LAW FOR ALL : whether the institution or continuation of a proceeding under Section 138/141 of the Negotiable Instruments Act can be said to be covered by the moratorium provision, namely, Section 14 of the IBC

Tuesday, March 2, 2021

whether the institution or continuation of a proceeding under Section 138/141 of the Negotiable Instruments Act can be said to be covered by the moratorium provision, namely, Section 14 of the IBC

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL/CRIMINAL APPELLATE JURISDICTION

CIVIL/CRIMINAL ORIGINAL JURISDICTION

CIVIL APPEAL NO.10355 OF 2018

P. MOHANRAJ & ORS. … APPELLANTS

VERSUS

M/S. SHAH BROTHERS ISPAT PVT. LTD. …RESPONDENT

WITH

CRIMINAL APPEAL NO._239___ OF 2021

(@ SPECIAL LEAVE PETITION (CRL.) NO._1955__ OF 2021)

(Diary No.32585/2019)

CRIMINAL APPEAL NO.___240________ OF 2021

(@ SPECIAL LEAVE PETITION (CRL.) NO.10587 OF 2019)

CRIMINAL APPEAL NO.__241______ OF 2021

(@ SPECIAL LEAVE PETITION (CRL.) NO.10857 OF 2019)

CRIMINAL APPEAL NO.__242_______ OF 2021

(@ SPECIAL LEAVE PETITION (CRL.) NO.10550 OF 2019)

CRIMINAL APPEAL NO.__243_______ OF 2021

(@ SPECIAL LEAVE PETITION (CRL.) NO.10858 OF 2019)

CRIMINAL APPEAL NO.___244______ OF 2021

(@ SPECIAL LEAVE PETITION (CRL.) NO.10860 OF 2019)

CRIMINAL APPEAL NO.____245_____ OF 2021

(@ SPECIAL LEAVE PETITION (CRL.) NO.10861 OF 2019)

CRIMINAL APPEAL NO. 246___ OF 2021

(@ SPECIAL LEAVE PETITION (CRL.) NO.10446 OF 2019)

CRIMINAL APPEAL Nos._247-248_ OF 2021

(@ SPECIAL LEAVE PETITION (CRL.) NOs.2246-2247 OF 2020)

CRIMINAL APPEAL NO.__200_____ OF 2021

(@ SPECIAL LEAVE PETITION (CRL.) NO.2496 OF 2020)

CRIMINAL APPEAL NO.__199____ OF 2021

(@ SPECIAL LEAVE PETITION (CRL.) NO.3500 OF 2020)

WRIT PETITION (CRIMINAL) NO.330 OF 2020

WRIT PETITION (CRIMINAL) NO.339 OF 2020

WRIT PETITION (CIVIL) NO.982 OF 2020

WRIT PETITION (CRIMINAL) NO.297 OF 2020

WRIT PETITION (CRIMINAL) NO.342 OF 2020

CRIMINAL APPEAL Nos._201-204__ OF 2021

(@ SPECIAL LEAVE PETITION (CRL.) NOs.5638-5651 OF 2020)

CRIMINAL APPEAL Nos._215-230__ OF 2021

(@ SPECIAL LEAVE PETITION (CRL.) NOs.5653-5668 OF 2020)

WRIT PETITION (CIVIL) NO.1417 OF 2020

WRIT PETITION (CIVIL) NO.1439 OF 2020

WRIT PETITION (CIVIL) NO.18 OF 2021

WRIT PETITION (CRIMINAL) NO.9 OF 2021

WRIT PETITION (CRIMINAL) NO.26 OF 2021

J U D G M E N T

R.F. Nariman, J.

1. Steel products were supplied by the respondent to one M/s.

Diamond Engineering Pvt. Ltd. [“the company”] from 21.09.2015 to

11.11.2016, as a result of which INR 24,20,91,054/- was due and payable

by the company. As many as 51 cheques were issued by the company in

favour of the respondent towards amounts payable for supplies, all of

which were returned dishonoured for the reason “funds insufficient” on

03.03.2017. As a result, on 31.03.2017, the respondent issued a statutory

demand notice under Section 138 read with Section 141 of the Negotiable

Instruments Act, 1881, calling upon the company and its three Directors,

the appellants no.1-3 herein, to pay this amount within 15 days of the

receipt of the notice.

2. On 28.04.2017, two cheques for a total amount of INR 80,70,133/-

presented by the respondent for encashment were returned dishonoured

for the reason “funds insufficient”. A second demand notice dated

05.05.2017 was therefore issued under the selfsame Sections by the

respondent, calling upon the company and the appellants to pay this

amount within 15 days of the receipt of the notice.

3. Since no payment was forthcoming pursuant to the two statutory

demand notices, two criminal complaints, being Criminal Complaint

No.SS/552/2017 and Criminal Complaint No. SS/690/2017 dated

17.05.2017 and 21.06.2017, respectively, were filed by the respondent

against the company and the appellants under Section 138 read with

Section 141 of the Negotiable Instruments Act before the Additional Chief

Metropolitan Magistrate [“ACMM”], Kurla, Mumbai. On 12.02.2018,

summons were issued by the ACMM to the company and the appellants

in both the criminal complaints.

4. Meanwhile, as a statutory notice under Section 8 of the Insolvency

and Bankruptcy Code, 2016 [“IBC”] had been issued on 21.03.2017 by

the respondent to the company, and as an order dated 06.06.2017 was

passed by the Adjudicating Authority admitting the application under

Section 9 of the IBC and directing commencement of the corporate

insolvency resolution process with respect to the company, a moratorium

in terms of Section 14 of the IBC was ordered. Pursuant thereto, on

24.05.2018, the Adjudicating Authority stayed further proceedings in the

two criminal complaints pending before the ACMM. In an appeal filed to

the National Company Law Appellate Tribunal [“NCLAT”], the NCLAT set

aside this order, holding that Section 138, being a criminal law provision,

cannot be held to be a “proceeding” within the meaning of Section 14 of

the IBC. In an appeal filed before this Court, on 26.10.2018, this Court

ordered a stay of further proceedings in the two complaints pending

before the learned ACMM. On 30.09.2019, since a resolution plan

submitted by the promoters of the company had been approved by the

committee of creditors, the Adjudicating Authority approved such plan as

a result of which, the moratorium order dated 06.06.2017 ceased to have

effect. It may only be added that at present, an application for withdrawal

of approval of this resolution plan has been filed by the financial creditors

of the company before the Adjudicating Authority. Equally, an application

to extend time for implementation of this plan has been filed by the

resolution applicant sometime in October 2020 before the Adjudicating

Authority. Both these applications have yet to be decided by the

Adjudicating Authority, the next date of hearing before such Authority

being 08.02.2021.

5. The important question that arises in this appeal is whether the

institution or continuation of a proceeding under Section 138/141 of the

Negotiable Instruments Act can be said to be covered by the moratorium

provision, namely, Section 14 of the IBC.

6. Shri Jayanth Muth Raj, learned Senior Advocate appearing on

behalf of the appellants, has painstakingly taken us through various

provisions of the IBC and has argued that the object of Section 14 being

that the assets of the corporate debtor be preserved during the corporate

insolvency resolution process, it would be most incongruous to hold that a

Section 138 proceeding, which, although a criminal proceeding, is in

essence to recover the amount of the bounced cheque, be kept out of the

word “proceedings” contained in Section 14(1)(a) of the IBC. According to

the learned Senior Advocate, given the object of Section 14, there is no

reason to curtail the meaning of the expression “proceedings”, which

would therefore include all proceedings against the corporate debtor, civil

or criminal, which would result in “execution” of any judgment for payment

of compensation. He emphasised the fact that Section 14(1)(a) was

extremely wide and ought not to be cut down by judicial interpretation

given the expression “any” occurring twice in Section 14(1)(a), thus

emphasising that so long as there is a judgment by any court of law

(which even extends to an order by an authority) which results in coercive

steps being taken against the assets of the corporate debtor, all such

proceedings are necessarily subsumed within the meaning of Section

14(1)(a). He also referred to the width of Section 14(1)(b) and the

language of Section 14(1)(b) and therefore argued that given the object of

Section 14, no rule of construction, be it ejusdem generis or noscitur a

sociis can be used to cut down the plain meaning of the words used in

Section 14(1)(a). He cited a number of judgments in support of this

proposition. He also argued that in any event, even if criminal

proceedings properly so-called are to be excluded from Section 14(1)(a),

a Section 138 proceeding being quasi-criminal in nature, whose dominant

object is compensation being payable to the person in whose favour a

cheque is made, which has bounced, the punitive aspect of Section 138

being only to act as an in terrorem proceeding to achieve this result, it is

clear that in any event, a hybrid proceeding partaking of this nature would

certainly be covered. He cited a number of judgments in order to buttress

this proposition as well.

7. Shri Jayant Mehta, learned Advocate appearing on behalf of the

respondent, rebutted each of these submissions with erudition and grace.

He referred to the Report of the Insolvency Law Committee of February

2020 to drive home his point that the object of Section 14 being a limited

one, a criminal proceeding could not possibly be included within it. He

further went on to juxtapose the moratorium provisions which would apply

in the case of individuals and firms in Sections 85, 96, and 101 of the IBC,

emphasising that the language of these provisions being wider would, by

way of contrast, include a Section 138 proceeding so far as individuals

and firms are concerned, which has been expressly eschewed so far as

Section 14’s applicability to corporate debtors is concerned. He relied

upon the ejusdem generis/noscitur a sociis rules of construction that had,

in fact, been applied to Section 14(1)(a) by the Bombay High Court and

the Calcutta High Court to press home his point that since the expression

“proceedings” takes its colour from the previous expression “suits”, such

proceedings must necessarily be civil in nature. He cited judgments which

distinguish between civil and criminal proceedings and went on to argue

that Section 138 of the Negotiable Instruments Act is a criminal

proceeding whose object may be two fold, the primary object being to

make what was once a civil wrong punishable by a jail sentence and/or

fine. He relied heavily upon judgments which construed like expressions

contained in Section 22(1) of the Sick Industrial Companies Act, 1985

[“SICA”], and Section 446(2) of the Companies Act, 1956. He also was at

pains to point out from several judgments that the Delhi High Court had

not applied Section 14 of the IBC to stay proceedings under Section 34 of

the Arbitration and Conciliation Act, 1996; the Bombay High Court had not

applied Section 14 of the IBC to stay prosecution under the Employees’

Provident Funds Act, 1952; and that the Delhi High Court had not stayed

proceedings covered by the Prevention of Money-Laundering Act, 2002,

stating that criminal proceedings were not the subject matter of Section

14 of the IBC. He thus supported the judgment under appeal, stating that

the consistent view of the High Courts has been that Section 138, being a

criminal law provision, could not possibly be said to be covered by

Section 14 of the IBC. He also relied upon the provision contained in

Section 33(5) of the IBC to argue that when a liquidation order is passed,

no suit or other legal proceeding can be instituted by or against a

corporate debtor, similar to what is contained in Section 446 of the

Companies Act, 1956, and if those decisions are seen, then the

expression “or other legal proceeding” obviously cannot include criminal

proceedings. On the other hand, in any case, the expression “or other

legal proceeding” should be contrasted with the word “proceedings” in

Section 14(1)(a) of the IBC, which cannot possibly include a criminal

proceeding, given its object. Lastly, he also relied upon Section 32A of

the IBC, which was introduced by the Insolvency and Bankruptcy Code

(Amendment) Act, 2020 w.e.f. 28.12.2019, and emphasised the fact that

the liability of a corporate debtor for an offence committed prior to the

commencement of the corporate insolvency resolution process shall

cease in certain circumstances. This provision would have been wholly

unnecessary if Section 14(1)(a) were to cover criminal offences as well,

as they would cease for the period of moratorium. Thus, he argued that

this Section throws considerable light on the fact that criminal

prosecutions are outside the ken of the expression “proceedings”

contained in Section 14(1)(a) of the IBC.

8. Shri Aman Lekhi, learned Additional Solicitor General, appearing on

behalf of the Union of India in W.P. (Crl.) No. 297/2020, has

comprehensively taken us through Chapter XVII of the Negotiable

Instruments Act to argue that a plain reading of the said Chapter would

reveal that the offence under Section 138 is a purely criminal offence

which results in imposition of a jail sentence or fine or both, being

punishments exclusively awardable under Section 53 of the Indian Penal

Code, 1860 only in a criminal proceeding, and hence, does not fall within

“proceedings” contemplated by Section 14 of the IBC. He further states

that since compounding under criminal law can only take place at the

instance of the complainant/injured party, a subordinate criminal court has

no inherent power to terminate proceedings under Section 138/141 upon

“payment of compensation to the satisfaction of the court”. He then relied

upon the rule of noscitur a sociis to state that since the expression

“proceedings” contained in Section 14(1)(a) of the IBC is preceded by the

expression “suits” and followed by the expression “execution”, it has to be

read in a sense analogous to civil proceedings dealing with private rights

of action as contrasted with criminal proceedings which deal with public

wrongs. According to the learned Additional Solicitor General, the intent

manifest in Section 14 of the IBC is reinforced by the introduction of

Section 32A to the IBC in that if the intent of Section 14 were to prohibit

initiation or continuation of criminal proceedings, the legislature would not

have contemplated the introduction of Section 32A by way of amendment.

He further states that if the expression “proceedings” contained in Section

14 were to be construed so as to include criminal proceedings, it would

render the first proviso to Section 32, which deals with institution of

prosecution against a corporate debtor during the corporate insolvency

resolution process, and the second proviso, which indicates pendency of

criminal prosecution against those in charge of and responsible for the

conduct of the corporate debtor, otiose. He relied on the judgment in

Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661

[“Aneeta Hada”] to buttress his submission that criminal liability can fall

on Directors/persons in charge of and responsible for the conduct of the

corporate debtor even where the corporate debtor may not be proceeded

against by virtue of Section 14 or Section 32A. He lastly submits that

Sections 81 and 101 of the IBC, in speaking of a moratorium in context of

“any debt” also lend support to his contention that moratorium under the

IBC only applies to civil proceedings within the realm of private law, and

that since Section 138 proceedings are not proceedings for the recovery

of a debt, they cannot fall within the moratorium provisions set out by

Sections 14 or 81 or 101.

INTERPRETATION OF SECTION 14 OF THE IBC

9. Having heard learned counsel, it is important at this stage to set out

Section 14 of the IBC, which reads as follows:

“14. Moratorium.—(1) Subject to provisions of sub-sections

(2) and (3), on the insolvency commencement date, the

Adjudicating Authority shall by order declare moratorium for

prohibiting all of the following, namely—

(a) the institution of suits or continuation of pending

suits or proceedings against the corporate debtor

including execution of any judgment, decree or

order in any court of law, tribunal, arbitration panel

or other authority;

(b) transferring, encumbering, alienating or disposing of

by the corporate debtor any of its assets or any

legal right or beneficial interest therein;

security interest created by the corporate debtor in

respect of its property including any action under

the Securitisation and Reconstruction of Financial

Assets and Enforcement of Security Interest Act,

2002 (54 of 2002);

(d) the recovery of any property by an owner or lessor

where such property is occupied by or in the

possession of the corporate debtor.

Explanation.—For the purposes of this sub-section, it is

hereby clarified that notwithstanding anything contained in any

other law for the time being in force, a license, permit,

registration, quota, concession, clearances or a similar grant

or right given by the Central Government, State Government,

local authority, sectoral regulator or any other authority

constituted under any other law for the time being in force,

shall not be suspended or terminated on the grounds of

insolvency, subject to the condition that there is no default in

payment of current dues arising for the use or continuation of

the license, permit, registration, quota, concession, clearances

or a similar grant or right during the moratorium period.

(2) The supply of essential goods or services to the corporate

debtor as may be specified shall not be terminated or

suspended or interrupted during moratorium period.

(2-A) Where the interim resolution professional or resolution

professional, as the case may be, considers the supply of

goods or services critical to protect and preserve the value of

the corporate debtor and manage the operations of such

corporate debtor as a going concern, then the supply of such

goods or services shall not be terminated, suspended or

interrupted during the period of moratorium, except where

such corporate debtor has not paid dues arising from such

supply during the moratorium period or in such circumstances

as may be specified.

(3) The provisions of sub-section (1) shall not apply to—

(a) such transactions, agreements or other

arrangements as may be notified by the Central

Government in consultation with any financial sector

regulator or any other authority;

(b) a surety in a contract of guarantee to a corporate

debtor.

(4) The order of moratorium shall have effect from the date of

such order till the completion of the corporate insolvency

resolution process:

Provided that where at any time during the corporate

insolvency resolution process period, if the Adjudicating

Authority approves the resolution plan under sub-section (1) of

Section 31 or passes an order for liquidation of corporate

debtor under Section 33, the moratorium shall cease to have

effect from the date of such approval or liquidation order, as

the case may be.”

10. A cursory look at Section 14(1) makes it clear that subject to the

exceptions contained in sub-sections (2) and (3), on the insolvency

commencement date, the Adjudicating Authority shall mandatorily, by

order, declare a moratorium to prohibit what follows in clauses (a) to (d).

Importantly, under sub-section (4), this order of moratorium does not

continue indefinitely, but has effect only from the date of the order

declaring moratorium till the completion of the corporate insolvency

resolution process which is time bound, either culminating in the order of

the Adjudicating Authority approving a resolution plan or in liquidation.

11. The two exceptions to Section 14(1) are contained in sub-sections

(2) and (3) of Section 14. Under sub-section (2), the supply of essential

goods or services to the corporate debtor during this period cannot be

terminated or suspended or even interrupted, as otherwise the corporate

debtor would be brought to its knees and would not able to function as a

going concern during this period. The exception created in sub-section (3)

(a) is important as it refers to “transactions” as may be notified by the

Central Government in consultation with experts in finance. The

expression “financial sector regulator” is defined by Section 3(18) as

follows:

“3. Definitions.—In this Code, unless the context otherwise

requires,—

xxx xxx xxx

(18) “financial sector regulator” means an authority or body

constituted under any law for the time being in force to

regulate services or transactions of financial sector and

includes the Reserve Bank of India, the Securities and

Exchange Board of India, the Insurance Regulatory and

Development Authority of India, the Pension Fund Regulatory

Authority and such other regulatory authorities as may be

notified by the Central Government;

xxx xxx xxx”

12. Thus, the Central Government, in consultation with experts, may

state that the moratorium provision will not apply to such transactions as

may be notified. This is of some importance as Section 14(1)(a) does not

indicate as to what the proceedings contained therein apply to. Sub14

section 3(a) provides the answer – that such “proceedings” relate to

“transactions” entered into by the corporate debtor pre imposition of the

moratorium. Section 3(33) defines “transaction” as follows:

“3. Definitions.—In this Code, unless the context otherwise

requires,—

xxx xxx xxx

(33) “transaction” includes an agreement or arrangement in

writing for the transfer of assets, or funds, goods or services,

from or to the corporate debtor;

xxx xxx xxx”

13. This definition being an inclusive one is extremely wide in nature

and would include a transaction evidencing a debt or liability. This is made

clear by Section 96(3) and Section 101(3) which contain the same

language as Section 14(3)(a), these Sections speaking of ‘debts’ of the

individual or firm. Equally important is Section 14(3)(b), by which a surety

in a contract of guarantee of a debt owed by a corporate debtor cannot

avail of the benefit of a moratorium as a result of which a creditor can

enforce a guarantee, though not being able to enforce the principal debt

during the period of moratorium – see State Bank of India v. V.

Ramakrishnan, (2018) 17 SCC 394 (at paragraph 20) [“V.

Ramakrishnan”].

14. We now come to the language of Section 14(1)(a). It will be noticed

that the expression “or” occurs twice in the first part of Section 14(1)(a) –

first, between the expressions “institution of suits” and “continuation of

pending suits” and second, between the expressions “continuation of

pending suits” and “proceedings against the corporate debtor…”. The

sweep of the provision is very wide indeed as it includes institution,

continuation, judgment and execution of suits and proceedings. It is

important to note that an award of an arbitration panel or an order of an

authority is also included. This being the case, it would be incongruous to

hold that the expression “the institution of suits or continuation of pending

suits” must be read disjunctively as otherwise, the institution of arbitral

proceedings and proceedings before authorities cannot be subsumed

within the expression institution of “suits” which are proceedings in civil

courts instituted by a plaint (see Section 26 of the Code of Civil

Procedure, 1908). Therefore, it is clear that the expression “institution of

suits or continuation of pending suits” is to be read as one category, and

the disjunctive “or” before the word “proceedings” would make it clear that

proceedings against the corporate debtor would be a separate category.

What throws light on the width of the expression “proceedings” is the

expression “any judgment, decree or order” and “any court of law,

tribunal, arbitration panel or other authority”. Since criminal proceedings

under the Code of Criminal Procedure, 1973 [“CrPC”] are conducted

before the courts mentioned in Section 6, CrPC, it is clear that a Section

138 proceeding being conducted before a Magistrate would certainly be a

proceeding in a court of law in respect of a transaction which relates to a

debt owed by the corporate debtor. Let us now see as to whether the

expression “proceedings” can be cut down to mean civil proceedings

stricto sensu by the use of rules of interpretation such as ejusdem generis

and noscitur a sociis.

