Case Law Details
Ajay Kumar Bishnoi Vs Tap Engineering (Madras High Court)
Question is whether by operation of the provisions of Insolvency and Bankruptcy Code, 2016, the criminal prosecution initiated under Section 138 r/w.141 of the Negotiable Instruments Act, 1881 r/w. 200 of Cr.Pc, can be terminated. The categorical answer is “No”. In JIK Industries Limited vs. Amarlal V.Jumani (2012) 3 SCC 255, the Hon’ble Supreme Court held that sanction of a scheme under Section 391 of the Companies Act, 1956 will not lead to any automatic compounding of offence under Section 138 of the Act without the consent of the complainant. Neither Section 14 nor Section 31 of the Code can produce such a result. The binding effect contemplated by Section 31 of the Code is in respect of the assets and management of the corporate debtor. No clause in the Corporate Insolvency Resolution Plan even if accepted by the adjudicating authority/appellate Tribunal can take away the power and jurisdiction of the criminal court to conduct and dispose of the proceedings before it in accordance with the provisions of the Code of Criminal Procedure.
It is true that by virtue of Section 238 of the Insolvency and Bankruptcy Code, 2016. the provisions of the Code shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. But, no provision of the Insolvency and Bankruptcy Code bars the continuation of the criminal prosecution initiated against the corporate debtor or its directors and officials.
Of course, once the corporate debtor comes under the resolution process, its erstwhile managing director or directors cannot continue to represent the company. Section 305(2) of Cr.PC states that where a corporation is the accused person or one of the accused persons in an inquiry or trial, it may appoint a representative for the purpose of the inquiry or trial and such appointment need not be under the seal of the corporation. Therefore, it is only the Resolution Professional who can represent the accused company during the pendency of the proceedings under Insolvency and Bankruptcy Code. After the proceedings are over, either the corporate entity may be dissolved or it can be taken over by a new management in which event the company will continue to exist. When a new management takes over, it will have to make arrangements for representing the company. If the company is dissolved as a result of the resolution process, obviously proceedings against it will have to be terminated. But even then, its erstwhile directors may not be able to take advantage of the situation. This is because, the Hon’ble Supreme Court in Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661, even while overruling the decision in Anil Hada v. Indian Acrylic Ltd (2000) 1 SCC 1, as not laying down the correct law in so far as it states that the director or any other officer can be prosecuted without impleadment of the company, proceeded to hold that the matter would stand on a different footing where there is some legal impediment as the doctrine of lex non cogit ad impossibilia gets attracted. It was specifically observed that the decision in Anil Hada is overruled with the qualifier as stated in para 51.
Thus, where the proceedings under Section 138 of the Act had already commenced and during the pendency, the company gets dissolved, the directors and the other accused cannot escape 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 Negotiable Instruments Act, 1881. They will have to continue to face the prosecution in view the law laid down in Aneeta Hada case. Where the company continues to remain even at the end of the resolution process, the only consequence is that the erstwhile directors can no longer represent it.
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