P. MOHANRAJ & ORS. versus M/S. SHAH BROTHERS ISPAT PVT. LTD.

[2021] 14 S.C.R.

P. MOHANRAJ & ORS.

M/S. SHAH BROTHERS ISPAT PVT. LTD.

(Civil Appeal No. 10355 of 2018)

MARCH 01, 2021

[ROHINTON FALI NARIMAN, NAVIN SINHA ANDK. M. JOSEPH, JJ.]

Insolvency and Bankruptcy Code, 2016 – s.14 – NegotiableCInstrument Act, 1881 – Chapter XVII – ss.138, 141 – Institution/continuation of proceeding u/s.138/141, NI Act, if covered by themoratorium provision i.e. s.14, IBC – Natural persons if covered bys.14 – Held: s.138/141 proceeding against corporate debtor iscovered by s.14(1)(a), IBC – quasi-criminal proceeding containedin Chapter XVII of the NI Act would amount to “proceeding”Dwithin the meaning of s.14(1)(a), the moratorium therefore attachingto such proceeding – As far as the Directors/persons in managementor control of the corporate debtor are concerned, s.138/141proceeding against them cannot be initiated or continued withoutthe corporate debtor – This is because s.141 speaks of persons incharge of, and responsible to the company for the conduct of theEbusiness of the company, as well as the company – For the periodof moratorium, since no s.138/141 proceeding can continue or beinitiated against the corporate debtor because of statutory bar,such proceedings can be initiated or continued against the personsmentioned in s.141(1) and (2) of the NI Act – Thus, moratoriumFprovision contained in s.14, IBC would apply only to the corporatedebtor, the natural persons mentioned in s.141 continuing to bestatutorily liable under Chapter XVII of the NI Act – Interpretationof Statutes.

Insolvency and Bankruptcy Code, 2016 – s.14, ss.3(33), 96(3),G101(3) – “Transaction” in s.3(33) – Scope of s.14 – Held: s.14(1)makes it clear that subject to the exceptions contained in sub-sections(2) and (3), on the insolvency commencement date, the AdjudicatingAuthority shall mandatorily, by order, declare moratorium toprohibit what follows in clauses (a) to (d) – s.14(1)(a) does notindicate as to what the proceedings contained therein apply to –H

Sub-section 3(a) provides the answer that such “proceedings” relateto “transactions” entered into by the corporate debtor pre impositionof the moratorium – s.3(33) defines “ transaction” – This definitionbeing an inclusive one is extremely wide in nature and would includea transaction evidencing debt or liability – This is made clear bys.96(3) and s.101(3) which contain the same language as s.14(3)(a),these Sections speaking of ‘debts’ of the individual or firm.

Insolvency and Bankruptcy Code, 2016 – s.14(3)(b) – Held:By s.14(3)(b), surety in contract of guarantee of debt owed bya corporate debtor cannot avail of the benefit of moratorium as aresult of which creditor can enforce guarantee, though not beingable to enforce the principal debt during the period of moratorium.

Insolvency and Banckruptcy Code, 2016 – s.14 – Object of– Discussed.

–Doctrines/Principles – noscitur sociis or ejusdem generis Insolvency and Bankruptcy Code, 2016 – s.14 – “proceedings” –Negotiable Instrument Act, 1881 – ss.138, 141 – Held: Ejusdemgeneris and noscitur sociis cannot be exalted to nullify the plainmeaning of words used in statute if they are designedly used in awide sense – Where residuary phrase is used as catch-allexpression to take within its scope what may reasonably becomprehended by provision, regard being had to its object andsetting, noscitur sociis cannot be used to colour an otherwise wideexpression so as to whittle it down and stultify the object of astatutory provision – noscitur sociis or ejusdem generis should notbe used to cut down the width of the expression “proceedings” soas to make such proceedings analogous to civil suits – Interpretationof Statutes – Rules of construction.Insolvency and Bankruptcy Code, 2016 – s.14 vis-à-vis ss.81, 85, 96, 101 – Scope of proceedings – Held: When the languageof these Sections is juxtaposed against the language of s.14, it isclear that the width of s.14 is even greater, given that s.14 declaresa moratorium prohibiting what is mentioned in clauses (a) to (d)thereof in respect of transactions entered into by the corporatedebtor, inclusive of transactions relating to debts, as contained inss.81, 85, 96, and 101 – Also, s.14(1)(d) is conspicuous by itsabsence in any of these Sections – Thus, where individuals or firmsare concerned, the recovery of any property by an owner or lessor,

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Awhere such property is occupied by or in possession of the individualor firm can be recovered during the moratorium period, unlike theproperty of corporate debtor – Negotiable Instrument Act, 1881– s.138, 141, 143A, 148.

Insolvency and Bankruptcy Code, 2016 – ss.14, 32A (1) –BInterplay between s.14, 32A – Moratorium – Prior offences, liabilityof corporate debtor – Held: The reason for introducing s.32A hadnothing to do with any moratorium provision – It extinguishescriminal liability of the corporate debtor, from the date the resolutionplan has been approved by the Adjudicating Authority, so that thenew management may make clean break with the past and startCon clean slate – Whereas, moratorium provision only casts ashadow on proceedings already initiated and to be initiated –Insolvency and Bankruptcy Code (Amendment) Act, 2020 – Doctrineof harmonious construction – Negotiable Instruments Act, 1881 –ss.138, 141.DNegotiable Instruments Act, 1881 – Chapter XVII – s.138-142 – Nature of proceeding under – Held: s.138 proceeding canbe said to be “civil sheep” in “criminal wolf’s” clothing, as it isthe interest of the victim that is sought to be protected, the largerinterest of the State being subsumed in the victim alone moving aEcourt in cheque bouncing cases – Code of Criminal Procedure,1973 – Chapter XIII – ss.177 to 189; ss.62-64, 302, 357.Negotiable Instruments Act, 1881 – s.138 – Object of –Discussed.

Negotiable Instruments Act, 1881 – s.138 – Explanation toFs.138 – Held: It makes clear that the debt or other liability means alegally enforceable debt or other liability – Thus, debt or otherliability barred by the law of limitation would be outside the scopeof s.138.

Negotiable Instruments Act, 1881 – s.138 – Penal Code, 1860– s.53 – Plea that proceedings u/s.138 can only be described asGcriminal proceedings – Held: Rejected – There are many instancesof acts which are punishable by imprisonment or fine or both whichhave been described as quasi-criminal – There is nothing wrongwith the appellation “quasi-criminal” being applied to s.138proceeding – Companies Act, 1956 – s.630 – Contempt of CourtsHAct, 1971 – ss.2, 11, 12.

Negotiable Instruments Act, 1881 – s.139 – Presumptionunder – Discussed.

Negotiable Instruments Act, 1881 – s.140 – Held: It shall notbe defence in prosecution for an offence u/s.138 that the drawerhad no reason to believe when he issued the cheque that the chequemay be dishonoured on presentment for the reasons stated in thatSection, thus strict liability will attach, mens rea being no ingredientof the offence.

Insolvency and Bankruptcy Code, 2016 – ss.14, 25(2), 33(5)– Negotiable Instruments Act, 1881 – ss.138, 141 – Doctrines ofejusdem generis and noscitur sociis – Non-application of – Held: U/s.33, the expression “no suit or other legal proceeding” occursboth in the enacting part as well as the proviso – Going by theproviso first, given the object that the liquidator has to act on behalfof the company after winding-up order is passed, which includesfiling of suits and other legal proceedings on behalf of the company,there is no reason as to why s.138/141 proceeding would be outsidethe ken of the proviso – There is no reason why the liquidator cannotinstitute s.138/141 proceeding against defaulting debtor of thecompany – Inelegant drafting cannot lead to absurd results or resultswhich stultify the object of provision, given its otherwise widelanguage – Interpretation of Statutes.

Arbitration and Conciliation Act, 1996 – s.34 – Insolvencyand Bankruptcy Code, 2016 – s.14 – Held: s.34 proceeding iscertainly proceeding against the corporate debtor which may resultin an arbitral award against the corporate debtor being upheld, asa result of which, monies would then be payable by the corporatedebtor – Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd.,reported as (2018) 246 DLT 485 does not state the law correctly.

Words & Expressions:

“or” in s.14(1)(a) – Interpretation of – Held: expression “or”occurs twice in the first part of s.14(1)(a)- first, between theexpressions “institution of suits” and “continuation of pending suits”and second, between the expressions “continuation of pending suits”and “proceedings against the corporate debtor…” – Expression“institution of suits or continuation of pending suits” is to be readas one category, and the disjunctive “or” before the word

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A“proceedings” would make it clear that proceedings against thecorporate debtor would be separate category.

“proceedings” – Meaning of – Discussed – Insolvency andBankruptcy Code, 2016 – s.14.

“in respect of” – Held: It is phrase which is wide andBincludes anything done directly or indirectly – Insolvency andBankruptcy Code, 2016 – ss. 81, 85, 96, 101.

“cause of action” – Held: Expression “cause of action” is aforeigner to criminal jurisprudence, and would apply only in civilcases to recover money – Insolvency and Bankruptcy Code, 2016 –Cs.14 – Negotiable Instruments Act, 1881 – ss.138, 142 – Code ofCriminal Procdeure, 1973 – Chapter XIII – ss.177 to 189.