APPLICATION OF THE NOSCITUR A SOCIIS RULE OF

INTERPRETATION

15. Shri Aman Lekhi, learned Additional Solicitor General, relied upon

the judgment in State of Assam v. Ranga Mahammad, (1967) 1 SCR

454. The Court was concerned with the meaning of the expression

“posting” which occurs in Article 233 of the Constitution, qua District

Judges in a State. Applying the doctrine of noscitur a sociis, this Court

held that given the fact that the expression “posting” comes in between

“appointment” and “promotion” of District Judges, it is clear that a

narrower meaning has to be assigned to it, namely, that of assigning

someone to a post which would not include “transfer”. Quite apart from

the positioning of the word “posting” in between “appointment” and

“promotion”, from which it took its colour, even otherwise, Articles 234 and

235 of the Constitution would make it clear that since “transfer” of District

Judges is with the High Court and not with the State Government, quite

obviously, the expression “posting” could not be used in its wider sense –

see pages 460 and 461. This judgment is an early application of the rule

of noscitur a sociis, given the position of a wider word between two

narrow words, and more importantly, the reading of other allied provisions

in the Constitution.

16. In Jagdish Chander Gupta v. Kajaria Traders (India) Ltd., (1964)

8 SCR 50, a five-Judge Bench of this Court had to decide as to whether

the expression “or other proceeding” occurring in Section 69(3) of the

Indian Partnership Act, 1932 would include a proceeding to appoint an

arbitrator under Section 8(2) of the Arbitration Act, 1940. This Court held:

“It remains, however, to consider whether by reason of the

fact that the words “other proceeding” stand opposed to the

words “a claim of set-off” any limitation in their meaning was

contemplated. It is on this aspect of the case that the learned

Judges have seriously differed. When in a statute particular

classes are mentioned by name and then are followed by

general words, the general words are sometimes construed

ejusdem generis i.e. limited to the same category or genus

comprehended by the particular words but it is not necessary

that this rule must always apply. The nature of the special

words and the general words must be considered before the

rule is applied. In Allen v. Emersons [(1944) IKB 362] Asquith,

J., gave interesting examples of particular words followed by

general words where the principle of ejusdem generis might or

might not apply. We think that the following illustration will

clear any difficulty. In the expression “books, pamphlets,

newspapers and other documents” private letters may not be

held included if “other documents” be interpreted ejusdem

generis with what goes before. But in a provision which reads

“newspapers or other document likely to convey secrets to the

enemy”, the words “other document” would include document

of any kind and would not take their colour from “newspapers”.

It follows, therefore, that interpretation ejusdem generis or

noscitur a sociis need not always be made when words

showing particular classes are followed by general words.

Before the general words can be so interpreted there must be

a genus constituted or a category disclosed with reference to

which the general words can and are intended to be restricted.

Here the expression “claim of set-off” does not disclose a

category or a genus. Set-offs are of two kinds — legal and

equitable — and both are already comprehended and it is

difficult to think of any right “arising from a contract” which is of

the same nature as a claim of set-off and can be raised by a

defendant in a suit. Mr B.C. Misra, whom we invited to give us

examples, admitted frankly that it was impossible for him to

think of any proceeding of the nature of a claim of set-off other

than a claim of set-off which could be raised in a suit such as

is described in the second sub-section. In respect of the first

sub-section he could give only two examples. They are (i) a

claim by a pledger of goods-with an unregistered firm whose

good are attached and who has to make an objection under

Order 21 Rule 58 of the Code of Civil Procedure and (ii)

proving a debt before a liquidator. The latter is not raised as a

defence and cannot belong to the same genus as a “claim of

set-off”. The former can be made to fit but by a stretch of

some considerable imagination. It is difficult for us to accept

that the legislature was thinking of such far-fetched things

when it spoke of “other proceeding” ejusdem generis with a

claim of set-off.”

(at pages 56-57)

“In our judgment, the words “other proceeding” in subsection (3) must receive their full meaning untrammelled by

the words “a claim of set-off”. The latter words neither intend

nor can be construed to cut down the generality of the words

“other proceeding”. The sub-section provides for the

application of the provisions of sub-sections (1) and (2) to

claims of set-off and also to other proceedings of any kind

which can properly be said to be for enforcement of any right

arising from contract except those expressly mentioned as

exceptions in sub-section (3) and sub-section (4).”

(at page 60)

17. Likewise, in Rajasthan State Electricity Board v. Mohan Lal,

(1967) 3 SCR 377, this Court had to decide whether the expression “other

authorities” in Article 12 of the Constitution of India took its colour from the

preceding expressions used in the said Article, making such authorities

only those authorities who exercised governmental power. This was

emphatically turned down by a Constitution Bench of this Court, stating:

“In our opinion, the High Courts fell into an error in applying

the principle of ejusdem generis when interpreting the

expression “other authorities” in Article 12 of the Constitution,

as they overlooked the basic principle of interpretation that, to

invoke the application of ejusdem generis rule, there must be

a distinct genus or category running through the bodies

already named. Craies on, Statute Law summarises the

principle as follows:

“The ejusdem generis rule is one to be applied

with caution and not pushed too far…. To invoke

the application of the ejusdem generis rule there

must be a distinct genus or category. The specific

words must apply not to different objects of a

widely differing character but to something which

can be called a class or kind of objects. Where this

is lacking, the rule cannot apply, but the mention of

a single species does not constitute a genus

[Craies on Statute Law, 6th Edn, p 181].”

Maxwell in his book on ‘Interpretation of Statutes’ explained

the principle by saying: “But the general word which follows

particular and specific words of the same nature as itself takes

its meaning from them, and is presumed to be restricted to the

same genus as those words …. Unless there is a genus or

category, there is no room for the application of the ejusdem

generis doctrine [Maxwell on Interpretation of Statutes, 11th

Edn pp. 326, 327]”. In United Towns Electric Co., Ltd. v.

Attorney-General for Newfoundland [(1939) I AER 423] , the

Privy Council held that, in their opinion, there is no room for

the application of the principle of ejusdem generis in the

absence of any mention of a genus, since the mention of a

single species — for example, water rates — does not

constitute a genus. In Article 12 of the Constitution, the bodies

specifically named are the Executive Governments of the

Union and the States, the Legislatures of the Union and the

States, and local authorities. We are unable to find any

common genus running through these named bodies, nor can

these bodies be placed in one single category on any rational

basis. The doctrine of ejusdem generis could not, therefore,

be, applied to the interpretation of the expression “other

authorities” in this article.

The meaning of the word “authority” given in Webster's

Third New International Dictionary, which can be applicable, is

a public administrative agency or corporation having quasigovernmental powers and authorised to administer a revenueproducing public enterprise. This dictionary meaning of the

word “authority” is clearly wide enough to include all bodies

created by a statute on which powers are conferred to carry

out governmental or quasi-governmental functions. The

expression “other authorities” is wide enough to include within

it every authority created by a statute and functioning within

the territory of India, or under the control of the Government of

India; and we do not see any reason to narrow down this

meaning in the context in which the words “other authorities”

are used in Article 12 of the Constitution.”

(at pages 384-385)

18. In CBI v. Braj Bhushan Prasad, (2001) 9 SCC 432, this Court was

asked to construe Section 89 of the Bihar Reorganisation Act with

reference to noscitur a sociis. In turning this down, this Court held:

“26. We pointed out the above different shades of meanings in

order to determine as to which among them has to be chosen

for interpreting the said word falling in Section 89 of the Act.

The doctrine of noscitur a sociis (meaning of a word should be

known from its accompanying or associating words) has much

relevance in understanding the import of words in a statutory

provision. The said doctrine has been resorted to with

advantage by this Court in a number of cases vide Bangalore

Water Supply & Sewerage Board v. A. Rajappa [(1978) 2 SCC

213 : 1978 SCC (L&S) 215], Rohit Pulp and Paper Mills Ltd. v.

CCE [(1990) 3 SCC 447], Oswal Agro Mills Ltd. v. CCE [1993

Supp (3) SCC 716], K. Bhagirathi G. Shenoy v. K.P.

Ballakuraya [(1999) 4 SCC 135] and Lokmat Newspapers (P)

Ltd. v. Shankarprasad [(1999) 6 SCC 275 : 1999 SCC (L&S)

1090].

27. If so, we have to gauge the implication of the words

“proceeding relating exclusively to the territory” from the

surrounding context. Section 89 of the Act says that

proceeding pending prior to the appointed day before “a court

(other than the High Court), tribunal, authority or officer” shall

stand transferred to the “corresponding court, tribunal,

authority or officer” of Jharkhand State. A very useful index is

provided in the Section by defining the words “corresponding

court, tribunal, authority or officer in the State of Jharkhand”

as this: [Section 89(3)(b)(i)]

“The court, tribunal, authority or officer in which, or

before whom, the proceeding would have laid if it

had been instituted after the appointed day;”

28. Look at the words “would have laid if it had been instituted

after the appointed day”. In considering the question as to

where the proceeding relating to the 36 cases involved in

these appeals would have laid, had they been instituted after

the appointed day, we have absolutely no doubt that the

meaning of the word “exclusively” should be understood as

“substantially all or for the greater part or principally”.

29. We cannot overlook the main object of Section 89 of the

Act. It must not be forgotten that transfer of criminal cases is

not the only subject covered by the Section. The provision

seeks to allocate the files or records relating to all

proceedings, after the bifurcation if they were to be instituted

after the appointed day. Any interpretation should be one

which achieves that object and not that which might create

confusion or perplexity or even bewilderment to the officers of

the respective States. In other words, the interpretation should

be made with pragmatism, not pedantically or in a stilted

manner. For the purpose of criminal cases, we should bear in

mind the subject-matter of the case to be transferred. When

so considering, we have to take into account further that all

the 36 cases are primarily for the offences under the PC Act

and hence they are all triable before the Courts of Special

Judges. Hence, the present question can be determined by

reference to the provisions of the PC Act.”

19. In Godfrey Phillips India Ltd. v. State of U.P., (2005) 2 SCC 515,

a Constitution Bench of this Court had to construe the meaning of the

expression “luxury” in Entry 62 of List 2 of the Seventh Schedule to the

Constitution of India. In this context, the rule of noscitur a sociis was

applied by the Court, the Court also pointing out how a court must be

careful before blindly applying the principle, as follows:

“77. In the present context the general meaning of “luxury” has

been explained or clarified and must be understood in a sense

analogous to that of the less general words such as

entertainments, amusements, gambling and betting, which are

clubbed with it. This principle of interpretation known as

“noscitur a sociis” has received approval in Rainbow Steels

Ltd. v. CST [(1981) 2 SCC 141 : 1981 SCC (Tax) 90] , SCC at

p. 145 although doubted in its indiscriminate application in

State of Bombay v. Hospital Mazdoor Sabha [(1960) 2 SCR

866 : AIR 1960 SC 610] . In the latter case this Court was

required to construe Section 2(j) of the Industrial Disputes Act

which read:

“2(j) ‘industry’ means any business, trade,

undertaking, manufacture or calling of employers

and includes any calling, service, employment,

handicraft, or industrial occupation or avocation of

workmen.”

78. It was found that the words in the definition were of very

wide and definite import. It was suggested that these words

should be read in a restricted sense having regard to the

included items on the principle of “noscitur a sociis”. The

suggestion was rejected in the following language: (Hospital

Mazdoor Sabha case [(1960) 2 SCR 866 : AIR 1960 SC 610] ,

SCR p. 874)

“It must be borne in mind that noscitur a sociis is

merely a rule of construction and it cannot prevail in

cases where it is clear that the wider words have

been deliberately used in order to make the scope

of the defined word correspondingly wider. It is only

where the intention of the legislature in associating

wider words with words of narrower significance is

doubtful, or otherwise not clear that the present rule

of construction can be usefully applied. It can also

be applied where the meaning of the words of wider

import is doubtful; but, where the object of the

legislature in using wider words is clear and free of

ambiguity, the rule of construction in question

cannot be pressed into service.” (AIR p. 614, para

(emphasis in original)

79. We do not read this passage as excluding the application

of the principle of noscitur a sociis to the present case since it

has been amply demonstrated with reference to authority that

the meaning of the word “luxury” in Entry 62 is doubtful and

has been defined and construed in different senses.

xxx xxx xxx

81. We are aware that the maxim of noscitur a sociis may be a

treacherous one unless the “societas” to which the “socii”

belong, are known. The risk may be present when there is no

other factor except contiguity to suggest the “societas”. But

where there is, as here, a term of wide denotation which is not

free from ambiguity, the addition of the words such as

“including” is sufficiently indicative of the societas. As we have

said, the word “includes” in the present context indicates a

commonality or shared features or attributes of the including

word with the included.

xxx xxx xxx

83. Hence on an application of general principles of

interpretation, we would hold that the word “luxuries” in Entry

62 of List II means the activity of enjoyment of or indulgence in

that which is costly or which is generally recognised as being

beyond the necessary requirements of an average member of

society and not articles of luxury.”

20. In Vikram Singh v. Union of India, (2015) 9 SCC 502, this Court

was asked to construe the expression “government or any other person”

contained in Section 364-A of the Indian Penal Code, 1860 with reference

to ejusdem generis. This Court, in repelling the contention, went on to

hold:

“26. We may before parting with this aspect of the matter also

deal with the argument that the expression “any other person”

appearing in Section 364-A IPC ought to be read ejusdem

generis with the expression preceding the said words. The

argument needs notice only to be rejected. The rule of

ejusdem generis is a rule of construction and not a rule of law.

Courts have to be very careful in applying the rule while

interpreting statutory provisions. Having said that the rule

applies in situations where specific words forming a distinct

genus class or category are followed by general words. The

first stage of any forensic application of the rule, therefore, has

to be to find out whether the preceding words constitute a

genus class or category so that the general words that follow

them can be given the same colour as the words preceding. In

cases where it is not possible to find the genus in the use of

the words preceding the general words, the rule of ejusdem

generis will have no application.

27. In Siddeshwari Cotton Mills (P) Ltd. v. Union of India

[(1989) 2 SCC 458 : 1989 SCC (Tax) 297] M.N.

Venkatachaliah, J., as His Lordship then was, examined the

rationale underlying ejusdem generis as a rule of construction

and observed: (SCC p. 463, para 14)

“14. The principle underlying this approach to

statutory construction is that the subsequent

general words were only intended to guard against

some accidental omission in the objects of the kind

mentioned earlier and were not intended to extend

to objects of a wholly different kind. This is a

presumption and operates unless there is some

contrary indication. But the preceding words or

expressions of restricted meaning must be

susceptible of the import that they represent a class.

If no class can be found, ejusdem generis rule is not

attracted and such broad construction as the

subsequent words may admit will be favoured. As a

learned author puts it:

‘… if a class can be found, but the specific words

exhaust the class, then rejection of the rule may be

favoured because its adoption would make the

general words unnecessary; if, however, the specific

words do not exhaust the class, then adoption of the

rule may be favoured because its rejection would

make the specific words unnecessary.’

[See: Construction of Statutes by E.A. Driedger p.

95 quoted by Francis Bennion in his Statutory

Construction, pp. 829 and 830.]”

28. Relying upon the observations made by Francis Bennion

in his Statutory Construction and English decision in Magnhild

v. McIntyre Bros. & Co. [(1920) 3 KB 321] and those rendered

by this Court in Tribhuban Parkash Nayyar v. Union of

India [(1969) 3 SCC 99], U.P. SEB v. Hari Shankar Jain

[(1978) 4 SCC 16 : 1978 SCC (L&S) 481], His Lordship

summed up the legal principle in the following words:

(Siddeshwari Cotton Mills case [(1989) 2 SCC 458 : 1989

SCC (Tax) 297], SCC p. 464, para 19)

“19. The preceding words in the statutory provision

which, under this particular rule of construction,

control and limit the meaning of the subsequent

words must represent a genus or a family which

admits of a number of species or members. If there

is only one species it cannot supply the idea of a

genus.”

29. Applying the above to the case at hand, we find that

Section 364-A added to IPC made use of only two

expressions viz. “Government” or “any other person”.

Parliament did not use multiple expressions in the provision

constituting a distinct genus class or category. It used only

one single expression viz. “Government” which does not

constitute a genus, even when it may be a specie. The

situation, at hand, is somewhat similar to what has been

enunciated in Craies on Statute Law (7th Edn.) at pp. 181-82

in the following passage:

“… The modern tendency of the law, it was said [by

Asquith, J. in Allen v. Emerson (1944 KB 362 :

(1944) 1 All ER 344)], is ‘to attenuate the application

of the rule of ejusdem generis’. To invoke the

application of the ejusdem generis rule there must

be a distinct genus or category. The specific words

must apply not to different objects of a widely

differing character but to something which can be

called a class or kind of objects. Where this is

lacking, the rule cannot apply (Hood-Barrs v. IRC

[(1946) 2 All ER 768 (CA)]), but the mention of a

single species does not constitute a genus. (Per

Lord Thankerton in United Towns Electric Co. Ltd. v.

Attorney General for Newfoundland [(1939) 1 All ER

423 (PC)].) ‘Unless you can find a category’, said

Farwell L.J. (Tillmanns and Co. v. S.S. Knutsford

Ltd. [(1908) 2 KB 385 (CA)] ), ‘there is no room for

the application of the ejusdem generis doctrine’, and

where the words are clearly wide in their meaning

they ought not to be qualified on the ground of their

association with other words. For instance, where a

local Act required that ‘theatres and other places of

public entertainment’ should be licensed, the

question arose whether a ‘fun-fair’ for which no fee

was charged for admission was within the Act. It

was held to be so, and that the ejusdem generis

rule did not apply to confine the words ‘other places’

to places of the same kind as theatres. So the

insertion of such words as ‘or things of whatever

description’ would exclude the rule. (Attorney

General v. Leicester Corpn. [(1910) 2 Ch 359 :

(1908-10) All ER Rep Ext 1002] ) In National Assn.

of Local Govt. Officers v. Bolton Corpn. [1943 AC

166 : (1942) 2 All ER 425 (HL)] Lord Simon L.C.

referred to a definition of ‘workman’ as any person

who has entered into a works under a contract with

an employer whether the contract be by way of

manual labour, clerical work ‘or otherwise’ and said:

‘The use of the words “or otherwise” does not bring

into play the ejusdem generis principle: for “manual

labour” and “clerical work” do not belong to a single

limited genus' and Lord Wright in the same case

said: ‘The ejusdem generis rule is often useful or

convenient, but it is merely a rule of construction,

not a rule of law. In the present case it is entirely

inapt. It presupposes a “genus” but here the only

“genus” is a contract with an employer’.

(emphasis supplied)

30. The above passage was quoted with approval by this

Court in Grasim Industries Ltd. v. Collector of Customs [(2002)

4 SCC 297] holding that Note 1(a) of Chapter 84 relevant to

that case was clear and unambiguous. It did not speak of a

class, category or genus followed by general words making

the rule of ejusdem generis inapplicable.”

xxx xxx xxx

“32. This would mean that the term “person” appearing in

Section 364-A IPC would include a company or association or

body of persons whether incorporated or not, apart from

natural persons. The tenor of the provision, the context and

the statutory definition of the expression “person” all militate

against any attempt to restrict the meaning of the term

“person” to the “Government” or “foreign State” or

“international inter-governmental organisations” only.”

21. In Pioneer Urban Land and Infrastructure Ltd. v. Union of India,

(2019) 8 SCC 416, this Court laid down the limits of the application of the

rule of construction that is contained in the expression “noscitur a sociis”

as follows:

“84. It was then argued, relying on a large number of

judgments that Section 5(8)(f) must be construed noscitur a

sociis with clauses (a) to (e) and (g) to (i), and so construed

would only refer to loans or other financial transactions which

would involve money at both ends. This, again, is not correct

in view of the fact that Section 5(8)(f) is clearly a residuary

“catch all” provision, taking within it matters which are not

subsumed within the other sub-clauses. Even otherwise,

in CED v. Kantilal Trikamlal [CED v. Kantilal Trikamlal, (1976)

4 SCC 643 : 1977 SCC (Tax) 90] , this Court has held that

when an expression is a residuary one, ejusdem generis will

not apply. It was thus held: (SCC p. 655, para 21)

“21. … We have also to stress the expression

“other right” in the explanation which is of the

widest import and cannot be constricted by

reading it ejusdem generis with “debt”. “Other

right”, in the context, is expressly meant

considerably to widen the concept and therefore

suggests a somewhat contrary intention to the

application of the ejusdem generis rule. We may

derive instruction from Green's construction of the

identical expression in the English Act. [Section

45(2)]. The learned author writes:

‘A disclaimer is an extinguishment of a right for

this purpose. Although in the event the person

disclaiming never has any right in the property, he

has the right to obtain it, this inchoate right is a

“right” for the purposes of Section 45(2).

The ejusdem generis rule does not apply to the

words “a debt or other right” and the word “right” is

a word of the widest import. Moreover, the

expression “at the expense of the deceased” is

used in an ordinary and natural manner; and is apt

to cover not only cases where the extinguishment

involves a loss to the deceased of a benefit he

already enjoyed, but also those where it prevents

him from acquiring the benefit.’”

85. Also, in Subramanian Swamy v. Union of India

[Subramanian Swamy v. Union of India, (2016) 7 SCC 221 :

(2016) 3 SCC (Cri) 1], this Court held: (SCC pp. 291-93, paras

70-74)

“70. The other aspect that is being highlighted in the

context of Article 19(2) is that defamation even if

conceived of to include a criminal offence, it must

have the potentiality to “incite to cause an offence”.

