Delhi High Court held that the complaints under Section 138 of the NI Act against a company and its directors cannot proceed after the initiation of winding-up proceedings or during the moratorium.
The Single-Judge Bench of Justice Dharmesh Sharma of Delhi High Court held that the complaints under Section 138 of the NI Act against a company and its directors cannot proceed after the initiation of winding-up proceedings or during the moratorium under the Insolvency and Bankruptcy Code. This is because the statutory bar prevents such proceedings from continuing against the corporate debtor and its directors.
The court emphasized that once the Official Liquidator assumes control over the records, it becomes impractical for directors to defend themselves in criminal matters. Therefore, complaints initiated against the corporate debtor and its directors after the winding-up order should be stayed.
Mr. Ashwani Chawla, a former director, filed an application under Sections 446 and 447 of the Companies Act, 1956, seeking a stay on proceedings against a company under liquidation and himself in criminal courts in Delhi under Section 138 of the Negotiable Instrument Act 1881.
The company was ordered to be wound up in 2013, with a Provisional Liquidator appointed in 2014. The applicant argued that complaints under Section 138 of the NI Act against the company and its directors should not proceed due to Sections 446 and 447 of the Act.
While the Official Liquidator was not given advance notice, the court directed the Senior Standing Counsel to receive a copy. The court, after considering arguments and precedents, found previous judgments cited by the Official Liquidator to be incorrect in light of subsequent Supreme Court rulings.
Relying on recent Supreme Court decisions, the court held that proceedings against the corporate debtor and its directors couldn't continue after the initiation of winding-up proceedings or during the moratorium under the Insolvency and Bankruptcy Code. Therefore, complaints filed after the winding-up order in 2013 were stayed.
The court reasoned that since the Official Liquidator had control over the records, it would be impractical for directors to defend themselves in criminal matters. Thus, the application was disposed of accordingly.
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