Extinguishment of Debt under IBC would not ipso facto apply to extinguishment of criminal proceedings under NI Act: Himachal Pradesh HC [Read Order]

The Himachal Pradesh High Court in a recent case held that the process of extinguishment of Debt under Insolvency Bankruptcy Code (IBC), 2016 would not ipso facto apply to extinguishment of criminal proceedings under Negotiable Instruments Act(NI Act).

The petitioner, Charandeep Singh Jolly has prayed for quashing of the criminal complaint, the summoning order dated 17.07.2018 and proceedings pending before the Additional Chief Judicial Magistrate, Nalagarh, District Solan (the Trial Court). The complainant filed a complaint against the accused for the commission of an offence punishable under Section 138 of the Negotiable Instruments Act (NI Act). It was asserted that the complainant is a partnership Firm and is engaged in the business of manufacturing and supplying pharmaceutical products/medicines.

The accused are running a business in the name and style of Alchemist Limited. Accused No. 2 and 3 are the authorized signatories of accused No.1. They are also managing all the affairs and business of accused No.1. They are fully responsible and liable for day today affairs and business of accused No.1. The accused contacted the complainant and represented that they had a good marketing setup for the sale of pharmaceutical goods/products.

The complainant supplied the pharmaceutical product to the accused. The accused issued cheques for ₹6,53,190/-, ₹2,23,299/- and ₹3,93,458/- to discharge their legal liability. The complainant presented the cheques to its bank, but the cheques were dishonoured with the endorsement “Exceeds Arrangement”. The complainant issued a notice to the accused asking them to pay the amount within 15 days of the receipt of the notice. The notice was duly served upon the accused, but the accused failed to pay the amount.

The Trial Court held that from the perusal of the documents, it was of the considered view that the cheques were issued in discharge of the legally enforceable liability, which were dishonoured with the remarks “Exceeds Arrangement” and the accused failed to pay the amount despite the service of a legal notice, hence, sufficient grounds existed to summon the accused for the commission of an offence punishable under Section 138 of the NI Act.

Being aggrieved by the filing of the complaint and the order of summoning, the petitioner has filed the present petition for quashing of the complaint. It was asserted that the complaint has been filed on false and frivolous facts.

The petitioner is not a drawer of a cheque but a mandate holder who was working on a salary with the accused Company. The Trial Court did not mention Section 141 of the NI Act. The petitioner is a resident of Delhi, and the provisions of Section 202 of the CrPC applied to the present case. The Trial Court failed to comply with the requirement of Section 202 of the CrPC. The accused, M/s Alchemist Limited, has already been declared insolvent, and a Resolution Professional has been appointed vide order dated 28.09.2021. The complainant has also raised a claim before the Resolution Professional.

Mr. M.L. Sharma, counsel for the respondent, submitted that the petitioner is an authorised signatory of the company and he is liable by putting his signature. Specific averments were also made regarding the petitioner’s liability. The petition was filed belatedly, and this Court should not exercise its inherent jurisdiction in the present case. The pendency of the proceedings under the IBC does not prevent the continuation of the proceedings under Section 138 of the NI Act against a natural person. Therefore, he prayed that the present petition be dismissed.

A single bench of Justice Rakesh Kainthla observed that the scope of nature of proceedings under the two Acts is quite different and would not intercede with each other. In fact, a bare reading of Section 14 IBC would make it clear that the nature of proceedings which have to be kept in abeyance do not include criminal proceedings, which is the nature of proceedings under Section 138 of the NI Act.

It cannot be said that the process under IBC, whether under Section 31 or Sections 38 to 41, which can extinguish the debt, would ipso facto apply to the extinguishment of the criminal proceedings. No doubt in terms of the scheme under IBC, there are sacrifices to be made by parties to settle the debts, the company being liquidated or revitalised.

It was submitted that the Trial Court did not mention Section 141 of the NI Act, and this vitiated the summoning order. This submission is not acceptable. It is undisputed that the Trial Court had the jurisdiction under Section 141 of the NI Act to proceed against the Company and its officers. This jurisdiction is not taken away merely because a specific section was not mentioned or a wrong provision was mentioned. Thus, the non-mentioning of Section 141 of the N.I. Act will not affect the case of the complainant.

The complaint was filed in the year 2018. The accused appeared before the Trial Court on 18.2.2019. The present petition was filed on 20.06.2024. There is force in the submission of the counsel for the complainant that the petitioner has approached the Court belatedly. It was laid down by the Delhi High Court in Sanyam Bhushan v. State (NCT of Delhi), 2024 that the Court should not entertain the belated petitions for quashing the FIR. The Court dismissed the Petition.

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