To elaborate, the submission is the words “incite to

cause an offence” should be read to give attributes

and characteristics of criminality to the word

“defamation”. It must have the potentiality to lead to

breach of peace and public order. It has been urged

that the intention of clause (2) of Article 19 is to

include a public law remedy in respect of a grievance

that has a collective impact but not as an actionable

claim under the common law by an individual and,

therefore, the word “defamation” has to be

understood in that context, as the associate words

are “incitement to an offence” would so warrant. Mr

Rao, learned Senior Counsel, astutely canvassed

that unless the word “defamation” is understood in

this manner applying the principle of noscitur a sociis,

the cherished and natural right of freedom of speech

and expression which has been recognised under

Article 19(1)(a) would be absolutely at peril. Mr

Narasimha, learned ASG would contend that the said

rule of construction would not be applicable to

understand the meaning of the term “defamation”. Be

it noted, while construing the provision of Article

19(2), it is the duty of the Court to keep in view the

exalted spirit, essential aspects, the value and

philosophy of the Constitution. There is no doubt that

the principle of noscitur a sociis can be taken

recourse to in order to understand and interpret the

Constitution but while applying the principle, one has

to keep in mind the contours and scope of

applicability of the said principle.

71. In State of Bombay v. Hospital Mazdoor Sabha

[State of Bombay v. Hospital Mazdoor Sabha, AIR

1960 SC 610 : (1960) 2 SCR 866] , it has been held

that it must be borne in mind that noscitur a sociis is

merely a rule of construction and it cannot prevail in

cases where it is clear that wider words have been

deliberately used in order to make the scope of the

defined word correspondingly wider. It is only where

the intention of the legislature in associating wider

words with words of narrower significance is doubtful,

or otherwise not clear that the said rule of

construction can be usefully applied. It can also be

applied where the meaning of the words of wider

import is doubtful; but, where the object of the

legislature in using wider words is clear and free of

ambiguity, the rule of construction in question cannot

be pressed into service.

72. In Bank of India v. Vijay Transport [Bank of India

v. Vijay Transport, 1988 Supp SCC 47] , the Court

was dealing with the contention that a literal

interpretation is not always the only interpretation of a

provision in a statute and the court has to look at the

setting in which the words are used and the

circumstances in which the law came to be passed to

decide whether there is something implicit behind the

words actually used which would control the literal

meaning of the words used. For the said purpose,

reliance was placed on R.L. Arora v. State of U.P.

[R.L. Arora v. State of U.P., (1964) 6 SCR 784 : AIR

1964 SC 1230] Dealing with the said aspect, the

Court has observed thus: (Vijay Transport case [Bank

of India v. Vijay Transport, 1988 Supp SCC 47], SCC

p. 51, para 11)

‘11. … It may be that in interpreting the words

of the provision of a statute, the setting in which

such words are placed may be taken into

consideration, but that does not mean that even

though the words which are to be interpreted

convey a clear meaning, still a different

interpretation or meaning should be given to

them because of the setting. In other words,

while the setting of the words may sometimes

be necessary for the interpretation of the words

of the statute, but that has not been ruled by

this Court to be the only and the surest method

of interpretation.’

73. The Constitution Bench, in Godfrey Phillips

(India) Ltd. v. State of U.P. [Godfrey Phillips (India)

Ltd. v. State of U.P., (2005) 2 SCC 515], while

expressing its opinion on the aforesaid rule of

construction, opined: (SCC pp. 550 & 551, paras 81

& 83)

‘81. We are aware that the maxim of noscitur a

sociis may be a treacherous one unless the

“societas” to which the “socii” belong, are

known. The risk may be present when there is

no other factor except contiguity to suggest the

“societas”. But where there is, as here, a term

of wide denotation which is not free from

ambiguity, the addition of the words such as

“including” is sufficiently indicative of

the societas. As we have said, the word

“includes” in the present context indicates a

commonality or shared features or attributes of

the including word with the included.

***

83. Hence on an application of general

principles of interpretation, we would hold that

the word “luxuries” in Entry 62 of List II means

the activity of enjoyment of or indulgence in that

which is costly or which is generally recognised

as being beyond the necessary requirements of

an average member of society and not articles

of luxury.’

74. At this juncture, we may note that in Ahmedabad

Private Primary Teachers’ Assn. v. Administrative

Officer [Ahmedabad Private Primary Teachers’

Assn. v. Administrative Officer, (2004) 1 SCC 755 :

2004 SCC (L&S) 306], it has been stated that

noscitur a sociis is a legitimate rule of construction to

construe the words in an Act of Parliament with

reference to the words found in immediate

connection with them. In this regard, we may refer to

a passage from Justice G.P. Singh, Principles of

Statutory Interpretation [(13th Edn., 2012) 509.]

where the learned author has referred to the lucid

explanation given by Gajendragadkar, J. We think it

appropriate to reproduce the passage:

‘It is a rule wider than the rule of ejusdem

generis; rather the latter rule is only an

application of the former. The rule has been

lucidly explained by Gajendragadkar, J. in the

following words:

“This rule, according to Maxwell

[Maxwell, Interpretation of Statutes (11th Edn.,

1962) 321.] , means that when two or more

words which are susceptible of analogous

meaning are coupled together, they are

understood to be used in their cognate sense.

They take as it were their colour from each

other, that is, the more general is restricted to a

sense analogous to a less general.”’

The learned author on further discussion has

expressed the view that meaning of a word is to

be judged from the company it keeps i.e.

reference to words found in immediate

connection with them. It applies when two or

more words are susceptible of analogous

meanings are coupled together, to be read and

understood in their cognate sense. [G.P. Singh,

Principles of Statutory Interpretation (8th Edn.)

379.] Noscitur a sociis is merely a rule of

construction and cannot prevail where it is clear

that wider and diverse etymology is intentionally

and deliberately used in the provision. It is only

when and where the intention of the legislature

in associating wider words with words of

narrowest significance is doubtful or otherwise

not clear, that the rule of noscitur a sociis is

useful.”

86. It is clear from a reading of these judgments that noscitur

a sociis being a mere rule of construction cannot be applied in

the present case as it is clear that wider words have been

deliberately used in a residuary provision, to make the scope

of the definition of “financial debt” subsume matters which are

not found in the other sub-clauses of Section 5(8). This

contention must also, therefore, be rejected.”

22. A reading of these judgments would show that ejusdem generis and

noscitur a sociis, being rules as to the construction of statutes, cannot be

exalted to nullify the plain meaning of words used in a statute if they are

designedly used in a wide sense. Importantly, where a residuary phrase is

used as a catch-all expression to take within its scope what may

reasonably be comprehended by a provision, regard being had to its

object and setting, noscitur a sociis cannot be used to colour an otherwise

wide expression so as to whittle it down and stultify the object of a

statutory provision.

OBJECT OF SECTION 14 OF THE IBC

23. This then brings us to the object sought to be achieved by Section

14 of the IBC. The Report of the Insolvency Law Committee of February,

2020 throws some light on Section 14. Paragraphs 8.2 and 8.11 thereof

read as follows:

“8.2. The moratorium under Section 14 is intended to keep the

corporate debtor’s assets together during the insolvency

resolution process and facilitating orderly completion of the

processes envisaged during the insolvency resolution process

and ensuring that the company may continue as a going

concern while the creditors take a view on resolution of

default. Keeping the corporate debtor running as a going

concern during the CIRP helps in achieving resolution as a

going concern as well, which is likely to maximize value for all

stakeholders. In other jurisdictions too, a moratorium may be

put in place on the advent of formal insolvency proceedings,

including liquidation and reorganization proceedings. The

UNCITRAL Guide notes that a moratorium is critical during

reorganization proceedings since it facilitates the continued

operation of the business and allows the debtor a breathing

space to organize its affairs, time for preparation and approval

of a reorganization plan and for other steps such as shedding

unprofitable activities and onerous contracts, where

appropriate.”

xxx xxx xxx

“8.11. Further, the purpose of the moratorium is to keep the

assets of the debtor together for successful insolvency

resolution, and it does not bar all actions, especially where

countervailing public policy concerns are involved. For

instance, criminal proceedings are not considered to be

barred by the moratorium, since they do not constitute “money

claims or recovery” proceedings. In this regard, the Committee

also noted that in some jurisdictions, laws allow regulatory

claims, such as those which are not designed to collect money

for the estate but to protect vital and urgent public interests,

restraining activities causing environmental damage or

activities that are detrimental to public health and safety to be

continued during the moratorium period.”

It can be seen that paragraph 8.11 refers to the very judgment under

appeal before us, and cannot therefore be said to throw any light on the

correct position in law which has only to be finally settled by this Court.

However, paragraph 8.2 is important in that the object of a moratorium

provision such as Section 14 is to see that there is no depletion of a

corporate debtor’s assets during the insolvency resolution process so that

it can be kept running as a going concern during this time, thus

maximising value for all stakeholders. The idea is that it facilitates the

continued operation of the business of the corporate debtor to allow it

breathing space to organise its affairs so that a new management may

ultimately take over and bring the corporate debtor out of financial

sickness, thus benefitting all stakeholders, which would include workmen

of the corporate debtor. Also, the judgment of this Court in Swiss

Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17 states the raison

d’être for Section 14 in paragraph 28 as follows:

“28. It can thus be seen that the primary focus of the

legislation is to ensure revival and continuation of the

corporate debtor by protecting the corporate debtor from its

own management and from a corporate death by liquidation.

The Code is thus a beneficial legislation which puts the

corporate debtor back on its feet, not being a mere recovery

legislation for creditors. The interests of the corporate debtor

have, therefore, been bifurcated and separated from that of its

promoters/those who are in management. Thus, the resolution

process is not adversarial to the corporate debtor but, in fact,

protective of its interests. The moratorium imposed by Section

14 is in the interest of the corporate debtor itself, thereby

preserving the assets of the corporate debtor during the

resolution process. The timelines within which the resolution

process is to take place again protects the corporate debtor's

assets from further dilution, and also protects all its creditors

and workers by seeing that the resolution process goes

through as fast as possible so that another management can,

through its entrepreneurial skills, resuscitate the corporate

debtor to achieve all these ends.”

24. It can thus be seen that regard being had to the object sought to be

achieved by the IBC in imposing this moratorium, a quasi-criminal

proceeding which would result in the assets of the corporate debtor being

depleted as a result of having to pay compensation which can amount to

twice the amount of the cheque that has bounced would directly impact

the corporate insolvency resolution process in the same manner as the

institution, continuation, or execution of a decree in such suit in a civil

court for the amount of debt or other liability. Judged from the point of

view of this objective, it is impossible to discern any difference between

the impact of a suit and a Section 138 proceeding, insofar as the

corporate debtor is concerned, on its getting the necessary breathing

space to get back on its feet during the corporate insolvency resolution

process. Given this fact, it is difficult to accept that noscitur a sociis or

ejusdem generis should be used to cut down the width of the expression

“proceedings” so as to make such proceedings analogous to civil suits.

25. Viewed from another point of view, clause (b) of Section 14(1) also

makes it clear that during the moratorium period, any transfer,

encumbrance, alienation, or disposal by the corporate debtor of any of its

assets or any legal right or beneficial interest therein being also

interdicted, yet a liability in the form of compensation payable under

Section 138 would somehow escape the dragnet of Section 14(1). While

Section 14(1)(a) refers to monetary liabilities of the corporate debtor,

Section 14(1)(b) refers to the corporate debtor’s assets, and together,

these two clauses form a scheme which shields the corporate debtor from

pecuniary attacks against it in the moratorium period so that the corporate

debtor gets breathing space to continue as a going concern in order to

ultimately rehabilitate itself. Any crack in this shield is bound to have

adverse consequences, given the object of Section 14, and cannot, by

any process of interpretation, be allowed to occur.

SECTION 14 IN RELATION TO OTHER MORATORIUM SECTIONS IN

THE IBC

26. Even otherwise, when some of the other provisions as to

moratorium are seen in the context of individuals and firms, the provisions

of Section 14 become even clearer. Thus, in Part III of the IBC, which

deals with insolvency resolution and bankruptcy for individuals and

partnership firms, Section 81, which occurs in Chapter II thereof, entitled

“Fresh Start Process”, an interim moratorium is imposed thus:

“81. Application for fresh start order.—(1) When an

application is filed under Section 80 by a debtor, an interimmoratorium shall commence on the date of filing of said

application in relation to all the debts and shall cease to have

effect on the date of admission or rejection of such

application, as the case may be.

(2) During the interim-moratorium period,—

(i) any legal action or legal proceeding pending in

respect of any of his debts shall be deemed to

have been stayed; and

(ii) no creditor shall initiate any legal action or

proceedings in respect of such debt.

(3) The application under Section 80 shall be in such form and

manner and accompanied by such fee, as may be prescribed.

(4) The application under sub-section (3) shall contain the

following information supported by an affidavit, namely—

(a) a list of all debts owed by the debtor as on the date

of the said application along with details relating to

the amount of each debt, interest payable thereon

and the names of the creditors to whom each debt

is owed;

(b) the interest payable on the debts and the rate

thereof stipulated in the contract;

(d) the financial information of the debtor and his

immediate family up to two years prior to the date of

the application;

(e) the particulars of the debtor's personal details, as

may be prescribed;

(f) the reasons for making the application;

(g) the particulars of any legal proceedings which, to

the debtor's knowledge has been commenced

against him;

(h) the confirmation that no previous fresh start order

under this Chapter has been made in respect of the

qualifying debts of the debtor in the preceding

twelve months of the date of the application.”

Similarly, in Section 85, which also occurs in Chapter II in Part III of the

IBC, a moratorium is imposed thus:

“85. Effect of admission of application.—(1) On the date of

admission of the application, the moratorium period shall

commence in respect of all the debts.

(2) During the moratorium period—

(a) any pending legal action or legal proceeding in

respect of any debt shall be deemed to have been

stayed; and

(b) subject to the provisions of Section 86, the

creditors shall not initiate any legal action or

proceedings in respect of any debt.

(3) During the moratorium period, the debtor shall—

(a) not act as a director of any company, or directly or

indirectly take part in or be concerned in the

promotion, formation or management of a

company;

(b) not dispose of or alienate any of his assets;

a fresh start process;

(d) be required to inform prior to entering into any

financial or commercial transaction of such value

as may be notified by the Central Government,

either individually or jointly, that he is undergoing a

fresh start process;

(e) disclose the name under which he enters into

business transactions, if it is different from the

name in the application admitted under Section

84;

(f) not travel outside India except with the permission

of the Adjudicating Authority.

(4) The moratorium ceases to have effect at the end of the

period of one hundred and eighty days beginning with the date

of admission unless the order admitting the application is

revoked under sub-section (2) of Section 91.”

27. When the language of Section 14 and Section 85 are contrasted, it

becomes clear that though the language of Section 85 is only in respect

of debts, the moratorium contained in Section 14 is not subject specific.

The only light thrown on the subject is by the exception provision

contained in Section 14(3)(a) which is that “transactions” are the subject

matter of Section 14(1). “Transaction” is, as we have seen, a much wider

expression than “debt”, and subsumes it. Also, the expression

“proceedings” used by the legislature in Section 14(1)(a) is not trammelled

by the word “legal” as a prefix that is contained in the moratorium

provisions qua individuals and firms. Likewise, the provisions of Section

96 and Section 101 are moratorium provisions in Chapter III of Part III

dealing with the insolvency resolution process of individuals and firms, the

same expression, namely, “debts” is used as is used in Section 85.

Sections 96 and 101 read as follows:

“96. Interim-moratorium.—(1) When an application is filed

under Section 94 or Section 95—

(a) an interim-moratorium shall commence on the date

of the application in relation to all the debts and

shall cease to have effect on the date of admission

of such application; and

(b) during the interim-moratorium period—

(i) any legal action or proceeding pending in respect

of any debt shall be deemed to have been

stayed; and

(ii) the creditors of the debtor shall not initiate any

legal action or proceedings in respect of any

debt.

(2) Where the application has been made in relation to a firm,

the interim-moratorium under sub-section (1) shall operate

against all the partners of the firm as on the date of the

application.

(3) The provisions of sub-section (1) shall not apply to such

transactions as may be notified by the Central Government in

consultation with any financial sector regulator.”

“101. Moratorium.—(1) When the application is admitted

under Section 100, a moratorium shall commence in relation

to all the debts and shall cease to have effect at the end of the

period of one hundred and eighty days beginning with the date

of admission of the application or on the date the Adjudicating

Authority passes an order on the repayment plan under

Section 114, whichever is earlier.

(2) During the moratorium period—

(a) any pending legal action or proceeding in respect of

any debt shall be deemed to have been stayed;

(b) the creditors shall not initiate any legal action or

legal proceedings in respect of any debt; and

dispose of any of his assets or his legal rights or

beneficial interest therein;

(3) Where an order admitting the application under Section 96

has been made in relation to a firm, the moratorium under

sub-section (1) shall operate against all the partners of the

firm.

(4) The provisions of this Section shall not apply to such

transactions as may be notified by the Central Government in

consultation with any financial sector regulator.”

A legal action or proceeding in respect of any debt would, on its plain

language, include a Section 138 proceeding. This is for the reason that a

Section 138 proceeding would be a legal proceeding “in respect of” a

debt. “In respect of” is a phrase which is wide and includes anything done

directly or indirectly – see Macquarie Bank Ltd. v. Shilpi Cable

Technologies Ltd., (2018) 2 SCC 674 (at page 709) and Giriraj Garg v.

Coal India Ltd., (2019) 5 SCC 192 (at pages 202-203). This, coupled with

the fact that the Section is not limited to ‘recovery’ of any debt, would

indicate that any legal proceeding even indirectly relatable to recovery of

any debt would be covered.

28. When the language of these Sections is juxtaposed against the

language of Section 14, it is clear that the width of Section 14 is even

greater, given that Section 14 declares a moratorium prohibiting what is

mentioned in clauses (a) to (d) thereof in respect of transactions entered

into by the corporate debtor, inclusive of transactions relating to debts, as

is contained in Sections 81, 85, 96, and 101. Also, Section 14(1)(d) is

conspicuous by its absence in any of these Sections. Thus, where

individuals or firms are concerned, the recovery of any property by an

owner or lessor, where such property is occupied by or in possession of

the individual or firm can be recovered during the moratorium period,

unlike the property of a corporate debtor. For all these reasons, therefore,

given the object and context of Section 14, the expression “proceedings”

cannot be cut down by any rule of construction and must be given a fair

meaning consonant with the object and context. It is conceded before us

that criminal proceedings which are not directly related to transactions

evidencing debt or liability of the corporate debtor would be outside the

scope of this expression.

29. V. Ramakrishnan (supra) looked at and contrasted Section 14 with

Sections 96 and 101 from the point of view of a guarantor to a debt, and

in this context, held:

“26. We are also of the opinion that Sections 96 and 101,

when contrasted with Section 14, would show that Section 14

cannot possibly apply to a personal guarantor. When an

application is filed under Part III, an interim-moratorium or a

moratorium is applicable in respect of any debt due. First and

foremost, this is a separate moratorium, applicable separately

in the case of personal guarantors against whom insolvency

resolution processes may be initiated under Part III. Secondly,

the protection of the moratorium under these Sections is far

greater than that of Section 14 in that pending legal

proceedings in respect of the debt and not the debtor are

stayed. The difference in language between Sections 14 and

101 is for a reason.

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, 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. However, insofar as firms and individuals are

concerned, guarantees are given in respect of individual debts

by persons who have unlimited liability to pay them. And such

guarantors may be complete strangers to the debtor — often it

could be a personal friend. It is for this reason that the

moratorium mentioned in Section 101 would cover such

persons, as such moratorium is in relation to the debt and not

the debtor.”

These observations, when viewed in context, are correct. However, this

case is distinguishable in that the difference between these provisions

and Section 14 was not examined qua moratorium provisions as a whole

in relation to corporate debtors vis-à-vis individuals/firms.

THE INTERPLAY BETWEEN SECTION 14 AND SECTION 32A OF THE

IBC

30. Shri Mehta, however, strongly relied upon Section 32A(1) of the

IBC, which was introduced by the Insolvency and Bankruptcy Code

(Amendment) Act, 2020, to argue that the first proviso to Section 32A(1)

would make it clear that “prosecutions” that had been instituted during the

corporate insolvency resolution process against a corporate debtor will

result in a discharge of the corporate debtor from the prosecution, subject

to the other requirements of sub-section (1) having been fulfilled.

According to him, therefore, a prosecution of the corporate debtor under

Section 138/141 of the Negotiable Instruments Act can be instituted

during the corporate insolvency resolution process, making it clear that

such prosecutions are, therefore, outside the ken of the moratorium

provisions contained in Section 14 of the IBC. Section 32A(1) of the IBC

reads as follows:

“32A. Liability for prior offences, etc.—(1) Notwithstanding

anything to the contrary contained in this Code or any other

law for the time being in force, the liability of a corporate

debtor for an offence committed prior to the commencement

of the corporate insolvency resolution process shall cease,

and the corporate debtor shall not be prosecuted for such an

offence from the date the resolution plan has been approved

by the Adjudicating Authority under Section 31, if the

resolution plan results in the change in the management or

control of the corporate debtor to a person who was not—

(a) a promoter or in the management or control of the

corporate debtor or a related party of such a person; or

(b) a person with regard to whom the relevant investigating

authority has, on the basis of material in its possession,

reason to believe that he had abetted or conspired for

the commission of the offence, and has submitted or

filed a report or a complaint to the relevant statutory

authority or Court:

Provided that if a prosecution had been instituted during

the corporate insolvency resolution process against such

corporate debtor, it shall stand discharged from the date of

approval of the resolution plan subject to requirements of this

sub-section having been fulfilled:

Provided further that every person who was a “designated

partner” as defined in clause (j) of Section 2 of the Limited

Liability Partnership Act, 2008 (6 of 2009), or an “officer who is

in default”, as defined in clause (60) of Section 2 of the

Companies Act, 2013 (18 of 2013), or was in any manner

incharge of, or 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 as per 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 this sub-section.

xxx xxx xxx”

31. The raison d’être for the enactment of Section 32A has been stated

by the Report of the Insolvency Law Committee of February, 2020, which

is as follows:

“17. LIABILITY OF CORPORATE DEBTOR FOR OFFENCES

COMMITTED PRIOR TO INITIATION OF CIRP

17.1. Section 17 of the Code provides that on commencement

of the CIRP, the powers of management of the corporate

debtor vest with the interim resolution professional. Further,

the powers of the Board of Directors or partners of the

corporate debtor stand suspended, and are to be exercised by

the interim resolution professional. Thereafter, Section 29A,

read with Section 35(1)(f), places restrictions on related

parties of the corporate debtor from proposing a resolution

plan and purchasing the property of the corporate debtor in

the CIRP and liquidation process, respectively. Thus, in most

cases, the provisions of the Code effectuate a change in

control of the corporate debtor that results in a clean break of

the corporate debtor from its erstwhile management. However,

the legal form of the corporate debtor continues in the CIRP,

and may be preserved in the resolution plan. Additionally,

while the property of the corporate debtor may also change

hands upon resolution or liquidation, such property also

continues to exist, either as property of the corporate debtor,

or in the hands of the purchaser.

