The moratorium only applies to debtor companies; Individuals like its director would continue to be liable U/s 138 NI Act: Supreme Court

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The Supreme Court reiterated that the moratorium provisions contained in Section 14 of the Insolvency and Bankruptcy Code 2016 would only apply to the debtor company

The natural persons mentioned in Section 141 of the Negotiable Instruments Act would continue to be legally liable under the provisions of the Act, observed the bench comprising Judges UU Lalit, S. Ravindra Bhat and PS Narasimha.

The court was considering a motion in writ which sought the quashing of criminal claims against debtors of the company/company and its directors under section 138 of the Negotiable Instruments Act 1881 on the grounds that the resolution plan had been approved by the CoC under Article 30(4) of the Code and the complainants have accepted the approved resolution plan. The petitioner argued that since the resolution plan was accepted in which the original plaintiff’s contributions are also set out, the effect of such acceptance would be to erase any pending litigation under sections 138 and 141 of the act.

The court noted that in P. Mohanraj & Others v. Shah Brothers Ispat Private Limited, (2021) 6 SCC 258, whether a body corporate in respect of which a moratorium had entered into force could be sued under sections 138 and 141 of the Negotiable Instruments Act , was considered

“A subsidiary question also concerned the liability of natural persons such as a director of the company. In paragraph 77 of its judgment, this Court observed that the moratorium provisions contained in Article 14 of the Insolvency and Bankruptcy Code , 2016 would apply only to corporate debtors and that natural persons referred to in Section 141 of the Act would continue to be legally liable under the provisions of the Act…. The decision in the case P. Mohanraj is quite clear on this point and as such, no interference in this petition is requested..,” the bench observed, denying the motion in brief.

Case details

Narinder Garg vs. Kotak Mahindra Bank | 2022 LiveLaw (SC) 428 | WP(C) 93 FROM 2022 | March 28, 2022

Coram: judges UU Lalit, S. Ravindra Bhat and PS Narasimha

Counsel: Sr. Adv Gopal Sankaranarayanan

Summaries

Insolvency and Bankruptcy Code, 2016; Section 14 – Negotiable Instruments Act 1881; Articles 138 and 141 – Moratorium – Liability of natural persons such as a director of the company – The moratorium provisions contained in Article 14 of the Insolvency and Bankruptcy Code 2016 would only apply to the debtor company and that the natural persons mentioned in Section 141 of the Act would continue to be legally responsible under the provisions of the Act.

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