The Bombay High Court, sitting at its Nagpur Bench, has ruled that criminal proceedings for cheque dishonour under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) can continue against the directors of a company, even if insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) were initiated against the company prior to the cheque being dishonoured.
In a judgment delivered by Justice M.M. Nerlikar on October 1, 2025, the court set aside a trial court order that had discharged the directors of M/s. Anand Distilleries in a cheque bounce case. The High Court held that the moratorium under Section 14 of the IBC protects the corporate debtor but does not extend to the personal penal liability of the natural persons responsible for the company’s affairs.
Background of the Case
The petitioner, Ortho Relief Hospital and Research Centre, had extended a short-term loan of Rs. 15,00,000 to M/s. Anand Distilleries on October 15, 2015. As security, a post-dated cheque for the said amount was issued, signed by Director Abhaykumar Anandkumar Bhambore on behalf of the company.
In February 2018, Punjab National Bank initiated insolvency proceedings against the company under the IBC. The National Company Law Tribunal (NCLT) admitted the petition on February 14, 2018, imposing a moratorium and appointing an Interim Resolution Professional (IRP). The petitioner lodged its claim with the IRP.
Subsequently, the petitioner alleged that the company’s directors, Abhaykumar Anandkumar Bhambore and Anandkumar Gulabchandji Bhambore, reassured them and asked them to present the cheque for encashment. The cheque was presented but was dishonoured on December 14, 2018, with the remark “insufficient funds”.
Following the dishonour, the petitioner issued a legal notice on January 5, 2019, and subsequently filed a criminal complaint under Section 138 of the NI Act. The trial court, however, allowed an application filed by the directors and discharged them on January 31, 2025, citing the pending insolvency proceedings. This order was challenged before the High Court.
Arguments of the Parties
The petitioner, represented by Advocate S.S. Dewani, argued that proceedings under the NI Act are penal in nature and distinct from the recovery proceedings under the IBC. It was contended that an approved resolution plan under the IBC does not absolve directors from penal liability and that the directors, as natural persons, remain liable for prosecution.
The respondents (the company and its directors), represented by Advocate S.D. Khati, argued that the timeline was critical. They submitted that the IBC proceedings and the moratorium were initiated on February 14, 2018, well before the cause of action for the Section 138 complaint arose (cheque dishonour on December 14, 2018). They argued that Section 14 of the IBC bars the institution of any legal proceedings against the corporate debtor after a moratorium is declared.
Court’s Analysis and Decision
The High Court framed the central legal question as: “Whether prior initiation of proceeding under the IB Code would frustrate the claim of the petitioner under Section 138 of the NI Act?”
After examining several Supreme Court judgments, including the three-judge bench decisions in P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd. and Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Limited, Justice Nerlikar concluded that the law on the issue is well-settled.
The court reiterated the principles laid down by the Supreme Court:
- The moratorium under Section 14 of the IBC applies only to the corporate debtor, and “the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instruments Act.”
- Proceedings under Section 138 of the NI Act are not recovery proceedings but are penal in nature, aimed at upholding the integrity of commercial transactions.
- The personal penal liability of directors continues irrespective of any moratorium applicable to the corporate debtor.
- The IBC and the NI Act serve different purposes and do not conflict with each other.
The judgment explicitly stated that the timing of the initiation of proceedings does not alter the liability of the directors. The court observed, “From the above discussion it is clear that it makes no difference whether the proceedings are initiated prior to initiation of IB Code proceeding or thereafter. The Supreme Court has in unequivocal terms held that natural persons cannot escape from their personal liability under Section 138 of the NI Act.”
The court further clarified that criminal proceedings do not fall under the category of proceedings that are to be kept in abeyance under Section 14 of the IBC. It held that the trial court had “committed a gross error in allowing the application at Exh.39, and thereby discharging the accused nos. 2 and 3.”
Consequently, the High Court allowed the writ petition, quashing and setting aside the trial court’s orders. The criminal complaint against the directors will now proceed. A request by the respondents’ counsel to stay the judgment was rejected.
