Moratorium order under Section 14 IBC bars parallel procedures against Corporate Debtor under Section 138 of NI Act: Supreme Court:

1st Mar,2021

Moratorium order under Section 14 IBC bars parallel procedures against Corporate Debtor under Section 138 of NI Act: Supreme Court:

The Supreme Court on Monday decided that when a request for ban is passed under the Insolvency and Bankruptcy Code (IBC), equal procedures under Section 138 of the Negotiable Instruments Act (NI Act) against the Corporate Debtor can't be permitted to proceed as a similar will be covered by the bar under Section 14 of the IBC (P Mohanraj v. M/S Shah Brothers Ispat Pvt Ltd).The judgment was conveyed by a Bench of Justices Rohinton Nariman, Navin Sinha and KM Joseph in an allure against a July 2018 judgment of the National Company Law Appellate Tribunal (NCLAT).

Segment 14(1)(a) of IBC gives that when a request pronouncing ban is passed, the establishment of suits or continuation of forthcoming suits or procedures against the corporate borrower including execution of any judgment, announcement or request in any courtroom, council, assertion board will be denied.
The NCLAT by its judgment had endorsed continuation of equal procedures under Section 138 of the Negotiable Instruments Act even as the goal cycle under the IBC was in progress against the organization exposed to ban.

Via foundation, the National Company Law Tribunal (NCLT), Chennai had started Corporate Insolvency Resolution Process (CIRP) against Diamond Engineering Chennai Limited (Corporate Debtor) on June 6, 2017 on a request by Shah Brothers Ispat Private Limited (Respondents in Supreme Court) and ban was imposed.Shah Brothers Ispat Private Limited (respondents in Supreme Court) had prior recorded a grievance under Section 138 under the steady gaze of the Metropolitan Magistrate Court, Kurla Mumbai against the appellants P Mohanraj and others (Appellants/Directors of Corporate Debtor). It was recorded before the commencement of CIRP against the Corporate Debtor. Another protest under Section 138 of NI Act was likewise documented after June 6, 2017, for example after the request for ban.

The Appellant – Directors moved the NCLT and contended that during the time of ban, request under Section 138 of NI Act was not viable.
The NCLT guided Shah Brothers to pull out the protest under Section 138 of NI Act regarding it as a procedure recorded after request of ban with perception that such activity adds up to abuse of the cycle of law.

The NCLAT decided that Section 138 is a punitive arrangement, which enables the court of skilled purview to pass request of detainment or fine, which can't be held to continue or any judgment or announcement of cash guarantee.
"Burden of fine can't held to be a cash case or recuperation against the Corporate Debtor nor request of detainment, whenever passed by the court of capable ward on the Directors, they can't come quite close to Section 14. Infact no criminal continuing is covered under Section 14 of I&B Code," the NCLAT dominated.