Proceedings under Section 138 of NI Act Against an Individual are Barred During Interim Moratorium Under Section 96 of the IBC

The High Court held that proceedings under Section 138 of the Negotiable Instruments Act against an individual are barred during the interim moratorium period under Section 96 of the Insolvency and Bankruptcy Code, 2016.

The Madhya Pradesh High Court, Single-Judge Bench of Justice Vishal Mishra, held that the interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016, applies to proceedings under Section 138 of the Negotiable Instruments Act even when initiated against an individual. This position, as clarified by the Supreme Court in P. Mohanraj and Others v. Shah Brothers Ispat Private Limited, REEDLAW 2021 SC 03526, mandates that such proceedings are liable to be stayed during the moratorium period.

The High Court issued notice to the respondent, directing payment of process fee by registered mode within seven working days under RAD mode, returnable within four weeks. It was further ordered that failure to comply with this direction would result in the dismissal of the petition without further reference to the Bench.

The matter was heard on the question of interim relief. It was brought to the Court’s attention that between the same parties, a similar application had previously been filed before the Indore Bench. Given that the parties were identical and proceedings under Section 138 of the Negotiable Instruments Act, 1881 had been initiated in both cases, the petitioner was held entitled to a similar relief.

The counsel for the petitioner submitted that both the trial Court and the Revisional Court had erroneously declined to stay the proceedings under Section 138. It was contended that the petitioner was undergoing proceedings under the Insolvency and Bankruptcy Code, 2016, and that an interim moratorium under Section 96 had been passed in his application. Accordingly, it was argued that the continuation of the criminal proceedings was unwarranted. The petitioner’s counsel further contended that both courts had erred in interpreting the applicability of Section 96, wrongly holding that it does not apply to individual persons facing proceedings under Section 138 of the NI Act.

Reliance was placed on the judgment of the Hon’ble Supreme Court in P. Mohanraj and Others v. Shah Brothers Ispat Private Limited, REEDLAW 2021 SC 03526, wherein the scope of Section 96 of the IBC was elaborated upon. In particular, reference was made to paragraph 47 of the said judgment, which clarified that the expression “in respect of any debt” under Section 96 carries a wide connotation and extends to interim moratoriums applicable even to proceedings under Section 138 involving individual persons.

Taking note of the aforesaid submissions, the Court, as an interim measure, directed that further proceedings in RCT No. 5488/2018 pending before the concerned trial Court shall remain stayed. A certified copy of the order was directed to be issued as per the rules.

Mr. Abhinav Dubey, Advocate, represented the Petitioner.

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