17.2. However, even after commencement of CIRP or after its

successful resolution or liquidation, the corporate debtor,

along with its property, would be susceptible to investigations

or proceedings related to criminal offences committed by it

prior to the commencement of a CIRP, leading to the

imposition of certain liabilities and restrictions on the corporate

debtor and its properties even after they were lawfully

acquired by a resolution applicant or a successful bidder,

respectively.

Liability where a Resolution Plan has been Approved

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. 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 29A.

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 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 supplied)

32. This Court, in Manish Kumar v. Union of India, 2021 SCC OnLine

SC 30, upheld the constitutional validity of this provision. This Court

observed:

“280. We are of the clear view that no case whatsoever is

made out to seek invalidation of Section 32A. The boundaries

of this Court's jurisdiction are clear. The wisdom of the

legislation is not open to judicial review. 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 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.”

33. Section 32A cannot possibly be said to throw any light on the true

interpretation of Section 14(1)(a) as the reason for introducing Section

32A had nothing whatsoever to do with any moratorium provision. At the

heart of the Section is the extinguishment of criminal liability of the

corporate debtor, from the date the resolution plan has been approved by

the Adjudicating 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 32A(1) operates only after the

moratorium comes to an end. At the heart of Section 32A 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. Unfortunately, the Section is inelegantly drafted. The

second proviso to Section 32A(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 associated with the corporate debtor and who

are, directly or indirectly, involved 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 investigating authority …”. The report submitted

here refers to a police report under Section 173 of the CrPC, and

complaints filed by investigating authorities under special Acts, as

opposed to private complaints. If the language of the second proviso is

taken to interpret the language of Section 32A(1) in that the “offence

committed” under Section 32A(1) would not include offences based upon

complaints under Section 2(d) of the CrPC, the width of the language

would be cut down and the object of Section 32A(1) would not be

achieved as all prosecutions emanating from private complaints would be

excluded. Obviously, Section 32A(1) cannot be read in this fashion and

clearly incudes the liability of the corporate debtor for all offences

committed 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.

34. 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 32A(1) is read in the manner

suggested by Shri Mehta, it will impact Section 14 by taking out of its ken

Section 138/141 proceedings, which is not the object of Section 32A(1) at

all. Assuming, therefore, that there is a clash between Section 14 of the

IBC and the first proviso of Section 32A(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

expression “prosecution” in the first proviso of Section 32A(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) of the IBC gets subserved, as does

the object of Section 32A, 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.

THE NATURE OF PROCEEDINGS UNDER CHAPTER XVII OF THE

NEGOTIABLE INSTRUMENTS ACT

35. This brings us to the nature of proceedings under Chapter XVII of

the Negotiable Instruments Act. Sections 138 to 142 of the Negotiable

Instruments Act were added by Chapter XVII by an Amendment Act of

1988. Section 138 reads as follows:

“138. Dishonour of cheque for insufficiency, etc., of funds

in the account.—Where any cheque drawn by a person on

an account maintained by him with a banker for payment of

any amount of money to another person from out of that

account for the discharge, in whole or in part, of any debt or

other liability, is returned by the bank unpaid, either because

of the amount of money standing to the credit of that account

is insufficient to honour the cheque or that it exceeds the

amount arranged to be paid from that account by an

agreement made with that bank, such person shall be deemed

to have committed an offence and shall, without prejudice to

any other provision of this Act, be punished with imprisonment

for a term which may extend to two years, or with fine which

may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this Section shall apply

unless—

(a) the cheque has been presented to the bank within a

period of six months from the date on which it is

drawn or within the period of its validity, whichever

is earlier;

(b) the payee or the holder in due course of the

cheque, as the case may be, makes a demand for

the payment of the said amount of money by giving

a notice in writing, to the drawer of the

cheque, within thirty days of the receipt of

information by him from the bank regarding the

return of the cheque as unpaid; and

payment of the said amount of money to the payee

or as the case may be, to the holder in due course

of the cheque within fifteen days of the receipt of the

said notice.

Explanation.—For the purposes of this Section, “debt or

other liability” means a legally enforceable debt or other

liability.”

36. 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.

37. Likewise, under Section 139, a presumption is raised that the holder

of a cheque received the cheque for the discharge, in whole or in part, of

any debt or other liability. To rebut this presumption, facts must be

adduced which, on a preponderance of probability (not beyond

reasonable doubt as in the case of criminal offences), must then be

proved. Section 140 is also important, in that it shall not be a defence in a

prosecution for an offence under Section 138 that the drawer had no

reason to believe when he issued the cheque that the cheque may be

dishonoured on presentment for the reasons stated in that Section, thus

making it clear that strict liability will attach, mens rea being no ingredient

of the offence. Section 141 then makes Directors and other persons

statutorily liable, provided the ingredients of the section are met.

Interestingly, for the purposes of this Section, explanation (a) defines

“company” as meaning any body corporate and includes a firm or other

association of individuals.

38. We have already seen how the language of Sections 96 and 101

would include a Section 138/141 proceeding against a firm so that the

moratorium stated therein would apply to such proceedings. If Shri

Mehta’s arguments were to be accepted, under the same Section,

namely, Section 141, two different results would ensue – so far as bodies

corporate, which include limited liability partnerships, are concerned, the

moratorium provision contained in Section 14 of the IBC would not apply,

but so far as a partnership firm is concerned, being covered by Sections

96 and 101 of the IBC, a Section 138/141 proceeding would be stopped in

its tracks by virtue of the moratorium imposed by these Sections. Thus,

under Section 141(1), whereas a Section 138 proceeding against a

corporate body would continue after initiation of the corporate insolvency

resolution process, yet, the same proceeding against a firm, being

interdicted by Sections 96 and 101, would not so continue. This startling

result is one of the consequences of accepting the argument of Shri

Mehta, which again leads to the position that inelegant drafting alone

cannot lead to such startling results, the object of Sections 14 and 96 and

101 being the same, namely, to see that during the insolvency resolution

process for corporate persons/individuals and firms, the corporate

body/firm/individual should be given breathing space to recuperate for a

successful resolution of its debts – in the case of a corporate debtor,

through a new management coming in; and in the case of individuals and

firms, through resolution plans which are accepted by a committee of

creditors, by which the debtor is given breathing space in which to pay

back his/its debts, which would result in creditors getting more than they

would in a bankruptcy proceeding against an individual or a firm.

39. Section 142 is important and is set out hereunder:

“142. Cognizance of offences.—(1) Notwithstanding

anything contained in the Code of Criminal Procedure, 1973

(2 of 1974),—

(a) no court shall take cognizance of any offence

punishable under Section 138 except upon a

complaint, in writing, made by the payee or, as the

case may be, the holder in due course of the

cheque;

(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:

Provided that the cognizance of a complaint may be taken

by the court after the prescribed period, if the complainant

satisfies the court that he had sufficient cause for not making

a complaint within such period.

or a Judicial Magistrate of the first class shall try any

offence punishable under 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.”

40. A cursory reading of Section 142 will again make it clear that the

procedure under the CrPC has been departed from. First and foremost,

no court is to take cognizance of an offence punishable under Section 138

except on a complaint made in writing by the payee or the holder in due

course of the cheque – the victim. Further, the language of Section 142(1)

(b) would again show the hybrid nature of these provisions inasmuch as a

complaint must be made within one month of the date on which the

“cause of action” under clause (c) of the proviso to Section 138 arises.

The expression “cause of action” is a foreigner to criminal jurisprudence,

and would apply only in civil cases to recover money. Chapter XIII of the

CrPC, consisting of Sections 177 to 189, is a chapter dealing with the

jurisdiction of the criminal courts in inquiries and trials. When the

jurisdiction of a criminal court is spoken of by these Sections, the

expression “cause of action” is conspicuous by its absence.

41. By an Amendment Act of 2002, various other sections were added

to this Chapter. Thus, under Section 143, it is lawful for a Magistrate to

pass a sentence of imprisonment for a term not exceeding one year and a

fine exceeding INR 5,000/- summarily. This provision is again an

important pointer to the fact that the payment of compensation is at the

heart of the provision in that a fine exceeding INR 5000/-, the sky being

the limit, can be imposed by way of a summary trial which, after

application of Section 357 of the CrPC, results in compensating the victim

up to twice the amount of the bounced cheque. Under Section 144, the

mode of service of summons is done as in civil cases, eschewing the

mode contained in Sections 62 to 64 of the CrPC. Likewise, under

Section 145, evidence is to be given by the complainant on affidavit, as it

is given in civil proceedings, notwithstanding anything contained in the

CrPC. Most importantly, by Section 147, offences under this Act are

compoundable without any intervention of the court, as is required by

Section 320(2) of the CrPC.

42. By another amendment made in 2018, the hybrid nature of these

provisions gets a further tilt towards a civil proceeding, by the power to

direct interim compensation under Sections 143A and 148 which are set

out hereinbelow:

“143-A. Power to direct interim compensation.—(1)

Notwithstanding anything contained in the Code of Criminal

Procedure, 1973 (2 of 1974), the Court trying an offence

under Section 138 may order the drawer of the cheque to pay

interim compensation to the complainant—

(a) in a summary trial or a summons case, where he

pleads not guilty to the accusation made in the

complaint; and

(b) in any other case, upon framing of charge.

(2) The interim compensation under sub-section (1) shall not

exceed twenty per cent of the amount of the cheque.

(3) The interim compensation shall be paid within sixty days

from the date of the order under sub-section (1), or within

such further period not exceeding thirty days as may be

directed by the Court on sufficient cause being shown by the

drawer of the cheque.

(4) If the drawer of the cheque is acquitted, the Court shall

direct the complainant to repay to the drawer the amount of

interim compensation, with interest at the bank rate as

published by the Reserve Bank of India, prevalent at the

beginning of the relevant financial year, within sixty days from

the date of the order, or within such further period not

exceeding thirty days as may be directed by the Court on

sufficient cause being shown by the complainant.

(5) The interim compensation payable under this Section may

be recovered as if it were a fine under Section 421 of the

Code of Criminal Procedure, 1973 (2 of 1974).

(6) The amount of fine imposed under Section 138 or the

amount of compensation awarded under Section 357 of the

Code of Criminal Procedure, 1973 (2 of 1974), shall be

reduced by the amount paid or recovered as interim

compensation under this Section.”

“148. Power of Appellate Court to order payment pending

appeal against conviction.—(1) Notwithstanding anything

contained in the Code of Criminal Procedure, 1973 (2 of

1974), in an appeal by the drawer against conviction under

Section 138, the Appellate Court may order the appellant to

deposit such sum which shall be a minimum of twenty per

cent of the fine or compensation awarded by the trial Court:

Provided that the amount payable under this sub-section

shall be in addition to any interim compensation paid by the

appellant under Section 143-A.

(2) The amount referred to in sub-section (1) shall be

deposited within sixty days from the date of the order, or within

such further period not exceeding thirty days as may be

directed by the Court on sufficient cause being shown by the

appellant.

(3) The Appellate Court may direct the release of the amount

deposited by the appellant to the complainant at any time

during the pendency of the appeal:

Provided that if the appellant is acquitted, the Court shall

direct the complainant to repay to the appellant the amount so

released, with interest at the bank rate as published by the

Reserve Bank of India, prevalent at the beginning of the

relevant financial year, within sixty days from the date of the

order, or within such further period not exceeding thirty days

as may be directed by the Court on sufficient cause being

shown by the complainant.”

43. With this analysis of Chapter XVII, let us look at some of the

decided cases. In CIT v. Ishwarlal Bhagwandas, (1966) 1 SCR 190, this

Court distinguished between civil proceedings and criminal proceedings in

the context of Article 132 of the Constitution thus:

“… The expression “civil proceeding” is not defined in

the Constitution, nor in the General Clauses Act. The

expression in our judgment covers all proceedings in which a

party asserts the existence of a civil right conferred by the civil

law or by statute, and claims relief for breach thereof. A

criminal proceeding on the other hand is ordinarily one in

which if carried to its conclusion it may result in the imposition

of sentences such as death, imprisonment, fine or forfeiture of

property. It also includes proceedings in which in the larger

interest of the State, orders to prevent apprehended breach of

the peace, orders to bind down persons who are a danger to

the maintenance of peace and order, or orders aimed at

preventing vagrancy are contemplated to be passed. But the

whole area of proceedings, which reach the High Courts is not

exhausted by classifying the proceedings as civil and criminal.

There are certain proceedings which may be regarded as

neither civil nor criminal. For instance, proceeding for

contempt of court, and for exercise of disciplinary jurisdiction

against lawyers or other professionals, such as Chartered

Accountants may not fall within the classification of

proceedings, civil or criminal. But there is no warrant for the

view that from the category of civil proceedings, it was

intended to exclude proceedings relating to or which seek

relief against enforcement of taxation laws of the State. The

primary object of a taxation statute is to collect revenue for the

governance of the State or for providing specific services and

such laws directly affect the civil rights of the tax-payer. If a

person is called upon to pay tax which the State is not

competent to levy, or which is not imposed in accordance with

the law which permits imposition of the tax, or in the levy,

assessment and collection of which rights of the tax-payer are

infringed in a manner not warranted by the statute, a

proceeding to obtain relief whether it is from the tribunal set up

by the taxing statute, or from the civil court would be regarded

as a civil proceeding. The character of the proceeding, in our

judgment, depends not upon the nature of the tribunal which is

invested with authority to grant relief, but upon the nature of

the right violated and the appropriate relief which may be

claimed. A civil proceeding is, therefore, one in which a person

seeks to enforce by appropriate relief the alleged infringement

of his civil rights against another person or the State, and

which if the claim is proved would result in the declaration

express or implied of the right claimed and relief such as

payment of debt, damages, compensation, delivery of specific

property, enforcement of personal rights, determination of

status etc.”

(at pages 196-197)

“A large number of cases have arisen before the High

Courts in India in which conflicting views about the meaning of

the expression “civil proceeding” were pressed. In some cases

it was held that the expression “civil proceeding” excludes a

proceeding instituted in the High Court for the issue of a writ

whatever may be the nature of the right infringed and the relief

claimed in other cases it has been held that a proceeding

resulting from an application for a writ under Article 226 of the

Constitution may in certain cases be deemed to be a “civil

proceeding”, if the claim made, the right infringed and the

relief sought warrant that inference: in still another set of

cases it has been held that even if a proceeding commenced

by a petition for a writ be generally categorised as a civil

proceeding, where the jurisdiction which the High Court

exercises relates to revenue, the proceeding is not civil. A

perusal of the reasons given in the cases prompt the following

observations. There are two preliminary conditions to the

exercise of the power to grant certificate: (a) there must be a

judgment, decree or final order, and that judgment, decree or

final order must be made in a civil proceeding. An advisory

opinion in a tax reference may not be appealed from with

certificate under Article 133 because the opinion is not a

judgment, decree or final order, and (b) a proceeding does not

cease to be civil, when relief is claimed for enforcement of civil

rights merely because the proceeding is not tried as a civil

suit. In a large majority of the cases in which the jurisdiction of

the High Court to certify a case under Article 133(1) was

negatived it appears to have been assumed that the

expression “other proceeding” used in Article 132 of the

Constitution is or includes a proceeding of the nature of a

revenue proceeding, and therefore the expression “civil

proceeding” in Article 133(1) does not include a revenue

proceeding. This assumption for reasons already set out is

erroneous.”

(at page 199)

A perusal of this judgment would show that a civil proceeding is not

necessarily a proceeding which begins with the filing of a suit and

culminates in execution of a decree. It would include a revenue

proceeding as well as a writ petition filed under Article 226 of the

Constitution, if the reliefs therein are to enforce rights of a civil nature.

Interestingly, criminal proceedings are stated to be proceedings in which

the larger interest of the State is concerned. Given these tests, it is clear

that a Section 138 proceeding can be said to be a “civil sheep” in a

“criminal wolf’s” clothing, as it is the interest of the victim that is sought to

be protected, the larger interest of the State being subsumed in the victim

alone moving a court in cheque bouncing cases, as has been seen by us

in the analysis made hereinabove of Chapter XVII of the Negotiable

Instruments Act.

44. In Goaplast (P) Ltd. v. Chico Ursula D’Souza, (2003) 3 SCC 232,

the object sought to be achieved by Section 138 is succinctly set out in

paragraph 3 thereof:

“3. The learned counsel for the appellant has submitted that

mere writing of letter to the bank stopping payment of the

post-dated cheques does not take the case out of the purview

of the Act. He has invited our attention to the object behind the

provision contained in Chapter XVII of the Act. For

appreciating the issue involved in the present case, it is

necessary to refer to the object behind introduction of Chapter

XVII containing Sections 138 to 142. This chapter was

introduced in the Act by the Banking, Public Financial

Institutions and Negotiable Instruments Laws (Amendment)

Act, 1988 (Act 66 of 1988) with the object of inculcating faith in

the efficacy of banking operations and giving credibility to

negotiable instruments in business transactions and in order

to promote efficacy of banking operations. With the policy of

liberalisation adopted by the country which brought about

increase in international trade and commerce, it became

necessary to inculcate faith in banking. World trade is carried

through banking operations rather than cash transactions. The

amendment was intended to create an atmosphere of faith

and reliance on banking system. Therefore, while considering

the question of applicability of Section 138 of the Act to a

situation presented by the facts of the present case, it is

necessary to keep the objects of the legislation in mind. If a

party is allowed to use a cheque as a mode of deferred

payment and the payee of the cheque on the faith that he will

get his payment on the due date accepts such deferred

payment by way of cheque, he should not normally suffer on

account of non-payment. The faith, which the legislature has

desired that such instruments should inspire in commercial

transactions would be completely lost if parties are as a matter

of routine allowed to interdict payment by issuing instruction to

banks to stop payment of cheques. In today's world where use

of cash in day-to-day life is almost getting extinct and people

are using negotiable instruments in commercial transactions

and plastic money for their daily needs as consumers, it is all

the more necessary that people's faith in such instruments

should be strengthened rather than weakened. Provisions

contained in Sections 138 to 142 of the Act are intended to

discourage people from not honouring their commitments by

way of payment through cheques. It is desirable that the court

should lean in favour of an interpretation which serves the

object of the statute. The penal provisions contained in

Sections 138 to 142 of the Act are intended to ensure that

obligations undertaken by issuing cheques as a mode of

payment are honoured. A post-dated cheque will lose its

credibility and acceptability if its payment can be stopped

routinely. A cheque is a well-recognized mode of payment and

post-dated cheques are often used in various transactions in

daily life. The purpose of a post-dated cheque is to provide

some accommodation to the drawer of the cheque. Therefore,

it is all the more necessary that the drawer of the cheque

should not be allowed to abuse the accommodation given to

him by a creditor by way of acceptance of a post-dated

cheque. If stoppage of payment of a post-dated cheque is

permitted to take the case out of the purview of Section 138 of

the Act, it will amount to allowing the party to take advantage

of his own wrong.”

45. In Vinay Devanna Nayak v. Ryot Sewa Sahakari Bank Ltd.,

(2008) 2 SCC 305, a Division Bench of this Court referred to the object of

Section 138 thus:

“16. Section 138 of the Act was inserted by the Banking,

Public Financial Institutions and Negotiable Instruments Law

(Amendment) Act, 1988 (Act 66 of 1988) to regulate financial

promises in growing business, trade, commerce and industrial

activities of the country and the strict liability to promote

greater vigilance in financial matters. The incorporation of the

provision is designed to safeguard the faith of the creditor in

the drawer of the cheque, which is essential to the economic

life of a developing country like India. The provision has been

introduced with a view to curb cases of issuing cheques

indiscriminately by making stringent provisions and

safeguarding interest of creditors.

17. As observed by this Court in Electronics Trade &

Technology Development Corpn. Ltd. v. Indian Technologists

& Engineers (Electronics) (P) Ltd. [(1996) 2 SCC 739 : 1996

SCC (Cri) 454] the object of bringing Section 138 in the

statute book is to inculcate faith in the efficacy of banking

operations and credibility in transacting business on

negotiable instruments. The provision is intended to prevent

dishonesty on the part of the drawer of negotiable instruments

in issuing cheques without sufficient funds or with a view to

inducing the payee or holder in due course to act upon it. It

thus seeks to promote the efficacy of bank operations and

ensures credibility in transacting business through cheques. In

such matters, therefore, normally compounding of offences

should not be denied. Presumably, Parliament also realised

this aspect and inserted Section 147 by the Negotiable

Instruments (Amendment and Miscellaneous Provisions) Act,

2002 (Act 55 of 2002). The said Section reads thus:

“147. Offences to be compoundable.—

Notwithstanding anything contained in the Code of

Criminal Procedure, 1973 (2 of 1974), every

offence punishable under this Act shall be

compoundable.”

46. Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663 is an

important judgment of three Hon’ble Judges of this Court. This judgment

dealt, in particular, with the compounding provision contained in Section

147 of the Negotiable Instruments Act. Setting out the provision, the Court

held:

“10. At present, we are of course concerned with Section 147

of the Act, which reads as follows:

“147. Offences to be compoundable.—

Notwithstanding anything contained in the Code of

Criminal Procedure, 1973 (2 of 1974), every

offence punishable under this Act shall be

compoundable.”

At this point, it would be apt to clarify that in view of the non

obstante clause, the compounding of offences under the

Negotiable Instruments Act, 1881 is controlled by Section 147

and the scheme contemplated by Section 320 of the Code of

Criminal Procedure (hereinafter “CrPC”) will not be applicable

in the strict sense since the latter is meant for the specified

offences under the Penal Code, 1860.

11. So far as CrPC is concerned, Section 320 deals with

offences which are compoundable, either by the parties

without the leave of the court or by the parties but only with

the leave of the court. Sub-section (1) of Section 320

enumerates the offences which are compoundable without the

leave of the court, while sub-section (2) of the said Section

specifies the offences which are compoundable with the leave

of the court.

12. Section 147 of the Negotiable Instruments Act, 1881 is in

the nature of an enabling provision which provides for the

compounding of offences prescribed under the same Act,

thereby serving as an exception to the general rule

incorporated in sub-section (9) of Section 320 CrPC which

states that “No offence shall be compounded except as

provided by this Section”. A bare reading of this provision

would lead us to the inference that offences punishable under

laws other than the Penal Code also cannot be compounded.

However, since Section 147 was inserted by way of an

amendment to a special law, the same will override the effect

of Section 320(9) CrPC, especially keeping in mind that

Section 147 carries a non obstante clause.”

xxx xxx xxx

“15. The compounding of the offence at later stages of

litigation in cheque bouncing cases has also been held to be

permissible in a recent decision of this Court, reported

as K.M. Ibrahim v. K.P. Mohammed [(2010) 1 SCC 798 :

(2010) 1 SCC (Cri) 921 : (2009) 14 Scale 262] wherein Kabir,

J. has noted (at SCC p. 802, paras 13-14):

“13. As far as the non obstante clause included in

Section 147 of the 1881 Act is concerned, the

1881 Act being a special statute, the provisions of

Section 147 will have an overriding effect over the

provisions of the Code relating to compounding of

offences. …

14. It is true that the application under Section 147

of the Negotiable Instruments Act was made by

the parties after the proceedings had been

concluded before the appellate forum. However,

Section 147 of the aforesaid Act does not bar the

parties from compounding an offence under

Section 138 even at the appellate stage of the

proceedings. Accordingly, we find no reason to

reject the application under Section 147 of the

aforesaid Act even in a proceeding under Article

136 of the Constitution.”

16. It is evident that the permissibility of the compounding of

an offence is linked to the perceived seriousness of the

offence and the nature of the remedy provided. On this point

we can refer to the following extracts from an academic

commentary [cited from: K.N.C. Pillai, R.V. Kelkar's Criminal

Procedure, Fifth Edn. (Lucknow: Eastern Book Company,

2008) at p. 444]:

“17.2. Compounding of offences.—A crime is

essentially a wrong against the society and the

State. Therefore any compromise between the

accused person and the individual victim of the

crime should not absolve the accused from

criminal responsibility. However, where the

offences are essentially of a private nature and

relatively not quite serious, the Code considers it

expedient to recognise some of them as

compoundable offences and some others as

compoundable only with the permission of the

court.”

17. In a recently published commentary, the following

observations have been made with regard to the offence

punishable under Section 138 of the Act [cited from: Arun

Mohan, Some thoughts towards law reforms on the topic of

Section 138, Negotiable Instruments Act—Tackling an

avalanche of cases (New Delhi: Universal Law Publishing Co.

Pvt. Ltd., 2009) at p. 5]:

“… Unlike that for other forms of crime, the

punishment here (insofar as the complainant is

concerned) is not a means of seeking retribution,

but is more a means to ensure payment of money.

The complainant's interest lies primarily in

recovering the money rather than seeing the

drawer of the cheque in jail. The threat of jail is

only a mode to ensure recovery. As against the

accused who is willing to undergo a jail term, there

is little available as remedy for the holder of the

cheque.

If we were to examine the number of complaints filed which

were ‘compromised’ or ‘settled’ before the final judgment on

one side and the cases which proceeded to judgment and

conviction on the other, we will find that the bulk was settled

and only a miniscule number continued.”

18. It is quite obvious that with respect to the offence of

dishonour of cheques, it is the compensatory aspect of the

remedy which should be given priority over the punitive

aspect. …”

(emphasis supplied)

This judgment was followed by a Division Bench of this Court in JIK

Industries Ltd. v. Amarlal V. Jumani, (2012) 3 SCC 255, stating:

“68. It is clear from a perusal of the aforesaid Statement of

Objects and Reasons that offence under the NI Act, which

was previously non-compoundable in view of Section 320 subsection (9) of the Code has now become compoundable. That

does not mean that the effect of Section 147 is to obliterate all

statutory provisions of Section 320 of the Code relating to the

mode and manner of compounding of an offence. Section 147

will only override Section 320(9) of the Code insofar as

offence under Section 147 of the NI Act is concerned. This is

also the ratio in Damodar [(2010) 5 SCC 663 : (2010) 2 SCC

(Civ) 520 : (2010) 2 SCC (Cri) 1328] (see para 12). Therefore,

the submission of the learned counsel for the appellant to the

contrary cannot be accepted.”

The Court then went into the history of compounding in criminal law as

follows:

“78. Compounding as codified in Section 320 of the Code has

a historical background. In common law compounding was

considered a misdemeanour. In Kenny’s Outlines of Criminal

Law (19th Edn., 1966) the concept of compounding has been

traced as follows: (p. 407, para 422)

“422. Mercy should be shown, not sold.—It is a

misdemeanour at common law to ‘compound’ a

felony (and perhaps also to compound a

misdemeanour); i.e. to bargain, for value, to

abstain from prosecuting the offender who has

committed a crime. You commit this offence if you

promise a thief not to prosecute him if only he will

return the goods he stole from you; but you may

lawfully take them back if you make no such

promise. You may show mercy, but must not sell

mercy. This offence of compounding is committed

by the bare act of agreement; even though the

compounder afterwards breaks his agreement and

prosecutes the criminal. And inasmuch as the law

permits not merely the person injured by a crime,

but also all other members of the community, to

prosecute, it is criminal for anyone to make such a

composition; even though he suffered no injury

and indeed has no concern with the crime.”

(emphasis in original)

79. Russell on Crime (12th Edn.) also describes:

“Agreements not to prosecute or to stifle a

prosecution for a criminal offence are in certain

cases criminal.”

(Ch. 22 — Compounding Offences, p. 339.)

80. Later on compounding was permitted in certain categories

of cases where the rights of the public in general are not

affected but in all cases such compounding is permissible with

the consent of the injured party.

81. In our country also when the Criminal Procedure Code,

1861 was enacted it was silent about the compounding of

offence. Subsequently, when the next Code of 1872 was

introduced it mentioned about compounding in Section 188 by

providing the mode of compounding. However, it did not

contain any provision declaring what offences were

compoundable. The decision as to what offences were

compoundable was governed by reference to the exception to

Section 214 of the Penal Code. The subsequent Code of 1898

provided Section 345 indicating the offences which were

compoundable but the said section was only made applicable

to compounding of offences defined and permissible under the

Penal code. The present Code, which repealed the 1898

Code, contains Section 320 containing comprehensive

provisions for compounding.

82. A perusal of Section 320 makes it clear that the provisions

contained in Section 320 and the various sub-sections is a

code by itself relating to compounding of offence. It provides

for the various parameters and procedures and guidelines in

the matter of compounding. If this Court upholds the

contention of the appellant that as a result of incorporation of

Section 147 in the NI Act, the entire gamut of procedure of

Section 320 of the Code are made inapplicable to

compounding of an offence under the NI Act, in that case the

compounding of offence under the NI Act will be left totally

unguided or uncontrolled. Such an interpretation apart from

being an absurd or unreasonable one will also be contrary to

the provisions of Section 4(2) of the Code, which has been

discussed above. There is no other statutory procedure for

compounding of offence under the NI Act. Therefore, Section

147 of the NI Act must be reasonably construed to mean that

as a result of the said section the offences under the NI Act

are made compoundable, but the main principle of such

compounding, namely, the consent of the person aggrieved or

the person injured or the complainant cannot be wished away

nor can the same be substituted by virtue of Section 147 of

the NI Act.”

47. In Kaushalya Devi Massand v. Roopkishore Khore, (2011) 4

SCC 593, a Division Bench of this Court succinctly stated:

“11. Having considered the submissions made on behalf of

the parties, we are of the view that the gravity of a complaint

under the Negotiable Instruments Act cannot be equated with

an offence under the provisions of the Penal Code, 1860 or

other criminal offences. An offence under Section 138 of the

Negotiable Instruments Act, 1881, is almost in the nature of a

civil wrong which has been given criminal overtones.”

(emphasis supplied)

(This is the clearest enunciation of a Section 138 proceeding being a “civil

sheep” in a “criminal wolf’s” clothing.)

48. In R. Vijayan v. Baby, (2012) 1 SCC 260, this Court referred to the

provisions of Chapter XVII of the Negotiable Instruments Act, observing

that Chapter XVII is a unique exercise which blurs the dividing line

between civil and criminal jurisdictions. The Court held:

“16. We propose to address an aspect of the cases under

Section 138 of the Act, which is not dealt with in Damodar S.

Prabhu [(2010) 5 SCC 663 : (2010) 2 SCC (Cri) 1328 : (2010)

2 SCC (Civ) 520] . It is sometimes said that cases arising

under Section 138 of the Act are really civil cases

masquerading as criminal cases. The avowed object of

Chapter XVII of the Act is to “encourage the culture of use of

cheques and enhance the credibility of the instrument”. In

effect, its object appears to be both punitive as also

compensatory and restitutive, in regard to cheque dishonour

cases. Chapter XVII of the Act is a unique exercise which

blurs the dividing line between civil and criminal jurisdictions. It

provides a single forum and single proceeding, for

enforcement of criminal liability (for dishonouring the cheque)

and for enforcement of the civil liability (for realisation of the

cheque amount) thereby obviating the need for the creditor to

move two different fora for relief. This is evident from the

following provisions of Chapter XVII of the Act:

(i) The provision for levy of fine which is linked to the

cheque amount and may extend to twice the

amount of the cheque (Section 138) thereby

rendering Section 357(3) virtually infructuous

insofar as cheque dishonour cases are concerned.

(ii) The provision enabling a First Class Magistrate to

levy fine exceeding Rs 5000 (Section 143)

notwithstanding the ceiling to the fine, as Rs 5000

imposed by Section 29(2) of the Code.

(iii) The provision relating to mode of service of

summons (Section 144) as contrasted from the

mode prescribed for criminal cases in Section 62

of the Code.

(iv) The provision for taking evidence of the

complainant by affidavit (Section 145) which is

more prevalent in civil proceedings, as contrasted

from the procedure for recording evidence in the

Code.

(v) The provision making all offences punishable

under Section 138 of the Act compoundable.

17. The apparent intention is to ensure that not only the

offender is punished, but also ensure that the complainant

invariably receives the amount of the cheque by way of

compensation under Section 357(1)(b) of the Code. Though a

complaint under Section 138 of the Act is in regard to criminal

liability for the offence of dishonouring the cheque and not for

the recovery of the cheque amount (which strictly speaking,

has to be enforced by a civil suit), in practice once the criminal

complaint is lodged under Section 138 of the Act, a civil suit is

seldom filed to recover the amount of the cheque. This is

because of the provision enabling the court to levy a fine

linked to the cheque amount and the usual direction in such

cases is for payment as compensation, the cheque amount,

as loss incurred by the complainant on account of dishonour

of cheque, under Section 357(1)(b) of the Code and the

provision for compounding the offences under Section 138 of

the Act. Most of the cases (except those where liability is

denied) get compounded at one stage or the other by

payment of the cheque amount with or without interest. Even

where the offence is not compounded, the courts tend to

direct payment of compensation equal to the cheque amount

(or even something more towards interest) by levying a fine

commensurate with the cheque amount. A stage has reached

when most of the complainants, in particular the financing

institutions (particularly private financiers) view the

proceedings under Section 138 of the Act, as a proceeding for

the recovery of the cheque amount, the punishment of the

drawer of the cheque for the offence of dishonour, becoming

secondary.”

(emphasis supplied)

49. In Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9

SCC 129, a three-Judge Bench of this Court answered the question as to

whether the territorial jurisdiction for filing of cheque dishonour complaints

is restricted to the court within whose territorial jurisdiction the offence is

committed, which is the location where the cheque is dishonoured, i.e.,

returned unpaid by the bank on which it is drawn. This judgment has been

legislatively overruled by Section 142(2) of the Negotiable Instruments Act

set out hereinabove. However, Shri Mehta relied upon paragraphs 15.2

and 17 of the judgment of Vikramjit Sen, J., which states as follows:

“15.2. We have undertaken this succinct study mindful of the

fact that Parliamentary debates have a limited part to play in

interpretation of statutes, the presumption being that

legislators have the experience, expertise and language skills

to draft laws which unambiguously convey their intentions and

expectations for the enactments. What is palpably clear is that

Parliament was aware that they were converting civil liability

into criminal content inter alia by the deeming fiction of

culpability in terms of the pandect comprising Section 138 and

the succeeding sections, which severely curtail defences to

prosecution. Parliament was also aware that the offence of

cheating, etc. already envisaged in IPC, continued to be

available.”

xxx xxx xxx

“17. The marginal note of Section 138 of the NI Act explicitly

defines the offence as being the dishonour of cheques for

insufficiency, etc. of funds in the account. Of course, the

headings, captions or opening words of a piece of legislation

are normally not strictly or comprehensively determinative of

the sweep of the actual Section itself, but it does presage its

intendment. See Frick India Ltd. v. Union of India [(1990) 1

SCC 400 : 1990 SCC (Tax) 185] and Forage & Co. v.

Municipal Corpn. of Greater Bombay [(1999) 8 SCC 577].

Accordingly, unless the provisions of the section clearly point

to the contrary, the offence is concerned with the dishonour of

a cheque; and in the conundrum before us the body of this

provision speaks in the same timbre since it refers to a

cheque being “returned by the bank unpaid”. None of the

provisions of IPC have been rendered nugatory by Section

138 of the NI Act and both operate on their own. It is trite that

mens rea is the quintessential of every crime. The objective of

Parliament was to strengthen the use of cheques, distinct from

other negotiable instruments, as mercantile tender and

therefore it became essential for Section 138 of the NI Act

offence to be freed from the requirement of proving mens rea.

This has been achieved by deeming the commission of an

offence dehors mens rea not only under Section 138 but also

by virtue of the succeeding two sections. Section 139 carves

out the presumption that the holder of a cheque has received

it for the discharge of any liability. Section 140 clarifies that it

will not be available as a defence to the drawer that he had no

reason to believe, when he issued the cheque, that it would be

dishonoured. Section 138 unequivocally states that the

offence is committed no sooner the drawee bank returns the

cheque unpaid.”

The focus in this case was on the court within whose jurisdiction the

offence under Section 138 can be said to have taken place. This case,

therefore, has no direct relevance to the point that has been urged before

us.

50. In Lafarge Aggregates & Concrete India (P) Ltd. v. Sukarsh

Azad, (2014) 13 SCC 779, this Court, continuing the trend of the earlier

judgments in describing the hybrid nature of these provisions, held:

“6. The respondents have agreed to pay the said amount but

the appellant has refused to accept the payment and insisted

that the appeal against rejection of the recall application

should be allowed by this Court. The counsel for the appellant

submitted that merely because the accused has offered to

make the payment at a later stage, the same cannot compel

the complainant appellant to accept it and the complainant

appellant would be justified in pursuing the complaint which

was lodged under the Negotiable Instruments Act, 1881. In

support of his submission, the counsel for the appellant also

relied on Rajneesh Aggarwal v. Amit J. Bhalla [(2001) 1 SCC

631 : 2001 SCC (Cri) 229].1

7. However, we do not feel persuaded to accept this

submission as the appellant has to apprise himself that the

primary object and reason of the Negotiable Instruments Act,

1 The judgment in Rajneesh Aggarwal v. Amit J. Bhalla, (2001) 1 SCC 631 was

delivered prior to the 2002 and 2018 Amendment Acts to the Negotiable Instruments

Act. The perceptible shift in the provisions by introducing Sections 143 to 148 has

been noticed by this Court hereinabove, as a result of which the observations

contained in this judgment would no longer be valid.

1881, is not merely penal in nature but is to maintain the

efficiency and value of a negotiable instrument by making the

accused honour the negotiable instrument and paying the

amount for which the instrument had been executed.

8. The object of bringing Sections 138 to 142 of the

Negotiable Instruments Act on statute appears to be to

inculcate faith in the efficacy of banking operations and

credibility in transacting business of negotiable instruments.

Despite several remedies, Section 138 of the Act is intended

to prevent dishonesty on the part of the drawer of negotiable

instrument to draw a cheque without sufficient funds in his

account maintained by him in a bank and induces the payee

or holder in due course to act upon it. Therefore, once a

cheque is drawn by a person of an account maintained by him

for payment of any amount or discharge of liability or debt or is

returned by a bank with endorsement like (i) refer to drawer,

(ii) exceeds arrangements, and (iii) instruction for stop

payment and like other usual endorsement, it amounts to

dishonour within the meaning of Section 138 of the Act.

Therefore, even after issuance of notice if the payee or holder

does not make the payment within the stipulated period, the

statutory presumption would be of dishonest intention

exposing to criminal liability.”

xxx xxx xxx

“10. However, in the interest of equity, justice and fair play, we

deem it appropriate to direct the respondents to make the

payment to the appellant by issuing a demand draft in their

favour for a sum of Rs 5 lakhs, which would be treated as an

overall amount including interest and compensation towards

the cheque for which stop-payment instructions had been

issued. If the same is not acceptable to the appellant, it is their

choice but that would not allow them to prosecute the

respondents herein in pursuance to the complaint which they

have lodged implicating these two respondents.”

51. In Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1

SCC 560, this Court noticed the object of Section 138 and the

amendments made to Chapter XVII, and summarised the case law as

follows:

“6. The object of introducing Section 138 and other provisions

of Chapter XVII in the Act in the year 1988 [Vide the Banking,

Public Financial Institutions and Negotiable Instruments Laws

(Amendment) Act, 1988] was to enhance the acceptability of

cheques in the settlement of liabilities. The drawer of cheque

is made liable to prosecution on dishonour of cheque with

safeguards to prevent harassment of honest drawers. The

Negotiable Instruments (Amendment and Miscellaneous

Provisions) Act, 2002 to amend the Act was brought in, inter

alia, to simplify the procedure to deal with such matters. The

amendment includes provision for service of summons by

speed post/courier, summary trial and making the offence

compoundable.

7. This Court has noted that the object of the statute was to

facilitate smooth functioning of business transactions. The

provision is necessary as in many transactions cheques were

issued merely as a device to defraud the creditors. Dishonour

of cheque causes incalculable loss, injury and inconvenience

to the payee and credibility of business transactions suffers a

setback. [Goaplast (P) Ltd. v. Chico Ursula D'Souza, (2004) 2

SCC 235, p. 248, para 26 : 2004 SCC (Cri) 499] At the same

time, it was also noted that nature of offence under Section

138 primarily related to a civil wrong and the 2002

Amendment specifically made it compoundable. [Vinay

Devanna Nayak v. Ryot Sewa Sahakari Bank Ltd., (2008) 2

SCC 305 : (2008) 1 SCC (Civ) 542 : (2008) 1 SCC (Cri) 351]

The offence was also described as “regulatory offence”. The

burden of proof was on the accused in view of presumption

under Section 139 and the standard of proof was of

“preponderance of probabilities”. [Rangappa v. Sri Mohan,

(2010) 11 SCC 441, p. 454, para 28 : (2010) 4 SCC (Civ)

477 : (2011) 1 SCC (Cri) 184] The object of the provision was

described as both punitive as well as compensatory. The

intention of the provision was to ensure that the complainant

received the amount of cheque by way of compensation.

Though proceedings under Section 138 could not be treated

as civil suits for recovery, the scheme of the provision,

providing for punishment with imprisonment or with fine which

could extend to twice the amount of the cheque or to both,

made the intention of law clear. The complainant could be

given not only the cheque amount but double the amount so

as to cover interest and costs. Section 357(1)(b) CrPC

provides for payment of compensation for the loss caused by

the offence out of the fine. [R. Vijayan v. Baby, (2012) 1 SCC

260, p. 264, para 9 : (2012) 1 SCC (Civ) 79 : (2012) 1 SCC

(Cri) 520] Where fine is not imposed, compensation can be

awarded under Section 357(3) CrPC to the person who

suffered loss. Sentence in default can also be imposed. The

object of the provision is not merely penal but to make the

accused honour the negotiable instruments. [Lafarge

Aggregates & Concrete India (P) Ltd. v. Sukarsh Azad, (2014)

13 SCC 779, p. 781, para 7 : (2014) 5 SCC (Cri) 818]”

The Court then concluded:

“18. From the above discussion the following aspects emerge:

18.1. Offence under Section 138 of the Act is primarily a civil

wrong. Burden of proof is on the accused in view of

presumption under Section 139 but the standard of such proof

is “preponderance of probabilities”. The same has to be

normally tried summarily as per provisions of summary trial

under CrPC but with such variation as may be appropriate to

proceedings under Chapter XVII of the Act. Thus read,

principle of Section 258 CrPC will apply and the court can

close the proceedings and discharge the accused on

satisfaction that the cheque amount with assessed costs and

interest is paid and if there is no reason to proceed with the

punitive aspect.

