SANJAY KISHAN KAUL, J.

Factual Background:

In pursuance to the approval, a Loan Agreement was executed on 27.03.2012 in New Delhi.

2. In order to satisfy its obligations under the Agreement, the Accused company issued post-dated cheque of Rs. 25,47,945/- bearing cheque number 090656 dated 15.02.2016, drawn on Indian Overseas Bank, Kalupur Circle Branch, Railway Pura, Ahmedabad, towards the payment of one of the instalments. On the cheque being presented to the bankers of the Respondent i.e., HDFC Bank Limited, Nehru Place Branch, New Delhi, the cheque was returned vide Memo dated 07.04.2016 for the reason “Account Closed”.

3. On 19.04.2016, a demand-cum-legal notice under Section 138 of Negotiable Instruments Act, 1881, (hereinafter referred to as ‘the NI Act ’) was issued on behalf of the Respondent calling upon the company as Accused no.1 and the Appellant herein as Accused no. 2 to settle the debt advanced by way of corporate loan dated 27.03.2012. The Accused acknowledged their liability to pay the loan amount vide reply dated 28.04.2016. The amount was not paid and, thus, on 16.05.2016, Criminal Complaint No. 632982/2016 was filed in the Court of Chief Metropolitan 2 Magistrate, Saket Courts, New Delhi, under Section 190 of the Code of Criminal Procedure, 1973, read with Section 138 1 , Section 1412 and Section 1423 of the NI Act. The complaint was signed and verified by Mr. N. Ramachandran, Deputy General Manager (Law) of the Respondent company. An endeavor for mediation was made but was not successful and, thus, the next date was scheduled before the Magistrate for 15.01.2018. In the meantime, a development, which took place, was that in 2017 M/s Neeraj Paper Agencies Limited, styling itself as ‘Operational Creditor’, filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘IBC’) read with Rule 6 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, (hereinafter referred to as ‘IB Rules, 2016’) with the request to initiate Corporate Insolvency Resolution Process against the Accused company, treating it as the 'Corporate Debtor'. The National Company Law Tribunal vide order dated 12.09.2017 admitted the aforesaid insolvency application.

4. The Respondent herein filed its claim qua the debt, which was the subject matter of the N.I. Act proceedings, on 13.10.2017. In terms of the Resolution Plan dated 26.05.2018, the Resolution Applicant (Kushal Limited) filed the Resolution Plan and during the course of meeting the 1 Dishonour of cheque for insufficiency, etc., of funds in the account.

Offences by companies.

Cognizance of offences.

Committee of Creditors on 05.06.2018, it was informed that the respondent herein could not be considered as a Secured Financial Creditor as per definitions contained in Section 3(30) and Section 3(31) of the IBC. In effect, on legal advice, the Respondent was opined as an Unsecured Financial Creditor. This resulted in the Respondent filing applications, in the form of objections, before the NCLAT where the status was sought to be changed from the Unsecured to Secured Financial Creditor.

5. Now turning back to the NIA proceedings, the Metropolitan Magistrate passed an interim order dated 12.11.2018 dismissing the application of the Appellant for exemption from personal appearance. This, in turn, was predicated on the observations of NCLAT in Shah Brothers Ispat Pvt. Ltd. Vs P. Mohan Raj &Ors , Company Appeal (AT) Insolvency No.306 of 2018, opining that Section 138 of NI Act is a penal provision, which empowers the court of competent jurisdiction to pass order of imprisonment or fine, which cannot be held to be proceedings or any judgment or decree of money claim. Thus, it would not come within the purview of Section 14 of the IBC and, thus, the proceedings under Section 138 of the NI Act, 1881 could continue simultaneously.

6. The Appellant, thus, filed an application for discharge of the Complaint Case in question herein in the present case, which was dismissed 4 by the Metropolitan Magistrate vide order dated 01.11.2019. The Criminal Revision Petition preferred by the Appellant bearing Criminal Revision Petition No. 784 of 2019 also met with a similar fate before the High Court and was dismissed with cost of Rs. 20,000/- to be paid by the Appellant to the Respondent. It is this order, which is now, sought to be assailed before us.

Appellant’s submissions:

7. Mr. Nikhil Goel, learned counsel, sought to urge on behalf of the appellant that the trigger of Section 138 of the NI Act, is the non-payment of legally enforceable debt. Once the debt is itself extinguished, either under Section 31 or in process from Sections 38 to 41 and 54 of IBC, the basis of Section 138 of the NI Act disappears. We may note that these provisions fall under Chapter III4 of the IBC.

8. The term ‘Debt’ would mean ‘legally enforceable debt’ under the Explanation to Section 138 of the NI Act and this may be read with Sections 2(6) and 2(8) of the IBC.

9. It was submitted that the nature of the proceedings under Section 138 of the NI Act is primarily compensatory in nature and the punitive element is incorporated at enforcing the compensatory provisions. Therefore, once 4 Liquidation Process 5 recovery is made partly by the receipt of money and partly by waiver, Section 138 of the NI Act should not be permitted to be continued.

10. It was lastly urged that if the debt of the company is resolved then the payment 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.

Plea of the Respondent:

11. On behalf of the Respondent, it was urged that the cheque was given for repayment of the aforementioned loan amount of Rs.30 crore for which the accused company agreed to repay the principal amount in two installments with first installment of Rs.10 crore payable on 31.03.2015 and the second installment of Rs.20 crore payable on 31.03.2016. The accused company had to pay interest @ 15 per cent per annum on the said principal amount of loan and such interest was payable monthly on the 15th day of every month, which was in consonance with the dates and the cheque amount.

