The High Court of Delhi has quashed the summoning orders and criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) against the former directors of Future Retail Ltd., ruling that directors cannot be held liable for dishonour of cheques if the Corporate Insolvency Resolution Process (CIRP) had commenced and an Interim Resolution Professional (IRP) was appointed prior to the expiry of the statutory 15-day notice period.
Justice Vikas Mahajan observed that once the management of the company vested with the IRP, the directors lost control over the bank accounts and were incapacitated from ensuring payment to the complainant.
Background of the Case
The petition was filed by Ravindra Dhariwal and others, former directors of M/S Future Retail Ltd., seeking the quashing of the summoning order dated January 24, 2023, passed by the Judicial Magistrate First Class (JMFC), Tis Hazari Courts, New Delhi. The petitioners were summoned to stand trial for an offence under Section 138 of the NI Act in a complaint filed by Kotak Mahindra Bank Limited.
The case involved two cheques issued by the company: one for Rs. 3,48,39,892 and another for Rs. 50,00,00,000. These cheques were presented for encashment but were returned unpaid on April 29, 2022, and again on July 2, 2022. Following the dishonour, the bank issued a demand notice dated July 14, 2022, which was dispatched on July 21, 2022, and received by the petitioners between July 23, 2022, and July 26, 2022.
However, prior to the service of the notice, the National Company Law Tribunal (NCLT) admitted a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) against Future Retail Ltd. on July 20, 2022. Consequently, an IRP was appointed, and a moratorium under Section 14 of the IBC was declared.
Arguments of the Parties
Mr. Madhav Khurana, Senior Advocate appearing for the petitioners, argued that the statutory 15-day period to make the payment expired on August 7, 2022. He contended that by this date, the petitioners were no longer in charge of the company as they had been suspended from their positions due to the NCLT order dated July 20, 2022.
Mr. Khurana relied on the Supreme Court’s decision in Vishnoo Mittal v. Shakti Trading Company (2025), arguing that since the directors had no control over the company’s accounts during the notice period, they could not be held criminally liable.
Per contra, Ms. Vaishnavi Viswanathan, counsel for the respondent bank, argued that the petitioners were in charge of the business when the cheques were issued and presented. She contended that their subsequent suspension due to CIRP did not extinguish their liability for acts committed prior to the insolvency proceedings. She relied on the Supreme Court’s decision in S.P. Mani and Mohan Dairy v. Dr. Snehalatha Elangovan (2022).
Court’s Analysis
The High Court framed the core legal question: “Whether the complaint under Section 138 of N.I. Act could have been filed and continued against the petitioners… when CIRP proceedings had been initiated and IRP had been appointed prior to giving of demand notice to them.”
Justice Mahajan noted that the controversy was covered by the Supreme Court’s ruling in Vishnoo Mittal, where it was held that directors cannot be expected to fulfill demands raised in a legal notice if they are suspended and the company’s accounts are under the control of an IRP.
The Court observed that under Section 17 of the IBC, the management of the affairs of the corporate debtor vests in the IRP from the date of their appointment, and the powers of the board of directors stand suspended.
The Court noted:
“Even on the basis of the earliest date of service of demand notice i.e. 23.07.2022, the 15 days period for making payment in terms of demand notice had expired on 07.08.2022. Thus, the offence under Section 138 of N.I. Act was complete on 07.08.2022… However, in the meanwhile, the NCLT… initiated CIRP against respondent no.2/company… vide order dated 20.07.2022.”
Justice Mahajan further reasoned:
“Clearly, even prior to the dispatch of the demand notice by respondent no.1/bank on 21.07.2022, the IRP had been appointed… therefore, during the notice period of 15 days which commenced with the service of demand notice on 23.07.2022, the petitioners were not having any control over the bank accounts of respondent no.2/company.”
Distinguishing the respondent’s reliance on S.P. Mani, the Court stated that the said case did not involve a scenario where directors were incapacitated by a moratorium and the appointment of an IRP before the offence was completed.
Decision
The High Court held that since the petitioners had no authority to operate the bank accounts to ensure the honouring of the cheques during the statutory notice period, they could not be held guilty of the offence.
The Court ordered:
“The impugned summoning order dated 24.01.2023 is quashed. Further, the complaint case… and all proceedings emanating therefrom in respect of the petitioners herein, are quashed.”
Case Details:
- Case Title: Ravindra Dhariwal & Anr. v. Kotak Mahindra Bank Limited & Anr. (and connected matters)
- Case No: CRL.M.C. 8417/2023, CRL.M.C. 8431/2023
- Bench: Justice Vikas Mahajan