18.2. The object of the provision being primarily

compensatory, punitive element being mainly with the object

of enforcing the compensatory element, compounding at the

initial stage has to be encouraged but is not debarred at later

stage subject to appropriate compensation as may be found

acceptable to the parties or the court.

18.3. Though compounding requires consent of both parties,

even in absence of such consent, the court, in the interests of

justice, on being satisfied that the complainant has been duly

compensated, can in its discretion close the proceedings and

discharge the accused.

18.4. Procedure for trial of cases under Chapter XVII of the

Act has normally to be summary. The discretion of the

Magistrate under second proviso to Section 143, to hold that it

was undesirable to try the case summarily as sentence of

more than one year may have to be passed, is to be exercised

after considering the further fact that apart from the sentence

of imprisonment, the court has jurisdiction under Section

357(3) CrPC to award suitable compensation with default

sentence under Section 64 IPC and with further powers of

recovery under Section 431 CrPC. With this approach, prison

sentence of more than one year may not be required in all

cases.

18.5. Since evidence of the complaint can be given on

affidavit, subject to the court summoning the person giving

affidavit and examining him and the bank's slip being prima

facie evidence of the dishonour of cheque, it is unnecessary

for the Magistrate to record any further preliminary evidence.

Such affidavit evidence can be read as evidence at all stages

of trial or other proceedings. The manner of examination of

the person giving affidavit can be as per Section 264 CrPC.

The scheme is to follow summary procedure except where

exercise of power under second proviso to Section 143

becomes necessary, where sentence of one year may have to

be awarded and compensation under Section 357(3) is

considered inadequate, having regard to the amount of the

cheque, the financial capacity and the conduct of the accused

or any other circumstances.”2

(emphasis supplied)

52. In a recent judgment in M. Abbas Haji v. T.N. Channakeshava,

(2019) 9 SCC 606, this Court held:

“6. It is urged before us that the High Court overstepped the

limits which the appellate court is bound by criminal cases

setting aside an order of acquittal. Proceedings under Section

138 of the Act are quasi-criminal proceedings. The principles,

which apply to acquittal in other criminal cases, cannot apply

to these cases. …”

(emphasis supplied)

Likewise, in H.N. Jagadeesh v. R. Rajeshwari, (2019) 16 SCC 730, this

Court again alluded to the quasi-criminal nature of the offence as follows:

“7. The learned counsel for the respondent has submitted that

in order to advance the cause of justice, such an approach is

2 This judgment was subsequently referred to with approval in Makwana Mangaldas

Tulsidas v. State of Gujarat, (2020) 4 SCC 695 (at paragraphs 17 and 18).

permissible and for this purpose he has relied upon the

judgment of this Court in Zahira Habibulla H. Sheikh v. State

of Gujarat [Zahira Habibulla H. Sheikh v. State of Gujarat,

(2004) 4 SCC 158 : 2004 SCC (Cri) 999] . We are afraid that

the ratio of the aforesaid judgment cannot be extended to the

facts of this case, particularly when we find that the present

case is a complaint case filed by the respondent under

Section 138 of the Act and where the proceedings are also of

quasi-criminal nature.”

(emphasis supplied)

53. A conspectus of these judgments would show that the gravamen of

a proceeding under Section 138, though couched in language making the

act complained of an offence, is really in order to get back through a

summary proceeding, the amount contained in the dishonoured cheque

together with interest and costs, expeditiously and cheaply. We have

already seen how it is the victim alone who can file the complaint which

ordinarily culminates in the payment of fine as compensation which may

extend to twice the amount of the cheque which would include the amount

of the cheque and the interest and costs thereupon. Given our analysis of

Chapter XVII of the Negotiable Instruments Act together with the

amendments made thereto and the case law cited hereinabove, it is clear

that a quasi-criminal proceeding that is contained in Chapter XVII of the

Negotiable Instruments Act would, given the object and context of Section

14 of the IBC, amount to a “proceeding” within the meaning of Section

14(1)(a), the moratorium therefore attaching to such proceeding.

QUASI-CRIMINAL PROCEEDINGS

54. Shri Lekhi, learned Additional Solicitor General, took strong

objection to the use of the expression “quasi-criminal” to describe

proceedings under Section 138 of the Negotiable Instruments Act, which,

according to him, can only be described as criminal proceedings. This is

for the reason that these proceedings result in imprisonment or fine or

both, which are punishments that can be imposed only in criminal

proceedings as stated by Section 53 of the Indian Penal Code. It is

difficult to agree with Shri Lekhi. There are many instances of acts which

are punishable by imprisonment or fine or both which have been

described as quasi-criminal. One instance is the infraction of Section 630

of the Companies Act, 1956. This section reads as follows:

“630. Penalty for wrongful withholding of property.—(1) If

any officer or employee of a company—

(a) wrongfully obtains possession of any property of a

company; or

(b) having any such property in his possession, wrongfully

withholds it or knowingly applies it to purposes other than

those expressed or directed in the articles and authorised by

this Act;

he shall, on the complaint of the company or any creditor or

contributory thereof, be punishable with fine which may extend

to ten thousand rupees.

(2) The Court trying the offence may also order such officer or

employee to deliver up or refund, within a time to be fixed by

the Court, any such property wrongfully obtained or wrongfully

withheld or knowingly misapplied or in default, to suffer

imprisonment for a term which may extend to two years.”

In Abhilash Vinodkumar Jain v. Cox & Kings (India) Ltd., (1995) 3

SCC 732, this Court examined whether a petition under Section 630 of

the Companies Act, 1956 is maintainable against the legal heirs of a

deceased officer or employee for retrieval of the company’s property. In

holding that it was so retrievable, this Court held:

“15. Even though Section 630 of the Act falls in Part XIII of the

Companies Act and provides for penal consequences for

wrongful withholding of the property of the company, the

provisions strictly speaking are not penal in the sense as

understood under the penal law. The provisions are quasicriminal. They have been enacted with the main object of

providing speedy relief to a company when its property is

wrongfully obtained or wrongfully withheld by an employee or

officer or an ex-employee or ex-officer or anyone claiming

under them. In our opinion, a proper construction of the

section would be that the term “officer or employee” of a

company in Section 630 of the Act would by a deeming

fiction include the legal heirs and representatives of the

employee or the officer concerned continuing in occupation of

the property of the company after the death of the employee

or the officer.

16. Under sub-section (1) of Section 630 for the wrongful

obtaining of the possession of the property of the company or

wrongfully withholding it or knowingly applying it to a purpose

other than that authorised by the company, the employee or

the officer concerned is “punishable with fine which may

extend to one thousand rupees”. The ‘fine’ under this subsection is to be understood in the nature of ‘compensation’ for

wrongful withholding of the property of the company. Under

sub-section (2) what is made punishable is the disobedience

of the order of the Court, directing the person, continuing in

occupation, after the right of the employee or the officer to

occupation has extinguished, to deliver up or refund within a

time to be fixed by the court, the property of the company

obtained or wrongfully withheld or knowingly misapplied.

Thus, it is in the event of the disobedience of the order of the

court, that imprisonment for a term which may extend to two

years has been prescribed. The provision makes the defaulter,

whether an employee or a past employee or the legal heir of

the employee, who disobeys the order of the court to hand

back the property to the company within the prescribed time

liable for punishment.”

(emphasis supplied)

Having so held, the Court did not construe the provision strictly, which it

would have been bound to do had it been a purely criminal one, but

instead gave it a broad, liberal, and purposeful construction as follows:

“18. Section 630 of the Act provides speedy relief to the

company where its property is wrongfully obtained or

wrongfully withheld by an “employee or an officer” or a “past

employee or an officer” or “legal heirs and representatives”

deriving their colour and content from such an employee or

officer insofar as the occupation and possession of the

property belonging to the company is concerned. The failure

to deliver property back to the employer on the termination,

resignation, superannuation or death of an employee would

render the ‘holding’ of that property wrongful and actionable

under Section 630 of the Act. To hold that the “legal heirs”

would not be covered by the provisions of Section 630 of the

Act would be unrealistic and illogical. It would defeat the

‘beneficent’ provision and ignore the factual realities that the

legal heirs or family members who are continuing in

possession of the allotted property had obtained the right

of occupancy with the employee concerned in the property of

the employer only by virtue of their relationship with the

employee/officer and had not obtained or acquired the right

to possession of the property in any other capacity, status or

right. The legislature, which is supposed to know and

appreciate the needs of the people, by enacting Section 630

of the Act manifested that it was conscious of the position that

today in the corporate sector — private or public enterprise —

the employees/officers are often provided residential

accommodation by the employer for the “use and occupation”

of the employee concerned during the course of his

employment. More often than not, it is a part of the service

conditions of the employee that the employer shall provide

him residential accommodation during the course of his

employment. If an employee or a past employee or anyone

claiming the right of occupancy under them, were to continue

to ‘hold’ the property belonging to the company after the right

to be in occupation has ceased for one reason or the other, it

would not only create difficulties for the company, which shall

not be able to allot that property to its other employees, but

would also cause hardship for the employee awaiting

allotment and defeat the intention of the legislature. The

courts are therefore obliged to place a broader, liberal and

purposeful construction on the provisions of Section 630 of the

Act in furtherance of the object and purpose of the legislation

and construe it in a wider sense to effectuate the intendment

of the provision. The “heirs and legal representatives” of the

deceased employee have no independent capacity or status

to continue in occupation and possession of the property,

which stood allotted to the employee or the officer concerned

or resist the return of the property to the employer in the

absence of any express agreement to the contrary entered

with them by the employer. The court, when approached by

the employer for taking action under Section 630 of the Act,

can examine the basis on which the petition/complaint is filed

and if it is found that the company's right to retrieve its

property is quite explicit and the stand of the employee, or

anyone claiming through him, to continue in possession is

baseless, it shall proceed to act under Section 630 of the Act

and pass appropriate orders. Only an independent valid right,

not only to occupation but also to possession of the property

belonging to the company, unconnected with the employment

of the deceased employee can defeat an action under Section

630 of the Act if it can be established that the deceased

employee concerned had not wrongfully nor knowingly applied

it for purposes other than those authorised by the employer. In

interpreting a beneficent provision, the court must be forever

alive to the principle that it is the duty of the court to defend

the law from clever evasion and defeat and prevent

perpetration of a legal fraud.”

55. Likewise, contempt of court proceedings have been described as

“quasi-criminal” in a long series of judgments. We may point out that the

predecessor to the Contempt of Courts Act, 1971, namely, the Contempt

of Courts Act, 1952 did not contain any definition of the expression

“contempt of court”. A Committee was appointed by the Government of

India, referred to as the Sanyal Committee, which then went into whether

this expression needs to be defined. The Sanyal Committee Report, 1963

then broadly divided contempts into two kinds – civil and criminal

contempt – as follows:

“2.1. … Broadly speaking, the classification follows the

method of dividing contempt into criminal and civil contempts.

The Shawcross Committee adopted the same classification on

the grounds of convenience. Broadly speaking, civil contempts

are contempts which involve a private injury occasioned by

disobedience to the judgment, order or other process of the

court. On the other hand, criminal contempts are right from

their inception in the nature of offences. In Legal

Remembrancer v. Matilal Ghose, I.L.R. 41 Cal. 173 at 252,

Mukerji J. observed thus: “A criminal contempt is conduct that

is directed against the dignity and authority of the court. A civil

contempt is failure to do something ordered to be done by a

court in a civil action for the benefit of the opposing party

therein. Consequently, in the case of a civil contempt, the

proceeding for its punishment is at the instance of the party

interested and is civil in its character; in the case of a criminal

contempt, the proceeding is for punishment of an act

committed against the majesty of the law, and, as the primary

purpose of the punishment is the vindication of the public

authority, the proceedings conform as nearly as possible to

proceedings in criminal cases. It is conceivable that the

dividing line between the acts constituting criminal and those

constituting civil contempts may become indistinct in those

cases where the two gradually merge into each other.”

2.2. Notwithstanding the existence of a broad distinction

between civil and criminal contempts, a large number of cases

have shown that the dividing line between the two is almost

imperceptible. For instance, in Dulal Chandra v. Sukumar,

A.I.R. 1958 Cal. 474 at 476, 477, the following observations

occur:

“The line between civil and criminal contempt can

be broad as well as thin. Where the contempt

consists in mere failure to comply with or carry out

an order of a court made for the benefit of a

private party, it is plainly civil contempt and it has

been said that when the party, in whose interest

the order was made, moves the court for action to

be taken in contempt against the contemner with a

view to an enforcement of his right, the proceeding

is only a form of execution. In such a case, there is

no criminality in the disobedience, and the

contempt, such as it is, is not criminal. If, however,

the contemner adds defiance of the court to

disobedience of the order and conducts himself in

a manner which amounts to obstruction or

interference with the course of justice, the

contempt committed by him is of a mixed

character, partaking as between him and his

opponent of the nature of a civil contempt and as

between him and the court or the State, of the

nature of a criminal contempt. In cases of this

type, no clear distinction between civil and criminal

contempt can be drawn and the contempt

committed cannot be broadly classed as either

civil or criminal contempt … To put the matter in

other words, a contempt is merely a civil wrong

where there has been disobedience of an order

made for the benefit of a particular party, but

where it has consisted in setting the authority of

the courts at nought and has had a tendency to

invade the efficacy of the machinery maintained by

the State for the administration of justice, it is a

public wrong and consequently criminal in nature.”

2.3. In other words, the question whether a contempt is civil or

criminal is not to be judged with reference to the penalty which

may be inflicted but with reference to the cause for which the

penalty has been inflicted. …”

(at pages 21-22)

(emphasis supplied)

56. The Statement of Objects and Reasons for the Contempt of Courts

Act, 1971 expressly states that the said Act was in pursuance of the

Sanyal Committee Report as follows:

“Statement of Objects and Reasons.—It is generally felt that

the existing law relating to contempt of courts is somewhat

uncertain, undefined and unsatisfactory. The jurisdiction to

punish for contempt touches upon two important fundamental

rights of the citizen, namely, the right to personal liberty and

the right to freedom of expression. It was, therefore,

considered advisable to have the entire law on the subject

scrutinised by a special committee. In pursuance of this, a

Committee was set up in 1961 under the Chairmanship of the

late Shri H. N. Sanyal the then Additional Solicitor General.

The Committee made a comprehensive examination of the

law and problems relating to contempt of Court in the light of

the position obtaining in our own country and various foreign

countries. The recommendations which the Committee made

took note of the importance given to freedom of speech in the

Constitution and of the need for safeguarding the status and

dignity of Courts and interests of administration of justice.

The recommendations of the Committee have been

generally accepted by Government after considering the views

expressed on those recommendations by the State

Governments, Union Territory Administrations the Supreme

Court, the High Courts and the Judicial Commissioners. The

Bill seeks to give effect to the accepted recommendations of

the Sanyal Committee.”

57. The Contempt of Courts Act, 1971 defines “civil contempt” and

“criminal contempt” as follows:

“2. Definitions.—In this Act, unless the context otherwise

requires,—

xxx xxx xxx

(b) “civil contempt” means wilful disobedience to any

judgment, decree, direction, order, writ or other process of a

court or wilful breach of an undertaking given to a court;

words, spoken or written, or by signs, or by visible

representations, or otherwise) of any matter or the doing of

any other act whatsoever which—

(i) scandalises or tends to scandalise, or lowers or

tends to lower the authority of any court; or

(ii) prejudices, or interferes or tends to interfere

with, the due course of any judicial proceeding; or

(iii) interferes or tends to interfere with, or

obstructs or tends to obstruct, the administration of

justice in any other manner;

xxx xxx xxx”

58. Whether the contempt committed is civil or criminal, the High Court

is empowered to try such “offences” whether the person allegedly guilty is

within or outside its territorial jurisdiction. Thus, Section 11 of the

Contempt of Courts Act, states:

“11. Power of High Court to try offences committed or

offenders found outside jurisdiction.—A High Court shall

have jurisdiction to inquire into or try a contempt of itself or of

any court subordinate to it, whether the contempt is alleged to

have been committed within or outside the local limits of its

jurisdiction, and whether the person alleged to be guilty of

contempt is within or outside such limits.”

Punishments awarded for contempt of court, whether civil or criminal, are

then dealt with by Section 12 of the Act, which states:

“12. Punishment for contempt of court.—(1) Save as

otherwise expressly provided in this Act or in any other law, a

contempt of court may be punished with simple imprisonment

for a term which may extend to six months, or with fine which

may extend to two thousand rupees, or with both:

Provided that the accused may be discharged or the

punishment awarded may be remitted on apology being made

to the satisfaction of the court.

Explanation.—An apology shall not be rejected merely on

the ground that it is qualified or conditional if the accused

makes it bona fide.

(2) Notwithstanding anything contained in any law for the time

being in force, no court shall impose a sentence in excess of

that specified in sub-section(1) for any contempt either in

respect of itself or of a court subordinate to it.

(3) Notwithstanding anything contained in this section, where

a person is found guilty of a civil contempt, the court, if it

considers that a fine will not meet the ends of justice and that

a sentence of imprisonment is necessary shall, instead of

sentencing him to simple imprisonment, direct that he be

detained in a civil prison for such period not exceeding six

months as it may think fit.

(4) Where the person found guilty of contempt of court in

respect of any undertaking given to a court is a company,

every person who, at the time the contempt 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 contempt and

the punishment may be enforced with the leave of the court,

by the detention in civil prison of each such person:

Provided that nothing contained in this sub-section shall

render any such person liable to such punishment if he proves

that the contempt was committed without his knowledge or

that he exercised all due diligence to prevent its commission.

(5) Notwithstanding anything contained in sub-section (4),

where the contempt of court referred to therein has been

committed by a company and it is proved that the contempt

has been committed with the consent or connivance of, or is

attributable to any neglect on the part of, any director,

manager, secretary or other officer of the company, such

director, manager, secretary or other officer shall also be

deemed to be guilty of the contempt and the punishment may

be enforced, with the leave of the court, by the detention in

civil prison of such director, manager, secretary or other

officer.

Explanation.—For the purpose of sub-sections (4) and (5),—

(a) “company” means any body corporate and

includes a firm or other association of individuals;

and

(b) “director”, in relation to a firm, means a partner in

the firm.”

59. In criminal contempt cases, “cognizance” in contempts other than

those referred to in Section 14 of the Act is taken by the Supreme Court

or the High Court in the manner provided by Section 15. Section 17 then

lays down the procedure that is to be followed after cognizance is taken.

Finally, by Section 23, the Supreme Court and the High Courts are given

the power to make rules, not inconsistent with the provisions of the Act,

providing for any matter relating to its procedure.

60. This Court, in Niaz Mohd. v. State of Haryana, (1994) 6 SCC 332,

spoke of the hybrid nature of a civil contempt as follows:

“9. Section 2(b) of the Contempt of Courts Act, 1971

(hereinafter referred to as ‘the Act’) defines “civil contempt” to

mean “wilful disobedience to any judgment, decree, direction,

order, writ or other process of a court …”. Where the contempt

consists in failure to comply with or carry out an order of a

court made in favour of a party, it is a civil contempt. The

person or persons in whose favour such order or direction has

been made can move the court for initiating proceeding for

contempt against the alleged contemner, with a view to

enforce the right flowing from the order or direction in

question. …

10. … In Halsbury’s Laws of England, 4th Edn., Vol. 9, para

53, p. 34, it has been said:

“Although contempt may be committed in the

absence of wilful disobedience on the part of the

contemner, committal or sequestration will not be

order unless the contempt involves a degree of

fault or misconduct.”

It has been further stated:

“In circumstances involving misconduct, civil

contempt bears a twofold character, implying as

between the parties to the proceedings merely a

right to exercise and a liability to submit to a form

of civil execution, but as between the party in

default and the State, a penal or disciplinary

jurisdiction to be exercised by the court in the

public interest.”

(emphasis supplied)

In T.N. Godavarman Thirumulpad (102) v. Ashok Khot, (2006) 5 SCC

1, this Court held:

“33. Proceedings for contempt are essentially personal and

punitive. This does not mean that it is not open to the court, as

a matter of law to make a finding of contempt against any

official of the Government say, Home Secretary or a Minister.

34. While contempt proceedings usually have these

characteristics and contempt proceedings against a

government department or a Minister in an official capacity

would not be either personal or punitive (it would clearly not

be appropriate to fine or sequester the assets of the Crown or

a government department or an officer of the Crown acting in

his official capacity), this does not mean that a finding of

contempt against a government department or Minister would

be pointless. The very fact of making such a finding would

vindicate the requirements of justice. In addition, an order for

costs could be made to underline the significance of a

contempt. A purpose of the court’s powers to make findings of

contempt is to ensure that the orders of the court are obeyed.

This jurisdiction is required to be coextensive with the court's

jurisdiction to make orders which need the protection which

the jurisdiction to make findings of contempt provides. In civil

proceedings the court can now make orders (other than

injunctions or for specific performance) against authorised

government departments or the Attorney General. On

applications for judicial review orders can be made against

Ministers. In consequence such orders must be taken not to

offend the theory that the Crown can supposedly do no wrong.

