An Interplay between the Negotiable Instruments Act, 1881 & IBC 2016


Status as on: 16/04/2023

In the case of Sachin Goyal and another Vs. M/s Rajasthan Trading Co. and another, this issue was dealt with by Punjab and Haryana High Court where it was held that by operation of the provisions of the IBC, the criminal prosecution initiated against the natural persons under Section 138 read with 141 of the NI Act would not stand terminated.

Brief Facts of the case

The petitioners were the directors of Shreeom Prime Foods Pvt. Ltd. (respondent No.2), which is now undergoing a resolution process before the NCLT, Jaipur Bench and an interim resolution professional has already been appointed.

Learned The petitioners’ attorney claims that when the NCLT passed the admission order, the Board of Directors of the company, or Respondent No. 2, was suspended, and as a result, the petitioners were no longer Directors of the respondent firm. He argues that the provisions of Sections 14 and 96 of the Insolvency and Bankruptcy Code, 2016 prevent the independent recovery and criminal procedures against the Directors from advancing because of the interim moratorium imposed by the aforementioned judgment. (IBC). Now that Section 138 of the Negotiable Instruments Act, 1881, has been invoked, the petitioners and respondent No. 2 company have been called as accused. He argues that because the petitioners are no longer in charge of the company’s operations, any amounts owed cannot be honored in light of the NCLT’s temporary moratorium order, and as a result, the petitioners cannot be called to appear before the court pursuant to Section 138 of the NI Act.

Decision of High Court

The only issue is concerned that whether during the pendency of the proceedings under the IBC, which have been admitted, the present proceedings under the NI Act can continue simultaneously or not.

Hon’ble High Court held that what flows from the law laid down by a Three Judge Bench of the Hon’ble Supreme Court in Ajay Kumar Radheyshyam Goenka vs. Tourism Finance Corporation of India Ltd. (2023) is that whereas recovery proceedings barred under Section 14 of the IBC are primarily civil in nature, the proceedings under Section 138 of the NI Act are criminal in nature, and both have a different set of purpose. Furthermore, the complainant approaches the Criminal Court not only for recovery of the legally enforceable debt but also for taking penal action under Section 138 of the NI Act for the offense already committed by the accused by not making the payment of the cheque amount despite the receipt of the statutory notice. As a result, the criminal case brought under Section 138 read with Section 141 of the NI Act against the natural persons would not be over by application of the IBC’s provisions. In light of the foregoing reasoning, this Court concludes that the current petition lacks merit and dismisses it as a result.


Disclaimer– The above article is based on the personal interpretation of related laws, which may differ from person to person. The readers are expected to take expert opinion before relying on this article. For more clarification, the readers can be expected at  

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