Disposing of the matters, the Court

HELD: 1.1 Section 14(1) makes it clear that subject to theDexceptions contained in sub-sections (2) and (3), on the insolvencycommencement date, the Adjudicating Authority shallmandatorily, by order, declare moratorium to prohibit whatfollows in clauses (a) to (d). Importantly, under sub-section (4),this order of moratorium does not continue indefinitely, but haseffect only from the date of the order declaring moratorium tillEthe completion of the corporate insolvency resolution processwhich is time bound, either culminating in the order of theAdjudicating Authority approving resolution plan or inliquidation. The two exceptions to Section 14(1) are contained insub-sections (2) and (3) of Section 14. Under sub-section (2), theFsupply of essential goods or services to the corporate debtorduring this period cannot be terminated or suspended or eveninterrupted, as otherwise the corporate debtor would be broughtto its knees and would not able to function as going concernduring this period. The exception created in sub-section (3) isimportant as it refers to “transactions” as may be notified by theGCentral Government in consultation with experts in finance. Thus,the Central Government, in consultation with experts, may statethat the moratorium provision will not apply to such transactionsas may be notified. Section 14(1)(a) does not indicate as to whatthe proceedings contained therein apply to. Sub-section 3(a)

provides the answer – that such “proceedings” relate to“transactions” entered into by the corporate debtor preimposition of the moratorium. Section 3(33) defines “transaction”.This definition being an inclusive one is extremely wide in natureand would include transaction evidencing debt or liability. Thisis made clear by Section 96(3) and Section 101(3) which containthe same language as Section 14(3)(a), these Sections speakingof ‘debts’ of the individual or firm. Equally important is Section14(3)(b), by which surety in contract of guarantee of debtowed by corporate debtor cannot avail of the benefit of amoratorium as result of which creditor can enforce guarantee,though not being able to enforce the principal debt during theperiod of moratorium. [Paras 10-13][232-G-H; 233-A-C, F-G;234-B-D]1.2 The expression “or” occurs twice in the first part ofSection 14(1)(a) – first, between the expressions “institution ofsuits” and “continuation of pending suits” and second, betweenthe expressions “continuation of pending suits” and “proceedingsagainst the corporate debtor...”. The sweep of the provision isvery wide indeed as it includes institution, continuation, judgmentand execution of suits and proceedings. An award of an arbitrationpanel or an order of an authority is also included. This being thecase, it would be incongruous to hold that the expression “theinstitution of suits or continuation of pending suits” must be readdisjunctively as otherwise, the institution of arbitral proceedingsand proceedings before authorities cannot be subsumed withinthe expression institution of “suits” which are proceedings incivil courts instituted by plaint (see Section 26 of the Code ofCivil Procedure, 1908). Therefore, it is clear that the expression“institution of suits or continuation of pending suits” is to beread as one category, and the disjunctive “or” before the word“proceedings” would make it clear that proceedings against thecorporate debtor would be separate category. What throws lighton the width of the expression “proceedings” is the expression“any judgment, decree or order” and “any court of law, tribunal,arbitration panel or other authority”. Since criminal proceedingsunder the Code of Criminal Procedure, 1973 [“CrPC”] areconducted before the courts mentioned in Section 6, CrPC, it isclear that Section 138 proceeding being conducted before

[2021] 14 S.C.R.

AMagistrate would certainly be proceeding in court of law inrespect of transaction which relates to debt owed by thecorporate debtor. [Para 14][234-D-H; 235-A-B]

1.3 Ejusdem generis and noscitur sociis, being rules as tothe construction of statutes, cannot be exalted to nullify the plainBmeaning of words used in statute if they are designedly used ina wide sense. Importantly, where residuary phrase is used as acatch-all expression to take within its scope what may reasonablybe comprehended by provision, regard being had to its objectand setting, noscitur sociis cannot be used to colour an otherwisewide expression so as to whittle it down and stultify the object ofCa statutory provision. [Para 22][250-A-B]

State of Assam v. Ranga Mahammad, [1967] 1 SCR 454;Jagdish Chander Gupta v. Kajaria Traders (India) Ltd.,[1964] 8 SCR 50; Rajasthan State Electricity Board v.Mohan Lal, [1967] 3 SCR 377; CBI v. Braj BhushanDPrasad, (2001) 9 SCC 432 : [2001] 3 Suppl. SCR 627;Godfrey Phillips India Ltd. v. State of U.P., (2005) 2SCC 515 : [2005] 1 SCR 732; Vikram Singh v. Unionof India, (2015) 9 SCC 502 : [2015] 10 SCR 816;Pioneer Urban Land and Infrastructure Ltd. v. UnionEof India, (2019) 8 SCC 416 : [2019] 10 SCR 381 –referred to.

2. The object of moratorium provision such as Section 14is to see that there is no depletion of corporate debtor’s assetsduring the insolvency resolution process so that it can be keptFrunning as going concern during this time, thus maximizingvalue for all stakeholders. The idea is that it facilitates thecontinued operation of the business of the corporate debtor toallow it breathing space to organise its affairs so that newmanagement may ultimately take over and bring the corporatedebtor out of financial sickness, thus benefiting all stakeholders,Gwhich would include workmen of the corporate debtor. Regardbeing had to the object sought to be achieved by the IBC inimposing this moratorium, quasi-criminal proceeding whichwould result in the assets of the corporate debtor being depleted

as result of having to pay compensation which can amount totwice the amount of the cheque that has bounced would directlyimpact the corporate insolvency resolution process in the samemanner as the institution, continuation, or execution of decreein such suit in civil court for the amount of debt or other liability.Judged from the point of view of this objective, it is impossibleto discern any difference between the impact of suit and Section138 proceeding, insofar as the corporate debtor is concerned, onits getting the necessary breathing space to get back on its feetduring the corporate insolvency resolution process. Given thisfact, it is difficult to accept that noscitur sociis or ejusdem generisshould be used to cut down the width of the expression“proceedings” so as to make such proceedings analogous to civilsuits. Clause (b) of Section 14(1) also makes it clear that duringthe moratorium period, any transfer, encumbrance, alienation, ordisposal by the corporate debtor of any of its assets or anylegalright or beneficial interest therein being also interdicted, yet aliability in the form of compensation payable under Section 138would somehow escape the dragnet of Section 14(1). While Section14(1)(a) refers to monetary liabilities of the corporate debtor,Section 14(1)(b) refers to the corporate debtor’s assets, andtogether, these two clauses form scheme which shields thecorporate debtor from pecuniary attacks against it in themoratorium period so that the corporate debtor gets breathingspace to continue as going concern in order to ultimatelyrehabilitate itself. [Paras 23-25][251-C-D; 252-B-D, E-G]

Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC

17: [2019] 3 SCR 535 – relied on.

Report of the Insolvency Law Committee of February,2020 – referred to.

3. In Part III of the IBC, which deals with insolvencyresolution and bankruptcy for individuals and partnership firms,Section 81, which occurs in Chapter II thereof, entitled “FreshStart Process”, an interim moratorium is imposed. Similarly, inSection 85, which also occurs in Chapter II in Part III of the IBC,a moratorium is imposed. When the language of Section 14 and

ASection 85 are contrasted, it becomes clear that though thelanguage of Section 85 is only in respect of debts, the moratoriumcontained in Section 14 is not subject specific. The only lightthrown on the subject is by the exception provision contained inSection 14(3)(a) which is that “transactions” are the subjectmatter of Section 14(1). “Transaction” is much wider expressionBthan “debt”, and subsumes it. Also, the expression “proceedings”used by the legislature in Section 14(1)(a) is not trammelled bythe word “legal” as prefix that is contained in the moratoriumprovisions qua individuals and firms. Likewise, the provisions ofSection 96 and Section 101 are moratorium provisions in ChapterCIII of Part III dealing with the insolvency resolution process ofindividuals and firms, the same expression, namely, “debts” isused as is used in Section 85. legal action or proceeding inrespect of any debt would, on its plain language, include Section138 proceeding. This is for the reason that Section 138proceeding would be legal proceeding “in respect of” debt.D“In respect of” is phrase which is wide and includes anythingdone directly or indirectly. This, coupled with the fact that theSection is not limited to ‘recovery’ of any debt, would indicatethat any legal proceeding even indirectly relatable to recovery ofany debt would be covered. When the language of these SectionsEis juxtaposed against the language of Section 14, it is clear thatthe width of Section 14 is even greater, given that Section 14declares moratorium prohibiting what is mentioned in clauses(a) to (d) thereof in respect of transactions entered into by thecorporate debtor, inclusive of transactions relating to debts, asis contained in Sections 81, 85, 96, and 101. Also, Section 14(1)(d)Fis conspicuous by its absence in any of these Sections. Thus,where individuals or firms are concerned, the recovery of anyproperty by an owner or lessor, where such property is occupiedby or in possession of the individual or firm can be recoveredduring the moratorium period, unlike the property of corporateGdebtor. For all these reasons, therefore, given the object andcontext of Section 14, the expression “proceedings” cannot becut down by any rule of construction and must be given fairmeaning consonant with the object and context. It is concededthat criminal proceedings which are not directly related to

transactions evidencing debt or liability of the corporate debtorwould be outside the scope of this expression. [Paras 26, 27,28][253-A; 255-B-D; 256-F-H; 257-A-C]

State Bank of India v. V. Ramakrishnan, (2018) 17 SCC394 : [2018] 10 SCR 974 – distinguished.

Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd.,(2018) 2 SCC 674 : [2017] 13 SCR 751; Giriraj Gargv. Coal India Ltd., (2019) 5 SCC 192 : [2019] 2 SCR239 – referred to.

4. Section 32A cannot possibly be said to throw any light onthe true interpretation of Section 14(1)(a) as the reason forintroducing Section 32A had nothing whatsoever to do with anymoratorium provision. At the heart of the Section is theextinguishment of criminal liability of the corporate debtor, fromthe date the resolution plan has been approved by the AdjudicatingAuthority, so that the new management may make clean breakwith the past and start on clean slate. moratorium provision,on the other hand, does not extinguish any liability, civil orcriminal, but only casts shadow on proceedings already initiatedand on proceedings to be initiated, which shadow is lifted whenthe moratorium period comes to an end. Also, Section 32A(1)operates only after the moratorium comes to an end. At the heartof Section 32A is the IBC’s goal of value maximisation and theneed to obviate lower recoveries to creditors as result of thecorporate debtor continuing to be exposed to criminal liability.Unfortunately, the Section is inelegantly drafted. The secondproviso to Section 32A(1) speaks of persons who are in anymanner in charge of, or responsible to the corporate debtor forthe conduct of its business or associated with the corporate debtorand who are, directly or indirectly, involved in the commission of“such offence”, i.e., the offence referred to in sub-section (1),“as per the report submitted or complaint filed by the investigatingauthority ...”. The report submitted here refers to police reportunder Section 173 of the CrPC, and complaints filed byinvestigating authorities under special Acts, as opposed to privatecomplaints. If the language of the second proviso is taken tointerpret the language of Section 32A(1) in that the “offence

