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Dineshchand Surana v. UCO Bank

Criminal Appeal · 2026 INSC 579Decided 27 May 2026
Crl.A. No.-003038-003039 - 2026
Justice J.B. Pardiwala · Justice K.V. Viswanathan

Background

The appellant, former Managing Director of a power company undergoing liquidation, had issued a cheque to UCO Bank to cover dues arising from a letter of credit; the cheque bounced for insufficient funds, and the bank filed a criminal complaint under Section 138 of the Negotiable Instruments Act. While that complaint was pending, the appellant was himself admitted into personal insolvency proceedings under the Insolvency and Bankruptcy Code (IBC), and he sought to have the Section 138 complaint quashed or stayed on the ground that the IBC's "moratorium" (which freezes legal actions against a person in insolvency) should cover the criminal cheque-bounce case too. The Madras High Court rejected this, and the matter reached the Supreme Court along with a connected civil appeal raising the same question for company directors.

Decision Breakdown

After an extensive 150-page analysis, the Court held that Section 138 proceedings have two distinct tiers: a criminal tier (imprisonment/fine, which is mandatory and cannot be stayed by the IBC moratorium since the IBC expressly excludes "liability to pay fine" from protected debts) and a compensatory tier (the civil-like compensation a court may separately order, which the Court found should be protected by the moratorium since it would otherwise deplete the insolvent debtor's assets). It further held that company directors who become personally liable for such compensation under Section 141 of the NI Act, and who are themselves undergoing personal insolvency, should also get the benefit of the compensation-related moratorium. However, rather than finally disposing of the appeals on this basis, the Bench concluded that the questions were significant enough to require an authoritative ruling by a larger Bench, and directed the Registry to place the matter before the Chief Justice of India to constitute a three-Judge Bench to resolve two specific questions: whether Section 138 is truly quasi-criminal in nature, and whether the IBC moratorium should apply to the whole Section 138 proceeding or only its compensatory part.

Lesson Learnt

A bounced-cheque prosecution under Section 138 of the NI Act is not automatically frozen just because the person who issued the cheque (or the company director standing in for it) has entered insolvency proceedings: the criminal/punitive part of the case can proceed regardless, while only the compensation-recovery part may be paused; however, this remains a developing and unsettled area of law pending an authoritative ruling from a larger Bench of the Supreme Court.

Official source (sci.gov.in)View Judgment (PDF)

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