TMI Blog2023 (3) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be taken as akin to civil proceedings rather than criminal proceedings - It cannot be said that the process under the IBC whether under Section 31 or Sections 38 to 41 which can extinguish the debt would ipso facto apply to the extinguishment of the criminal proceedings. No doubt in terms of the Scheme under the IBC there are sacrifices to be made by parties to settle the debts, the company being liquidated or revitalized. We are unable to accept the plea that if proceedings against the company come to an end then the Appellant as the Managing Director cannot be proceeded against. We are unable to accept the plea that Section 138 of the N.I. Act proceedings are primarily compensatory in nature and that the punitive element is incorporated only at enforcing the compensatory proceedings. The criminal liability and the fines are built on the principle of not honouring a negotiable instrument, which affects trade. This is apart from the principle of financial liability per se. To say that under a scheme which may be approved, a part amount will be recovered or if there is no scheme a person may stand in a queue to recover debt would absolve the consequences under Section 138 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproved or the company gets dissolved, the directors and the other accused cannot escape from their liability by citing its dissolution. What is dissolved is only the company, not the personal penal liability of the accused covered under Section 141 of the NI Act. Thus, where the proceedings under Section 138 of the NI Act had already commenced with the Magistrate taking cognizance upon the complaint and during the pendency, the company gets dissolved, the signatories/directors cannot escape from their penal liability under Section 138 of the NI Act by citing its dissolution. What is dissolved, is only the company, not the personal penal liability of the accused covered under Section 141 of the NI Act. After passing of the resolution plan under Section 31 of the IBC by the adjudicating authority in the light of the provisions of Section 32A of the IBC, the criminal proceedings under Section 138 of the NI Act will stand terminated only in relation to the corporate debtor if the same is taken over by a new management - Section 138 proceedings in relation to the signatories/directors who are liable/covered by the two provisos to Section 32A(1) will continue in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... next date was scheduled before the Magistrate for 15.01.2018. In the meantime, a development, which took place, was that in 2017 M/s Neeraj Paper Agencies Limited, styling itself as Operational Creditor , filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as IBC ) read with Rule 6 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, (hereinafter referred to as IB Rules, 2016 ) with the request to initiate Corporate Insolvency Resolution Process against the Accused company, treating it as the 'Corporate Debtor'. The National Company Law Tribunal vide order dated 12.09.2017 admitted the aforesaid insolvency application. 4. The Respondent herein filed its claim qua the debt, which was the subject matter of the N.I. Act proceedings, on 13.10.2017. In terms of the Resolution Plan dated 26.05.2018, the Resolution Applicant (Kushal Limited) filed the Resolution Plan and during the course of meeting the Committee of Creditors on 05.06.2018, it was informed that the respondent herein could not be considered as a Secured Financial Creditor as per definitions contained in Section 3(30) and Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensatory provisions. Therefore, once recovery is made partly by the receipt of money and partly by waiver, Section 138 of the NI Act should not be permitted to be continued. 10. It was lastly urged that if the debt of the company is resolved then the payment would be governed under the Resolution Plan. If the debts are not resolved, then the assets of the company are to be distributed in terms of Section 53 of the IBC. Plea of the Respondent: 11. On behalf of the Respondent, it was urged that the cheque was given for repayment of the aforementioned loan amount of Rs.30 crore for which the accused company agreed to repay the principal amount in two installments with first installment of Rs.10 crore payable on 31.03.2015 and the second installment of Rs.20 crore payable on 31.03.2016. The accused company had to pay interest @ 15 per cent per annum on the said principal amount of loan and such interest was payable monthly on the 15th day of every month, which was in consonance with the dates and the cheque amount. 12. It was urged that the accused company along with the Appellant deliberately and with the mala fide intention gave the cheque to defraud the Respondent to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea of the learned counsel for the Appellant that because Section 138 of the N.I. Act proceedings arise from a default in financial debt, the proceedings under Section 138 should be taken as akin to civil proceedings rather than criminal proceedings. We cannot lose sight of the fact that Section 138 of the N.I. Act are not recovery proceedings. They are penal in character. A person may face imprisonment or fine or both under Section 138 of the N.I. Act. It is not a recovery of the amount with interest as a debt recovery proceedings would be. They are not akin to suit proceedings. 