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Narinder Garg & Others vs Kotak Mahindra Bank Ltd. & Others

Not available · 2022 INSC 355Decided 28 Mar 2022
Not available

Background

The petitioners, a corporate debtor company and its directors, faced multiple criminal complaints under Section 138 of the Negotiable Instruments Act (cheque dishonour) filed by the respondent bank. After the National Company Law Tribunal approved a Resolution Plan for the company under the Insolvency and Bankruptcy Code, the petitioners sought a writ to quash these pending criminal complaints, arguing that the approved resolution plan (which included the bank's dues) should wipe out the pending prosecutions. A connected older writ petition (W.P.(C) No. 300 of 2020) raised the same point.

Decision Breakdown

The Court relied on its earlier three-judge bench decision in P. Mohanraj v. Shah Brothers Ispat Private Limited, (2021) 6 SCC 258, which held that the moratorium under Section 14 of the Insolvency and Bankruptcy Code protects only the corporate debtor itself, not the individual directors, who remain statutorily liable under Section 141 of the Negotiable Instruments Act. The Court held that approval of a resolution plan does not automatically extinguish pending Section 138/141 prosecutions against the directors, and found the position in P. Mohanraj directly applicable and conclusive. Both writ petitions were accordingly dismissed.

Lesson Learnt

Approval of a company's insolvency resolution plan protects the company from further liability but does not shield its directors from personal criminal liability for cheques dishonoured before the moratorium: directors cannot rely on the company's insolvency proceedings to escape a Section 138 prosecution against themselves.

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

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