12. It was urged that the accused company along with the Appellant deliberately and with the mala fide intention gave the cheque to defraud the Respondent to take loan from it and subsequently to usurp the loan 6 amount and hence had closed the bank account. The Appellant being the signatory was directly liable along with the accused company. The Appellant was actively involved in the day to day affairs of the company as can be inferred from the aforementioned loan agreement signed by him as well.

13. We may note that on 20.09.2022 with some of the SLPs being withdrawn, in respect of the SLPs in question, the interim order was made absolute with the direction for urgent listing as criminal proceedings had been stayed. Learned counsel for the parties stated that they will file short synopsis not running into more than three pages each and will not take more than 15-20 minutes each for their respective submissions. On the conspectus of the aforesaid we heard the arguments on 17.01.2023 when we granted leave and reserved the judgment.

14. The Appellant had submitted the synopsis in advance. The Respondent however, despite assuring that they would submit the synopsis has not cared to do so and we have gone on the basis of the record. This position is prevalent right till 12.03.2023 and we do not consider it appropriate to wait any more. We assume that the Respondent 7 is not interested in rendering any further assistance to the Court by filing synopsis. Fortunately for them, for the reasons to be recorded hereinafter, they have not really suffered the consequences thereof.

15. The issue whether the respondent is a Secured Financial Creditor or an Unsecured Financial Creditor within the meaning of the said Code is not something we can deal with as that is the matter of the proceedings under the said Code or any appeal preferred therefrom. The only issue with which we are concerned with is whether during the pendency of the proceedings under the said Code which have been admitted, the present proceedings under the N.I. Act can continue simultaneously or not.

16. We have no hesitation in coming to the conclusion that the scope of nature of proceedings under the two Acts and quite different and would not intercede each other. In fact, a bare reading of Section 14 of the IBC would make it clear that the nature of proceedings which have to be kept in abeyance do not include criminal proceedings, which is the nature of proceedings under Section 138 of the N.I. Act. We are unable to appreciate the plea of the learned counsel for the Appellant that because Section 138 of the N.I. Act proceedings arise from a default in financial debt, the proceedings under Section 138 should be taken as akin 8 to civil proceedings rather than criminal proceedings. We cannot lose sight of the fact that Section 138 of the N.I. Act are not recovery proceedings. They are penal in character. A person may face imprisonment or fine or both under Section 138 of the N.I. Act. It is not a recovery of the amount with interest as a debt recovery proceedings would be. They are not akin to suit proceedings.

17. It cannot be said that the process under the IBC whether under Section 31 or Sections 38 to 41 which can extinguish the debt would ipso facto apply to the extinguishment of the criminal proceedings. No doubt in terms of the Scheme under the IBC there are sacrifices to be made by parties to settle the debts, the company being liquidated or revitalized.

The Appellant before us has been roped in as a signatory of the cheque as well as the Promoter and Managing Director of the Accused company, which availed of the loan. The loan agreement was also signed by him on behalf of the company. What the Appellant seeks is escape out of criminal liability having defaulted in payment of the amount at a very early stage of the loan. In fact, the loan account itself was closed. So much for the bona fides of the Appellant.

18. We are unable to accept the plea that if proceedings against the company come to an end then the Appellant as the Managing Director cannot be proceeded against. We are unable to accept the plea that Section 138 of the N.I. Act proceedings are primarily compensatory in nature and that the punitive element is incorporated only at enforcing the compensatory proceedings. The criminal liability and the fines are built on the principle of not honouring a negotiable instrument, which affects trade. This is apart from the principle of financial liability per se. To say that under a scheme which may be approved, a part amount will be recovered or if there is no scheme a person may stand in a queue to recover debt would absolve the consequences under Section 138 of the N.I. Act, is unacceptable.

19. We are, thus, conclusively of the view that the impugned order takes the correct view in law and cannot be assailed before us.

Conclusion:

20. The appeals are accordingly dismissed but without costs before us on account of what we have recorded in para 14.

...................……………………J. [Sanjay Kishan Kaul] ...................……………………J. [Abhay S. Oka] New Delhi.

March 15, 2023.

REPORTABLE IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION CRIMINAL APPEAL NO. 170 OF 2023 (@SLP(CRL) NO. 417 OF 2020) AJAY KUMAR RADHESHYAM GOENKA ……APPELLANT(S) VERSUS TOURISM FINANCE CORPORATION OF ......RESPONDENT(S) INDIA LTD.

WITH CRIMINAL APPEAL NO. 172 OF 2023 (@SLP(CRL) NO. 482 OF 2020) & CRIMINAL APPEAL NO. 171 OF 2023 (@SLP (CRL) 446 OF 2020) JUDGMENT J.B. PARDIWALA, J. :

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 4 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. Mr. Nikhil Goel, the learned counsel appearing for the appellant made the following submissions:

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. Mr. 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.

25. Having heard the learned counsel appearing for the parties and having gone 7 through the materials on record, the seminal question of law that falls for the consideration of this Court may be formulated as under:

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:

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:

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:

30. Section 142 of the NI Act is in regard to the cognizance of offence. The same reads thus:

(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 :

(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:

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 10 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 11 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:

Sections 13 and 15 resply are reproduced hereinbelow:

section (1) shall be made immediately after the appointment of the interim resolution professional.