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Acommitted” under Section 32A(1) would not include offencesbased upon complaints under Section 2(d) of the CrPC, the widthof the language would be cut down and the object of Section 32A(1)would not be achieved as all prosecutions emanating from privatecomplaints would be excluded. Section 32A(1) cannot be read inthis fashion and clearly incudes the liability of the corporate debtorBfor all offences committed prior to the commencement of thecorporate insolvency resolution process. Doubtless, Section138 proceeding would be included, and would, after themoratorium period comes to an end with resolution plan by anew management being approved by the Adjudicating Authority,Ccease to be an offence qua the corporate debtor. section whichhas been introduced by an amendment into an Act with its focuson cesser of liability for offences committed by the corporatedebtor prior to the commencement of the corporate insolvencyresolution process cannot be so construed so as to limit, by asidewind as it were, the moratorium provision contained in SectionD14, with which it is not at all concerned. If the first proviso toSection 32A(1) is read in the manner suggested , it will impactSection 14 by taking out of its ken Section 138/141 proceedings,which is not the object of Section 32A(1) at all. Assuming,therefore, that there is clash between Section 14 of the IBCEand the first proviso of Section 32A(1), this clash is best resolvedby applying the doctrine of harmonious construction so that theobjects of both the provisions get subserved in the process,without damaging or limiting one provision at the expense of theother. If, therefore, the expression “prosecution” in the firstproviso of Section 32A(1) refers to criminal proceedings properlyFso-called either through the medium of First Information Reportor complaint filed by an investigating authority or complaint andnot to quasi-criminal proceedings that are instituted underSections 138/141 of the Negotiable Instruments Act against thecorporate debtor, the object of Section 14(1) of the IBC getsGsubserved, as does the object of Section 32A, which does awaywith criminal prosecutions in all cases against the corporatedebtor, thus absolving the corporate debtor from the same aftera new management comes in. [Paras 33, 34][262-H; 263-A-H;264-A-D]

Manish Kumar v. Union of India, 2021 SCC OnLineSC 30; CIT v. Ishwarlal Bhagwandas, [1966] 1 SCR190 – relied on.

Report of the Insolvency Law Committee of February,2020 – referred to.

5. Section 138 contains within it the ingredients of theoffence made out. The deeming provision is important in that thelegislature is cognizant of the fact that what is otherwise civilliability is now also deemed to be an offence, since this liability ismade punishable by law. The transaction spoken of is commercialtransaction between two parties which involves payment of moneyfor debt or liability. The explanation to Section 138 makes itclear that such debt or other liability means legally enforceabledebt or other liability. Thus, debt or other liability barred by thelaw of limitation would be outside the scope of Section 138. This,coupled with fine that may extend to twice the amount of thecheque that is payable as compensation to the aggrieved party tocover both the amount of the cheque and the interest and coststhereupon, would show that it is really hybrid provision to enforcepayment under bounced cheque if it is otherwise enforceable incivil law. Further, though the ingredients of the offence arecontained in the first part of Section 138 when the cheque isreturned by the bank unpaid for the reasons given in the Section,the proviso gives an opportunity to the drawer of the cheque,stating that the drawer must fail to make payment of the amountwithin 15 days of the receipt of notice, again making it clearthat the real object of the provision is not to penalise thewrongdoer for an offence that is already made out, but tocompensate the victim. Likewise, under Section 139, apresumption is raised that the holder of cheque received thecheque for the discharge, in whole or in part, of any debt or otherliability. To rebut this presumption, facts must be adduced which,on preponderance of probability (not beyond reasonable doubtas in the case of criminal offences), must then be proved. Section140 is also important, in that it shall not be defence in aprosecution for an offence under Section 138 that the drawer hadno reason to believe when he issued the cheque that the cheque

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Amay be dishonoured on presentment for the reasons stated inthat Section, thus making it clear that strict liability will attach,mens rea being no ingredient of the offence. Section 141 thenmakes Directors and other persons statutorily liable, providedthe ingredients of the section are met. Interestingly, for thepurposes of this Section, explanation (a) defines “company” asBmeaning any body corporate and includes firm or otherassociation of individuals. It has already been seen how thelanguage of Sections 96 and 101 would include Section 138/141proceeding against firm so that the moratorium stated thereinwould apply to such proceedings. If the arguments were to beCaccepted, under the same Section, namely, Section 141, twodifferent results would ensue – so far as bodies corporate, whichinclude limited liability partnerships, are concerned, themoratorium provision contained in Section 14 of the IBC wouldnot apply, but so far as partnership firm is concerned, beingcovered by Sections 96 and 101 of the IBC, Section 138/141Dproceeding would be stopped in its tracks by virtue of themoratorium imposed by these Sections. Thus, under Section141(1), whereas Section 138 proceeding against corporatebody would continue after initiation of the corporate insolvencyresolution process, yet, the same proceeding against firm, beingEinterdicted by Sections 96 and 101, would not so continue.Inelegant drafting alone cannot lead to such startling results, theobject of Sections 14 and 96 and 101 being the same namely, tosee that during the insolvency resolution process for corporatepersons/individuals and firms, the corporate body/firm/individualshould be given breathing space to recuperate for successfulFresolution of its debts – in the case of corporate debtor, througha new management coming in; and in the case of individuals andfirms, through resolution plans which are accepted by committeeof creditors, by which the debtor is given breathing space in whichto pay back his/its debts, which would result in creditors gettingGmore than they would in bankruptcy proceeding against anindividual or firm. cursory reading of Section 142 will againmake it clear that the procedure under the CrPC has beendeparted from. First and foremost, no court is to take cognizanceof an offence punishable under Section 138 except on complaint

made in writing by the payee or the holder in due course of thecheque – the victim. Further, the language of Section 142(1) (b)would again show the hybrid nature of these provisions inasmuchas complaint must be made within one month of the date onwhich the “cause of action” under clause (c) of the proviso toSection 138 arises. The expression “cause of action” is aforeigner to criminal jurisprudence, and would apply only in civilcases to recover money. Chapter XIII of the CrPC, consisting ofSections 177 to 189, is chapter dealing with the jurisdiction ofthe criminal courts in inquiries and trials. When the jurisdictionof criminal court is spoken of by these Sections, the expression“cause of action” is conspicuous by its absence. By anAmendment Act of 2002, various other sections were added tothis Chapter. Thus, under Section 143, it is lawful for Magistrateto pass sentence of imprisonment for term not exceeding oneyear and fine exceeding INR 5,000/- summarily. This provisionis again an important pointer to the fact that the payment ofcompensation is at the heart of the provision in that fineexceeding INR 5000/-, the sky being the limit, can be imposedby way of summary trial which, after application of Section 357of the CrPC, results in compensating the victim up to twice theamount of the bounced cheque. Under Section 144, the mode ofservice of summons is done as in civil cases, eschewing the modecontained in Sections 62 to 64 of the CrPC. Likewise, underSection 145, evidence is to be given by the complainant onaffidavit, as it is given in civil proceedings, notwithstandinganything contained in the CrPC. Most importantly, by Section147, offences under this Act are compoundable without anyintervention of the court, as is required by Section 320(2) of theCrPC. By another amendment made in 2018, the hybrid natureof these provisions gets further tilt towards civil proceeding,by the power to direct interim compensation under Sections 143Aand 148. civil proceeding is not necessarily proceeding whichbegins with the filing of suit and culminates in execution of adecree. It would include revenue proceeding as well as writpetition filed under Article 226 of the Constitution, if the reliefstherein are to enforce rights of civil nature. Interestingly,criminal proceedings are stated to be proceedings in which the

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Alarger interest of the State is concerned. Given these tests, it isclear that Section 138 proceeding can be said to be “civilsheep” in “criminal wolf’s” clothing, as it is the interest of thevictim that is sought to be protected, the larger interest of theState being subsumed in the victim alone moving court in chequebouncing cases. The gravamen of proceeding under SectionB138, though couched in language making the act complained ofan offence, is really in order to get back through summaryproceeding, the amount contained in the dishonoured chequetogether with interest and costs, expeditiously and cheaply. It isthe victim alone who can file the complaint which ordinarilyCculminates in the payment of fine as compensation which mayextend to twice the amount of the cheque which would includethe amount of the cheque and the interest and costs thereupon.A quasi-criminal proceeding that is contained in Chapter XVII ofthe Negotiable Instruments Act would, given the object andcontext of Section 14 of the IBC, amount to “proceeding” withinDthe meaning of Section 14(1)(a), the moratorium thereforeattaching to such proceeding. [Paras 36-38, 40-43 and 53][265-D-H; 266-A-H; 267-A; 268-A-H; 272-E-G; 288-F-H]Goaplast (P) Ltd. v. Chico Ursula D’Souza, (2003) 3SCC 232 : [2003] 2 SCR 712; Vinay Devanna NayakEv. Ryot Sewa Sahakari Bank Ltd., (2008) 2 SCC 305 :[2007] 12 SCR 1134; Damodar S. Prabhu v. SayedBabalal H., (2010) 5 SCC 663 : [2010] 5 SCR 678;JIK Industries Ltd. v. Amarlal V. Jumani, (2012) 3 SCC255 : [2012] 3 SCR 114; Kaushalya Devi Massand v.FRoopkishore Khore, (2011) 4 SCC 593 : [2011] 3 SCR879; R. Vijayan v. Baby, (2012) 1 SCC 260 : [2011] 14SCR 712; Dashrath Rupsingh Rathod v. State ofMaharashtra, (2014) 9 SCC 129 : [2014] 11 SCR 921;Lafarge Aggregates & Concrete India (P) Ltd. v.Sukarsh Azad, (2014) 13 SCC 779 : [2013] 11 SCRG74; Meters and Instruments (P) Ltd. v. Kanchan Mehta,(2018) 1 SCC 560 : [2017] 10 SCR 66; M. Abbas Hajiv. T.N. Channakeshava, (2019) 9 SCC 606; H.N.Jagadeesh v. R. Rajeshwari, (2019) 16 SCC 730 –relied on.

