IBC Moratorium Can’t Be a Shield Against Sec. 138 NI Act; Debtors Can’t Escape Prosecution During CIRP | SC

Case Details: Rakesh Bhanot v. Gurdas Agro (P.) Ltd. - [2025] 173 taxmann.com 249 (SC)

Judiciary and Counsel Details

• J.B. Pardiwala & R. Mahadevan, JJ.

Facts of the Case

In the instant case, the Respondent filed a complaint under section 138 of the Negotiable Instruments Act, 1881, against the appellants for dishonouring cheques due to insufficient funds.

During the pendency of the aforesaid proceedings, appellants filed an application under section 94 of the IBC before the NCLT for personal insolvency. However, the said application was pending adjudication. Pending said proceedings, appellants moved an application before the Trial Court for adjourning section 138 of the Act proceedings sine die, in view of the pendency of the section 94 petition as well as the injunctive provision as envisaged under section 96 of the IBC.

The The Trial Court rejected the aforesaid application. Aggrieved by this, the accused approached the High Court by filing a criminal petition under section 482 of the CrPC. The High Court, by the impugned order, dismissed the said criminal petition. Thereafter, an appeal was made before the Supreme Court.

It was noted that the interim moratorium under Section 96 and the moratorium under Section 101 of the IBC are designed to offer a breathing space to corporate debtors, allowing them to reorganise their financial affairs without the immediate threat of creditor actions. However, this moratorium is not intended to shield individuals from personal criminal liabilities arising from their actions outside the scope of corporate debt restructuring.

Further, it was noted that the legislative intent behind the IBC is to provide a protective shield for debtors during the insolvency process. The scope and nature of proceedings under the IBC may result in the extinguishment of actual debt by restructuring or through the liquidation process. Still, such extinguishment will not absolve its directors from criminal liability.

Supreme Court Held

The Supreme Court held that allowing debtors to evade prosecution under section 138 of the Act would undermine the very purpose of the Act, which is to preserve the integrity and credibility of commercial transactions and personal responsibility persists, regardless of insolvency proceedings and their outcome.

Thus, the prayer of appellants/petitioners to stay prosecution under section 138 of the Act, relying on an interim moratorium under section 96, could not be entertained.

List of Cases Reviewed

• Order of High Court of Punjab and Haryana, Chandigarh in criminal petition bearing No.CRM-M37169-2022 (O&M), dated 23-03-2023 [ Para 20] affirmed.
• Dilip B. Jiwrajka v. Union of India (2023) SCC OnLine SC 1530) : (2024) 5 SCC 435 [Para 18]; distinguished

List of Cases Referred to

• P.Mohanraj v. Shah Brothers Ispat Pvt. Ltd. (2021) 6 SCC 258 (para 7.1)
• Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd. (2023) 10 SCC 545 (para 7.1)
• State Bank of India v. V.Ramakrishnan (2018) 17 SCC 394 (para 7.1)
• Dena Bank v. Bhikhabhai Prabhudas Parekh and Co. & Ors. (2000) 5 SCC 694 (para 7.1)
• Dilip B. Jiwrajka v. Union of India (2024) 5 SCC 435 (para 7.1)
• Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corpn. of India Ltd. (2023) 10 SCC 545 (para 16).