Xxx xxx xxx

15. Public announcement of corporate insolvency resolution process.— (1) The public announcement of the corporate insolvency resolution process under the order referred to in section 13 shall contain the following information, namely:—

(a) name and address of the corporate debtor under the corporate insolvency resolution process;

(b) name of the authority with which the corporate debtor is incorporated or registered;

(c) the last date for submission of [claims, as may be specified];

(d) details of the interim resolution professional who shall be vested with the management of the corporate debtor and be responsible for receiving claims;

(e) penalties for false or misleading claims; and

(f) the date on which the corporate insolvency resolution process shall close, which shall be the one hundred and eightieth day from the date of the admission of the application under sections 7, 9 or section 10, as the case may be.

(2) The public announcement under this section shall be made in such manner as may be specified.”

(c) It is important to note that the resolution professional has no adjudicatory powers in regard to the claims unlike the liquidator. The resolution professional only collates the claims. In this regard, the decision of this Court in the case of Swiss Ribbons Private 13 Limited and Another v. Union of India and Others reported in (2019) 4 SCC 17 assumes importance. I quote paras 88-91 of Swiss Ribbons (supra) as under:

Explanation.—For the purposes of this section, the term “assets” shall not include the following, namely— 14

(a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment;

(b) assets of any Indian or foreign subsidiary of the corporate debtor; and

(c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator.”

89. Under the CIRP Regulations, the resolution professional has to vet and verify claims made, and ultimately, determine the amount of each claim as follows:

(2) A creditor, who fails to submit claim with proof within the time stipulated in the public announcement, may submit the claim with proof to the interim resolution professional or the resolution professional, as the case may be, on or before the ninetieth day of the insolvency commencement date.

(3) Where the creditor in sub-regulation (2) is a financial creditor under Regulation 8 , it shall be included in the committee from the date of admission of such claim:

(2) The list of creditors shall be—

(a) available for inspection by the persons who submitted proofs of claim;

(b) available for inspection by members, partners, Directors and guarantors of the corporate debtor;

(c) displayed on the website, if any, of the corporate debtor;

(d) filed with the adjudicating authority; and 15

(e) presented at the first meeting of the committee.

14. Determination of amount of claim.—(1) Where the amount claimed by a creditor is not precise due to any contingency or other reason, the interim resolution professional or the resolution professional, as the case may be, shall make the best estimate of the amount of the claim based on the information available with him.

(2) The interim resolution professional or the resolution professional, as the case may be, shall revise the amounts of claims admitted, including the estimates of claims made under sub-regulation (1), as soon as may be practicable, when he comes across additional information warranting such revision.” It is clear from a reading of these Regulations that the resolution professional is given administrative as opposed to quasi-judicial powers. In fact, even when the resolution professional is to make a “determination” under Regulation 35-A, he is only to apply to the adjudicating authority for appropriate relief based on the determination made as follows:

regulation (2), he shall apply to the adjudicating authority for appropriate relief on or before the one hundred and thirty-fifth day of the insolvency commencement date.”

90. As opposed to this, the liquidator, in liquidation proceedings under the Code, has to consolidate and verify the claims, and either admit or reject such claims under Sections 38 to 40 of the Code. Sections 41 and 42 , by way of contrast between the powers of the liquidator and that of the resolution professional, are set out hereinbelow:

91. Unlike the liquidator, the resolution professional cannot act in a number of matters without the approval of the Committee of Creditors under Section 28 of the Code, which can, by a two-thirds majority, replace one resolution professional with another, in case they are unhappy with his performance. Thus, the resolution professional is really a facilitator of the resolution process, whose administrative functions are overseen by the Committee of Creditors and by the adjudicating authority.”

(d) Section 29 of the IBC deals with the information memorandum on the basis of which the resolution plan would be submitted. In this regard, Regulation 36 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, assumes importance wherein Regulation 36(2)(d) covers the claims of different kinds of creditors. Regulation 36(2)(d) reads thus:

(1)(hb) “fair value” means the estimated realisable value of the assets of the corporate debtor, if they were to be exchanged on the insolvency commencement date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion;”] and “liquidation value” as defined by Regulation 2(1)(k) [Id. Under Regulation 2(1)(k) :“2. (1)(k) “liquidation value” means the estimated realisable value of the assets of the corporate debtor, if the corporate debtor were to be liquidated on the insolvency commencement date;”] shall be determined by two registered valuers appointed under Regulation 27 , which shall be handed over to the resolution professional.

45. After receipt of the resolution plans in accordance with the Code and the Regulations, the resolution professional shall then provide the fair value and liquidation value to every member of the Committee of Creditors — see Regulation 35(2) . Regulation 36 is important as it forms the basis for the submission of a resolution plan. The information memorandum, spoken of by this regulation, must contain the following:

(n) This Court in Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another reported in (2022) 2 SCC 401, has held that the resolution plan binds even the persons who have not consented. Paras 115 & 117 resply read thus:-

six per cent votes of creditors), but upon its compliance with the procedure 20 stipulated under IBC.” (Emphasis supplied)

41. Thus, from the aforesaid, it is evident that the creditor has no option but to join the process under the IBC. Once the plan is approved, it would bind everyone under the sun. The making of a claim and accepting whatever share is allotted could be termed as an “Involuntary Act” on behalf of the creditor. The making of a claim under the IBC and ac- cepting the same and not making any claim, will not make any difference in light of Sec- tion 31 of the IBC. Both the situations will lead to Section 31 and the finality and bind- ing value of the resolution plan.