6. There are many instances of acts which are punishableby imprisonment or fine or both which have been described asquasi-criminal. Though there may not be any watertight distinctionbetween civil and criminal contempt, yet, an analysis of theaforesaid authorities would make it clear that civil contempt isessentially an action which is moved by the party in whose interestan order was made with view to enforce its personal right, wherecontumacious disregard for such order results in punishment ofthe offender in public interest, whereas criminal contempt is, inessence, proceeding which relates to the public interest inseeing that the administration of justice remains unpolluted. Whatis of importance is to note that even in cases of civil contempt,fine or imprisonment or both may be imposed. The mere factthat punishments that are awardable relate to Section 53 of theIndian Penal Code would not, therefore, render civil contemptproceeding criminal proceeding. There is great deal of wisdomin the finding of the Sanyal Committee Report that the questionwhether contempt is civil or criminal is not to be judged withreference to the penalty which may be inflicted but with referenceto the cause for which the penalty has been inflicted. Clearly,therefore, given the hybrid nature of civil contempt proceeding,described as “quasi-criminal” by several judgments of this Court,there is nothing wrong with the same appellation “quasi-criminal”being applied to Section 138 proceeding. [Paras 63, 64][302-A-E]

Abhilash Vinodkumar Jain v. Cox & Kings (India) Ltd.,(1995) 3 SCC 732 : [1995] 2 SCR 873; Niaz Mohd. v.State of Haryana, (1994) 6 SCC 332 : [1994] 3 Suppl.SCR 720; T.N. Godavarman Thirumulpad (102) v. AshokKhot, (2006) 5 SCC 1 : [2006] 2 Suppl. SCR 215;Sahdeo v. State of U.P., (2010) 3 SCC 705 : [2010] 2SCR 1086; Maninderjit Singh Bitta v. Union of India,(2012) 1 SCC 273; Kanwar Singh Saini v. High Courtof Delhi, (2012) 4 SCC 307 : [2011] 15 SCR 972; T.C.Gupta v. Bimal Kumar Dutta, (2014) 14 SCC 446 :[2013] 12 SCR 170 – relied on.

Andre Paul Terence Ambard v. Attorney-General ofTrinidad and Tobago, AIR 1936 PC 141 – relied on.Sanyal Committee Report, 1963 - referred to.

A7. Under Section 33, IBC, the expression “no suit or otherlegal proceeding” occurs both in the enacting part as well as theproviso. Going by the proviso first, given the object that theliquidator now has to act on behalf of the company after winding-up order is passed, which includes filing of suits and other legalproceedings on behalf of the company, there is no reason as toBwhy Section 138/141 proceeding would be outside the ken ofthe proviso. On the contrary, as the liquidator alone nowrepresents the company, it is obvious that whatever the companycould do pre-liquidation is now vested in the liquidator, and inorder to realise monies that are due to the company, there is noCreason why the liquidator cannot institute Section 138/141proceeding against defaulting debtor of the company. Obviously,this language needs to be construed in the widest possible formas there cannot be any residuary category of “other legalproceedings” which can be instituted against some person otherthan the liquidator or by the liquidator who now alone representsDthe company. Given the object of this provision also, what hasbeen said earlier with regard to the non- application of thedoctrines of ejusdem generis and noscitur sociis would apply withall force to this provision as well. Several other provisions of theIBC may also be looked at in this context. In Section 25(2)(b)Eagain, given the fact that it is the resolution professional alonewho is now to preserve and protect the assets of the corporatedebtor in this interregnum, the resolution professional thereforeis to represent and act on behalf of the corporate debtor in alljudicial, quasi-judicial, or arbitration proceedings, which wouldinclude criminal proceedings. Here again, the word “judicial”Fcannot be construed noscitur sociis so as to cut down its plainmeaning, as otherwise, quasi-judicial or arbitration proceedings,not being criminal proceedings, the word “judicial” would thentake colour from them. This would stultify the object sought tobe achieved by Section 25 and result in an absurdity, namely, thatGduring this interregnum, nobody can represent or act on behalfof the corporate debtor in criminal proceedings. Likewise, if acorporate debtor cannot be taken over by new managementand has to be condemned to liquidation, the powers and duties ofthe liquidator, while representing the corporate debtor, are

enumerated in Section 35. Section 35(1)(k) specifically speaks of“prosecution” and “criminal proceedings”. Contrasted withSection 25(2)(b) and Section 33(5), an argument could be madethat the absence of the expressions “prosecution” and “criminalproceedings” in Section 25(2)(b) and Section 33(5) would showthat they were designedly eschewed by the legislature. Inelegantdrafting cannot lead to absurd results or results which stultifythe object of provision, given its otherwise wide language. Thus,nothing can be gained by juxtaposing various provisions againsteach other and arriving at conclusions that are plainly untenablein law. [Paras 65, 66][303-B-F; 304-A-D, F-G]

8. Section 34 proceeding is certainly proceeding againstthe corporate debtor which may result in an arbitral award againstthe corporate debtor being upheld, as result of which, monieswould then be payable by the corporate debtor. Section 34proceeding is proceeding against the corporate debtor in courtof law pertaining to challenge to an arbitral award and would becovered just as an appellate proceeding in decree from suitwould be covered. [Para 74][311-F-G]

Power Grid Corporation of India Ltd. v. Jyoti StructuresLtd., 2017 SCC OnLine Del 12189 : (2018) 246 DLT485 – held not correct law.

9. As far as the Directors/persons in management or controlof the corporate debtor are concerned, Section 138/141proceeding against them cannot be initiated or continued withoutthe corporate debtor. This is because Section 141 of theNegotiable Instruments Act speaks of persons in charge of, andresponsible to the company for the conduct of the business ofthe company, as well as the company. Since the corporate debtorwould be covered by the moratorium provision contained inSection 14 of the IBC, by which continuation of Section 138/141proceedings against the corporate debtor and initiation of Section138/141 proceedings against the said debtor during the corporateinsolvency resolution process are interdicted, what is stated inparagraphs 51 and 59 in Aneeta Hada would then becomeapplicable. The legal impediment contained in Section 14 of the

AIBC would make it impossible for such proceeding to continueor be instituted against the corporate debtor. Thus, for the periodof moratorium, since no Section 138/141 proceeding can continueor be initiated against the corporate debtor because of statutorybar, such proceedings can be initiated or continued against thepersons mentioned in Section 141(1) and (2) of the NegotiableBInstruments Act. This being the case, it is clear that themoratorium provision contained in Section 14 of the IBC wouldapply only to the corporate debtor, the natural persons mentionedin Section 141 continuing to be statutorily liable under ChapterXVII of the Negotiable Instruments Act. Section 138/141Cproceeding against corporate debtor is covered by Section14(1)(a) of the IBC. The civil appeal is allowed and the judgmentunder appeal is set aside. However, the Section 138/141proceedings in this case will continue both against the companyas well as the appellants for the reason given in paragraph 77 inthe present judgment as well as the fact that the insolvencyDresolution process does not involve new management takingover. The moratorium period has come to an end in this case.[Paras 77-79][315-B-C; 316-H; 317-A-F]

Aneeta Hada v. Godfather Travels & Tours (P) Ltd.,(2012) 5 SCC 661 : [2012] 5 SCR 503 – relied on.ETayal Cotton Pvt. Ltd. v. State of Maharashtra, 2018SCC OnLine Bom 2069 : (2019) 1 Mah LJ 312; M/sMBL Infrastructure Ltd. v. Manik Chand Somani, CRR3456/2018 – disapproved.

FBSI Ltd. v. Gift Holdings (P) Ltd., (2000) 2 SCC 737 :[2000] 1 SCR 815; Kusum Ingots & Alloys Ltd. v.Pennar Peterson Securities Ltd., (2000) 2 SCC 745 :[2000] 1 SCR 1120; S.V. Kandeakar v. V.M. Deshpande,(1972) 1 SCC 438 : [1972] 2 SCR 965; D.K. Kapur v.Reserve Bank of India, 2001 SCC OnLine Del 67 :G(2001) 58 DRJ 424 (DB); Indorama Synthetics (I) Ltd.v. State of Maharashtra, 2016 SCC OnLine Bom 2611: (2016) 4 Mah LJ 249; Sudarshan Chits (I) Ltd. v. O.Sukumaran Pillai, (1984) 4 SCC 657 : [1985] 1 SCR

P. MOHANRAJ & ORS. v. M/S. SHAH BROTHERS ISPAT PVT. LTD.

511; Central Bank of India v. Elmot Engineering Co.,(1994) 4 SCC 159 : [1994] 3 SCR 766; Inderjit C.Parekh v. V.K. Bhatt, (1974) 4 SCC 313 : [1974] 3SCR 50; Deputy Director, Directorate of EnforcementDelhi v. Axis Bank, 2019 SCC OnLine Del 7854 : (2019)259 DLT 500 – distinguished.

Rajneesh Aggarwal v. Amit J. Bhalla, (2001) 1 SCC631 : [2001] 1 SCR 54; Makwana Mangaldas Tulsidasv. State of Gujarat, (2020) 4 SCC 695 – referred to.

224SUPREME COURT REPORTS

[2021] 14 S.C.R.

FCIVIL APPELLATE JURISDICTION: Civil Appeal No. 10355of 2018.

From the Judgment and Order dated 31.07.2018 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal (AT)(Insolvency) No. 306 of 2018.

GWith

Criminal Appeal Nos. 239, 240, 241, 242, 243, 244, 245, 246, 247-48, 200, 199 of 2021, Writ Petition (Criminal) Nos. 330, 339, 982, 297,342 of 2020, Criminal Appeal Nos. 201-204, 215-230 of 2021, Writ Petition(Civil) Nos. 1417, 1439 of 2020, Writ Petition (Civil) No. 18 of 2021, writHPetition (Criminal) Nos. 9, 26 of 2021.

