Chandigarh, February 16
The Punjab and Haryana High Court has made it clear that proceedings in an NSF check case under Sections 138 and 141 of the Negotiable Instruments Act cannot continue or be brought against a ‘corporate debtor’ during the moratorium period.
Judge Vikas Bahl also clarified that the proceedings under the provisions of the law should continue against the “natural persons” or the managing director and the implicated director as a party in the case. Judge Bahl’s decision came in a case where a corporate debtor was asked to deposit 20% of the compensation/fine awarded by the trial court in an NSF check case. The bench was, among others, assisted by lead attorneys Anand Chhibbar, Bipan Ghai and HS Brar.
The case originated in a sale agreement between a family and a real estate company through its CEO. The total sale consideration for over 15 channels was said to be Rs 3.95 crore. The accused received a check for Rs 1 crore issued to discharge his liability. But the check was refused.
A judicial magistrate, under an empty judgment dated January 29, 2020, convicted the applicants of an offense under article 138 before sentencing them to two years in prison. They were also asked to pay Rs 2 crore or double the amount of the check as relief to the complainant. The applicants were found guilty in three other complaints and the sentence imposed was ordered concurrently.
Judge Bahl said the moratorium ordered by the National Company Law Tribunal in this case continues. Referring to a plethora of SC judgments, Judge Bahl added that it had been held that a debtor company would be covered by the standstill provision contained in Article 14 of the Insolvency and Bankruptcy Code. . The legal impediment contained in Article 14 would make it impossible to pursue or bring such an action against the debtor legal entity.
Judge Bahl added that it had been observed that the proceedings could not continue or be brought against the debtor company during the moratorium period due to the legal prohibition. But it could be the same against the CEO and the director or the “natural persons” since the provision will apply to the social debt.
Judge Bahl said: “In the event that the plaintiff-corporate debtor is asked to deposit 20% of the remedy/fine awarded by the trial court, this would amount to the exhaustion of the debtor’s assets, which would have a direct impact on the company’s insolvency resolution process and would be within the teeth of the ratio of law established by the SC…”