Protection of IBC is only applicable to corporate debtors and not to Person Who drawn cheque in Individual capacity: Allahabad HC [Read Order]

The Allahabad high court held that protection of Insolvency Bankruptcy Code (IBC), 2016 is only applicable to corporate debtors and not to persons who draw cheques in Individual capacity. The court allowed the applicants to raise all contentions, legal or factual, before the court below while contesting the proceedings.

A complaint was lodged by O.P. No.2 against the applicant on 20.11.2023 under Section 138 read with Section 142 of N.I. Act, with an allegation that a certain amount of loan was being advanced to the Firm M/s Navyug Industries (partnership firm) and subsequently, said firm became a Company in the name of Newgen Ecotronics Pvt. Ltd. The applicant, who happened to be the partner of the firm and the Director of the Company in order to discharge the liability had drawn two cheques for an amount of Rs.4,75,000/- and "000842" dated 12.10.2023 for an amount of Rs.4,90,000/- in favour of O.P. No.2.

On presentation in the bank, it stood dishonoured with the remarks "funds insufficient" followed by a statutory demand notice dated 30.10.2023 and despite deemed service of the notice upon the applicant when no payment was made, the complaint stood preferred under Section 138 read with Section 142 of N.I. Act on 20.11.2023, pursuant whereto the applicant came to be summoned under Section 138 of the N.I. Act on 15.03.2024.

The applications have sought to argue that firstly, there is no legal enforceable debt or liability so as to attract the provisions of Section 138 of the N.I. Act, as in the complaint so lodged against the applicants there is no detail about the total amount which has been settled between the parties, pursuant whereto the cheques were issued, which came to be dishonoured. Secondly, the proceedings before the NCLT under the IBC Code is itself pending consideration, in which an order came to be passed by the National Company Law Tribunal, Chandigarh Bench on 21.08.2024, whereby now IRP has been appointed.

The proceedings under the N.I. Act cannot be continued. Thirdly, the civil suit has already been instituted by O.P. No.2 against the applicants as well as the Company before the Court of District Judge (Commercial Court), Karkardooma, of District Court (East), which is pending, thus the proceedings under section 138 of the N.I. Act cannot be continued, particularly when already the remedy has been availed under then Common Law. It is contended that in the connected C-2 application, there has been no statement/ affidavit submitted under Section 200 CrPC, and thus, the entire proceedings are bound to fail.

A.G.A, on the other hand has submitted that none of the contentions so sought to raised by counsel for the applicants is liable to be sustained, particularly when the cheque stood drawn and dishonoured, then the presumption under Section 139 of the N.I. Act would always be in favour of the holder.

He further submitted that the protection of IBC is only applicable to corporate debtors and not to the applicants, who had drawn the cheques in their individual capacity. Further submission is that mere pendency of a suit would not be a ground to make the summoning order bad as it is always open for the complainant to pursue proceedings which are permissible under law, particularly when there is no prohibition.

A single bench of Justice Vikas Budhwar is not entering into the merits of the summoning order while leaving it open for the applicants to raise all contentions, legal or factual, before the court below while contesting the proceedings and the Court has no reason to disbelieve that the same shall be considered in correct perspective.

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