Aman Lekhi, ASG, Jayanth Muth Raj, S. Nagamuthu, GopalSankaranarayanan, Salman Khurshid, Brijender Chahar, Ms. SoniaMathur, Gurinder Singh Gill, Siddhartha Dave, Jay Savla, Sr. Advs., Mrs.Malavika Jayanth, C.K.Sasi, M.P. Parthiban, A.S. Vairawan, Mani Prabu,Santhosh, R. Sudhakaran, Rajat Bhardwaj, Mohd. Ainul Ansari, KripaShankar Prasad, Sunil Khatwani, Ms. Ekta Rani, Ms. Ritu Rajkumari,Shreyas Mehrotra, Rahul Gupta, Aman Preet Singh Rahi, A. VenayagamBalan, K. Krishna Kumar, Navjinder Sidhu, Amarjeet Singh, Vivek Jain,Ms. Suchitra Khumbhat, Nirvikar Singh, Nitin Sharma, Vaibhav ManuSrivastava, Mahesh Srivastava, Bhanu Pant, Apoorv Agarwal, Ms. RiyaThomas, Ms. Aadya Mishra, Vikas Chaudhary, Mrs. Somna Dhown,Anurag Kishore, Aman Vachher, Dhiraj, Ashutosh Dubey, AbhishekChauhan, Arun Nagar for M/s. Vachher And Agrud, Arvind Kumar Gupta,Ms. Henna George, Ms. Shivani, Ravindra Sadanand Chingale, Ms. PurtiGupta, Ms. Twisha Issar, Kartik Seth, Ms. Shriya Gilhotra for M/s.Chambers Of Kartik Seth, Ms. Swati Bhushan Sharma, Ms. NandiniGupta, Krishna Kumar, Dr. (Mrs.) Vipin Gupta, Amarjeet Singh, M/S.Chambers Of Kartik Seth, M/S. Vachher And Agrud, Mr. Jayant Mehta,Ms. Pritha Srikumar Iyer, Sulabh Rewari, Ms. Arunima Kedia, Ms. NehaMathen, Ms. Smriti Verma, Rishabh Sancheti, Prabu Ramasubramanian,Raghunatha Sethupathy, Karuppiah Meyyappan, Nishtha Girotra, K. PaariVendhan, Aravindh S., Ms. Chamundi Bose, Prabhakar V., Aditya Singh,Pankaj Yadav, Akshat Goel, Shubham Singh, Anubhav Singh, KaranChahar, Ms. Jyoti Chahar, Shashi Bhushan, Vinay Garg, Ms. AnishaUpadhyay, Sudhansu Palo, Sanjeev Singh, Prashant Tripathi, Ms.Sampanna Pani, Ms. Kajal Bhatia, Abhinav Agrawal, Sanjay S. Chhabra,Vijay Laxmi Mewara, Ms. Swati Tiwari, B. V. Balaram Das, Ms.Swarupama Chaturvedi, Ms. Praveena Gautam, Arvind Sharma, ArvindKumar Sharma, Nishanth Patil, Ms. Jaspreet Gogia, Karanvir Gogia,Ms. Shivangi Singhal, Gagan Gupta, Harmeet Singh Oberoi, SumitTeterrwal, Shankar Divate, Varun Bedi, Rameshwar Prasad Goyal, Ms.Suruchii Aggarwal, Ms. Shagun Matta, Deepak Bashta, Sanjiv Kakra,Bheem Sain Jain, Nagarkatti Kartik Uday, Narender Kumar Verma,Ved Prakash, Rajiv Ranjan Dwivedi, Vinod Kumar, Vivek Bhojrajika,Chirag M. Shroff, Ms. Abhilasha Bharti, Sushant Dogra, Ms. MuktiChaudhry, Ms. Deepanwita Priyanka, Aniruddha P. Mayee, Vikas Mehta,Saurobroto Dutta, Ms. Debolina Roy, Apoorv Khator, Sonal Jain, RishabhRaj Jain, Ishkaran Singh, Manoj Kumar Mishra, Sarvesh Singh Baghel,Ms. Shivranjani Ralawata, Ms. Namita Choudhary, Ms. Aashna Gill,

APratap Singh Gill, Ms. Bhupinder, Ms. Vandana Hooda, P.P. Nayak,Kuldeep Singh Kuchaliya, Ajay Pal, Pravin Kapur, Dhananjay Garg,Abhishek Garg, D.K. Garg, Chanakya Gupta, Jagdish Sethi, Ms. MonishaHanda, Ms. Soumya Gupta, Mohit D. Ram, Ms. Renuka Sahu, PrabhatChaurasia, Hemant Gupta, Aman Rastogi, Sanjay Rastogi, AbhishekAgarwal, Raveesh Thukral, Aditya Vashishth, Siddharth Sangal, Ms.BPritha Srikumar, Gagan Gupta, Dinesh Kumar Garg, Ms. SuruchiiAggarwal, Sarvesh Singh Baghel, Ajay Pal, Rajiv Ranjan Dwivedi, Advs.for the appearing parties.

The Judgment of the Court was delivered by

CR. F. NARIMAN, J.

1. Steel products were supplied by the respondent to one M/s.Diamond Engineering Pvt. Ltd. [“the company”] from 21.09.2015 to11.11.2016, as result of which INR 24,20,91,054/- was due and payableby the company. As many as 51 cheques were issued by the company inDfavour of the respondent towards amounts payable for supplies, all ofwhich were returned dishonoured for the reason “funds insufficient” on03.03.2017. As result, on 31.03.2017, the respondent issued statutorydemand notice under Section 138 read with Section 141 of the NegotiableInstruments Act, 1881, calling upon the company and its three Directors,the appellants no.1-3 herein, to pay this amount within 15 days of theEreceipt of the notice.

2. On 28.04.2017, two cheques for total amount of INR80,70,133/- presented by the respondent for encashment were returneddishonoured for the reason “funds insufficient”. second demand noticedated 05.05.2017 was therefore issued under the selfsame Sections byFthe respondent, calling upon the company and the appellants to pay thisamount within 15 days of the receipt of the notice.

3. Since no payment was forthcoming pursuant to the two statutorydemand notices, two criminal complaints, being Criminal ComplaintNo.SS/552/2017 and Criminal Complaint No. SS/690/2017 datedG17.05.2017 and 21.06.2017, respectively, were filed by the respondentagainst the company and the appellants under Section 138 read withSection 141 of the Negotiable Instruments Act before the AdditionalChief Metropolitan Magistrate [“ACMM”], Kurla, Mumbai. On12.02.2018, summons were issued by the ACMM to the company andthe appellants in both the criminal complaints.H

4. Meanwhile, as statutory notice under Section 8 of theInsolvency and Bankruptcy Code, 2016 [“IBC”] had been issued on21.03.2017 by the respondent to the company, and as an order dated06.06.2017 was passed by the Adjudicating Authority admitting theapplication under Section 9 of the IBC and directing commencement ofthe corporate insolvency resolution process with respect to the company,a moratorium in terms of Section 14 of the IBC was ordered. Pursuantthereto, on 24.05.2018, the Adjudicating Authority stayed furtherproceedings in the two criminal complaints pending before the ACMM.In an appeal filed to the National Company Law Appellate Tribunal[“NCLAT”], the NCLAT set aside this order, holding that Section 138,being criminal law provision, cannot be held to be “proceeding” withinthe meaning of Section 14 of the IBC. In an appeal filed before thisCourt, on 26.10.2018, this Court ordered stay of further proceedings inthe two complaints pending before the learned ACMM. On 30.09.2019,since resolution plan submitted by the promoters of the company hadbeen approved by the committee of creditors, the Adjudicating Authorityapproved such plan as result of which, the moratorium order dated06.06.2017 ceased to have effect. It may only be added that at present,an application for withdrawal of approval of this resolution plan has beenfiled by the financial creditors of the company before the AdjudicatingAuthority. Equally, an application to extend time for implementation ofthis plan has been filed by the resolution applicant sometime in October2020 before the Adjudicating Authority. Both these applications haveyet to be decided by the Adjudicating Authority, the next date of hearingbefore such Authority being 08.02.2021.

5. The important question that arises in this appeal is whether theinstitution or continuation of proceeding under Section 138/141 of theNegotiable Instruments Act can be said to be covered by the moratoriumprovision, namely, Section 14 of the IBC.

6. Shri Jayanth Muth Raj, learned Senior Advocate appearing onbehalf of the appellants, has painstakingly taken us through variousprovisions of the IBC and has argued that the object of Section 14 beingthat the assets of the corporate debtor be preserved during the corporateinsolvency resolution process, it would be most incongruous to hold thata Section 138 proceeding, which, although criminal proceeding, is inessence to recover the amount of the bounced cheque, be kept out ofthe word “proceedings” contained in Section 14(1)(a) of the IBC.

AAccording to the learned Senior Advocate, given the object of Section14, there is no reason to curtail the meaning of the expression“proceedings”, which would therefore include all proceedings againstthe corporate debtor, civil or criminal, which would result in “execution”of any judgment for payment of compensation. He emphasised the factthat Section 14(1)(a) was extremely wide and ought not to be cut downBby judicial interpretation given the expression “any” occurring twice inSection 14(1)(a), thus emphasising that so long as there is judgment byany court of law (which even extends to an order by an authority) whichresults in coercive steps being taken against the assets of the corporatedebtor, all such proceedings are necessarily subsumed within the meaningCof Section 14(1)(a). He also referred to the width of Section 14(1)(b)and the language of Section 14(1)(b) and therefore argued that giventhe object of Section 14, no rule of construction, be it ejusdem generisor noscitur sociis can be used to cut down the plain meaning of thewords used in Section 14(1)(a). He cited number of judgments in supportof this proposition. He also argued that in any event, even if criminalDproceedings properly so-called are to be excluded from Section 14(1)(a),a Section 138 proceeding being quasi-criminal in nature, whose dominantobject is compensation being payable to the person in whose favour acheque is made, which has bounced, the punitive aspect of Section 138being only to act as an interrorem proceeding to achieve this result, it isEclear that in any event, hybrid proceeding partaking of this naturewould certainly be covered. He cited number of judgments in order tobuttress this proposition as well.

