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Insolvency and Bankruptcy Code, 2016 – s.14 – Negotiable Instrument Act, 1881 – Chapter XVII – ss.138, 141 – Institution/ continuation of proceeding u/s.138/141, NI Act, if covered by the moratorium provision i.e. s.14, IBC – Natural persons if covered by s.14 – Held: A s.138/141 proceeding against a corporate debtor is covered by s.14(1)(a), IBC – A quasi-criminal proceeding contained in Chapter XVII of the NI Act would amount to a “proceeding” within the meaning of s.14(1)(a), the moratorium therefore attaching to such proceeding – As far as the Directors/persons in management or control of the corporate debtor are concerned, a s.138/141 proceeding against them cannot be initiated or continued without the corporate debtor – This is because s.141 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 – For the period of moratorium, since no s.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 s.141(1) and (2) of the NI Act – Thus, moratorium provision contained in s.14, IBC would apply only to the corporate debtor, the natural persons mentioned in s.141 continuing to be statutorily liable under Chapter XVII of the NI Act – Interpretation of Statutes. Insolvency and Bankruptcy Code, 2016 – s.14, ss.3(33), 96(3), 101(3) – “Transaction” in s.3(33) – Scope of s.14 – Held: s.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) – s.14(1)(a) does not indicate as to what the proceedings contained therein apply to Sub-section 3(a) provides the answer that such “proceedings” relate to “transactions” entered into by the corporate debtor pre imposition of the moratorium – s.3(33) defines “ transaction” – 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 s.96(3) and s.101(3) which contain the same language as s.14(3)(a), these Sections speaking of ‘debts’ of the individual or firm. Insolvency and Bankruptcy Code, 2016 – s.14(3)(b) – Held: By s.14(3)(b), 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. Insolvency and Banckruptcy Code, 2016 – s.14 – Object of – Discussed. Doctrines/Principles – noscitur a sociis or ejusdem generis – Insolvency and Bankruptcy Code, 2016 – s.14 – “proceedings” – Negotiable Instrument Act, 1881 – ss.138, 141 – Held: Ejusdem generis and noscitur a sociis cannot be exalted to nullify the plain meaning of words used in a statute if they are designedly used in a wide sense – 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 – noscitur a sociis or ejusdem generis should not be used to cut down the width of the expression “proceedings” so as to make such proceedings analogous to civil suits – Interpretation of Statutes – Rules of construction. Insolvency and Bankruptcy Code, 2016 – s.14 vis-à-vis ss. 81, 85, 96, 101 – Scope of proceedings – Held: When the language of these Sections is juxtaposed against the language of s.14, it is clear that the width of s.14 is even greater, given that s.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 contained in ss.81, 85, 96, and 101 – Also, s.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 – Negotiable Instrument Act, 1881 – s.138, 141, 143A, 148. Insolvency and Bankruptcy Code, 2016 – ss.14, 32A (1) – Interplay between s.14, 32A – Moratorium – Prior offences, liability of corporate debtor – Held: The reason for introducing s.32A had nothing to do with any moratorium provision – It extinguishes 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 – Whereas, a moratorium provision only casts a shadow on proceedings already initiated and to be initiated – Insolvency and Bankruptcy Code (Amendment) Act, 2020 – Doctrine of harmonious construction – Negotiable Instruments Act, 1881 – ss.138, 141.Negotiable Instruments Act, 1881 – Chapter XVII – s.138- 142 – Nature of proceeding under – Held: A s.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 – Code of Criminal Procedure, 1973 – Chapter XIII – ss.177 to 189; ss.62-64, 302, 357. Negotiable Instruments Act, 1881 – s.138 – Object of – Discussed.Negotiable Instruments Act, 1881 – s.138 – Explanation to s.138 – Held: It makes clear that the 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 s.138. Negotiable Instruments Act, 1881 – s.138 – Penal Code, 1860 – s.53 – Plea that proceedings u/s.138 can only be described as criminal proceedings – Held: Rejected – There are many instances of acts which are punishable by imprisonment or fine or both which have been described as quasi-criminal – There is nothing wrong with the appellation “quasi-criminal” being applied to a s.138 proceeding – Companies Act, 1956 – s.630 – Contempt of Courts Act, 1971 – ss.2, 11, 12.Negotiable Instruments Act, 1881 – s.139 – Presumption under – Discussed. Negotiable Instruments Act, 1881 – s.140 – Held: It shall not be a defence in a prosecution for an offence u/s.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 strict liability will attach, mens rea being no ingredient of the offence. Insolvency and Bankruptcy Code, 2016 – ss.14, 25(2), 33(5) – Negotiable Instruments Act, 1881 – ss.138, 141 – Doctrines of ejusdem generis and noscitur a sociis – Non-application of – Held: U/ s.33, 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 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 reason as to why a s.138/141 proceeding would be outside the ken of the proviso – There is no reason why the liquidator cannot institute a s.138/141 proceeding against a defaulting debtor of the company – Inelegant drafting cannot lead to absurd results or results which stultify the object of a provision, given its otherwise wide language – Interpretation of Statutes. Arbitration and Conciliation Act, 1996 – s.34 – Insolvency and Bankruptcy Code, 2016 – s.14 – Held: s.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 – Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd., reported as (2018) 246 DLT 485 does not state the law correctly.Words & Expressions: “or” in s.14(1)(a) – Interpretation of – Held: expression “or” occurs twice in the first part of s.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...” – 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. “proceedings” – Meaning of – Discussed – Insolvency and Bankruptcy Code, 2016 – s.14.“in respect of” – Held: It is a phrase which is wide and includes anything done directly or indirectly – Insolvency and Bankruptcy Code, 2016 – ss. 81, 85, 96, 101. “cause of action” – Held: Expression “cause of action” is a foreigner to criminal jurisprudence, and would apply only in civil cases to recover money – Insolvency and Bankruptcy Code, 2016 – s.14 – Negotiable Instruments Act, 1881 – ss.138, 142 – Code of Criminal Procedure, 1973 – Chapter XIII – ss.177 to 189. |