17. It cannot be said that the process under the IBC whether under Section 31 or Sections 38 to 41 which can extinguish the debt would ipso facto apply to the extinguishment of the criminal proceedings. No doubt in terms of the Scheme under the IBC there are sacrifices to be made by parties to settle the debts, the company being liquidated or revitalized. The Appellant before us has been roped in as a signatory of the cheque as well as the Promoter and Managing Director of the Accused company, which availed of the loan. The loan agreement was also signed by him on behalf of the company. What the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uth East District, Saket Court, New Delhi dated 23.11.2019 in the Criminal Revision Application No. 593 of 2019 by which the Additional Sessions Judge affirmed the order passed by the Metropolitan Magistrate 09, SED dated 01.11.2019 rejecting the application filed by the appellant herein seeking discharge from the criminal proceedings i.e. Complaint Case No. 632984 of 2016 instituted by the respondent-complainant under Section 138 of the NI Act. 4. It is necessary to clarify why the appellant challenged the impugned order passed by the Additional Sessions Judge directly before this Court invoking Article 136 of the Constitution of India. In this regard, the following averments made in the synopsis are reproduced hereinbelow: The petitioner is directly approaching this Hon ble Court, because the first two facets are already being considered by this Hon ble Court, in which view, the Hon ble High Court is not likely to entertain a quashing petition. This apart, a petition before any other court is likely to result in conflicting orders and would be an exercise in futility. The earlier matters pending before this Hon ble Court also arose directly out of the summons issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the meantime, the appellant preferred an application before the trial court seeking exemption from his personal appearance invoking a moratorium under Section 14 of the IBC. The Magistrate vide order dated 12.11.2018 rejected the said application on the ground that the criminal proceedings under the NI Act had nothing to do with the proceedings under the IBC. 14. On 27.02.2019, the NCLT approved the resolution plan so far as the corporate debtor is concerned. 15. As the resolution plan came to be approved by the NCLT, the appellant herein filed an application dated 20.07.2019 before the trial court, praying that he be discharged from the criminal proceedings. The case of the appellant herein before the Magistrate was that as the debt stood settled in the proceedings under the IBC, the criminal proceedings would not survive. 16. The trial court vide order dated 01.11.2019 rejected the aforesaid application essentially on the ground that it had no jurisdiction to discharge an accused in a summons triable case. 17. In view of the aforesaid, the appellant herein filed the Criminal Revision Application No. 593 of 2019 before the Additional Sessions Court, challenging the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... criminal proceedings under Section 138 of the NI Act vis-a-vis the proceedings under the IBC and answered the same in para 102 of the judgment. It was pointed out by Mr. Goel that this Court drew a fine distinction between the corporate debtor and natural persons ultimately held that while a corporate debtor would be protected from Section 138 proceedings during the period of moratorium, the natural persons would not enjoy such protection and Section 138 proceedings would continue against the natural persons. However, according to Mr. Goel, this Court may not go in the correctness of such bifurcation as in the case on hand, the proceedings are beyond the period of moratorium. Mr. Goel pointed out that the question framed in para 6 of the decision in P. Mohanraj (supra) is restricted only to the applicability of Section 14 of the IBC to the proceedings under Section 138 of the NI Act. F. The principal argument of Mr. Goel is that if the IBC proceedings have travelled beyond Section 14, the process would either lead to acceptance of a resolution plan under Section 31 of the IBC or liquidation of the company after determination of the claims under Chapter III of the IBC. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, the same may be dismissed. ANALYSIS 25. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the seminal question of law that falls for the consideration of this Court may be formulated as under: Whether in light of: (i) the complainant having participated in the proceedings under the IBC, 2016 by putting forward its claim and consenting to accept some share as a creditor; coupled with (ii) the approval of the resolution plan under Section 31 of the IBC, 2016; the signatory/director in charge of the day-to-day affairs would stand discharged/relieved from the penal liability under Section 138 of the NI Act? 26. Before adverting to the rival submissions canvassed on either side, it is necessary to look into few relevant provisions of the NI Act as well as IBC, 2016. 27. Section 138 of the NI Act reads thus: 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 deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence: Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter. (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence 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 that offence and shall be liable to be proceeded against and punished accordingly. Explanation. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the conditions set out therein are fulfilled. Thereafter, the payee of the cheque has the option of prosecuting the drawer of the cheque by instituting a complaint under Section 200 of the Code of Criminal Procedure, 1973 (for short, the CrPC ) before the jurisdictional criminal court. After cognizance of the offence is taken, the criminal court is seized of the matter. The case will have to be disposed of in terms of the provisions set out in the CrPC. If the complainant fails to turn up on any hearing date, the Magistrate can invoke Section 256 of the CrPC and acquit the accused. Under Section 257 of the CrPC, the complaint can be withdrawn at any point of time before the final order is passed. Under Section 147 of the NI Act the offence can be compounded. The case may end in acquittal or conviction at the conclusion of the trial. 33. Section 141 of the NI Act states that if the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application before the adjudicating authority along with the proof of default and the name of a resolution professional proposed to act as the interim resolution professional in respect of the corporate debtor. Once the adjudicating authority is satisfied, as to the extent of the default and is ensured that the application is complete and no disciplinary proceedings are pending against the proposed resolution professional, it shall admit the application. 38. Section 8 of the IBC provides that an operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debt or copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed. 39. Section 9 of the IBC stipulates that after the expiry of the period of 10 days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of Section 8 if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of Section 8, it would be open for the operational creditor to file an application before the adjudicating authority for in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this Court in the case of Swiss Ribbons Private Limited and Another v. Union of India and Others reported in (2019) 4 SCC 17 assumes importance. I quote paras 88-91 of Swiss Ribbons (supra) as under: Resolution professional has no adjudicating powers 88. It is clear from a reading of the Code as well as the Regulations that the resolution professional has no adjudicatory powers. Section 18 of the Code lays down the duties of an interim resolution professional as follows: 18. Duties of interim resolution professional. (1) The interim resolution professional shall perform the following duties, namely (a) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to (i) business operations for the previous two years; (ii) financial and operational payments for the previous two years; (iii) list of assets and liabilities as on the initiation date; and (iv) such other matters as may be specified; (b) receive and collate all the claims submitted by creditors to him, pursuant to the public announceme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouncement, may submit the claim with proof to the interim resolution professional or the resolution professional, as the case may be, on or before the ninetieth day of the insolvency commencement date. (3) Where the creditor in sub-regulation (2) is a financial creditor under Regulation 8, it shall be included in the committee from the date of admission of such claim: Provided that such inclusion shall not affect the validity of any decision taken by the committee prior to such inclusion. 13. Verification of claims. (1) The interim resolution professional or the resolution professional, as the case may be, shall verify every claim, as on the insolvency commencement date, within seven days from the last date of the receipt of the claims, and thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims, and update it. (2) The list of creditors shall be (a) available for inspection by the persons who submitted proofs of claim; (b) available for inspection by members, partners, Directors and guarantors of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41. Determination of valuation of claims. The liquidator shall determine the value of claims admitted under Section 40 in such manner as may be specified by the Board. 42. Appeal against the decision of liquidator. A creditor may appeal to the adjudicating authority against the decision of the liquidator accepting or rejecting the claims within fourteen days of the receipt of such decision. It is clear from these sections that when the liquidator determines the value of claims admitted under Section 40, such determination is a decision , which is quasi-judicial in nature, and which can be appealed against to the adjudicating authority under Section 42 of the Code. 91. Unlike the liquidator, the resolution professional cannot act in a number of matters without the approval of the Committee of Creditors under Section 28 of the Code, which can, by a two-thirds majority, replace one resolution professional with another, in case they are unhappy with his performance. Thus, the resolution professional is really a facilitator of the resolution process, whose administrative functions are overseen by the Committee of Creditors and by the adjudicating authority. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y operational creditors, financial creditors, other creditors, workmen and employees are to be submitted to the resolution professional along with proofs thereof see Regulations 7 to 12. Thereafter, under Regulation 13, the resolution professional shall verify each claim as on the insolvency commencement date, and thereupon maintain a list of creditors containing the names of creditors along with the amounts claimed by them, the amounts admitted by him, and the security interest, if any, in respect of such claims, and constantly update the aforesaid list see Regulation 13(1). 