7. Shri Jayant Mehta, learned Advocate appearing on behalf ofthe respondent, rebutted each of these submissions with erudition andFgrace. He referred to the Report of the Insolvency Law Committee ofFebruary 2020 to drive home his point that the object of Section 14 beinga limited one, criminal proceeding could not possibly be included withinit. He further went on to juxtapose the moratorium provisions whichwould apply in the case of individuals and firms in Sections 85, 96, and101 of the IBC, emphasising that the language of these provisions beingGwider would, by way of contrast, include Section 138 proceeding sofar as individuals and firms are concerned, which has been expresslyeschewed so far as Section 14’s applicability to corporate debtors isconcerned. He relied upon the ejusdem generis/noscitur sociis rulesof construction that had, in fact, been applied to Section 14(1)(a) by theHBombay High Court and the Calcutta High Court to press home hispoint that since the expression “proceedings” takes its colour from theprevious expression “suits”, such proceedings must necessarily be civilin nature. He cited judgments which distinguish between civil and criminalproceedings and went on to argue that Section 138 of the NegotiableInstruments Act is criminal proceeding whose object may be two fold,the primary object being to make what was once civil wrong punishableby jail sentence and/or fine. He relied heavily upon judgments whichconstrued like expressions contained in Section 22(1) of the Sick IndustrialCompanies Act, 1985 [“SICA”], and Section 446(2) of the CompaniesAct, 1956. He also was at pains to point out from several judgments thatthe Delhi High Court had not applied Section 14 of the IBC to stayproceedings under Section 34 of the Arbitration and Conciliation Act,1996; the Bombay High Court had not applied Section 14 of the IBC tostay prosecution under the Employees’ Provident Funds Act, 1952; andthat the Delhi High Court had not stayed proceedings covered by thePrevention of Money-Laundering Act, 2002, stating that criminalproceedings were not the subject matter of Section 14 of the IBC. Hethus supported the judgment under appeal, stating that the consistentview of the High Courts has been that Section 138, being criminal lawprovision, could not possibly be said to be covered by Section 14 of theIBC. He also relied upon the provision contained in Section 33(5) of theIBC to argue that when liquidation order is passed, no suit or otherlegal proceeding can be instituted by or against corporate debtor, similarto what is contained in Section 446 of the Companies Act, 1956, and ifthose decisions are seen, then the expression “or other legal proceeding”obviously cannot include criminal proceedings. On the other hand, in anycase, the expression “or other legal proceeding” should be contrastedwith the word “proceedings” in Section 14(1)(a) of the IBC, which cannotpossibly include criminal proceeding, given its object. Lastly, he alsorelied upon Section 32A of the IBC, which was introduced by theInsolvency and Bankruptcy Code (Amendment) Act, 2020 w.e.f.28.12.2019, and emphasised the fact that the liability of corporate debtorfor an offence committed prior to the commencement of the corporateinsolvency resolution process shall cease in certain circumstances. Thisprovision would have been wholly unnecessary if Section 14(1)(a) wereto cover criminal offences as well, as they would cease for the period ofmoratorium. Thus, he argued that this Section throws considerable lighton the fact that criminal prosecutions are outside the ken of the expression“proceedings” contained in Section 14(1)(a) of the IBC.

DEF

A8. Shri Aman Lekhi, learned Additional Solicitor General, appearingon behalf of the Union of India in W.P. (Crl.) No. 297/2020, hascomprehensively taken us through Chapter XVII of the NegotiableInstruments Act to argue that plain reading of the said Chapter wouldreveal that the offence under Section 138 is purely criminal offencewhich results in imposition of jail sentence or fine or both, beingBpunishments exclusively awardable under Section 53 of the Indian PenalCode, 1860 only in criminal proceeding, and hence, does not fall within“proceedings” contemplated by Section 14 of the IBC. He further statesthat since compounding under criminal law can only take place at theinstance of the complainant/injured party, subordinate criminal courtChas no inherent power to terminate proceedings under Section 138/141upon “payment of compensation to the satisfaction of the court”. Hethen relied upon the rule of noscitur sociis to state that since theexpression “proceedings” contained in Section 14(1)(a) of the IBC ispreceded by the expression “suits” and followed by the expression“execution”, it has to be read in sense analogous to civil proceedingsDdealing with private rights of action as contrasted with criminalproceedings which deal with public wrongs. According to the learnedAdditional Solicitor General, the intent manifest in Section 14 of the IBCis reinforced by the introduction of Section 32A to the IBC in that if theintent of Section 14 were to prohibit initiation or continuation of criminalEproceedings, the legislature would not have contemplated the introductionof Section 32A by way of amendment. He further states that if theexpression “proceedings” contained in Section 14 were to be construedso as to include criminal proceedings, it would render the first proviso toSection 32, which deals with institution of prosecutionagainst corporatedebtor duringthe corporate insolvency resolution process, and the secondFproviso, which indicates pendency of criminal prosecution against thosein charge of and responsible for the conduct of the corporate debtor,otiose. He relied on the judgment in Aneeta Hada v. Godfather Travels& Tours (P) Ltd., (2012) 5 SCC 661 [“Aneeta Hada”] to buttress hissubmission that criminal liability can fall on Directors/persons in chargeGof and responsible for the conduct of the corporate debtor even wherethe corporate debtor may not be proceeded against by virtue of Section14 or Section 32A. He lastly submits that Sections 81 and 101 of theIBC, in speaking of moratorium in context of “any debt” also lendsupport to his contention that moratorium under the IBC only applies tocivil proceedings within the realm of private law, and that since SectionH

138 proceedings are not proceedings for the recovery of debt, theycannot fall within the moratorium provisions set out by Sections 14 or 81or 101.

INTERPRETATION OF SECTION 14 OF THE IBC

9. Having heard learned counsel, it is important at this stage to setout Section 14 of the IBC, which reads as follows:

“14. Moratorium.—(1) Subject to provisions of sub-sections (2)and (3), on the insolvency commencement date, the AdjudicatingAuthority shall by order declare moratorium for prohibiting all ofthe following, namely—

(a)the institution of suits or continuation of pending suitsor proceedings against the corporate debtor includingexecution of any judgment, decree or order in anycourt of law, tribunal, arbitration panel or otherauthority;

(b)transferring, encumbering, alienating or disposing ofby the corporate debtor any of its assets or any legalright or beneficial interest therein;

(c)any action to foreclose, recover or enforce anysecurity interest created by the corporate debtor inErespect of its property including any action under theSecuritisation and Reconstruction of Financial Assetsand Enforcement of Security Interest Act, 2002 (54of 2002);

(d)the recovery of any property by an owner or lessorwhere such property is occupied by or in thepossession of the corporate debtor.

Explanation.—For the purposes of this sub-section, it ishereby clarified that notwithstanding anything contained in anyother law for the time being in force, license, permit, registration,quota, concession, clearances or similar grant or right given bythe Central Government, State Government, local authority, sectoralregulator or any other authority constituted under any other lawfor the time being in force, shall not be suspended or terminatedon the grounds of insolvency, subject to the condition that there isno default in payment of current dues arising for the use or

Acontinuation of the license, permit, registration, quota, concession,clearances or similar grant or right during the moratorium period.

(2) The supply of essential goods or services to the corporatedebtor as may be specified shall not be terminated or suspendedor interrupted during moratorium period.

(2-A) Where the interim resolution professional or resolutionprofessional, as the case may be, considers the supply of goods orservices critical to protect and preserve the value of the corporatedebtor and manage the operations of such corporate debtor as agoing concern, then the supply of such goods or services shall notbe terminated, suspended or interrupted during the period ofmoratorium, except where such corporate debtor has not paiddues arising from such supply during the moratorium period or insuch circumstances as may be specified.

(3) The provisions of sub-section (1) shall not apply to—

(a)such transactions, agreements or other arrangementsas may be notified by the Central Government inconsultation with any financial sector regulator or anyother authority;

(b)a surety in contract of guarantee to corporatedebtor.

(4) The order of moratorium shall have effect from the date ofsuch order till the completion of the corporate insolvency resolutionprocess:

Provided that where at any time during the corporate insolvencyFresolution process period, if the Adjudicating Authority approvesthe resolution plan under sub-section (1) of Section 31 or passesan order for liquidation of corporate debtor under Section 33, themoratorium shall cease to have effect from the date of suchapproval or liquidation order, as the case may be.”

10. cursory look at Section 14(1) makes it clear that subject tothe exceptions contained in sub-sections (2) and (3), on the insolvencycommencement date, the Adjudicating Authority shall mandatorily, byorder, declare moratorium to prohibit what follows in clauses (a) to(d). Importantly, under sub-section (4), this order of moratorium doesHnot continue indefinitely, but has effect only from the date of the order

declaring moratorium till the completion of the corporate insolvencyresolution process which is time bound, either culminating in the order ofthe Adjudicating Authority approving resolution plan or in liquidation.

11. The two exceptions to Section 14(1) are contained in sub-sections (2) and (3) of Section 14. Under sub-section (2), the supply ofessential goods or services to the corporate debtor during this periodcannot be terminated or suspended or even interrupted, as otherwise thecorporate debtor would be brought to its knees and would not able tofunction as going concern during this period. The exception created insub-section (3)(a) is important as it refers to “transactions” as may benotified by the Central Government in consultation with experts in finance.The expression “financial sector regulator” is defined by Section 3(18)as follows:

“3. Definitions.—In this Code, unless the context otherwiserequires,—

xxx xxx xxx

(18) “financial sector regulator” means an authority or bodyconstituted under any law for the time being in force to regulateservices or transactions of financial sector and includes theReserve Bank of India, the Securities and Exchange Board ofIndia, the Insurance Regulatory and Development Authority ofIndia, the Pension Fund Regulatory Authority and such otherregulatory authorities as may be notified by the CentralGovernment;

xxx xxx xxx”

12. Thus, the Central Government, in consultation with experts,may state that the moratorium provision will not apply to such transactionsas may be notified. This is of some importance as Section 14(1)(a) doesnot indicate as to what the proceedings contained therein apply to. Sub-section 3(a) provides the answer – that such “proceedings” relate to“transactions” entered into by the corporate debtor pre imposition of themoratorium. Section 3(33) defines “transaction” as follows:

“3. Definitions.—In this Code, unless the context otherwiserequires,—

xxx xxx xxx

(33) “transaction” includes an agreement or arrangement in writingfor the transfer of assets, or funds, goods or services, from or tothe corporate debtor;

xxx xxx xxx”

B13. This definition being an inclusive one is extremely wide innature and would include transaction evidencing debt or liability. Thisis made clear by Section 96(3) and Section 101(3) which contain thesame language as Section 14(3)(a), these Sections speaking of ‘debts’of the individual or firm. Equally important is Section 14(3)(b), by whicha surety in contract of guarantee of debt owed by corporate debtorCcannot avail of the benefit of moratorium as result of which creditorcan enforce guarantee, though not being able to enforce the principaldebt during the period of moratorium – see State Bank of India v. V.Ramakrishnan, (2018) 17 SCC 394(at paragraph 20) [“V.Ramakrishnan”].