42. Keeping the aforesaid discussion in mind, at best, it could be said that from the cheque amount under Section 138 of the NI Act, the amount received under the resolution plan may be deducted. (akin to what happens to the guarantors) SECTION 32A OF THE IBC

43. P. Mohanraj (supra) has harmoniously construed Section 32A with Section 14 of the IBC so as to apply to Section 138 NI Act, proceedings. Section 32A(1) is very crucial and hence, is quoted below:-

44. Section 32A of the IBC has been upheld by this Court in Manish Kumar v. Union of India and Another reported in (2021) 5 SCC 1. This Court has held that the said section does not permit the wrong-doer to get away. Thus, if the argument of allowing the signatory/director to go scot-free after the approval of the resolution plan is accepted the same would run contrary to the legislative intent of Section 32A which has been upheld by this Court as under:

45. In P. Mohanraj (supra), this Court in clear terms held that Section 32A only protects the corporate debtor and not the signatories/directors etc. The prosecution against the signatories/directors would continue. In P. Mohanraj (supra): -

46. While dealing with the issue of Section 14 , IBC, this Court had the occasion to deal in detail with Section 32A also. The 2nd proviso to Section 32A(1) is a complete answer to the issue in question. The said provision is discussed in detail from Paras 39-43 in P. Mohanraj’s case. Paras 39 to 43 read thus:

Liability where a Resolution Plan has been approved 24 17.3. It was brought to the Committee that this had created apprehension amongst potential resolution applicants, who did not want to take on the liability for any offences committed prior to commencement of CIRP. In one case, JSW Steel had specifically sought certain reliefs and concessions, within an annexure to the resolution plan it had submitted for approval of the adjudicating authority. [ SBI v. Bhushan Steel Ltd. , 2018 SCC OnLine NCLT 32305, para 83(i)] Without relief from imposition of the such liability, the Committee noted that in the long run, potential resolution applicants could be disincentivised from proposing a resolution plan. The Committee was also concerned that resolution plans could be priced lower on an average, even where the corporate debtor did not commit any offence and was not subject to investigation, due to adverse selection by resolution applicants who might be apprehensive that they might be held liable for offences that they have not been able to detect due to information asymmetry. Thus, the threat of liability falling on bona fide persons who acquire the legal entity, could substantially lower the chances of its successful takeover by potential resolution applicants.

17.4. This could have substantially hampered the Code's goal of value maximisation, and lowered recoveries to creditors, including financial institutions who take recourse to the Code for resolution of the NPAs on their balance sheet. At the same time, the Committee was also conscious that authorities are duty-bound to penalise the commission of any offence, especially in cases involving substantial public interest. Thus, two competing concerns need to be balanced.

Xxx xxx xxx 17.6. Given this, the Committee felt that a distinction must be drawn between the corporate debtor which may have committed offences under the control of its previous management, prior to the CIRP, and the corporate debtor that is resolved, and taken over by an unconnected resolution applicant. While the corporate debtor's actions prior to the commencement of the CIRP must be investigated and penalised, the liability must be affixed only upon those who were responsible for the corporate debtor's actions in this period. However, the new management of the corporate debtor, which has nothing to do with such past offences, should not be penalised for the actions of the erstwhile management of the corporate debtor, unless they themselves were involved in the commission of the offence, or were related parties, promoters or other persons in management and control of the corporate debtor at the time of or any time following the commission of the offence, and could acquire the corporate debtor, notwithstanding the prohibition under Section 29-A. [For example, where the exemption under Section 240-A is applicable.] 17.7. Thus, the Committee agreed that a new section should be inserted to provide that where the corporate debtor is successfully resolved, it should not be held liable for any offence committed prior to the 25 commencement of the CIRP, unless the successful resolution applicant was also involved in the commission of the offence, or was a related party, promoter or other person in management and control of the corporate debtor at the time of or any time following the commission of the offence.

17.8. Notwithstanding this, those persons who were responsible to the corporate debtor for the conduct of its business at the time of the commission of such offence, should continue to be liable for such an offence, vicariously or otherwise, regardless of the fact that the corporate debtor's liability has ceased.” (emphasis in original and supplied)

40. This Court in Manish Kumar v. Union of India [(2021) 5 SCC 1], upheld the constitutional validity of this provision. This Court observed :

41. Section 32-A cannot possibly be said to throw any light on the true in- terpretation of Section 14(1)(a) as the reason for introducing Section 32-A had nothing whatsoever to do with any moratorium provision. At the heart 26 of the section is the extinguishment of criminal liability of the corporate debtor, from the date the resolution plan has been approved by the adjudi- cating authority, so that the new management may make a clean break with the past and start on a clean slate. A moratorium provision, on the other hand, does not extinguish any liability, civil or criminal, but only casts a shadow on proceedings already initiated and on proceedings to be initiated, which shadow is lifted when the moratorium period comes to an end. Also, Section 32-A(1) operates only after the moratorium comes to an end. At the heart of Section 32-A is the IBC's goal of value maximisation and the need to obviate lower recoveries to creditors as a result of the corporate debtor continuing to be exposed to criminal liability.

42. Unfortunately, Section 32-A is inelegantly drafted. The second proviso to Section 32-A(1) speaks of persons who are in any manner in charge of, or responsible to the corporate debtor for the conduct of its business or as- sociated with the corporate debtor and who are, directly or indirectly, in- volved in the commission of “such offence” i.e. the offence referred to in sub-section (1), “as per the report submitted or complaint filed by the in- vestigating authority …”. The report submitted here refers to a police re- port under Section 173 CrPC, and complaints filed by investigating author- ities under special Acts, as opposed to private complaints. If the language of the second proviso is taken to interpret the language of Section 32- A(1) in that the “offence committed” under Section 32-A(1) would not include offences based upon complaints under Section 2(d) CrPC, the width of the language would be cut down and the object of Section 32-A(1) would not be achieved as all prosecutions emanating from private complaints would be excluded. Obviously, Section 32-A(1) cannot be read in this fashion and clearly incudes the liability of the corporate debtor for all offences com- mitted prior to the commencement of the corporate insolvency resolution process. Doubtless, a Section 138 proceeding would be included, and would, after the moratorium period comes to an end with a resolution plan by a new management being approved by the adjudicating authority, cease to be an offence qua the corporate debtor.

