Decided on 4th July 2022 | High Court of Punjab and Haryana
In Vijay Kumar Ghai v. Pritpal Singh Babbar, the Hon’ble Punjab and Haryana High Court (“the Court“) held that proceedings initiated under Section 138 of the Negotiable Instruments Act, 1881 (“NI Act“), against a Personal Guarantor (“PG“), shall remain stayed by the virtue of the interim moratorium imposed under Section 96 of the Insolvency and Bankruptcy Code, 2016 (“IBC“), so long as such moratorium is in force.
Mr. V.K. Ghai is a PG of Priknit Retails Limited (“PRL“) and had applied to National Company Law Tribunal (“NCLT“) under Section 94(1) of IBC for initiating the Insolvency Resolution Process against himself, in his capacity as such Personal Guarantor. An interim moratorium was imposed by the NCLT under Section 96 of IBC.
Mr. Pritpal Singh Babbar is a creditor of Mr. Ghai and had initiated criminal proceedings against Mr. Ghai under Section 138 of NI Act. The debt in respect of which the criminal proceedings were instituted is not connected to Corporate Debtor.
Mr. Ghai approached the Judicial Magistrate for a stay on the proceedings under Section 138 of NI Act, in the light of the interim moratorium under Section 96 of IBC. However, the Judicial Magistrate rejected the said application. Thus, aggrieved by the order, PG has assailed the order before the Court.
CONTENTIONS OF THE PARTIES:
I. Mr. V.K. Ghai (Personal Guarantor):
- As per a landmark judgment of the Hon’ble Supreme Court in the case of P. Mohanraj and others v. M/s. Shah Brothers Ispat Pvt. Ltd.2, criminal proceedings under Section 138 of NI Act, against a Corporate Debtor are covered by the moratorium under Section 14 of IBC. Applying the ratio of the said judgment to the case at hand, proceedings under Section 138 of NI Act shall also be covered by the interim moratorium in case of a PG under Section 96 of IBC
- The debt which is the subject matter of the proceedings under Section 138 of NI Act has not been specifically excluded under Section 79(15)(e) of IBC.
II. Mr. Pritpal Singh Babbar:
- The debt in question is owed by Mr. Ghai in his personal capacity and not in his capacity as the Personal Guarantor of the Corporate Debtor. Since the moratorium in this case is imposed under Section 96 of IBC, only in favour of a person in his capacity as PG, an unrelated debt shall not be covered by the said moratorium.
- Mr. Ghai has taken undue advantage of the provisions of IBC as it came into force, since the cheque in question bounced in 2012, and the complaint under Section 138 of NI Act was also registered in the same year. This is almost four years prior to the commencement of the IBC, and almost 9 years prior to Mr. Ghai approaching NCLT under Section 94 of IBC. Hence, Mr. Ghai is only taking undue advantage of a subsequent legislation.
The Hon’ble Court observed that Section 138 of NI Act clothes an essentially civil transaction with criminality. Though it provides for fine and punishment, its object is to compensate the victim and effect a quick recovery of debts and other liabilities, rather than to punish the wrongdoer.
Hence, the expression “any legal actions or proceedings pending in respect of any debt” as are used in Section 96 of IBC, shall also cover the proceedings initiated under Section 138 of NI Act.
Section 96 of IBC contains the expression “any debt”. Unless the language of a statue is unworkable or wholly impractical, the Court is not at the liberty to read into or exclude anything from the statute. Moreover, Section 3(11) of IBC defines “debt” in a generic manner. The debt which is the subject matter of the proceedings under Section 138 of the NI Act, also has not been prescribed to be excluded in terms of Section 79(15)(e) of IBC.
Hence, the expression “any debt” in Section 96 of IBC shall also include debts which are wholly unconnected with the Corporate Debtor, or are not incurred by PG in his capacity as such PG. Consequently, the proceedings initiated under Section 138 of NI Act in respect of such a debt shall also remain stayed, so long as the moratorium is in force.
The Hon’ble Court noted that though the complaint under Section 138 of NI Act was lodged much prior to PG applying for insolvency resolution and the debt was the subject matter of different proceedings which was wholly unconnected with Corporate Debtor. the Court cannot by itself differentiate as such, in the application of interim moratorium and is bound by the language of Section 96 of IBC. It thus stayed the criminal proceedings initiated against the PG