44. Chapter X of the Regulations then deals with resolution plans that are submitted. Under Regulation 35, fair value as defined by Regulation 2(1) (hb) [Under Regulation 2(1)(hb), Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016: 2. (1)(hb) fair value means the estimated realisable value of the assets of the corporate debtor, if they were to be exchanged on the insolvency commencement date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had acted knowledge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r towards them; (j)-(k)*** (l) other information, which the resolution professional deems relevant to the committee. (f) On the basis of the information memorandum, the resolution plan is submitted under Section 30(1) of the IBC. (g) It is important to note that the operational creditors are mandatorily entitled to the liquidation value or the amount that the plan entitles them if distributed in accordance with the waterfall mechanism under Section 53 whichever is higher. (See Section 30 (2) (b)) (h) For dissenting financial creditors, they are mandatorily entitled to the amount under Section 53 in the event of liquidation. (i) The constitutional validity of the said provision was upheld by this Court in the decision of Essar Steel India Limited (supra). (See paras 128-131) (j) If the plan fails to comply with the above, the resolution plan is liable to be mandatorily rejected. (k) Section 31 of the IBC deals with the approval of the resolution plan which shall bind everyone i.e. the corporate debtor, guarantors, creditors, other stakeholders etc. Thus, whatever amount is allotted to the creditor under the plan, the same will have to be accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mised upon the agreement or consent of those bound (although as a procedural step IBC requires sixtysix per cent votes of creditors), but upon its compliance with the procedure stipulated under IBC. (Emphasis supplied) 41. Thus, from the aforesaid, it is evident that the creditor has no option but to join the process under the IBC. Once the plan is approved, it would bind everyone under the sun. The making of a claim and accepting whatever share is allotted could be termed as an Involuntary Act on behalf of the creditor. The making of a claim under the IBC and accepting the same and not making any claim, will not make any difference in light of Section 31 of the IBC. Both the situations will lead to Section 31 and the finality and binding value of the resolution plan. 42. Keeping the aforesaid discussion in mind, at best, it could be said that from the cheque amount under Section 138 of the NI Act, the amount received under the resolution plan may be deducted. (akin to what happens to the guarantors) SECTION 32A OF THE IBC 43. P. Mohanraj (supra) has harmoniously construed Section 32A with Section 14 of the IBC so as to apply to Section 138 NI Act, proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, if the argument of allowing the signatory/director to go scot-free after the approval of the resolution plan is accepted the same would run contrary to the legislative intent of Section 32A which has been upheld by this Court as under: 326. We are of the clear view that no case whatsoever is made out to seek invalidation of Section 32-A. 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 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal impediment contained in Section 14 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 Sections 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 Sections 141(1) and (2) of the Negotiable Instruments Act. This being the case, it is clear that the moratorium provision contained in Section 14 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. (Emphasis supplied) 46. While dealing with the issue of Section 14, IBC, this Court had the occasion to deal in detail with Section 32A also. The 2 nd proviso to Section 32A(1) is a complete answer to the issue in question. The said provision is discussed in detail from Paras 39-43 in P. Mohanraj s case. Paras 39 to 43 read thus: 39. The raison d' tre for the enactment of Section 32-A has been stated by the Report of the Insolvency Law Committee of February 202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 83(i)] Without relief from imposition of the such liability, the Committee noted that in the long run, potential resolution applicants could be disincentivised from proposing a resolution plan. The Committee was also concerned that resolution plans could be priced lower on an average, even where the corporate debtor did not commit any offence and was not subject to investigation, due to adverse selection by resolution applicants who might be apprehensive that they might be held liable for offences that they have not been able to detect due to information asymmetry. Thus, the threat of liability falling on bona fide persons who acquire the legal entity, could substantially lower the chances of its successful takeover by potential resolution applicants. 17.4. This could have substantially hampered the Code's goal of value maximisation, and lowered recoveries to creditors, including financial institutions who take recourse to the Code for resolution of the NPAs on their balance sheet. At the same time, the Committee was also conscious that authorities are duty-bound to penalise the commission of any offence, especially in cases involving substantial public interest. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 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 pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll prosecutions emanating from private complaints would be excluded. Obviously, Section 32-A(1) cannot be read in this fashion and clearly incudes the liability of the corporate debtor for all offences com mitted prior to the commencement of the corporate insolvency resolution process. Doubtless, a Section 138 proceeding would be included, and would, after the moratorium period comes to an end with a resolution plan by a new management being approved by the adjudicating authority, cease to be an offence qua the corporate debtor. 43. A section which has been introduced by an amendment into an Act with its focus on cesser of liability for offences committed by the corporate debtor prior to the commencement of the corporate insolvency resolution process cannot be so construed so as to limit, by a sidewind as it were, the moratorium provision contained in Section 14, with which it is not at all concerned. If the first proviso to Section 32-A(1) is read in the manner suggested by Shri Mehta, it will impact Section 14 by taking out of its ken Sections 138/141 proceedings, which is not the object of Section 32- A(1) at all. Assuming, therefore, that there is a clash between Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secution under Section 138 or any other offences. 47. Thus, I am of the view that by operation of the provisions of the IBC, the criminal prosecution initiated against the natural persons under Section 138 read with 141 of the NI Act read with Section 200 of the CrPC would not stand terminated. 48. In JIK Industries Limited and Others v. Amarlal V. Jumani and Another reported in (2012) 3 SCC 255, this Court held that the sanction of a scheme under Section 391 of the Companies Act, 1956 will not lead to any automatic compounding of offence under Section 138 of the NI Act without the consent of the complainant. Neither Section 14 nor Section 31 of the IBC can produce such a result. The binding effect contemplated by Section 31 of the IBC is in respect of the assets and management of the corporate debtor. No clause in the resolution plan even if accepted by the adjudicating authority/appellate tribunal can take away the power and jurisdiction of the criminal court to conduct and dispose of the proceedings before it in accordance with the provisions of the CrPC. 49. It is true that by virtue of Section 238 of the IBC, the provisions of the CrPC shall have effect notwithstand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporate debtor escape prosecution. How can one allow the natural persons to escape liability on such specious plea? In such a situation the Latin maxim Lex Non Cogit Ad Impossibilia is attracted which means law does not compel a man to do which he cannot possibly perform. Broom's Legal Maxims contains several illustrative cases in support of the maxim. This maxim has been referred to with approval by this Court in State of Rajasthan v. Shamsher Singh reported in 1985 supp SCC 416. 52. Thus, where the proceedings under Section 138 of the NI Act had already commenced and during the pendency the plan is approved or the company gets dissolved, the directors and the other accused cannot escape from their liability by citing its dissolution. What is dissolved is only the company, not the personal penal liability of the accused covered under Section 141 of the NI Act. They will have to continue to face the prosecution in view of the law laid down in Aneeta Hada (supra). Where the company continues to remain even at the end of the resolution process, the only consequence is that the erstwhile directors can no longer represent it. FEW OF THE ABSURD SITUATIONS THAT MAY ARISE IF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and now mostly the question is, what is the true construction of the statute? A passage in Craies on Statue Law 7th Edn. reads to the following effect:- The distinction between a strict and a liberal construction has almost disappeared with regard to all classes of statutes, so that all statutes, whether penal or not, are now construed by substantially the same rules. 'All modern Acts are framed with regard to equitable as well as legal principles.' A hundred years ago , said the court in Lyons' case, statutes were required to be perfectly precise and resort was not had to a reasonable construction of the Act, and thereby criminals were often allowed to escape. This is not the present mode of construing Acts of Parliament. They are construed now with reference to the true meaning and real intention of the legislature. 