43. A section which has been introduced by an amendment into an Act with its focus on cesser of liability for offences committed by the corporate debtor prior to the commencement of the corporate insolvency resolution process cannot be so construed so as to limit, by a sidewind as it were, the moratorium provision contained in Section 14 , with which it is not at all concerned. If the first proviso to Section 32-A(1) is read in the manner suggested by Shri Mehta, it will impact Section 14 by taking out of its ken Sections 138 / 141 proceedings, which is not the object of Section 32- A(1) at all. Assuming, therefore, that there is a clash between Section 14 IBC and the first proviso of Section 32-A(1), this clash is best resolved by applying the doctrine of harmonious construction so that the objects of both the provisions get subserved in the process, without damaging or limiting one provision at the expense of the other. If, therefore, the ex- pression “prosecution” in the first proviso of Section 32-A(1) refers to 27 criminal proceedings properly so-called either through the medium of a first information report or complaint filed by an investigating authority or complaint and not to quasi-criminal proceedings that are instituted under Sections 138 / 141 of the Negotiable Instruments Act against the corporate debtor, the object of Section 14(1) IBC gets subserved, as does the object of Section 32-A, which does away with criminal prosecutions in all cases against the corporate debtor, thus absolving the corporate debtor from the same after a new management comes in.” (Emphasis applied) Thus, the heart of the matter is the second proviso appended to Section 32A(1)

(b) of the IBC which provides statutory recognition of the criminal liability of the persons who are otherwise vicariously liable under Section 141 of NI Act, in the con- text of Section 138 offence.

46. Thus, Section 32A broadly leads to:

rate debtor for the conduct of its business or associated with the corpo- rate debtor in any manner and who was directly or indirectly involved in the commission of such offence” shall be proceeded and the law will take it’s own course. Only the corporate debtor (with new management) as held in Para 42 of P. Mohanraj will be safeguarded.

c. If the old management takes over the corporate debtor (for MSME Section 29A does not apply (see 240A), hence for MSME old manage- ment can takeover) the corporate debtor itself is also not safeguarded from prosecution under Section 138 or any other offences.

47. Thus, I am of the view that by operation of the provisions of the IBC, the criminal prosecution initiated against the natural persons under Section 138 read with 141 of the NI Act read with Section 200 of the CrPC would not stand terminated.

48. In JIK Industries Limited and Others v. Amarlal V. Jumani and Another reported in (2012) 3 SCC 255, this Court held that the sanction of a scheme under Section 28 391 of the Companies Act, 1956 will not lead to any automatic compounding of offence under Section 138 of the NI Act without the consent of the complainant. Neither Section 14 nor Section 31 of the IBC can produce such a result. The binding effect contemplated by Section 31 of the IBC is in respect of the assets and management of the corporate debtor. No clause in the 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 CrPC .

49. It is true that by virtue of Section 238 of the IBC, the provisions of the CrPC 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 IBC bars the continuation of the criminal prosecution initiated against the directors and officials.

50. It is equally true that once the corporate debtor comes under the resolution process, its erstwhile managing director(s) cannot continue to represent the company. Section 305(2) of the CrPC 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 IBC. 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, this Court in Aneeta Hada (supra), even while overruling its decision in Anil Hada v. Indian Acrylic Ltd. reported in (2000) 1 SCC 1, as not laying down the correct law in so far as Anil Hada (supra) 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 29 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 (supra) is overruled with the qualifier as stated in para 51. Considering the same, the ratio of the decision of this Court in Ajit Balse (supra) upon which strong reliance is placed on behalf of the appellant is of no avail.

51. What follows from the aforesaid is that for difficulty in prosecuting the corporate debtor under Section 138 of the NI Act after the approval of the resolution plan under the IBC, we need not let the natural persons i.e., the signatories to the cheques/directors of the corporate debtor escape prosecution. How can one allow the natural persons to escape liability on such specious plea? In such a situation the Latin maxim Lex Non Cogit Ad Impossibilia is attracted which means law does not compel a man to do which he cannot possibly perform. Broom's "Legal Maxims" contains several illustrative cases in support of the maxim. This maxim has been referred to with approval by this Court in State of Rajasthan v. Shamsher Singh reported in 1985 supp SCC 416.

52. Thus, where the proceedings under Section 138 of the NI Act had already commenced and during the pendency the plan is approved or the company gets dissolved, the directors and the other accused cannot escape from their liability 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. They will have to continue to face the prosecution in view of the law laid down in Aneeta Hada (supra). 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.

