HC: Corporate resolution plan no ground to quash NI prosecution

Justice G R Swaminathan offered the ruling while passing orders on a plea moved by Ajay Kumar Bishnoi, former managing director, Tecpro Systems Ltd, seeking to quash the criminal original petition pending before the fast track court at Ambattur claiming that the resolution professional had taken over the entire management of the company, coupled with its assets and liabilities. As he did not have access to any of the company records and hence was unable to conduct the case, he sought to direct Tap Engineering to pursue their remedies as the per the provision of the Insolvency and Bankruptcy Code (IBC), 2016. He had contended that the IBC was a self-contained enactment having an overriding effect over other laws. Therefore, continuation of the impugned prosecution would only amount to an abuse of the legal process, he pleaded.

He further pointed out that the resolution plan clearly stipulates that the outstanding negotiable instruments issued by the company prior to the insolvency commencement date shall stand terminated and the liability of the company and its current employees under such instruments shall stand extinguished and all the legal proceedings shall stand irrevocably and unconditionally abated.

As per the complainant, Tap Engineering, even though goods were supplied, payments were not made. Thereafter, following persistent requests, Tecpro Systems issued eight post-dated DBS bank cheques. But when they were presented, there were returned for insufficient funds. The returned cheques were re-presented, but were dishonoured, leading to present the legal process.

However, Justice Swaminathan on holding that the main object of Section 138 of the NI Act is to safeguard the credibility of commercial transactions and to prevent bouncing of cheques by providing a personal criminal liability against the drawer of cheque in public interest, said,

"Therefore, even if the resolution plan was approved and made binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders under Section 31 of the code, criminal proceedings under Section 138 will not abate." Also, holding that what is dissolved is only the company, and not the personal penal liability of the accused covered under Section 141 of the Negotiable Instruments Act, 1881, Justice Swaminathan said, "After proceedings are over, either the corporate entity may be dissolved or it can be taken over by a new management in which event the company will continue to exist. When a new management takes over, it will have to arrange for representing the company.”