Director of corporate debtor can't be proceeded for cheque dishonour in view of moratorium: Supreme Court

New Delhi: The Supreme Court has said that a director of the corporate debtor, facing insolvency proceedings, cannot be proceeded for dishonour of cheques as he would not be able to make repayment in view of the moratorium imposed under the Insolvency and Bankruptcy Code.

A bench of Justices Sudhanshu Dhulia and Ahsanuddin Amanullah pointed out return of the cheques dishonoured simpliciter does not create an offence under Section 138 NI Act and Clause (c) of the proviso makes it clear that cause of action arises only when demand notice is served and payment is not made within the stipulated 15-day period.

Acting on an appeal filed by Vishnoo Mittal, director of M/s Xalta Food and Beverages Private Limited, the corporate debtor, the bench set aside the Punjab and Haryana High Courts order of December 21, 2021, which declined to quash the proceedings against him for the dishonour of cheques issued to complainant M/s Shakti Trading Company for the sum of over Rs 11 lakh. 

"We are of the considered view that the High Court ought to have quashed the case against the appellant by exercising its power under Section 482 of the CrPC," the bench said in its judgment on March 17, 2025.

The High Court had relied upon the judgment of the Supreme Court in 'P Mohan Raj Vs M/S Shah Brothers Ispat Pvt Ltd' (2021) wherein it was held that the immunity granted by the moratorium order issued under Section 14 of the IBC can only be obtained by a corporate debtor and not by a natural person such as the present appellant, who was the director of the corporate debtor.

"However, in our opinion, the High Court erred in relying on P Mohan Raj since the facts of that case were completely different and the present case is thus distinguishable from it," the bench said.

The court noted in the present case, on July 25, 2018, the moratorium was imposed and management of the corporate debtor was taken over by the interim resolution professional (IRP) as per Section 17 of the IBC.

"The bare reading of the provision showed that the appellant did not have the capacity to fulfil the demand raised by the respondent by way of the notice issued under clause (c) of the proviso to Section 138 NI Act," the bench said. 

The court further pointed out, when the notice was issued to the appellant, he was not in charge of the corporate debtor as he was suspended from his position as the director of the corporate debtor as soon as IRP was appointed on July 25, 2018. 

"Therefore, the powers vested with the board of directors were to be exercised by the IRP in accordance with the provisions of IBC. All the bank accounts of the corporate debtor were operating under the instructions of the IRP, hence, it was not possible for the appellant to repay the amount in light of Section 17 of the IBC," the bench said.

After imposition of the moratorium, the IRP had made a public announcement inviting the claims from the creditors of the corporate debtor and the respondent has filed a claim with the IRP, the court also noted.

The court set aside the High Courts order and quashed the summoning order and pending complaint case against the appellant before a Chandigarh court.