FEW OF THE ABSURD SITUATIONS THAT MAY ARISE IF SECTION 138 PROCEEDINGS IN RELATION TO THE SIGNATORIES/DIRECTORS ARE HELD TO BE NOT MAINTAINABLE AFTER THE RESOLUTION PLAN IS APPROVED

53. If the argument that the signatories/directors are not liable to be proceeded under Section 138 / 141 of the NI Act once the resolution plan is approved, the same may lead to the following absurd situations:

ii. If the resolution plan is not approved and the corporate debtor goes under liq-

uidation in such circumstances under Section 35(1)(k) of the IBC the liquida- tor can represent the corporate debtor. Thus, the prosecution under Section 138 / 141 continues. This may lead to absurd situations in working of the IBC and its impact on Section 138 proceedings.

iii. At the end of the liquidation, the distribution will take place under Section 53 of the IBC. Therein everyone, including the creditors will get their share as per the waterfall mechanism statutorily decided and the same would be binding and mandatory. Thereafter, the corporate debtor is dissolved under Section 54 of the IBC after selling of the assets under liquidation. Now during the said period, the prosecution might have been completed and appeals would be pending. Then it would be argued that because under the liquidation the amount is accepted, the prosecution against the signatory/director cannot con- tinue after the dissolution of the corporate debtor.

54. Thus, while interpreting Sections 14 , 31 & 32A resply of the IBC vis-a-vis Sections 138 and 141 resply of the NI Act , the principle of harmonious construction should be ap- plied and followed. By permitting to proceed against the signatories/directors even after the approval of the plan, what is achieved is uniformity in the functioning of the law by removing the anomalous and absurd situations, thereby, making it compliant with Article 14 of the Constitution. The said interpretation shields the relevant provisions from attack of being manifestly arbitrary.

55. The distinction between a strict construction and a more free one has disappeared in the modern times and now mostly the question is, “what is the true construction of the statute?” A passage in Craies on Statue Law 7th Edn. reads to the following effect:-

56. At page-532 of the same book, observations of Sedgwick are quoted as under:

57. The argument that as the debt stood extinguished by virtue of Section 31 of the IBC, the proceedings under Section 138 of the NI Act cannot continue as regards the di- rector/signatory, would run contrary to the line of reasoning assigned by this Court that the “Involuntary Act” of the principal debtor would not absolve the guarantors.

58. This Court in Lalit Kumar Jain v. Union of India and Others reported in (2021) 9 SCC 321 has held that the approval of the resolution plan per se does not operate as a discharge of guarantors’ liability. That is because:

59. The same principle is applicable to the signatory/director in the case of Section 138 / 141 proceedings. The signatory/director cannot take benefit of discharge obtained by the corporate debtor by operation of law under the IBC.

60. If the argument that extinguishment of debt under Section 31 of the IBC leads to the discharge of signatory/director under Section 138 proceedings is accepted, the same will lead to conflict in law as laid down compared to the guarantor’s liability 32 wherein in spite of the plan being approved, the guarantor is held separately liable for the remaining amount. If the guarantor does not get the benefit of extinguishment of debt under Section 31 of the IBC, then similarly for extinguishment of debt, the signatory/di- rector cannot get any benefit. If accepted, this may lead to uncertainty in the first Principles of law on interpretation of extinguishment of debt. In Lalit Kumar Jain (supra) this Court held as under:

61. This Court while upholding the validity of Section 32A, IBC (Manish Kumar’s case) has held that “The provision is carefully thought out. It is not as if the wrongdo- ers are allowed to get away.” That is a very important object and the same should not be permitted to be defeated by accepting the argument that permits the Signatory/Direc-

tor to enjoy the fruits of their own wrong.

62. In an interesting case titled Goa State Cooperative Bank Limited v. Krishna Nath A. and Others reported in (2019) 20 SCC 38, the facts were that the liquidation proceedings were required to be completed within a fixed number of years, but failed. Thereafter the borrowers claimed in the recovery suit that now no recovery could be made. This Court held that the defaulters cannot take benefit of their own action. The disbursement of loan in an arbitrary manner and failure to recover was the very fulcrum on the basis of which the winding up of the Society was ordered. I quote the relevant ob- servations as under:-

edy against unjust enrichment or unjust benefit. The court cannot be used as a tool by a litigant to perpetuate illegality. A person who is on the right side of the law, should not have a feeling that in case he is dragged in litigation, and wins, he would turn out to be a loser and wrong- doer as a real gainer, after 20 or 30 years. Thus, the members who have obtained stay in appeal or on recovery proceedings or the case is pending, cannot take advantage of the fact that the period fixed for the Liquidator under the Act is over.

25. Once a report has been submitted, the Registrar has to take action in terms of the report and in such circumstances when the proceedings for recovery are pending against the members and the Society has taken loan from the banks for its member, the actual money has to go to the creditor i.e. to the bank who is going to be benefitted by recovery of public money in the hands of members. In such cases it would be appropriate for the Regis- trar to send notice of the proceedings to a person who is to be benefit- ted from the recovery. In the instant case, the Bank itself is a prime lender- cum- liquidator. The proceedings cannot come to the end. Thus, in our con- sidered opinion, it is open to the bank to continue with the recovery pro- ceedings and make recoveries from the defaulting members. Merely on the liquidation of the Society, or the factum that the period fixed for liqui- dation is over, liability of the members for the loans cannot be said to have been wiped off. The disbursement of loan in an arbitrary manner and failure to recover was the very fulcrum on the basis of which winding up of the Society was ordered.” (Emphasis supplied) TERMS OF THE RESOLUTION PLAN CANNOT CONTROL THE ENACTMENT/RULES

63. Before I proceed to comment on the aforesaid, it is necessary to look into the rel- evant clauses of the resolution plan upon which strong reliance is sought to be placed on behalf of the appellant. The relevant clauses read thus:

son in respect of claims filed under the CIRP (including, for the avoidance of doubt, any unverified portion of their claim) and all claims against the Cor- porate Debtor along with any related legal proceedings, including criminal proceedings, and other penal proceedings, shall stand irrevocably and un- 35 conditionally abated, settled and extinguished in perpetuity on the Effective Date, and with effect from the Appointed Date.

