Case Law Details
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.
The High Court relied on established Supreme Court principles that proceedings under Section 138 are penal in nature and are distinct from recovery mechanisms. It emphasized that such proceedings aim to uphold the integrity of commercial transactions rather than merely recover debt. Consequently, the existence of insolvency proceedings or approval of a resolution plan does not extinguish criminal liability under Section 138 for individuals responsible for the company’s conduct.
The Court further noted that Section 32A of the IBC provides immunity to the corporate debtor in certain circumstances but explicitly preserves liability of individuals involved in the offence. It also highlighted that directors and signatories continue to be liable under Section 141 of the NI Act, irrespective of the company’s status in insolvency or liquidation.
Although the respondents argued that since insolvency proceedings commenced before the cheque dishonour and Section 138 complaint, such proceedings should be barred, the High Court rejected this contention. It held that the timing of initiation of proceedings is not decisive. Even if insolvency proceedings precede Section 138 proceedings, directors cannot escape personal criminal liability.
The Court distinguished reliance on judgments suggesting that moratorium may bar proceedings where the cause of action arises after its imposition, noting that binding Supreme Court precedents consistently affirm that criminal liability of individuals continues. It reiterated that the IBC and NI Act operate in separate spheres and do not conflict.
Accordingly, the High Court held that the Trial Court erred in discharging the accused directors and quashing the complaint. It restored the proceedings under Section 138 against the directors.
The Supreme Court, upon hearing the Special Leave Petition against the High Court’s order, declined to interfere and dismissed the petition. It upheld the High Court’s reasoning and allowed the matter to proceed before the Trial Court, leaving all other contentions open.
Thus, the combined reading of the High Court and Supreme Court decisions clarifies that insolvency proceedings under the IBC do not bar or extinguish criminal liability of directors under Section 138 of the NI Act. The moratorium applies only to the corporate debtor, and individuals responsible for cheque dishonour remain liable to prosecution.
The matter was argued by Adv. Sahil Dewani, along with the team from Dewani Associates, appearing for the Respondent before the Hon’ble Supreme Court.
Read HC Judgment in this case: Ortho Relief Hospital And Research Centre Vs Anand Distilleries (Bombay High Court)
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Briefly stated, the facts of the case are that the petitioners/accused took a loan of Rs. 15,00,000/- from respondent No.1/complainant, and allegedly repaid the amount through a post-dated cheque dated 12.12.2018. The cheque was signed by petitioner No.1 in his capacity as a director and authorized signatory of respondent No.2 company (of which petitioner No.2 herein is also a director). This cheque was dishonoured on 14.12.2018. On 18.02.2019, respondent No.1 filed a complaint under Section 138 of the Negotiable Instruments Act, 1881 (‘NI Act’). This was registered as S.C.C. No. 7281/2019.
On 08.04.2019, an order of liquidation was passed against the respondent No.2 company (accused No.1). The petitioners subsequently filed an application for discharge, which was allowed by the Trial Court by order dated 31.01.2025. The Trial Court observed that since the petitioners had lost their positions as directors of the respondent No.2 company post liquidation, they could not be liable.
Aggrieved, respondent No.1 filed Criminal W.P.No.251/2025 before the Bombay High Court, Nagpur Bench. By the impugned order dated 01.10.2025, the High Court allowed the Writ Petition observing that liability under S.138 of the NI Act would subsist despite the initiation of proceedings under the Insolvency and Bankruptcy Code, 2016. The order discharging the petitioners was quashed and set aside. Aggrieved, the petitioners have preferred the present Special Leave Petition.
We have heard learned counsel for the petitioners and learned counsel for the respondents at length.
We do not find any reason to interfere with the impugned order.
Special Leave Petition is hence, dismissed.
It is needless to observe that all other contentions on both sides are left open to be advanced before the trial court.
Pending application(s), if any, shall stand disposed of.
Author Bio
When company is discharged from liability, due to IBC, how Criminal proceedings will continue against the Directors without proving that the company is liable to pay, which can be said only after hearing the A1.