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IBC Update

Parallel proceedings cannot proceed under Section 138 of the Negotiable Instruments Act if order of moratorium passed under IBC

The Supreme Court has held that hen an order of moratorium is passed under the Insolvency and Bankruptcy Code (IBC), parallel proceedings under Section 138 of the Negotiable Instruments Act (NI Act) against the Corporate Debtor cannot be allowed to continue. In P Mohanraj v. M/S Shah Brothers Ispat Pvt Ltd, it was held that in such a situation, Section 14 of the IBC will apply. The National Company Law Tribunal (NCLT), Chennai had initiated Corporate Insolvency Resolution Process (CIRP) against Diamond Engineering Chennai Limited (Corporate Debtor) on June 6, 2017 on a petition by Shah Brothers Ispat Private Limited (Respondents in Supreme Court) and moratorium was imposed.

However, the Respondents had earlier filed a complaint under Section 138 before the Metropolitan Magistrate Court, Kurla prior to the initiation of CIRP against the Corporate Debtor, and another complaint was filed after the order of moratorium. When the maintainability of the petition under NI Act was questioned, thr NCLT held that it was not maintainable. However, the NCLAT ruled that Section 138 is a penal provision, which empowers the court of competent jurisdiction to pass order of imprisonment or fine, which cannot be held to be proceeding or any judgment or decree of money claim. The Supreme Court disagreed, finding that the bar under section 14 will supersede.

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