56. At page-532 of the same book, observations of Sedgwick are quoted as under: The more correct version of the doctrine appears to be that statutes of this class are to be fairly construed and faithfully applied according to the intent of the legislature without unwarrantable severity on the one hand or unjustifiable lenity on the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Court has indicated , time and again, that an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability. In Maharashtra SEB [Maharashtra SEB v. Official Liquidator, (1982) 3 SCC 358] the liability of the guarantor (in a case where liability of the principal debtor was discharged under the Insolvency law or the Company law), was considered. It was held that in view of the unequivocal guarantee, such liability of the guarantor continues and the creditor can realise the same from the guarantor in view of the language of Section 128 of the Contract Act, 1872 as there is no discharge under Section 134 of that Act. This Court observed as follows: (SCC pp. 362-63, para 7) 7. Under the bank guarantee in question the Bank has undertaken to pay the Electricity Board any sum up to Rs 50,000 and in order to realise it all that the Electricity Board has to do is to make a demand. Within forty-eight hours of such demand the Bank has to pay the amount to the Electricity Board which is not under any obligation to prove any default on the part of the Company in liquidation before the amount demanded is paid. The Bank cannot raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- 21. It is apparent that on the termination of the liquidation proceedings, liability of the members for the debts taken by them does not come to an end. There is no such provision in the Act providing once winding-up period is over, the liability of the members for loans obtained by them which is in their hands, and for which recovery proceedings are pending shall come to an end. No automatic termination of recovery proceedings against the members is contemplated. On the other hand, on completion of the period fixed to liquidate the Society, final report has to be submitted as to the amount standing to the credit of the Society in liquidation after paying off its liabilities including the share or interest of members. Thus, even in the case of liquidation the accountability remains towards surplus and liabilities do not come to an end. Even if the period fixed for liquidation of Society is over, that does not terminate the proceedings for recovery which have been initiated and appeals are pending. Xxx xxx xxx 24. The concept of restitution is a common law principle and it is a remedy against unjust enrichment or unjust benefit. The court cannot be used as a tool ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tand irrevocably and un35 conditionally abated, settled and extinguished in perpetuity on the Effective Date, and with effect from the Appointed Date. 2. The payment to Persons contemplated in this Resolution Plan shall be the Corporate Debtors and Resolution Applicant's full and final performance and satisfaction of all its obligations to such Persons and all Claims (including, for the avoidance of doubt, any unverified portion of their Claims) of such Persons against the Corporate Debtor shall stand irrevocably and unconditionally settled and extinguished in perpetuity on the Effective Date and with effect from the Appointed Date. 3. Accordingly, the Resolution Applicant and the Corporate Debtor shall have no responsibility or liability in respect of any claims against the Corporate Debtor attributable to the period prior to the Effective Date other than any payments to be made under this Resolution Plan and all claims along with any related legal proceedings, including criminal proceedings and other penal proceedings, shall stand irrevocably and unconditionally abated, settled and extinguished in perpetuity. Xxx xxx xxx 6. On the Effective Date and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of various provisions of the IBC and NI Act. 70. It was also sought to be argued on behalf of the appellant that the plain reading of the clauses of the resolution plan referred to above, would indicate that the respondent (complainant) could be said to have compounded the offence punishable under Section 138 of the NI Act. 71. Compounding and quashing are not synonymous terms. In law, they have different meanings and consequences. They arise from different situations and operate in different fields and stages. There is no apparent legal interdependence or interlink to the extent that one could exist only if the conditions of the other were satisfied or viceversa. Quashing is one of the facets of inherent powers, while compounding of an offence being a statutory expression contained under Section 320 the CrPC is entirely a different concept. 72. The expressions 'compromise' and 'compounding' are not synonyms in criminal jurisprudence even though these expressions are usually used without any distinction. Any dispute can be compromised between the parties if the terms are not illegal. But only a compoundable offence allowed by law can be compounded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate Affairs, by its Report dated 26-3-2018, made certain key recommendations .. 32. The Committee insofar as the moratorium under Section 14 is concerned, went on to find: 5.11. Further, since many guarantees for loans of corporates are given by its promoters in the form of personal guarantees, if there is a stay on actions against their assets during a CIRP, such promoters (who are also corporate applicants) may file frivolous applications to merely take advantage of the stay and guard their assets. In the judgments analysed in this relation, many have been filed by the corporate applicant under Section 10 of the Code and this may corroborate the above apprehension of abuse of the moratorium provision. The Committee concluded that Section 14 does not intend to bar actions against assets of guarantors to the debts of the corporate debtor and recommended that an explanation to clarify this may be inserted in Section 14 of the Code. The scope of the moratorium may be restricted to the assets of the corporate debtor only. Xxx xxx xxx 25. Section 31 of the Act was also strongly relied upon by the respondents. This section only states that once a