14. We now come to the language of Section 14(1)(a). It will benoticed that the expression “or” occurs twice in the first part of Section14(1)(a) – first, between the expressions “institution of suits” and“continuation of pending suits” and second, between the expressions“continuation of pending suits” and “proceedings against the corporateEdebtor…”. The sweep of the provision is very wide indeed as it includesinstitution, continuation, judgment and execution of suits andproceedings. It is important to note that an award of an arbitrationpanel or an order of an authority is also included. This being the case,it would be incongruous to hold that the expression “the institution ofsuits or continuation of pending suits” must be read disjunctively asFotherwise, the institution of arbitral proceedings and proceedings beforeauthorities cannot be subsumed within the expression institution of“suits” which are proceedings in civil courts instituted by plaint (seeSection 26 of the Code of Civil Procedure, 1908). Therefore, it is clearthat the expression “institution of suits or continuation of pending suits”Gis to be read as one category, and the disjunctive “or” before the word“proceedings” would make it clear that proceedings against thecorporate debtor would be separate category. What throws light onthe width of the expression “proceedings” is the expression “anyjudgment, decree or order” and “any court of law, tribunal, arbitrationpanel or other authority”. Since criminal proceedings under the Code ofH

Criminal Procedure, 1973 [“CrPC”] are conducted before the courtsmentioned in Section 6, CrPC, it is clear that Section 138 proceedingbeing conducted before Magistrate would certainly be proceeding ina court of law in respect of transaction which relates to debt owedby the corporate debtor. Let us now see as to whether the expression“proceedings” can be cut down to mean civil proceedings stricto sensuby the use of rules of interpretation such as ejusdem generis andnoscitur sociis.

APPLICATION OF THE NOSCITUR SOCIIS RULE OFINTERPRETATION

15. Shri Aman Lekhi, learned Additional Solicitor General, reliedupon the judgment in State of Assam v. Ranga Mahammad, (1967) 1SCR 454.The Court was concerned with the meaning of the expression“posting” which occurs in Article 233 of the Constitution, qua DistrictJudges in State. Applying the doctrine of noscitur sociis, this Courtheld that given the fact that the expression “posting” comes in between“appointment” and “promotion” of District Judges, it is clear that anarrower meaning has to be assigned to it, namely, that of assigningsomeone to post which would not include “transfer”. Quite apart fromthe positioning of the word “posting” in between “appointment” and“promotion”, from which it took its colour, even otherwise, Articles 234and 235 of the Constitution would make it clear that since “transfer” ofDistrict Judges is with the High Court and not with the State Government,quite obviously, the expression “posting” could not be used in its widersense – see pages 460 and 461. This judgment is an early application ofthe rule of noscitur sociis, given the position of wider word betweentwo narrow words, and more importantly, the reading of other alliedprovisions in the Constitution.

16. In Jagdish Chander Gupta v. Kajaria Traders (India) Ltd.,(1964) 8 SCR 50, five-Judge Bench of this Court had to decide as towhether the expression “or other proceeding” occurring in Section 69(3)of the Indian Partnership Act, 1932 would include proceeding to appointan arbitrator under Section 8(2) of the Arbitration Act, 1940. This Courtheld:

“It remains, however, to consider whether by reason of thefact that the words “other proceeding” stand opposed to the words“a claim of set-off” any limitation in their meaning was

CDEF

contemplated. It is on this aspect of the case that the learnedJudges have seriously differed. When in statute particular classesare mentioned by name and then are followed by general words,the general words are sometimes construed ejusdem generis i.e.limited to the same category or genus comprehended by theparticular words but it is not necessary that this rule must alwaysapply. The nature of the special words and the general wordsmust be considered before the rule is applied. In Allen v. Emersons[(1944) IKB 362] Asquith, J., gave interesting examples ofparticular words followed by general words where the principleof ejusdem generis might or might not apply. We think that thefollowing illustration will clear any difficulty. In the expression“books, pamphlets, newspapers and other documents” privateletters may not be held included if “other documents” be interpretedejusdem generis with what goes before. But in provision whichreads “newspapers or other document likely to convey secrets tothe enemy”, the words “other document” would include documentof any kind and would not take their colour from “newspapers”.It follows, therefore, that interpretation ejusdem generis or noscitura sociis need not always be made when words showing particularclasses are followed by general words. Before the general wordscan be so interpreted there must be genus constituted or acategory disclosed with reference to which the general wordscan and are intended to be restricted. Here the expression “claimof set-off” does not disclose category or genus. Set-offs areof two kinds — legal and equitable — and both are alreadycomprehended and it is difficult to think of any right “arising froma contract” which is of the same nature as claim of set-off andcan be raised by defendant in suit. Mr B.C. Misra, whom weinvited to give us examples, admitted frankly that it was impossiblefor him to think of any proceeding of the nature of claim of set-off other than claim of set-off which could be raised in suitsuch as is described in the second sub-section. In respect of thefirst sub-section he could give only two examples. They are (i) aclaim by pledger of goods-with an unregistered firm whose goodare attached and who has to make an objection under Order 21Rule 58 of the Code of Civil Procedure and (ii) proving debtbefore liquidator. The latter is not raised as defence and cannotbelong to the same genus as “claim of set-off”. The former can

P. MOHANRAJ & ORS. v. M/S. SHAH BROTHERS ISPAT PVT. LTD.

[R. F. NARIMAN, J.]

be made to fit but by stretch of some considerable imagination.It is difficult for us to accept that the legislature was thinking ofsuch far-fetched things when it spoke of “other proceeding”ejusdem generis with claim of set-off.”

(at pages 56-57)

“In our judgment, the words “other proceeding” in sub-section (3) must receive their full meaning untrammelled by thewords “a claim of set-off”. The latter words neither intend norcan be construed to cut down the generality of the words “otherproceeding”. The sub-section provides for the application of theprovisions of sub-sections (1) and (2) to claims of set-off and alsoto other proceedings of any kind which can properly be said to befor enforcement of any right arising from contract except thoseexpressly mentioned as exceptions in sub-section (3) and sub-section (4).”

17. Likewise, in Rajasthan State Electricity Board v. MohanLal, (1967) 3 SCR 377, this Court had to decide whether the expression“other authorities” in Article 12 of the Constitution of India took its colourfrom the preceding expressions used in the said Article, making suchauthorities only those authorities who exercised governmental power.This was emphatically turned down by Constitution Bench of this Court,stating:

“In our opinion, the High Courts fell into an error in applyingthe principle of ejusdem generis when interpreting the expression“other authorities” in Article 12 of the Constitution, as theyoverlooked the basic principle of interpretation that, to invoke theapplication of ejusdem generis rule, there must be distinct genusor category running through the bodies already named. Craies on,Statute Law summarises the principle as follows:

“The ejusdem generis rule is one to be applied with cautionand not pushed too far…. To invoke the application of theejusdem generis rule there must be distinct genus or category.The specific words must apply not to different objects of awidely differing character but to something which can be calleda class or kind of objects. Where this is lacking, the rule cannot

apply, but the mention of single species does not constitute agenus [Craies on Statute Law, 6th Edn, p 181].”

Maxwell in his book on ‘Interpretation of Statutes’explained the principle by saying: “But the general word whichfollows particular and specific words of the same nature as itselftakes its meaning from them, and is presumed to be restricted tothe same genus as those words …. Unless there is genus orcategory, there is no room for the application of the ejusdemgeneris doctrine [Maxwell on Interpretation of Statutes, 11thEdn pp. 326, 327]”. In United Towns Electric Co., Ltd. v.Attorney-General for Newfoundland [(1939) I AER 423] , thePrivy Council held that, in their opinion, there is no room for theapplication of the principle of ejusdem generis in the absence ofany mention of genus, since the mention of single species —for example, water rates — does not constitute genus. In Article12 of the Constitution, the bodies specifically named are theExecutive Governments of the Union and the States, theLegislatures of the Union and the States, and local authorities.We are unable to find any common genus running through thesenamed bodies, nor can these bodies be placed in one singlecategory on any rational basis. The doctrine of ejusdem generiscould not, therefore, be, applied to the interpretation of theexpression “other authorities” in this article.

The meaning of the word “authority” given in Webster’sThird New International Dictionary, which can be applicable,is public administrative agency or corporation having quasi-governmental powers and authorised to administer revenue-producing public enterprise. This dictionary meaning of the word“authority” is clearly wide enough to include all bodies created bya statute on which powers are conferred to carry out governmentalor quasi-governmental functions. The expression “otherauthorities” is wide enough to include within it every authoritycreated by statute and functioning within the territory of India,or under the control of the Government of India; and we do notsee any reason to narrow down this meaning in the context inwhich the words “other authorities” are used in Article 12 of theConstitution.”

(at pages 384-385)

18. In CBI v. Braj Bhushan Prasad, (2001) 9 SCC 432, thisCourt was asked to construe Section 89 of the Bihar Reorganisation Actwith reference to noscitur sociis. In turning this down, this Courtheld:

“26. We pointed out the above different shades of meanings inorder to determine as to which among them has to be chosen forinterpreting the said word falling in Section 89 of the Act. Thedoctrine of noscitur sociis (meaning of word should be knownfrom its accompanying or associating words) has much relevancein understanding the import of words in statutory provision. Thesaid doctrine has been resorted to with advantage by this Court ina number of cases vide Bangalore Water Supply & SewerageBoard v. A. Rajappa [(1978) 2 SCC 213 : 1978 SCC (L&S)215], Rohit Pulp and Paper Mills Ltd. v. CCE [(1990) 3 SCC447], Oswal Agro Mills Ltd. v. CCE [1993 Supp (3) SCC 716],K. Bhagirathi G. Shenoy v. K.P. Ballakuraya [(1999) 4 SCC135] and Lokmat Newspapers (P) Ltd. v. Shankarprasad [(1999)6 SCC 275 : 1999 SCC (L&S) 1090].

27. If so, we have to gauge the implication of the words “proceedingrelating exclusively to the territory” from the surrounding context.Section 89 of the Act says that proceeding pending prior to theappointed day before “a court (other than the High Court), tribunal,authority or officer” shall stand transferred to the “correspondingcourt, tribunal, authority or officer” of Jharkhand State. veryuseful index is provided in the Section by defining the words“corresponding court, tribunal, authority or officer in the State ofJharkhand” as this: [Section 89(3)(b)(i)]

“The court, tribunal, authority or officer in which, or beforewhom, the proceeding would have laid if it had been institutedafter the appointed day;”

28. Look at the words “would have laid if it had been institutedafter the appointed day”. In considering the question as to wherethe proceeding relating to the 36 cases involved in these appealswould have laid, had they been instituted after the appointed day,we have absolutely no doubt that the meaning of the word“exclusively” should be understood as “substantially all or for thegreater part or principally”.

