceedings against it would stand terminated, however, the signatory to the cheque or its erstwhile directors are not entitled in law to take advantage of such a situation created by operation of law.
23. The learned counsel appearing for the complainant, laid much stress on Section 32A of the IBC, which states that every person who was a ‘designated partner’ or an ‘officer who is in default’ or was in any manner in charge of/responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence in accordance with the report submitted or complaint filed by the investigating authority shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor’s liability has ceased under the provision of Section 32A of the IBC.
24. In such circumstances, referred to above, the learned counsel prays that there being no merit in the present appeal, the same may be dismissed.
ANALYSIS
25. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the seminal question of law that falls for the consideration of this Court may be formulated as under:
Whether in light of:
(i) the complainant having participated in the proceedings under the IBC, 2016 by putting forward its claim and consenting to accept some share as a creditor; coupled with
(ii) the approval of the resolution plan under Section 31 of the IBC, 2016; the signatory/director in charge of the day-to-day affairs would stand discharged/relieved from the penal liability under Section 138 of the NI Act?
26. Before adverting to the rival submissions canvassed on either side, it is necessary to look into few relevant provisions of the NI Act as well as IBC, 2016.
27. Section 138 of the NI Act reads thus:
“138. Dishonour of cheque for insufficiency, etc., of funds in the account.—
Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless—
(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
Explanation.— For the purposes of this section, “debt of other liability” means a legally enforceable debt or other liability.”
28. Section 139 of the NI Act raises presumption. The same reads thus:
“139. Presumption in favour of holder.— It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability.”
29. Section 141 of the NI Act fastens vicarious liability upon every person, who at the time of the offence, was in charge of and was responsible to the company for the conduct of the business of the company. Section 141 reads thus:
“141. Offences by companies.— (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:
Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.
(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Explanation.— For the purposes of this section, —
(a) “company” means any body corporate and includes a firm or other association of individuals; and
(b) “director”, in relation to a firm, means a partner in the firm.”
30. Section 142 of the NI Act is in regard to the cognizance of offence. The same reads thus:
“142. Cognizance of offences.— (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),
(a) no court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque;
(b) such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138:
Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period.
(c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138.
(2) The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction,—
(a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or
(b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated.
Explanation.— For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account.”
31. Section 147 of the NI Act provides that the offence under the NI Act shall be compoundable. Section 147 reads thus:
“147. Offences to be compoundable.— Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), every offence punishable under this Act shall be compoundable.”
32. The offence under Section 138 of the NI Act, is committed, after the conditions set out therein are fulfilled. Thereafter, the payee of the cheque has the option of prosecuting the drawer of the cheque by instituting a complaint under Section 200 of the Code of Criminal Procedure, 1973 (for short, ‘the CrPC’) before the jurisdictional criminal court. After cognizance of the offence is taken, the criminal court is seized of the matter. The case will have to be disposed of in terms of the provisions set out in the CrPC. If the complainant fails to turn up on any hearing date, the Magistrate can invoke Section 256 of the CrPC and acquit the accused. Under Section 257 of the CrPC, the complaint can be withdrawn at any point of time before the final order is passed. Under Section 147 of the NI Act the offence can be compounded. The case may end in acquittal or conviction at the conclusion of the trial.
33. Section 141 of the NI Act states that if the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. The expression “as well” is occurring in Section 141 of the NI Act. This expression means “on par”. Therefore, the liability of such persons in charge of and responsible to the company for the conduct of its business is thus co-extensive.
SCHEME OF THE IBC, 2016
34. I shall now try to understand the scheme of the IBC.
35. It is a comprehensive Code enacted, as the Preamble states, to “consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto”.
36. The Statement of Objects and Reasons of the IBC indicates that the Legislature was of the opinion that the existing framework for insolvency and bankruptcy was inadequate and ineffective and resulted in undue delays in resolution. The IBC was proposed with the objective of consolidating and amending the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of the value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders, including alteration in the priority of payment of Government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. The IBC provides for designating the NCLT and the Debts Recovery Tribunal (DRT) as the adjudicating authorities for corporate persons, firms and individuals for resolution of insolvency, liquidation and bankruptcy. The IBC was published in the Gazette of India dated 28.05.2016. Provisions of the IBC were, however, brought into effect from different dates in terms of the proviso to Section 1(3) of the IBC.
37. Section 7 of IBC lays down the procedure for the initiation of the corporate insolvency resolution process by the financial creditor or any other person or more financial creditors jointly. The financial creditor may file an application before the adjudicating authority along with the proof of default and the name of a resolution professional proposed to act as the interim resolution professional in respect of the corporate debtor. Once the adjudicating authority is satisfied, as to the extent of the default and is ensured that the application is complete and no disciplinary proceedings are pending against the proposed resolution professional, it shall admit the application.
38. Section 8 of the IBC provides that an operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debt or copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed.
39. Section 9 of the IBC stipulates that after the expiry of the period of 10 days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of Section 8 if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of Section 8, it would be open for the operational creditor to file an application before the adjudicating authority for initiating a corporate insolvency resolution process.
40. After the initiation of the CIRP the following takes place:
(a) All the creditors are mandatorily required to put forward their claims before the CIRP in light of the public announcement.
(b) In the aforesaid context, I must look into Sections 13 and 15 resply of the IBC. Sections 13 and 15 resply are reproduced hereinbelow:
“13. Declaration of moratorium and public announcement.— (1) The Adjudicating Authority, after admission of the application under section 7 or section 9 or section 10, shall, by an order—
(a) declare a moratorium for the purposes referred to in section 14;
(b) cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims under section 15; and
(c) appoint an interim resolution professional in the manner as laid down in section 16.
(2) The public announcement referred to in clause (b) of subsection (1) shall be made immediately after the appointment of the interim resolution professional.
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