Moratorium under IBC Not Applicable on Section 138 of NI Act

Moratorium under IBC Not Applicable on Section 138 of NI Act

IN THE MATTER OF

Shah Brothers Ispat Pvt. Ltd v. P. Mohanraj & Ors.- NCLAT

New Delhi Company Appeal (AT) (Insolvency) No. 306 of 2018

FACTS

The current case in question revolves around two complaints filed by the Appellants under Section 138 of the Negotiable Instruments Act, 1881 one prior to the initiation of Corporate Insolvency Resolution Process and the other thereafter.

It was the contention of the Respondent – Directors, that during the period of Moratorium proceeding, petition under Section 138 of NI Act was not maintainable

NCLAT Held

The bench observed that –

“We do not agree with such submission as Section 138 is a penal provision, which empowers the court of competent jurisdiction to pass order of imprisonment or fine, which cannot be held to be proceeding or any judgment or decree of money claim. Imposition of fine cannot be held to be a money claim or recovery against the Corporate Debtor nor order of imprisonment, if passed by the court of competent jurisdiction on the Directors, they cannot come within the purview of Section 14. In fact no criminal proceeding is covered under Section 14 of I&B Code.”

AMLEGALS CONCLUSION

Section 14 of IBC has four limbs. All such limbs are contained to commercial aspects in its entirety. It nowhere talks about penal actions of fine and/or imprisonment.

Hence, the moratorium is per se for actions related to commercial claims alone.

Refer an in-depth discussion on case on the link below:

Moratorium under IBC & Section 138 of NI Act