March 17, 2023 In Uncategorized


In a recent case of Ajay Kumar Radheyshyam Goenka Vs Tourism Finance Corporation of India Ltd, Criminal Appeal No. 172 of 2023 and other connected matters, a Special Bench comprising of Justice Sanjay Kishan Kaul, Justice Abhay S. Oka and Justice J.B. Pardiwala passed a Judgment dated 15-03-2023 and held that during the pendency of a cheque dishonour case under Section 138 Negotiable Instruments Act 1881 (NI Act) filed in respect of a company and/or its directors, even when the said company gets dissolved under the provisions of the Insolvency and Bankruptcy Code 2016 (IBC), the directors cannot escape liability under NI Act.


i) In the present case, M/s Rainbow Papers Limited (Company) was granted a Term Loan of Rs. 30 Crores by a public financial institution, Tourism Finance Corporation of India Limited (Respondent). One, Mr. Ajay Kumar Radheyshyam Goenka (Appellant) was the Promoter and Managing Director of the said Company.

ii) A Loan Agreement dated 27-03-2012 (Agreement) was executed between the Company and the Respondent.

iii) In order to pay one of the instalments under the said Agreement, the Company issued a post-dated Cheque of Rs. 25,47,945.00 bearing No. 090656 dated 15-02-2016 drawn on Indian Overseas Bank, Kalupur Circle Branch, Railway Pura, Ahmedabad (Cheque) to the Respondent.

iv) However, upon presenting the Cheque in the HDFC Bank, Nehru place, New Delhi, the Cheque was returned vide Memo dated 07-04-2016 for the reason “Account Closed”.

v) Thus, the Respondent issued a Demand-cum-Legal Notice dated 19-04-2016 under Section 138 of NI Act, thereby calling upon the Company and its Director i.e. the Appellant herein, to settle the debt.

vi) The Company / Appellant acknowledged their liability to repay the Loan amount vide Reply dated 28-04-2016.

vii) However, when the Company / Appellant did not repay the Loan amount, the Respondent through Deputy General Manager (Law) filed a Criminal Complaint No. 632982 / 2016 before the Ld. Court of Chief Metropolitan Magistrate, Saket Courts, New Delhi (Trial Court) on 16-05-2016 under Section 190 of the Code of Criminal Procedure 1973 (CrPC) (Cognizance of offences by Magistrates) read with Sections 138 NI Act (Dishonour of cheque for insufficiency, etc., of funds in the account), 141 NI Act (Offences by companies) and 142 NI Act (Cognizance of offences).

viii) The Parties were made to go through mediation process but when the dispute did not get resolved, the next date was scheduled before the Trial Court on 15-01-2018.

ix) However, in the meantime, one, M/s Neeraj Paper Agencies Limited (Operational Creditor) filed an Application under Section 9 IBC (Application for initiation of corporate insolvency resolution process by operational creditor) read with Rule 6 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (Application by operational creditor) against the Company, which was admitted by the Hon’ble National Company Law Tribunal, Ahmedabad Bench (NCLT), vide Order dated 12-09-2017 in Company Petition (IB) No. 88 of 2017.

x) Accordingly, the Respondent herein filed its Claim, which was the subject matter of the NI Act proceedings, in the capacity of a Secured Financial Creditor, before the Resolution Professional on 13-10-2017.

xi) Thereafter, one, Kushal Limited i.e. the Resolution Applicant filed a Resolution Plan dated 26-05-2018 and the NCLT, vide Order dated 27-02-2019, approved the said Resolution Plan.

xii) Further, during the course of the meeting of the Committee of Creditors (COC) on 05-06-2018, it was informed that the Respondent cannot be considered as a Secured Financial Creditor in terms of definitions of ‘secured creditor’ under Section 3 (30) and ‘security interest’ under Section 3 (31) of IBC. In fact, the Respondent was opined to be an Unsecured Financial Creditor.

xiii) Aggrieved, the Respondent filed its objections before the National Company Law Appellate Tribunal (NCLAT) seeking change of status from ‘Unsecured Financial Creditor’ to ‘Secured Financial Creditor’.

xiv) Meanwhile, the Ld. Trial Court dismissed an Application filed by the Appellant seeking exemption from personal appearance, vide Order dated 12-11-2018 and further reiterated as follows:

Section 138 of NI Act is a penal provision, which empowers the court of competent jurisdiction to pass order of imprisonment or fine, which cannot be held to be proceedings or any judgment or decree of money claim. Thus, it would not come within the purview of Section 14 of the IBC and, thus, the proceedings under Section 138 of the NI Act, 1881 could continue simultaneously.