Equally, if such orders are made and not obeyed, the body

against whom the orders were made can be found guilty of

contempt without offending that theory, which could be the

only justifiable impediment against making a finding of

contempt. (See M. v. Home Office [(1993) 3 All ER 537 :

(1994) 1 AC 377 : (1993) 3 WLR 433 (HL)]).”

(emphasis supplied)

61. The description of contempt proceedings being “quasi-criminal” in

nature has its origin in the celebrated Privy Council judgment of Andre

Paul Terence Ambard v. Attorney-General of Trinidad and Tobago,

AIR 1936 PC 141 in which Lord Atkin referred to contempt of court

proceedings as quasi-criminal (see page 143).

62. In Sahdeo v. State of U.P., (2010) 3 SCC 705, this Court again

referred to the “quasi-criminal” nature of contempt proceedings as follows:

“15. The proceedings of contempt are quasi-criminal in nature.

In a case where the order passed by the court is not complied

with by mistake, inadvertence or by misunderstanding of the

meaning and purport of the order, unless it is intentional, no

charge of contempt can be brought home. There may possibly

be a case where disobedience is accidental. If that is so, there

would be no contempt. [Vide B.K. Kar v. Chief Justice and

Justices of the Orissa High Court [AIR 1961 SC 1367 : (1961)

2 Cri LJ 438] (AIR p. 1370, para 7).]

xxx xxx xxx

18. In Sukhdev Singh v. Teja Singh [AIR 1954 SC 186 : 1954

Cri LJ 460] this Court placing reliance upon the judgment of

the Privy Council in Andre Paul Terence Ambard v. Attorney

General of Trinidad and Tabago [AIR 1936 PC 141] , held that

the proceedings under the Contempt of Courts Act are quasicriminal in nature and orders passed in those proceedings are

to be treated as orders passed in criminal cases.

19. In S. Abdul Karim v. M.K. Prakash [(1976) 1 SCC 975 :

1976 SCC (Cri) 217 : AIR 1976 SC 859] , Chhotu

Ram v. Urvashi Gulati [(2001) 7 SCC 530 : 2001 SCC (L&S)

1196] , Anil Ratan Sarkar v. Hirak Ghosh [(2002) 4 SCC 21 :

AIR 2002 SC 1405] , Daroga Singh v. B.K. Pandey [(2004) 5

SCC 26 : 2004 SCC (Cri) 1521] and All India Anna Dravida

Munnetra Kazhagam v. L.K. Tripathi [(2009) 5 SCC 417 :

(2009) 2 SCC (Cri) 673 : AIR 2009 SC 1314] , this Court held

that burden and standard of proof in contempt proceedings,

being quasi-criminal in nature, is the standard of proof

required in criminal proceedings, for the reason that contempt

proceedings are quasi-criminal in nature.

20. Similarly, in Mrityunjoy Das v. Sayed Hasibur Rahaman

[(2001) 3 SCC 739 : (2006) 1 SCC (Cri) 296 : AIR 2001 SC

1293] this Court placing reliance upon a large number of its

earlier judgments, including V.G. Nigam v. Kedar Nath Gupta

[(1992) 4 SCC 697 : 1993 SCC (L&S) 202 : (1993) 23 ATC

400 : AIR 1992 SC 2153] and Murray & Co. v. Ashok Kumar

Newatia [(2000) 2 SCC 367 : 2000 SCC (Cri) 473 : AIR 2000

SC 833], held that jurisdiction of contempt has been conferred

on the Court to punish an offender for his contemptuous

conduct or obstruction to the majesty of law, but in the case of

quasi-criminal in nature, charges have to be proved beyond

reasonable doubt and the alleged contemnor becomes

entitled to the benefit of doubt. It would be very hazardous to

impose sentence in contempt proceedings on some

probabilities.

xxx xxx xxx

27. In view of the above, the law can be summarised that the

High Court has a power to initiate the contempt proceedings

suo motu for ensuring the compliance with the orders passed

by the Court. However, contempt proceedings being quasicriminal in nature, the same standard of proof is required in

the same manner as in other criminal cases. The alleged

contemnor is entitled to the protection of all safeguards/rights

which are provided in the criminal jurisprudence, including the

benefit of doubt. There must be a clear-cut case of obstruction

of administration of justice by a party intentionally to bring the

matter within the ambit of the said provision. The alleged

contemnor is to be informed as to what is the charge, he has

to meet. Thus, specific charge has to be framed in precision.

The alleged contemnor may ask the Court to permit him to

cross-examine the witnesses i.e. the deponents of affidavits,

who have deposed against him. In spite of the fact that

contempt proceedings are quasi-criminal in nature, provisions

of the Code of Criminal Procedure, 1973 (hereinafter called

“CrPC”) and the Evidence Act are not attracted for the reason

that proceedings have to be concluded expeditiously. Thus,

the trial has to be concluded as early as possible. The case

should not rest only on surmises and conjectures. There must

be clear and reliable evidence to substantiate the allegations

against the alleged contemnor. The proceedings must be

concluded giving strict adherence to the statutory rules framed

for the purpose.”

In Maninderjit Singh Bitta v. Union of India, (2012) 1 SCC 273, this

Court again referred to “civil” and “criminal” contempt as follows:

“17. Section 12 of the 1971 Act deals with the contempt of

court and its punishment while Section 15 deals with

cognizance of criminal contempt. Civil contempt would be

wilful breach of an undertaking given to the court or wilful

disobedience of any judgment or order of the court, while

criminal contempt would deal with the cases where by words,

spoken or written, signs or any matter or doing of any act

which scandalises, prejudices or interferes, obstructs or even

tends to obstruct the due course of any judicial proceedings,

any court and the administration of justice in any other

manner. Under the English law, the distinction between

criminal and civil contempt is stated to be very little and that

too of academic significance. However, under both the English

and Indian law these are proceedings sui generis.

xxx xxx xxx

19. Under the Indian law the conduct of the parties, the act of

disobedience and the attendant circumstances are relevant to

consider whether a case would fall under civil contempt or

criminal contempt. For example, disobedience of an order of a

court simpliciter would be civil contempt but when it is coupled

with conduct of the parties which is contemptuous, prejudicial

and is in flagrant violation of the law of the land, it may be

treated as a criminal contempt. Even under the English law,

the courts have the power to enforce its judgment and orders

against the recalcitrant parties.”

That contempt proceedings are “quasi-criminal” is also stated in Kanwar

Singh Saini v. High Court of Delhi, (2012) 4 SCC 307 (at paragraph 38)

and in T.C. Gupta v. Bimal Kumar Dutta, (2014) 14 SCC 446 (at

paragraph 10).

63. What is clear from the aforesaid is that though there may not be any

watertight distinction between civil and criminal contempt, yet, an analysis

of the aforesaid authorities would make it clear that civil contempt is

essentially an action which is moved by the party in whose interest an

order was made with a view to enforce its personal right, where

contumacious disregard for such order results in punishment of the

offender in public interest, whereas a criminal contempt is, in essence, a

proceeding which relates to the public interest in seeing that the

administration of justice remains unpolluted. What is of importance is to

note that even in cases of civil contempt, fine or imprisonment or both

may be imposed. The mere fact that punishments that are awardable

relate to Section 53 of the Indian Penal Code would not, therefore, render

a civil contempt proceeding a criminal proceeding. There is a great deal of

wisdom in the finding of the Sanyal Committee Report that the question

whether a contempt is civil or criminal is not to be judged with reference to

the penalty which may be inflicted but with reference to the cause for

which the penalty has been inflicted.

64. Clearly, therefore, given the hybrid nature of a civil contempt

proceeding, described as “quasi-criminal” by several judgments of this

Court, there is nothing wrong with the same appellation “quasi-criminal”

being applied to a Section 138 proceeding for the reasons given by us on

an analysis of Chapter XVII of the Negotiable Instruments Act. We,

therefore, reject the learned Additional Solicitor General’s strenuous

argument that the appellation “quasi-criminal” is a misnomer when it

comes to Section 138 proceedings and that therefore some of the cases

cited in this judgment should be given a fresh look.

OTHER SECTIONS OF THE IBC IN RELATION TO SECTION 14 OF

THE IBC

65. Shri Mehta then argued that Section 33(5) of the IBC may also be

seen, as it is a provision analogous to Section 14(1)(a). Section 33(5)

states as follows:

“33. Initiation of liquidation.—

xxx xxx xxx

(5) Subject to Section 52, when a liquidation order has been

passed, no suit or other legal proceeding shall be instituted by

or against the corporate debtor:

Provided that a suit or other legal proceeding may be

instituted by the liquidator, on behalf of the corporate debtor,

with the prior approval of the Adjudicating Authority.

xxx xxx xxx”

It will be noted that under this Section, the expression “no suit or other

legal proceeding” occurs both in the enacting part as well as the proviso.

Going by the proviso first, given the object that the liquidator now has to

act on behalf of the company after a winding-up order is passed, which

includes filing of suits and other legal proceedings on behalf of the

company, there is no earthly reason as to why a Section 138/141

proceeding would be outside the ken of the proviso. On the contrary, as

the liquidator alone now represents the company, it is obvious that

whatever the company could do pre-liquidation is now vested in the

liquidator, and in order to realise monies that are due to the company,

there is no reason why the liquidator cannot institute a Section 138/141

proceeding against a defaulting debtor of the company. Obviously, this

language needs to be construed in the widest possible form as there

cannot be any residuary category of “other legal proceedings” which can

be instituted against some person other than the liquidator or by the

liquidator who now alone represents the company. Given the object of this

provision also, what has been said earlier with regard to the nonapplication of the doctrines of ejusdem generis and noscitur a sociis

would apply with all force to this provision as well.

66. In fact, several other provisions of the IBC may also be looked at in

this context. Thus, when it comes to the duties of a resolution professional

who takes over the management of the company during the corporate

insolvency resolution process, Section 25(2)(b) states as follows:

“25. Duties of resolution professional.—

xxx xxx xxx

(2) For the purposes of sub-section (1), the resolution

professional shall undertake the following actions, namely—

xxx xxx xxx

(b) represent and act on behalf of the corporate

debtor with third parties, exercise rights for the

benefit of the corporate debtor in judicial, quasijudicial or arbitration proceedings;

xxx xxx xxx”

Here again, given the fact that it is the resolution professional alone who

is now to preserve and protect the assets of the corporate debtor in this

interregnum, the resolution professional therefore is to represent and act

on behalf of the corporate debtor in all judicial, quasi-judicial, or arbitration

proceedings, which would include criminal proceedings. Here again, the

word “judicial” cannot be construed noscitur a sociis so as to cut down its

plain meaning, as otherwise, quasi-judicial or arbitration proceedings, not

being criminal proceedings, the word “judicial” would then take colour

from them. This would stultify the object sought to be achieved by Section

25 and result in an absurdity, namely, that during this interregnum, nobody

can represent or act on behalf of the corporate debtor in criminal

proceedings. Likewise, if a corporate debtor cannot be taken over by a

new management and has to be condemned to liquidation, the powers

and duties of the liquidator, while representing the corporate debtor, are

enumerated in Section 35. Section 35(1)(k), in particular, states as

follows:

“35. Powers and duties of liquidator.—(1) Subject to the

directions of the Adjudicating Authority, the liquidator shall

have the following powers and duties, namely:—

xxx xxx xxx

(k) to institute or defend any suit, prosecution or

other legal proceedings, civil or criminal, in the

name of on behalf of the corporate debtor;

xxx xxx xxx”

This provision specifically speaks of “prosecution” and “criminal

proceedings”. Contrasted with Section 25(2)(b) and Section 33(5), an

argument could be made that the absence of the expressions

“prosecution” and “criminal proceedings” in Section 25(2)(b) and Section

33(5) would show that they were designedly eschewed by the legislature.

We have seen how inelegant drafting cannot lead to absurd results or

results which stultify the object of a provision, given its otherwise wide

language. Thus, nothing can be gained by juxtaposing various provisions

against each other and arriving at conclusions that are plainly untenable

in law.

CASE LAW UNDER PROVISIONS OF OTHER STATUTES

67. Shri Mehta then relied strongly upon judgments under Section 22(1)

of the SICA and under Section 446(2) of the Companies Act, 1956. He

relied upon BSI Ltd. v. Gift Holdings (P) Ltd., (2000) 2 SCC 737, which

judgment held that the expression “suit” in Section 22(1) of the SICA

would not include a Section 138 proceeding. The Court was directly

concerned with only this expression and, therefore, held:

“19. The said contention is also devoid of merits. The word

“suit” envisaged in Section 22(1) cannot be stretched to

criminal prosecutions. The suit mentioned therein is restricted

to “recovery of money or for enforcement of any security

against the industrial company or of any guarantee in respect

of any loans or advance granted to the industrial company”.

As the suit is clearly delineated in the provision itself, the

context would not admit of any other stretching process.

20. A criminal prosecution is neither for recovery of money nor

for enforcement of any security etc. Section 138 of the NI Act

is a penal provision the commission of which offence entails a

conviction and sentence on proof of the guilt in duly conducted

criminal proceedings. Once the offence under Section 138 is

completed the prosecution proceedings can be initiated not for

recovery of the amount covered by the cheque but for bringing

the offender to penal liability. What was considered

in Maharashtra Tubes Ltd. [(1993) 2 SCC 144] is whether the

remedy provided in Section 29 or Section 31 of the State

Finance Corporation Act, 1951 could be pursued

notwithstanding the ban contained in Section 22 of SICA.

Hence the legal principle adumbrated in the said decision is of

no avail to the appellants.

21. In the above context it is pertinent to point out that Section

138 of the NI Act was introduced in 1988 when SICA was

already in vogue. Even when the amplitude of the word

“company” mentioned in Section 141 of the NI Act was

widened through the explanation added to the Section,

Parliament did not think it necessary to exclude companies

falling under Section 22 of SICA from the operation thereof. If

Parliament intended to exempt sick companies from

prosecution proceedings, necessary provision would have

been included in Section 141 of the NI Act. More significantly,

when Section 22(1) of SICA was amended in 1994 by

inserting the words

“and no suit for the recovery of money or for the

enforcement of any security against the industrial

company or of any guarantee in respect of any

loans or advance granted to the industrial

company”

Parliament did not specifically include prosecution

proceedings within the ambit of the said ban.”

This case is wholly distinguishable as the word “proceedings” did not

come up for consideration at all. Further, given the object of Section 22(1)

of the SICA, which was amended in 1994 by inserting the words that were

interpreted by this Court, parliament restricted proceedings only to suits

for recovery of money etc., thereby expressly not including prosecution

proceedings, as was held by this Court. The observations contained in

paragraph 20, that Section 138 of the Negotiable Instruments Act is a

penal provision in a criminal proceeding cannot now be said to be good

law given the march of events, in particular, the amendments of 2002 and

2018 to the Negotiable Instruments Act, as pointed out hereinabove, and

the later judgments of this Court interpreting Chapter XVII of the

Negotiable Instruments Act.

68. The next decision relied upon by Shri Mehta is the judgment in

Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd.,

100

(2000) 2 SCC 745, which merely followed this judgment (see paragraphs

15-18).

69. Likewise, all the judgments cited under Section 446(2) of the

Companies Act, 1956 are distinguishable. Section 446(2) states as

follows:

“446. Suits stayed on winding up order.—

xxx xxx xxx

(2) The Tribunal shall, notwithstanding anything contained in

any other law for the time being in force, have jurisdiction to

entertain, or dispose of—

(a) any suit or proceeding by or against the company;

(b) any claim made by or against the company

(including claims by or against any of its branches

in India);

respect of the company;

(d) any question of priorities or any other question

whatsoever, whether of law or fact, which may

relate to or arise in course of the winding up of the

company;

whether such suit or proceeding has been instituted or is

instituted, or such claim or question has arisen or arises or

such application has been made or is made before or after the

order for the winding up of the company, or before or after the

commencement of the Companies (Amendment) Act, 1960.

xxx xxx xxx”

70. In S.V. Kandeakar v. V.M. Deshpande, (1972) 1 SCC 438 [“S.V.

Kandeakar”], this Court explained why income tax proceedings would be

outside the purview of Section 446(2) as follows:

“17. Turning now to the Income Tax Act it is noteworthy that

Section 148 occurs in Chapter XIV which beginning with

101

Section 139 prescribes the procedure for assessment and

Section 147 provides for assessment or reassessment of

income escaping assessment. This Section empowers the

Income Tax Officer concerned subject to the provisions of

Sections 148 to 153 to assess or re-assess escaped income.

While holding these assessment proceedings the Income Tax

Officer does not, in our view, perform the functions of a Court

as contemplated by Section 446(2) of the Act. Looking at the

legislative history and the scheme of the Indian Companies

Act, particularly the language of Section 446, read as a whole,

it appears to us that the expression “other legal proceeding” in

sub-section (1) and the expression “legal proceeding” in subsection (2) convey the same sense and the proceedings in

both the sub-sections must be such as can appropriately be

dealt with by the winding up court. The Income Tax Act is, in

our opinion, a complete code and it is particularly so with

respect to the assessment and re-assessment of income tax

with which alone we are concerned in the present case. The

fact that after the amount of tax payable by an assessee has

been determined or quantified its realisation from a company

in liquidation is governed by the Act because the income tax

payable also being a debt has to rank pari passu with other

debts due from the company does not mean that the

assessment proceedings for computing the amount of tax

must be held to be such other legal proceedings as can only

be started or continued with the leave of the liquidation court

under Section 446 of the Act. The liquidation court, in our

opinion, cannot perform the functions of Income Tax Officers

while assessing the amount of tax payable by the assessees

even if the assessee be the company which is being wound

up by the Court. The orders made by the Income Tax Officer in

the course of assessment or re-assessment proceedings are

subject to appeal to the higher hierarchy under the Income

Tax Act. There are also provisions for reference to the High

Court and for appeals from the decisions of the High Court to

the Supreme Court and then there are provisions for revision

by the Commissioner of Income Tax. It would lead to

anomalous consequences if the winding up court were to be

held empowered to transfer the assessment proceedings to

itself and assess the company to income tax. The argument

on behalf of the appellant by Shri Desai is that the winding up

court is empowered in its discretion to decline to transfer the

assessment proceedings in a given case but the power on the

102

plain language of Section 446 of the Act must be held to vest

in that court to be exercised only if considered expedient. We

are not impressed by this argument. The language of Section

446 must be so construed as to eliminate such startling

consequences as investing the winding up court with the

powers of an Income Tax Officer conferred on him by the

Income Tax Act, because in our view the legislature could not

have intended such a result.

18. The argument that the proceedings for assessment or reassessment of a company which is being wound up can only

be started or continued with the leave of the liquidation court

is also, on the scheme both of the Act and of the Income Tax

Act, unacceptable. We have not been shown any principle on

which the liquidation court should be vested with the power to

stop assessment proceedings for determining the amount of

tax payable by the company which is being wound up. The

liquidation court would have full power to scrutinise the claim

of the revenue after income tax has been determined and its

payment demanded from the liquidator. It would be open to

the liquidation court then to decide how far under the law the

amount of income tax determined by the Department should

be accepted as a lawful liability on the funds of the company

in liquidation. At that stage the winding up court can fully

safeguard the interests of the company and its creditors under

the Act. Incidentally, it may be pointed out that at the Bar no

English decision was brought to our notice under which the

assessment proceedings were held to be controlled by the

winding up court. On the view that we have taken, the

decisions in the case of Seth Spinning Mills Ltd., (In

Liquidation) and the Mysore Spun Silk Mills Ltd., (In

Liquidation) do not seem to lay down the correct rule of law

that the Income Tax Officers must obtain leave of the winding

up court for commencing or continuing assessment or reassessment proceedings.”

From this judgment, what becomes clear is the fact that the winding-up

court under Section 446(2) is to take up all matters which the company

court itself can conveniently dispose of rather than exposing a company

which is under winding up to expensive litigation in other courts. This

103

being the object of Section 446(2), the expression “proceeding” was given

a limited meaning as it is obvious that a company court cannot dispose of

an assessment proceeding in income tax or a criminal proceeding. This is

further made clear in Sudarshan Chits (I) Ltd. v. O. Sukumaran Pillai,

(1984) 4 SCC 657 (at paragraph 8) and in Central Bank of India v.

Elmot Engineering Co., (1994) 4 SCC 159 (at paragraph 14).

71. Shri Mehta also relied upon D.K. Kapur v. Reserve Bank of India,

2001 SCC OnLine Del 67 : (2001) 58 DRJ 424 (DB). This judgment

referred to Section 446(1) and (2) of the Companies Act, 1956 and

contrasted the language contained therein with the language contained in

Section 457 of the same Act, which made it clear that the liquidator in a

winding up by the court shall have power, with the sanction of the court, to

institute or defend any suit, prosecution, or other legal proceeding, civil or

criminal, in the name and on behalf of the company. Thus, the Delhi High

Court held:

“12. Mere look at the aforesaid provisions would show that on

the one hand, in Section 457 of the Act, the legislature has

empowered the liquidator to institute or defend any ‘suit’ or

‘prosecution’ or ‘other legal proceedings’ civil or criminal in the

name and on behalf of company after permission from the

court; and by Section 454 (5A) of the Act the legislature has

empowered the Company Court itself to take cognizance of

the offence under sub-section (5) of Section 454 of the Act

and to try such offenders as per the procedure provided for

trial of summons cases under the Code of Criminal Procedure,

1974; but on the other hand in Sections 442 and 446 of the

Act the legislature has used only the expression “suit or other

104

legal proceedings”. The words “prosecution” or “criminal case”

are conspicuously missing in these Sections. It appears quite

logical as purpose and object of Sections 442 and 446 of the

Act is to enable the Company Court to oversee the affairs of

the company and to avoid wasteful expenditure. Therefore the

intention of the legislature under these Sections does not

appear to provide jurisdiction to the Company Court over

criminal proceedings either against the company or against its

directors. Wherever legislature thought it necessary to provide

such jurisdiction it has used the appropriate expressions.”

