Insolvency proceedings no shield for Directors in cheque dishonour cases under S. 138 NI Act: Orissa HC
The Orissa High Court, Bench comprising Justice Chittaranjan Dash, has ruled that the proceedings under section 138 of the NI Act will sustain against the directors or signatories of the company even if the entity has been declared insolvent under the IBC, 2016.2
Syed Najam Ahmed v. State of Orissa, CRLMP No. 837 of 2025
Facts:
1. The complaint stated that Zenith Mining (P) Ltd., through its Managing Director, persuaded the complainant to extend a friendly loan of Rs 1 crore. The amount was credited to the company’s account with the assurance of repayment within one year.
2. Upon default, the complainant approached the Managing Director, who issued a cheque dated 25-06-2021 for Rs 1 crore drawn on IndusInd Bank. The cheque was dishonoured twice with the endorsement “refer to drawer.” Despite statutory notice, the petitioner failed to make payment, prompting the complainant to initiate criminal proceedings under Section 138 of the Negotiable Instruments (NI) Act.
3. In response, the petitioner filed an application seeking discharge from the proceedings, citing insolvency proceedings initiated under Section 7 of the IBC. The petitioner argued that the company was declared insolvent by the National Company Law Tribunal (‘NCLT’), Cuttack on 08-01-2024, and that only the appointed RP was authorised to represent the corporate debtor.
Hon Orissa HC held as below:
1. There was no ambiguity in law regarding the principle laid down by the Supreme Court in Ajay Kumar Radheshyam Goenka (2023 10 SCC 545), namely, that the matter pending before the RP, pursuant to the NCLT’s order dated 08-11-2024, would not affect criminal proceedings under Section 138 of the NI Act.
2. A mere declaration of a company as insolvent and the appointment of a RP under the IBC did not, by itself, absolved its directors from criminal liability for cheque dishonour under Section 138 of the NI Act.
Sudheendra Kumar ( Mobile /WhatsApp: 91-9820088394)
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