2. The payment to Persons contemplated in this Resolution Plan shall be the Corporate Debtors and Resolution Applicant's full and final performance and satisfaction of all its obligations to such Persons and all Claims (includ- ing, for the avoidance of doubt, any unverified portion of their Claims) of such Persons against the Corporate Debtor shall stand irrevocably and un- conditionally settled and extinguished in perpetuity on the Effective Date and with effect from the Appointed Date.

3. …Accordingly, the Resolution Applicant and the Corporate Debtor shall have no responsibility or liability in respect of any claims against the Corporate Debtor attributable to the period prior to the Effective Date other than any payments to be made under this Resolution Plan and all claims along with any related legal proceedings, including criminal proceedings and other penal proceedings, shall stand irrevocably and unconditionally abated, settled and extinguished in perpetuity.

Xxx xxx xxx

6. On the Effective Date and with effect from the Appointed Date, all the outstanding negotiable instruments issued by Director/promoter or Corpo- rate Debtor or by any Person on behalf of the Corporate Debtor for any dues of Corporate Debtor including demand promissory notes, post-dated cheques and letters of credit, shall stand terminated and the Corporate Debtor's liability under such instruments shall stand extinguished.” (Emphasis supplied)

64. I have referred to Section 31 of the IBC and Ebix Singapore (supra) to explain that the resolution plan is binding on the creditors who have not consented to it. This is a very important factor, which indicates that the complainant under Section 138 NI Act is bound by the approved resolution plan, even though he may not have consented to it (if he is part of the CoC) or likes it. If he is not a part of the CoC, then also it is bind- ing on him.

65. Section 30(2)(e) of the IBC requires the resolution professional to approve the resolution plan, only if the same does not violate any of the provisions of the law for the time being in force. Thus, the clauses of the resolution plan cannot con- trol the Enactment/Rules in force. It is the resolution plan which has to comply with the laws in force. In the case on hand, any clause giving any effect to the corporate debtor under Section 138 NI Act proceedings, cannot be used to protect the signatories/direc-

tors under Section 138 / 141 NI Act.

66. Section 61(3)(i) of the IBC provides for an appeal against an order approving a resolution plan if it contravenes any provision of law.

“61. Appeals and Appellate Authority.— xxx xxx xxx (3) An appeal against an order approving a resolution plan under Sec- tion 31 may be filed on the following grounds, namely:

67. The complainant-creditor of Section 138 NI Act proceedings may or may not have any role to play in the approval of the resolution plan and majority of Section 138 creditors may be small players unlike big financial creditors.

68. The terms of the resolution plan cannot run contrary to the enactment i.e. the IBC or any other plenary law or rules.

69. Thus, the said clauses of the resolution plan have no role to play in answering the neat question of law, which is dependent on the interpretation of various provi- sions of the IBC and NI Act.

70. It was also sought to be argued on behalf of the appellant that the plain reading of the clauses of the resolution plan referred to above , would indicate that the respondent (complainant) could be said to have compounded the offence punishable under Section 138 of the NI Act.

71. ‘Compounding’ and ‘quashing’ are not synonymous terms. In law, they have different meanings and consequences. They arise from different situations and operate in different fields and stages. There is no apparent legal interdependence or interlink to the extent that one could exist only if the conditions of the other were satisfied or vice- versa. Quashing is one of the facets of inherent powers, while compounding of an offence being a statutory expression contained under Section 320 the CrPC is entirely a different concept.

72. The expressions 'compromise' and 'compounding' are not synonyms in criminal jurisprudence even though these expressions are usually used without any distinction.

Any dispute can be compromised between the parties if the terms are not illegal. But only a compoundable offence allowed by law can be compounded. A dispute relating to a crime can be compromised even before the case is registered, and in that case , victim of the crime may refuse to file a complaint. But if in spite of compromise, if he files a complaint and court finds that what is compromised is a compoundable offence, depending upon the facts and circumstances of each case Magistrate can refuse to take cognizance, or acquit the accused as offence was compounded or the complaint can be quashed in proceedings under Section 482 of the CrPC.

73. In a compromise, consensus between the parties to give and take is more important and in a compounding, decision of the victim of the offence not to prosecute and not to continue with prosecution is more important.

74. I am of the view that the clauses as contained in the resolution plan referred to above , only extinguishes the liability of the corporate debtor and not the natural persons.

75. As per Section 138 of the NI Act, when the cheque was dishonoured and a statu- tory notice demanding the cheque amount was issued, the accused shall pay the cheque amount within 15 days from the date of receipt of the said notice. The moment the said 15 days expired, the cause of action arises. In other words, the offence under Section 138 of the NI Act is complete. Once the cause of action arose for the offence commit- ted, the complainant has to approach the criminal court within one month to take penal action under Section 138 of the NI Act. To put it clearly, the complainant approaches the criminal court not for recovery of the legally enforceable debt, but for taking penal ac- tion under Section 138 of the NI Act for the offence already committed by the accused by not making the payment of the cheque amount despite the receipt of the statutory no- tice. The only question before the criminal court is whether the cheque issued by the ac- cused towards the discharge of his liability was dishonoured and despite the service of demand notice, whether he had not paid the amount. There is no bar contained in any of the provisions of the IBC, and the NI Act from approaching the criminal court to seek penal action under Section 138 of the NI Act.

