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M/s Nag Leathers Pvt. Ltd. v. M/s Dynamic Marketing Partnership

Criminal Appeal · 2021 INSC 748Decided 18 Nov 2021
Criminal Appeal No. 1424 of 2021
Justice Uday Umesh Lalit · Justice S. Ravindra Bhat

Background

Nag Leathers, a company that had gone through an NCLT-ordered moratorium under the Insolvency and Bankruptcy Code, was facing a cheque-bounce prosecution under Section 138 of the Negotiable Instruments Act. It sought to quash the proceedings before the Madras High Court on the ground that the moratorium barred such action, but the High Court rejected that plea, leading to this appeal.

Decision Breakdown

The Supreme Court held, following its earlier three-judge-bench ruling in P. Mohanraj v. Shah Brothers Ispat, that Section 138/141 proceedings against a corporate debtor are covered by the moratorium under Section 14(1)(a) of the IBC. Since only the corporate entity, and no individual director or officer, had been made an accused in this case, the exception carved out for natural persons in P. Mohanraj did not apply. The Court therefore allowed the appeal, set aside the High Court's order, and quashed the Section 138 proceedings against the appellant company.

Lesson Learnt

Once a company is under an IBC moratorium, a cheque-bounce prosecution against the company itself cannot continue during that period; however, if individuals responsible for the company's affairs are also named as accused, the case against them can still proceed.

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

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