xv) Aggrieved, the Appellant herein filed an Application for Discharge of the Cheque Dishonour Proceedings of Criminal Complaint No. 632982 / 2016 before the Ld. Trial Court, which was dismissed vide Order dated 01-11-2019, on the ground that the Trial Court had no jurisdiction to discharge an accused in a summons triable case.

xvi) Aggrieved, the Appellant filed a Criminal Revision Application No. 593 of 2019 before the Ld. Additional Sessions Judge, South East Delhi (Revisional Court). The Appellant contended before the Revisional Court that as the debt in connection with which the NI Act proceedings had been initiated, formed part of the approved Resolution Plan, hence, the outstanding debt under the NI Act could be said to have stood settled.

xvii) However, the Revisional Court rejected the said Revision Application, vide Judgment dated 23-11-2019.

Supreme Court

Aggrieved by the Impugned Judgment dated 23-11-2019 of the Revisional Court, the Appellant filed a Criminal Appeal No. 172 of 2023 before the Hon’ble Supreme Court. The Apex Court, vide Judgment dated 15-03-2023, made the following observations:

1) Observations of Justice Sanjay Kishan Kaul, Justice Abhay S. Oka:

(i) That the issue whether the Respondent is an Unsecured / Secured Financial Creditor is a matter of proceedings under IBC or any appeal therefrom.

(ii) That in so far as the issue is concerned with whether during the pendency of the corporate insolvency resolution proceedings (CIRP) under IBC, which have been admitted by the NCLT, the proceedings under NI Act can continue simultaneously has been decided affirmatively.

(iii) That the scope and nature of proceedings under IBC and NI Act are completely different and would not intercede each other.

(iv) That as per Section 14 of IBC (Moratorium), once CIRP has been admitted in respect of a corporate debtor, the nature of proceedings barred from being instituted or continued does not include criminal proceedings and that proceedings under Section 138 NI Act are criminal and penal in nature.

(v) The criminal liability and the fines are built on the principle of not honouring a negotiable instrument, which affects trade. This is apart from the principle of financial liability per se.

(vi) Hence, Section 138 NI Act proceedings are not barred from being instituted or continued against such corporate debtor in respect of which CIRP has been admitted.

2) Observations of Justice J.B. Pardiwala:

(i) That NI Act not only holds a company liable in case of a cheque dishonour, but also holds the person in-charge of the company’s affairs, at the time of issue of cheque, responsible for such cheque dishonour under Section 138 NI Act read with Section 141 NI Act.

(ii) Further, as per Section 32A of IBC (Liability for prior offences, etc), the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority.

(iii) The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate.

(iv) However, as per Section 32A (1) second Proviso, the former signatory / director / officer-in-default in respect of the corporate debtor cannot be permitted to go scot-free for offence committed by the corporate debtor, notwithstanding that the corporate debtor’s liability has ceased under Section 32A of IBC.

(v) Thus, the provisions of IBC including Section 238 IBC (Provisions of this Code to override other laws) and Section 32A of IBC do not prohibit the continuation of the criminal prosecution initiated against the directors and officials of the corporate debtor.

(vi) Therefore, Justice J.B. Pardiwala held that by operation of provisions of IBC, the criminal prosecution initiated against the Appellant-Director of the Company in the present case, under Section 138 NI Act read with Section 141 NI Act and Section 200 CrPC (Examination of complainant) would not stand terminated.

Thus, based on the aforesaid observations, the Supreme Court held that the Appellant-Director cannot escape from penal liability under Section 138 NI Act by citing dissolution of the Company, as the personal liability of the Appellant would continue under Section 141 NI Act. Therefore, the Bench held that the Revisional Court took a correct view in the Impugned Judgment dated 23-11-2019 and as a result, the Appeals filed by the Appellant were dismissed.

Editor’s Comments

The above judgment brings relief to many creditors who have to recover money from a company that is undergoing corporate insolvency proceeding (CIRP) or winding up, as the Apex Court has foisted the liability of a returned cheque on the director of the company undergoing CIRP. The only issue is that a criminal proceeding should have been initiated for the returned cheque. This judgment will rescue many such creditors who fear that all is lost if the company is taken over by a resolution applicant.


Harini Daliparthy

Senior Associate

The Indian Lawyer

Edited by

Sushila Ram Varma

Chief Consultant and Co-Founder

The Indian Lawyer

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