FEW RELEVANT DECISIONS ON THE SUBJECT 38

76. In State Bank of India v. V. Ramakrishnan and Another reported in (2018) 17 SCC 394, this Court held that:-

This section only states that once a resolution plan, as approved by the Committee of Creditors, takes effect, it shall be binding on the corporate debtor as well as the guarantor. This is for the reason that otherwise, under Section 133 of the Contract Act, 1872, any change made to the debt owed by the corporate debtor, without the surety's consent, would relieve the guarantor from payment. Section 31(1) , in fact, makes it clear that the guarantor cannot escape payment as the resolution plan, which has been approved, may well include provisions as to payments to be made by such guarantor. This is perhaps the reason that Annexure VI(e) to Form 6 contained in the Rules and Regulation 36(2) referred to above , require information as to personal guarantees that have been given in relation to the debts of the corporate debtor. Far from supporting the stand of the respondents, it is clear that in point of fact, Section 31 is one more factor in favour of a personal guarantor having to pay for debts due without any moratorium applying to save him.

Xxx xxx xxx 26.1. Section 14 refers only to debts due by corporate debtors, who are limited liability companies, and it is clear that in the vast majority of cases, 39 personal guarantees are given by Directors who are in management of the companies. The object of the Code is not to allow such guarantors to escape from an independent and co-extensive liability to pay off the entire outstanding debt, which is why Section 14 is not applied to them. …” (Emphasis supplied)

77. In Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others reported in (2020) 8 SCC 531, this Court held that:

78. In Vijay Kumar Jain v. Standard Chartered Bank reported in (2019) 20 SCC 455, this Court held that:

79. In Lalit Kumar Jain (supra), this Court held that:

80. In JIK Industries Limited and Others v. Amarlal V. Jumani and Another reported in (2012) 3 SCC 255, this Court held that:

81. In Indorama Synthetics (I) Ltd., Nagpur v. State of Maharashtra and others 41 reported in 2016 SCC OnLine Bom 2611, the question that arose before the Bombay High Court was whether the expression “suit or other proceedings” mentioned in Section 446(1) of the Companies Act, 1956 would include criminal proceedings under Section 138 NI Act. It was held that:-

82. In Manish Kumar (supra), this Court upheld Section 32A of the IBC and stated thus:

Having regard to the object of the Code, the experience of the working of the Code, the interests of all stakeholders including most importantly the imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this Court to interfere. The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away. They remain liable. The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate. We must also not overlook the principle that the impugned provision is part of an economic measure. The reverence courts justifiably hold such laws in cannot but be applicable in the instant case as well. The provision deals with reference to offences committed prior to the commencement of the CIRP. With the admission of the application the management of the corporate debtor passes into the hands of the interim resolution professional and thereafter into the hands of the resolution professional subject undoubtedly to the control by the Committee of Creditors. As far as protection afforded to the property is concerned there is clearly a rationale behind it. Having regard to the object of the statute we hardly see any manifest arbitrariness in the provision.

327…..Significantly every person who was associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of the offence in terms of the report submitted continues to be liable to be prosecuted and punished for the offence committed by the corporate debtor.” (Emphasis supplied)

83. In P. Mohanraj (supra) Full Bench of this Court held thus:

43….the expression “prosecution” in the first proviso of Section 32-A(1) refers to criminal proceedings properly so-called either through the medium of a first information report or complaint filed by an investigating authority or complaint and not to quasi-criminal proceedings that are instituted under Sections 138/141 of the Negotiable Instruments Act against the corporate debtor, the object of Section 14(1) IBC gets subserved, as does the object of Section 32-A, which does away with criminal 45 prosecutions in all cases against the corporate debtor, thus absolving the corporate debtor from the same after a new management comes in.

Xxx xxx xxx

45. Section 138 contains within it the ingredients of the offence made out. The deeming provision is important in that the legislature is cognizant of the fact that what is otherwise a civil liability is now also deemed to be an offence, since this liability is made punishable by law. It is important to note that the transaction spoken of is a commercial transaction between two parties which involves payment of money for a debt or liability. The Explanation to Section 138 makes it clear that such debt or other liability means a legally enforceable debt or other liability. Thus, a debt or other liability barred by the law of limitation would be outside the scope of Section 138 . This, coupled with fine that may extend to twice the amount of the cheque that is payable as compensation to the aggrieved party to cover both the amount of the cheque and the interest and costs thereupon, would show that it is really a hybrid provision to enforce payment under a bounced cheque if it is otherwise enforceable in civil law. Further, though the ingredients of the offence are contained in the first part of Section 138 when the cheque is returned by the bank unpaid for the reasons given in the section, the proviso gives an opportunity to the drawer of the cheque, stating that the drawer must fail to make payment of the amount within 15 days of the receipt of a notice, again making it clear that the real object of the provision is not to penalise the wrongdoer for an offence that is already made out, but to compensate the victim.” (Emphasis supplied)

84. In Narinder Garg and Others v. Kotak Mahindra Bank Ltd. and Others reported in (2022) SCC OnLine SC 517, this Court held that:

85. Thus, the upshot of all the decisions referred to above is 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 per- sonal penal liability of the accused covered under Section 141 of the NI Act.

86. I may draw my final conclusions as under:

cating 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 man- agement.

(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.

87. In view of the aforesaid discussion, the appeal fails and is hereby dismissed.

88. The connected appeals also fail and are hereby dismissed.

89. Pending application(s), if any, shall stand disposed of.

………………………………………..J. (J.B. PARDIWALA) NEW DELHI;

MARCH 15, 2023.