Summary: Article examines the interplay between moratorium provisions under Part III of the Insolvency and Bankruptcy Code, 2016 (IBC) and criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). In Dineshchand Surana v. UCO Bank (2026) 193 SCC 325; (2026) 186 taxmann.com 1078 (Supreme Court), the Supreme Court considered whether proceedings under Section 138 are legal actions for recovery of money, whether they are protected by the moratorium under Part III of the IBC, and whether directors liable under Section 141 of the NI Act receive moratorium protection during personal insolvency. The Court observed that the criminal aspect of Section 138 proceedings should not be protected by moratorium, while the compensatory aspect may be subject to the moratorium. It also considered the effect of Sections 96, 101, 124 and 128 of the IBC and the liability of directors. The matter was referred to an appropriate three-Judge Bench for authoritative consideration of whether Section 138 is quasi-criminal with a tilt towards the criminal side and whether the IBC moratorium applies to the entire Section 138 proceedings or only their compensatory aspect. The article also refers to Amarjeet Singh v. Hardeep Singh (2026) 188 taxmann.com 1069 (Delhi), where the Delhi High Court held that interim moratorium under Section 96 does not bar criminal proceedings under Section 138.
Courts on Moratorium under IBC and Section 138 of NI Act
In one of the recent judgments of Apex Court, it has been held that provisions relating to moratorium under section 96 (Part III) of Insolvency and Bankruptcy Code, 2016 (IBC, 2016) can not be made applicable to criminal impact of section 138 of Negotiable Instruments Act, 1881 (NI Act) dealing with dishonor of cheque for insufficiency etc of funds in the account.
In Dineshchand Surana v. UCO Bank (2026) 193 SCC 325; (2026) 186 taxmann.com 1078 (Supreme Court), it has been held that interim moratorium provisions of IBC, 2016 cannot be made applicable on criminal impact of section 138 of Negotiable Instruments Act, 1881. The court concluded that:
a. Moratorium under part III of IBC is applicable only to compensatory aspect of Section 138 proceedings, i.e., recovery of compensation, and not to criminal aspect.
b. Moratorium under Sections 96 and 101 of the IBC respectively is applicable on director(s) who are saddled with liability to discharge compensatory obligation of company by virtue of use of words “any debt” therein.
c. Moratorium under Sections 124 and 128 of IBC would also stay any suit or legal proceedings against properties of debtor, instituted with purpose of enforcement of bankruptcy debt.
d. Since matter required comprehensive consideration and an authoritative pronouncement, it was to be placed before Chief Justice of India to constitute an appropriate three-Judge Bench.
Issues before Court
The Apex Court identified the following issues to be addressed:
a. Whether the proceedings under Section 138 of the NI Act are in the nature of legal action for recovery of money?
b. Whether the proceedings under Section 138 of the NI Act are protected during the moratorium period provided under Part III of the IBC?
c. Whether director(s) liable under section 141 of the NI Act would enjoy the benefit of moratorium in respect of Section 138 proceedings, while undergoing personal insolvency?
Observations and Findings
The apex court observed that:
1. The expression “legal action or proceeding in respect of any debt” ought to be read in a manner that is consistent with the objective of the penal provisions in the NI Act.
2. The expression any “legal action or proceeding” when read stand alone would undoubtedly include proceedings under section 138 of the NI Act. A reading of the said expression with the qualifier “in respect of any debt” would also not exclude Section 138 proceedings considering that the dishonoured cheque thereunder must be drawn for the payment in whole or in part, of any legally enforceable debt or liability.
3. The proceedings under section 138 of the NI Act should not receive protection of moratorium because the predominant nature of the offence of cheque dishonour is criminal.
4. To make moratorium provisions under the IBC applicable on proceedings under section 138 of the NI Act, solely because of the civil nature of the injury is untenable in light of the objective sought to be achieved by the enactment of Section 138.
5. Section 138 cannot be stayed by way of sections 96 and 101 of the IBC respectively. If the protection of moratorium is granted to the persons accused of cheque dishonour, it would tantamount to allowing evasion of Criminal liability. Allowing the said criminal aspect to be stayed by the moratorium provisions under Part III of the IBC would cause violence to the language and intent of section 138 of the NI Act.
6. The moratorium under sections 96 and 101 of the IBC respectively, should not place an embargo on the criminal aspect of cheque bounce proceedings. However, extending such interpretation to the compensatory aspect thereof would undermine the objective underlying the moratorium provisions, that is the individual undergoing insolvency should be given breathing space to restructure hi liabilities and there should not be depletion of his assets in the meantime.
7. Once the criminal court exercising jurisdiction over a complaint under section 138, orders compensation under section 395 of the BNSS, then the moratorium would be made applicable if the recovery of compensation remains pending.
8. After the sentence of punishment has been imposed on the director(s) of the company, the order of final compensation under section 395 of the BNSS can be imposed on the director(s) as well, especially in the absence of the company as an accused person due to a legal impediment.
9. Any debt includes all such liabilities which the debtor might not have personally incurred but the onus of repayment of the same falls onto him owing to a contractual agreement or statutory provision.
10. When sections 96 and 101 of the IBC respectively have the effect of staying the proceedings in respect of ‘any debt’, the moratorium attaches to the debt obligation itself. Whereas moratorium under section 124 stays proceedings against ‘any property of the debtor’ and therefore, attaches to specific assets. What is discernible from this is that the objective of sections 96 and 101 respectively is to protect the individual debtor from debt enforcement while an insolvency resolution plan is being mapped out. On the other hand, the objective of the moratorium under sections 124 and 128 of the IBC respectively is to freeze the asset pool of the bankrupt individual.
11. Moratorium under sections 96 and 101 respectively, when triggered by the insolvency proceedings of the individual director of such a corporate by the insolvency proceedings of the individual director of such corporate debtor which is also undergoing insolvency or liquidation under Part II of the IBC, stays the recovery of compensation ordered under Section 395 of the BNSS during the proceedings under section 138 of the NI Act.
12. The moratorium provisions would not operate in respect of the criminal aspect of section 138 and the director(s) of the corporate debtor cannot escape personal criminal liability.
The Apex Court opined that for a comprehensive consideration and an authoritative pronouncement after taking into account all aspects, the matter needs to be placed before Hon’ble the Chief Justice of India to constitute an appropriate three – Judge Bench.
Reference to Larger Bench
Further, reference to Larger Bench was for answering the following two issues:
i. Whether the provisions of Section 138 of the NI Act and the objective underlying the enactment thereof indicate that it is quasi-criminal in nature with a tilt towards the criminal side?
ii. Whether the moratorium provisions under Part III of the IBC should be made applicable on the entire proceedings under Section 138 of the NI Act or only to the compensatory aspect thereof?
The appeal was thus disposed of by referring to Larger Bench as aforesaid.
Delhi High Court on Interim Moratorium under Section 96 of IBC
In yet another case before Delhi High Court in Amarjeet Singh v. Hardeep Singh (2026) 188 taxmann.com 1069 (Delhi) the high court has held that interim moratorium u/s 96 of IBC, 2016 does not bar the criminal proceedings u/s 138 of NI Act.
The Metropolitan Magistrate relying on NCLT / NCLAT orders of interim moratorium on petition u/s 421 and 431 of CrPC, directed recovery of remaining amount as arrears of land revenue and stayed further proceedings in complaint u/s 138 of NI Act, 1881. High Court held that interim moratorium u/s 96 of IBC, 2016 applies only to civil proceedings in respect of debt and does not bar or justify stay of criminal proceedings u/s 138 of NI Act. Accordingly, stay of proceedings u/s 138 of NI Act were set aside.