resolution p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dard Chartered Bank reported in (2019) 20 SCC 455, this Court held that: 19.3 we find that Section 31(1) of the Code would make it clear that such members of the erstwhile Board of Directors, who are often guarantors, are vitally interested in a resolution plan as such resolution plan then binds them. Such plan may scale down the debt of the principal debtor, resulting in scaling down the debt of the guarantor as well, or it may not. The resolution plan may also scale down certain debts and not others, leaving guarantors of the latter kind of debts exposed for the entire amount of the debt. 19.4. The regulations also make it clear that these persons are vitally interested in resolution plans as they affect them. (Emphasis supplied) 79. In Lalit Kumar Jain (supra), this Court held that: 122. It is therefore, clear that the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor's liability. As to the nature and extent of the liability, much would depend on the terms of the guarantee itself. However, this Court has indicated, time and again, that an involuntary act of the principal debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 138 of N.I. Act, which can be inferred, is to safeguard the credibility of commercial transactions and to prevent bouncing of cheques by providing a personal criminal liability against the drawer of the cheque in public interest. No civil liability or any liability against the assets of the drawer of the cheque is contemplated under section 138 of the N.I. Act. Hence, it follows that the provisions of section 446(1) of the Companies Act can have apparently and in essence no application to the proceedings under section 138 of Negotiable Instruments Act, as it is not a suit or proceeding having direct bearing on the proceedings for winding-up or the assets of the Company. xxx xxx xxx 24. Thus, the sum and substance of all these judicial decisions is that the provisions of section 446(1) of the Companies Act are to be invoked judiciously only when it has got any concern with either the winding-up proceedings or with the assets of the Company. The expression suit or other proceedings , therefore, as used in section 446(1) of the Companies Act, has to be construed accordingly and not to be interpreted so liberally and widely so as to include each and every proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the person who acquires control or management of the corporate debtor, has neither abetted nor conspired in the commission of the offence, then, the prosecution, if it is instituted after the commencement of the CIRP and during its pendency, will stand discharged against the corporate debtor. Under the second proviso to sub-section (1), however, the designated partner in respect of the liability partnership or the officer in default, as defined under Section 2(60) of the Companies Act, 2013, or every person, who was, in any manner, in charge or responsible to the corporate debtor for the conduct of its business, will continue to be liable to be prosecuted and punished for the offence committed by the corporate debtor. This is despite the extinguishment of the criminal liability of the corporate debtor under sub-section (1). Still further, every person, who was associated with the corporate debtor in any manner, and, who was directly or indirectly involved in the commission of such offence, in terms of the report submitted and report filed by the investigating authority, will continue to be liable to be prosecuted and punished for the offence committed by the corporate debtor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatute we hardly see any manifest arbitrariness in the provision. 327 ..Significantly every person who was associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of the offence in terms of the report submitted continues to be liable to be prosecuted and punished for the offence committed by the corporate debtor. (Emphasis supplied) 83. In P. Mohanraj (supra) Full Bench of this Court held thus: 41. Section 32-A cannot possibly be said to throw any light on the true interpretation of Section 14(1)(a) as the reason for introducing Section 32- A had nothing whatsoever to do with any moratorium provision. At the heart 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate debtor from the same after a new management comes in. Xxx xxx xxx 45. Section 138 contains within it the ingredients of the offence made out. The deeming provision is important in that the legislature is cognizant of the fact that what is otherwise a civil liability is now also deemed to be an offence, since this liability is made punishable by law. It is important to note that the transaction spoken of is a commercial transaction between two parties which involves payment of money for a debt or liability. The Explanation to Section 138 makes it clear that such debt or other liability means a legally enforceable debt or other liability. Thus, a debt or other liability barred by the law of limitation would be outside the scope of Section 138. This, coupled with fine that may extend to twice the amount of the cheque that is payable as compensation to the aggrieved party to cover both the amount of the cheque and the interest and costs thereupon, would show that it is really a hybrid provision to enforce payment under a bounced cheque if it is otherwise enforceable in civil law. Further, though the ingredients of the offence are contained in the first part of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