It then set out the judgment in S.V. Kandeakar (supra) in paragraph 14,

and concluded:

“15. The reasoning adopted by the Supreme Court in the

above case would be fully applicable to the facts at hand.

Complaints under the penal provisions of other statutes

against the company or its directors, (except those provided

under the Companies Act) cannot be appropriately dealt with

by the Company Court. Orders passed by the criminal court

are subject to the appeal and revision etc. under the Code of

Criminal Procedure. If the winding up court is held to be

empowered to transfer these criminal proceedings to itself it

would lead to anomalous consequences.”

It was in this context that the Court therefore ultimately held:

“20. … The expression “other legal proceedings” must be read

in ejusdem generis with the expression “suit” in Section 446 of

the Act. If so read it can only refer to any civil proceedings and

criminal proceedings have to be excluded. Therefore, no

permission was required to be taken from Company Court for

filing criminal complaint either against the company or against

its directors.”

72. Shri Mehta’s reliance on Indorama Synthetics (I) Ltd. v. State of

Maharashtra, 2016 SCC OnLine Bom 2611 : (2016) 4 Mah LJ 249, is

also misplaced, for the reason that the finding of the Bombay High Court

105

that Section 138 proceedings were not included in Section 446 of the

Companies Act only follows the reasoning of the earlier judgments on the

scope of Section 446 of the Companies Act. Significantly, given the object

of Section 446 of the Companies Act, it was held that a Section 138

proceeding is not a proceeding which has a direct bearing on the

collection or distribution of assets in the winding up of a company. The

ultimate conclusion of the court is contained in paragraph 30, which reads

as follows:

“30. Thus, there is a long line of decisions making the position

clear that the expression ‘suit or legal proceedings’, used in

Section 446(1) of the Companies Act, can mean only those

proceedings which can have a bearing on the assets of the

companies in winding-up or have some relation with the issue

in winding-up. It does not mean each and every civil

proceedings, which has no bearing on the winding-up

proceedings, or criminal offences where the Director of the

Company is presently liable for penal action.”

73. As the language, object, and context of Section 22(1) of the SICA

and Section 446(2) of the Companies Act are far removed from Section

14(1) of the IBC, none of the aforesaid judgments have any application to

Section 14 of the IBC and are therefore distinguishable.

74. Shri Mehta then relied upon Power Grid Corporation of India Ltd.

v. Jyoti Structures Ltd., 2017 SCC OnLine Del 12189 : (2018) 246 DLT

485, in which the Delhi High Court held that a Section 34 application to

set aside an award under the Arbitration and Conciliation Act, 1996 would

106

not be covered by Section 14 of the IBC. This judgment does not state the

law correctly as it is clear that a Section 34 proceeding is certainly a

proceeding against the corporate debtor which may result in an arbitral

award against the corporate debtor being upheld, as a result of which,

monies would then be payable by the corporate debtor. A Section 34

proceeding is a proceeding against the corporate debtor in a court of law

pertaining to a challenge to an arbitral award and would be covered just

as an appellate proceeding in a decree from a suit would be covered. This

judgment does not, therefore, state the law correctly.

75. Shri Mehta then relied upon Inderjit C. Parekh v. V.K. Bhatt,

(1974) 4 SCC 313. This judgment dealt with a moratorium provision

contained in the Bombay Relief Undertakings (Special Provisions) Act,

1958. In the context of a prosecution under paragraph 76(a) of the

Employees’ Provident Fund Scheme, 1952 this Court held:

“6. The object of Section 4(1)(a)(iv) is to declare, so to say, a

moratorium on actions against the undertaking during the

currency of the notification declaring it to be a relief

undertaking. By sub-clause (iv), any remedy for the

enforcement of an obligation or liability against the relief

undertaking is suspended and proceedings which are already

commenced are to be stayed during the operation of the

notification. Under Section 4(b), on the notification ceasing to

have force, such obligations and liabilities revive and become

enforceable and the proceedings which are stayed can be

continued. These provisions are aimed at resurrecting and

rehabilitating industrial undertakings brought by inefficiency or

107

mismanagement to the brink of dissolution, posing thereby the

grave threat of unemployment of industrial workers. “Relief

undertaking” means under Section 2(2) an industrial

undertaking in respect of which a declaration under Section 3

is in force. By Section 3, power is conferred on the State

Government to declare an industrial undertaking as a relief

undertaking, “as a measure of preventing unemployment or of

unemployment relief”. Relief undertakings, so long as they

continue as such, are given immunity from legal actions so as

to render their working smooth and effective. Such

undertakings can be run more effectively as a measure of

unemployment relief, if the conduct of their affairs is

unhampered by legal proceedings or the threat of such

proceedings. That is the genesis and justification of Section

4(1)(a)(iv) of the Act.

7. Thus, neither the language of the statute nor its object

would justify the extension of the immunity so as to cover the

individual obligations and liabilities of the directors and other

officers of the undertaking. If they have incurred such

obligations or liabilities, as distinct from the obligations or

liabilities of the undertaking, they are liable to be proceeded

against for their personal acts of commission and omission.

The remedy in that behalf cannot be suspended nor can a

proceeding already commenced against them in their

individual capacity be stayed. Indeed, it would be strange if

any such thing was within the contemplation of law. Normally,

the occasion for declaring an industry as a relief undertaking

would arise out of causes connected with defaults on the part

of its directors and other officers. To declare a moratorium on

legal actions against persons whose activities have

necessitated the issuance of a notification in the interest of

unemployment relief is to give to such persons the benefit of

their own wrong. Section 4(1)(a)(iv) therefore advisedly limits

the power of the State Government to direct suspension of

remedies and stay of proceedings involving the obligations

and liabilities in relation to a relief undertaking and which were

incurred before the undertaking was declared a relief

undertaking.

8. Para 38(1) of the Employees’ Provident Funds Scheme,

1952 imposes an obligation on “The employer” to pay the

provident fund contribution to the Fund within 15 days of the

close of every month. The Scheme does not define

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“Employee” but para 2(m) says that words and expressions

which are not defined by the Scheme shall have the meaning

assigned to them in the Employees' Provident Funds Act.

Section 2(e)(ii) of that Act defines an “Employer”, to the extent

material, as the person who, or the authority which, has the

ultimate control over the affairs of an establishment and where

the said affairs are entrusted to a manager, managing director

or managing agent, such manager, managing director or

managing agent. Thus the responsibility to pay the

contributions to the Fund was of the appellants and if they

have defaulted in paying the amount, they are liable to be

prosecuted under para 76(a) of the Scheme which says that if

any person fails to pay any contribution which he is liable to

pay under the Scheme, he shall be punishable with six

months' imprisonment or with fine which may extend to one

thousand rupees or with both. Such a personal liability does

not fall within the scope of Section 4(1)(a)(iv) of the Act.”

Significantly, this Court did not hold that the moratorium provision would

not extend to criminal liability. On the contrary, on the assumption that it

would so extend, a distinction was made between personal liability of the

Directors of the undertaking and the undertaking itself, stating that as the

“employer” under the Employees’ Provident Fund Scheme would only

refer to those individuals managing the relief undertaking and not the

relief undertaking itself, the personal liability of such persons would not

fall within the scope of the moratorium provision. This judgment also,

therefore, does not, in any manner, support Shri Mehta.

76. Lastly, Shri Mehta relied upon Deputy Director, Directorate of

Enforcement Delhi v. Axis Bank, 2019 SCC OnLine Del 7854 : (2019)

259 DLT 500, and in particular, on paragraphs 127, 128, and 146 to 148

109

for the proposition that an offence under the Prevention of MoneyLaundering Act could not be covered under Section 14(1)(a). The Delhi

High Court’s reasoning is contained in paragraphs 139 and 141, which

are set out hereinbelow:

“139. From the above discussion, it is clear that the objects

and reasons of enactment of the four legislations are distinct,

each operating in different field. There is no overlap. While

RDBA has been enacted to provide for speedier remedy for

banks and financial institutions to recover their dues,

SARFAESI Act (with added chapter on registration of secured

creditor) aims at facilitating the secured creditors to

expeditiously and effectively enforce their security interest. In

each case, the amount to be recovered is “due” to the

claimant i.e. the banks or the financial institutions or the

secured creditor, as the case may be, the claim being against

the debtor (or his guarantor). The Insolvency Code, in

contrast, seeks to primarily protect the interest of creditors by

entrusting them with the responsibility to seek resolution

through a professional (RP), failure on his part leading

eventually to the liquidation process.”

xxx xxx xxx

“141. This court finds it difficult to accept the proposition that

the jurisdiction conferred on the State by PMLA to confiscate

the “proceeds of crime” concerns a property the value whereof

is “debt” due or payable to the Government (Central or State)

or local authority. The Government, when it exercises its

power under PMLA to seek attachment leading to confiscation

of proceeds of crime, does not stand as a creditor, the person

alleged to be complicit in the offence of money-laundering

similarly not acquiring the status of a debtor. The State is not

claiming the prerogative to deprive such offender of ill-gotten

assets so as to be perceived to be sharing the loot, not the

least so as to levy tax thereupon such as to give it a colour of

legitimacy or lawful earning, the idea being to take away what

has been illegitimately secured by proscribed criminal activity.”

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This raison d’être is completely different from what has been advocated

by Shri Mehta. The confiscation of the proceeds of crime is by the

government acting statutorily and not as a creditor. This judgment, again,

does not further his case.

WHETHER NATURAL PERSONS ARE COVERED BY SECTION 14 OF

THE IBC

77. As far as the Directors/persons in management or control of the

corporate debtor are concerned, a Section 138/141 proceeding against

them cannot be initiated or continued without the corporate debtor – see

Aneeta Hada (supra). This is because Section 141 of the Negotiable

Instruments Act speaks of persons in charge of, and responsible to the

company for the conduct of the business of the company, as well as the

company. The Court, therefore, in Aneeta Hada (supra) held as under:

“51. We have already opined that the decision in Sheoratan

Agarwal [(1984) 4 SCC 352 : 1984 SCC (Cri) 620] runs

counter to the ratio laid down in C.V. Parekh [(1970) 3 SCC

491 : 1971 SCC (Cri) 97] which is by a larger Bench and

hence, is a binding precedent. On the aforesaid ratiocination,

the decision in Anil Hada [(2000) 1 SCC 1 : 2001 SCC (Cri)

174] has to be treated as not laying down the correct law as

far as it states that the Director or any other officer can be

prosecuted without impleadment of the company. Needless to

emphasise, the matter would stand on a different footing

where there is some legal impediment and the doctrine of lex

non cogit ad impossibilia gets attracted.”

xxx xxx xxx

“56. We have referred to the aforesaid passages only to

highlight that there has to be strict observance of the

provisions regard being had to the legislative intendment

because it deals with penal provisions and a penalty is not to

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be imposed affecting the rights of persons, whether juristic

entities or individuals, unless they are arrayed as accused. It

is to be kept in mind that the power of punishment is vested in

the legislature and that is absolute in Section 141 of the Act

which clearly speaks of commission of offence by the

company. The learned counsel for the respondents have

vehemently urged that the use of the term “as well as” in the

Section is of immense significance and, in its tentacle, it

brings in the company as well as the Director and/or other

officers who are responsible for the acts of the company and,

therefore, a prosecution against the Directors or other officers

is tenable even if the company is not arraigned as an

accused. The words “as well as” have to be understood in the

context.”

xxx xxx xxx

“58. Applying the doctrine of strict construction, we are of the

considered opinion that commission of offence by the

company is an express condition precedent to attract the

vicarious liability of others. Thus, the words “as well as the

company” appearing in the Section make it absolutely

unmistakably clear that when the company can be

prosecuted, then only the persons mentioned in the other

categories could be vicariously liable for the offence subject to

the averments in the petition and proof thereof. One cannot be

oblivious of the fact that the company is a juristic person and it

has its own respectability. If a finding is recorded against it, it

would create a concavity in its reputation. There can be

situations when the corporate reputation is affected when a

Director is indicted.

59. In view of our aforesaid analysis, we arrive at the

irresistible conclusion that for maintaining the prosecution

under Section 141 of the Act, arraigning of a company as an

accused is imperative. The other categories of offenders can

only be brought in the drag-net on the touchstone of vicarious

liability as the same has been stipulated in the provision itself.

We say so on the basis of the ratio laid down in C.V.

Parekh [(1970) 3 SCC 491 : 1971 SCC (Cri) 97] which is a

three-Judge Bench decision. Thus, the view expressed in

Sheoratan Agarwal [(1984) 4 SCC 352 : 1984 SCC (Cri) 620]

does not correctly lay down the law and, accordingly, is

hereby overruled. The decision in Anil Hada [(2000) 1 SCC 1 :

2001 SCC (Cri) 174] is overruled with the qualifier as stated in

112

para 51. The decision in Modi Distillery [(1987) 3 SCC 684 :

1987 SCC (Cri) 632] has to be treated to be restricted to its

own facts as has been explained by us hereinabove.”

Since the corporate debtor would be covered by the moratorium provision

contained in Section 14 of the IBC, by which continuation of Section

138/141 proceedings against the corporate debtor and initiation of Section

138/141 proceedings against the said debtor during the corporate

insolvency resolution process are interdicted, what is stated in paragraphs

51 and 59 in Aneeta Hada (supra) would then become applicable. The

legal impediment contained in Section 14 of the IBC would make it

impossible for such proceeding to continue or be instituted against the

corporate debtor. Thus, for the period of moratorium, since no Section

138/141 proceeding can continue or be initiated against the corporate

debtor because of a statutory bar, such proceedings can be initiated or

continued against the persons mentioned in Section 141(1) and (2) of the

Negotiable Instruments Act. This being the case, it is clear that the

moratorium provision contained in Section 14 of the IBC would apply only

to the corporate debtor, the natural persons mentioned in Section 141

continuing to be statutorily liable under Chapter XVII of the Negotiable

Instruments Act.

CONCLUSION

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78. In conclusion, disagreeing with the Bombay High Court and the

Calcutta High Court judgments in Tayal Cotton Pvt. Ltd. v. State of

Maharashtra, 2018 SCC OnLine Bom 2069 : (2019) 1 Mah LJ 312 and

M/s MBL Infrastructure Ltd. v. Manik Chand Somani, CRR 3456/2018

(Calcutta High Court; decided on 16.04.2019), respectively, we hold that a

Section 138/141 proceeding against a corporate debtor is covered by

Section 14(1)(a) of the IBC.

79. Resultantly, the civil appeal is allowed and the judgment under

appeal is set aside. However, the Section 138/141 proceedings in this

case will continue both against the company as well as the appellants for

the reason given by us in paragraph 77 above as well as the fact that the

insolvency resolution process does not involve a new management taking

over. We may also note that the moratorium period has come to an end in

this case.

Criminal Appeal arising out of SLP ( Criminal) Diary No.32585 of 2019

1. Delay condoned. Leave granted.

2. Shri S. Nagamuthu, learned Senior Advocate appearing on behalf of

the appellant, has made various submissions before us. Suffice it to state

that his first submission is that as a moratorium is imposed against the

114

corporate debtor w.e.f. 10.07.2017, the Section 138 complaint that was

preferred on 19.09.2017 must be quashed.

3. On the facts of this case, three cheques – for INR 25,00,000/- dated

31.05.2017, for INR 25,00,000/- dated 30.06.2017, and for INR

23,51,408/- dated 31.07.2017 were issued by the appellant in favour of

the respondent. Before the cheques could be presented for payment, on

10.07.2017, the Adjudicating Authority admitted a petition by an

operational creditor under Section 9 of the IBC and imposed a moratorium

under Section 14. The three cheques were presented for payment, but

were returned citing “insufficient funds” as the reason on 04.08.2017. The

legal notice to initiate proceedings under Section 138 of the Negotiable

Instruments Act was issued by the respondent on 12.08.2017. As no

payment was forthcoming within the time specified, the respondent

preferred a complaint against the corporate debtor alone on 19.09.2017.

4. The respondent did not dispute the aforesaid dates, only reiterating

that the High Court was right in dismissing a quash petition filed by the

appellant under Section 482 of the CrPC.

5. Since the complaint that has been filed in the present case is

against the corporate debtor alone, without joining any of the persons in

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charge of and responsible for the conduct of the business of the corporate

debtor, the complaint needs to be quashed, given our judgment in Civil

Appeal No.10355 of 2018. The judgment under appeal, dated 02.04.2019,

is therefore set aside and the appeal is allowed.

Criminal Appeals arising out of SLP ( Criminal) Nos.10587/2019,

10857/2019, 10550/2019, 10858/2019, 10860/2019, 10861/2019,

10446/2019.

1. Leave granted.

2. On the facts of these cases, all the complaints filed by different

creditors of the same appellant under Section 138 read with Section 141

of the Negotiable Instruments Act were admittedly filed long before the

Adjudicating Authority admitted a petition under Section 7 of the IBC and

imposed moratorium on 19.03.2019.

3. Given our judgment in Civil Appeal No.10355 of 2018, the said

moratorium order would not cover the appellant in these cases, who is not

a corporate debtor, but a Director thereof. Thus, the impugned order

issuing a proclamation under Section 82 CrPC cannot be faulted with on

this ground. The appeals are therefore dismissed.

Criminal Appeal arising out of SLP (Criminal) Nos.2246-2247 of 2020

1. Leave granted.

116

2. In this case, the two complaints dated 12.03. 2018 and 14.03.2018

under Section 138 read with Section 141 of the Negotiable Instruments

Act were filed by the respondent against the corporate debtor along with

persons in charge of and responsible for the conduct of business of the

corporate debtor. On 14.02.2020, the Adjudicating Authority admitted a

petition under Section 9 of the IBC against the corporate debtor and

imposed a moratorium. The impugned interim order dated 20.02.2020 is

for the issuance of non-bailable warrants against two of the accused

individuals.

3. Given our judgment in Civil Appeal No.10355 of 2018, the

moratorium provision not extending to persons other than the corporate

debtor, this appeal also stands dismissed.

Criminal Appeal arising out of SLP (Criminal) No.2496 of 2020

1. Leave granted.

2. In the present case, a complaint under Section 138 read with

Section 141 of the Negotiable Instruments Act was filed by Respondent

No.1 against the corporate debtor together with its Managing Director and

Director on 15.05.2018. It is only thereafter that a petition under Section 9

of the IBC, filed by Respondent No.1, was admitted by the Adjudicating

Authority and a moratorium was imposed on 30.10.2018. The impugned

judgment dated 16.10.2019 held that a petition under Section 482, CrPC

117

to quash the said proceeding would be rejected as Section 14 of the IBC

did not apply to Section 138 proceedings.

3. The impugned judgment is set aside in view of our judgment in Civil

Appeal No.10355 of 2018, and the complaint is directed to be continued

against the Managing Director and Director, respectively.

Criminal Appeal arising out of SLP (Criminal) No.3500 of 2020

1. Leave granted.

2. The complaint in the present case was filed by the respondent on

28.07.2016. An application under Section 7, IBC was admitted by the

Adjudicating Authority only on 20.02.2018 and moratorium imposed on

the same date. The impugned judgment rejected a petition under Section

482 of the CrPC on the ground that Section 138 proceedings are not

covered by Section 14 of the IBC.

3. The impugned judgment is set aside in view of our judgment in Civil

Appeal No.10355 of 2018, and the complaint is directed to be continued

against the appellant.

Criminal Appeal arising out of SLP (Criminal) No.5638-5651/2020,

5653-5668/2020

Leave granted.

118

In these appeals, the appellants have approached us directly from the

learned Magistrate’s impugned orders. The learned Magistrate has held

that Section 14 of the IBC would not cover proceedings under Section

138 of the Negotiable Instruments Act. As a result, warrants of attachment

have been issued under Section 431 read with Section 421 CrPC against

various accused persons, including the corporate debtor and persons who

are since deceased. While setting aside the impugned judgments, given

our judgment in Civil Appeal No.10355 of 2018, we remand these cases

to the Magistrate to apply the law laid down by us in Civil Appeal

No.10355 of 2018, and thereafter decide all other points that may arise in

these cases in accordance with law.

Writ Petition (Criminal) Nos.330/2020, 339/2020, Writ Petition (Civil)

No.982/2020, Writ Petition (Criminal) Nos.297/2020, 342/2020, Writ

Petition (Civil) No.1417/2020, 1439/2020, 18/2021, Writ Petition

(Criminal) No.9/2021, 26/2021.

1. All these writ petitions have been filed under Article 32 of the

Constitution of India by erstwhile Directors/persons in charge of and

responsible for the conduct of the business of the corporate debtor. They

are all premised upon the fact that Section 138 proceedings are covered

by Section 14 of the IBC and hence, cannot continue against the

corporate debtor and consequently, against the petitioners.

119

2. Given our judgment in Civil Appeal No.10355 of 2018, all these writ

petitions have to be dismissed in view of the fact that such proceedings

can continue against erstwhile Directors/persons in charge of and

responsible for the conduct of the business of the corporate debtor.

………………....................... J.

(ROHINTON FALI NARIMAN)

………………....................... J.

(NAVIN SINHA)

………………...................... J.

(K.M. JOSEPH)

New Delhi;

March 01, 2021.

120

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Tuesday, March 2, 2021

whether the institution or continuation of a proceeding under Section 138/141 of the Negotiable Instruments Act can be said to be covered by the moratorium provision, namely, Section 14 of the IBC