DEF

A29. We cannot overlook the main object of Section 89 of the Act.It must not be forgotten that transfer of criminal cases is not theonly subject covered by the Section. The provision seeks to allocatethe files or records relating to all proceedings, after the bifurcationif they were to be instituted after the appointed day. Anyinterpretation should be one which achieves that object and notBthat which might create confusion or perplexity or evenbewilderment to the officers of the respective States. In otherwords, the interpretation should be made with pragmatism, notpedantically or in stilted manner. For the purpose of criminalcases, we should bear in mind the subject-matter of the case toCbe transferred. When so considering, we have to take into accountfurther that all the 36 cases are primarily for the offences underthe PC Act and hence they are all triable before the Courts ofSpecial Judges. Hence, the present question can be determinedby reference to the provisions of the PC Act.”

D19. In Godfrey Phillips India Ltd. v. State of U.P., (2005) 2SCC 515, Constitution Bench of this Court had to construe the meaningof the expression “luxury” in Entry 62 of List 2 of the Seventh Scheduleto the Constitution of India. In this context, the rule of noscitur sociiswas applied by the Court, the Court also pointing out how court mustbe careful before blindly applying the principle, as follows:

“77. In the present context the general meaning of “luxury” hasbeen explained or clarified and must be understood in senseanalogous to that of the less general words such as entertainments,amusements, gambling and betting, which are clubbed with it. Thisprinciple of interpretation known as “noscitur sociis” hasFreceived approval in Rainbow Steels Ltd. v. CST [(1981) 2 SCC141 : 1981 SCC (Tax) 90] , SCC at p. 145 although doubted in itsindiscriminate application in State of Bombay v. Hospital MazdoorSabha [(1960) 2 SCR 866 : AIR 1960 SC 610] . In the latter casethis Court was required to construe Section 2(j) of the IndustrialGDisputes Act which read:

“2(j) ‘industry’ means any business, trade, undertaking,manufacture or calling of employers and includes any calling,service, employment, handicraft, or industrial occupation oravocation of workmen.”

78. It was found that the words in the definition were of verywide and definite import. It was suggested that these words shouldbe read in restricted sense having regard to the included itemson the principle of “noscitur sociis”. The suggestion wasrejected in the following language: (Hospital Mazdoor Sabhacase [(1960) 2 SCR 866 : AIR 1960 SC 610] , SCR p. 874)

“It must be borne in mind that noscitur sociis is merely arule of construction and it cannot prevail in cases where it isclear that the wider words have been deliberately used in orderto make the scope of the defined word correspondinglywider. It is only where the intention of the legislature inassociating wider words with words of narrowersignificance is doubtful, or otherwise not clear that thepresent rule of construction can be usefully applied. It canalso be applied where the meaning of the words of widerimport is doubtful; but, where the object of the legislature inusing wider words is clear and free of ambiguity, the rule ofconstruction in question cannot be pressed into service.” (AIRp. 614, para 9)

(emphasis in original)

79. We do not read this passage as excluding the application ofthe principle of noscitur sociis to the present case since it hasbeen amply demonstrated with reference to authority that themeaning of the word “luxury” in Entry 62 is doubtful and hasbeen defined and construed in different senses.

xxx xxx xxx

81. We are aware that the maxim of noscitur sociis may be atreacherous one unless the “societas” to which the “socii” belong,are known. The risk may be present when there is no other factorexcept contiguity to suggest the “societas”. But where there is,as here, term of wide denotation which is not free from ambiguity,the addition of the words such as “including” is sufficientlyindicative of the societas. As we have said, the word “includes”in the present context indicates commonality or shared featuresor attributes of the including word with the included.

xxx xxx xxx

83. Hence on an application of general principles of interpretation,we would hold that the word “luxuries” in Entry 62 of List IImeans the activity of enjoyment of or indulgence in that which iscostly or which is generally recognised as being beyond thenecessary requirements of an average member of society andnot articles of luxury.”

20. In Vikram Singh v. Union of India, (2015) 9 SCC 502, thisCourt was asked to construe the expression “government or any otherperson” contained in Section 364-A of the Indian Penal Code, 1860 withreference to ejusdem generis. This Court, in repelling the contention,went on to hold:

“26. We may before parting with this aspect of the matter alsodeal with the argument that the expression “any other person”appearing in Section 364-A IPC ought to be read ejusdem generiswith the expression preceding the said words. The argument needsnotice only to be rejected. The rule of ejusdem generis is rule ofconstruction and not rule of law. Courts have to be very carefulin applying the rule while interpreting statutory provisions. Havingsaid that the rule applies in situations where specific words forminga distinct genus class or category are followed by general words.The first stage of any forensic application of the rule, therefore,has to be to find out whether the preceding words constitute agenus class or category so that the general words that followthem can be given the same colour as the words preceding. Incases where it is not possible to find the genus in the use of thewords preceding the general words, the rule of ejusdem generiswill have no application.

27. In Siddeshwari Cotton Mills (P) Ltd. v. Union of India[(1989) 2 SCC 458 : 1989 SCC (Tax) 297] M.N. Venkatachaliah,J., as His Lordship then was, examined the rationale underlyingejusdem generis as rule of construction and observed: (SCC p.463, para 14)

“14. The principle underlying this approach to statutoryconstruction is that the subsequent general words were onlyintended to guard against some accidental omission in theobjects of the kind mentioned earlier and were not intended toextend to objects of wholly different kind. This is apresumption and operates unless there is some contrary

indication. But the preceding words or expressions of restrictedmeaning must be susceptible of the import that they representa class. If no class can be found, ejusdem generis rule is notattracted and such broad construction as the subsequent wordsmay admit will be favoured. As learned author puts it:

‘… if class can be found, but the specific wordsexhaust the class, then rejection of the rule may be favouredbecause its adoption would make the general wordsunnecessary; if, however, the specific words do not exhaustthe class, then adoption of the rule may be favoured becauseits rejection would make the specific words unnecessary.’[See: Construction of Statutes by E.A. Driedger p. 95 quotedby Francis Bennion in his Statutory Construction, pp. 829 and830.]”

28. Relying upon the observations made by Francis Bennion inhis Statutory Construction and English decision in Magnhild v.McIntyre Bros. & Co. [(1920) 3 KB 321] and those rendered bythis Court in Tribhuban Parkash Nayyar v. Union ofIndia [(1969) 3 SCC 99], U.P. SEB v. Hari Shankar Jain [(1978)4 SCC 16 : 1978 SCC (L&S) 481], His Lordship summed up thelegal principle in the following words: (Siddeshwari Cotton Millscase [(1989) 2 SCC 458 : 1989 SCC (Tax) 297], SCC p. 464,para 19)

“19. The preceding words in the statutory provision which,under this particular rule of construction, control and limit themeaning of the subsequent words must represent genus or afamily which admits of number of species or members. Ifthere is only one species it cannot supply the idea of genus.”

29. Applying the above to the case at hand, we find that Section364-A added to IPC made use of only two expressions viz.“Government” or “any other person”. Parliament did not usemultiple expressions in the provision constituting distinct genusclass or category. It used only one single expression viz.“Government” which does not constitute genus, even when itmay be specie. The situation, at hand, is somewhat similar towhat has been enunciated in Craies on Statute Law (7th Edn.) atpp. 181-82 in the following passage:

DEF

“… The modern tendency of the law, it was said [by Asquith, J.in Allen v. Emerson (1944 KB 362 : (1944) 1 All ER 344)], is‘to attenuate the application of the rule of ejusdem generis’. Toinvoke the application of the ejusdem generis rule there must bea distinct genus or category. The specific words must apply notto different objects of widely differing character but tosomething which can be called class or kind of objects. Wherethis is lacking, the rule cannot apply (Hood-Barrs v. IRC [(1946)2 All ER 768 (CA)]), but the mention of single species doesnot constitute genus. (Per Lord Thankerton in United TownsElectric Co. Ltd. v. Attorney General for Newfoundland[(1939) 1 All ER 423 (PC)].) ‘Unless you can find category’,said Farwell L.J. (Tillmanns and Co. v. S.S. Knutsford Ltd.[(1908) 2 KB 385 (CA)] ), ‘there is no room for the applicationof the ejusdem generis doctrine’, and where the words are clearlywide in their meaning they ought not to be qualified on the groundof their association with other words. For instance, where alocal Act required that ‘theatres and other places of publicentertainment’ should be licensed, the question arose whether a‘fun-fair’ for which no fee was charged for admission was withinthe Act. It was held to be so, and that the ejusdem generis ruledid not apply to confine the words ‘other places’ to places of thesame kind as theatres. So the insertion of such words as ‘orthings of whatever description’ would exclude the rule. (AttorneyGeneral v. Leicester Corpn. [(1910) 2 Ch 359 : (1908-10) AllER Rep Ext 1002] ) In National Assn. of Local Govt. Officersv. Bolton Corpn. [1943 AC 166 : (1942) 2 All ER 425 (HL)]Lord Simon L.C. referred to definition of ‘workman’ as anyperson who has entered into works under contract with anemployer whether the contract be by way of manual labour,clerical work ‘or otherwise’ and said: ‘The use of the words “orotherwise” does not bring into play the ejusdem generis principle:for “manual labour” and “clerical work” do not belong to singlelimited genus’ and Lord Wright in the same case said: ‘Theejusdem generis rule is often useful or convenient, but it ismerely rule of construction, not rule of law. In the presentcase it is entirely inapt. It presupposes “genus” but herethe only “genus” is contract with an employer’.

(emphasis supplied)

30. The above passage was quoted with approval by this Courtin Grasim Industries Ltd. v. Collector of Customs [(2002) 4 SCC297] holding that Note 1(a) of Chapter 84 relevant to that casewas clear and unambiguous. It did not speak of class, categoryor genus followed by general words making the rule of ejusdemgeneris inapplicable.”

xxx xxx xxx

“32. This would mean that the term “person” appearing in Section364-A IPC would include company or association or body ofpersons whether incorporated or not, apart from natural persons.The tenor of the provision, the context and the statutory definitionof the expression “person” all militate against any attempt torestrict the meaning of the term “person” to the “Government”or “foreign State” or “international inter-governmentalorganisations” only.”

21. In Pioneer Urban Land and Infrastructure Ltd. v. Unionof India, (2019) 8 SCC 416, this Court laid down the limits of theapplication of the rule of construction that is contained in the expression“noscitur sociis” as follows:

“84. It was then argued, relying on large number of judgmentsthat Section 5(8)(f) must be construed noscitur sociis with clauses(a) to (e) and (g) to (i), and so construed would only refer to loansor other financial transactions which would involve money at bothends. This, again, is not correct in view of the fact that Section5(8)(f) is clearly residuary “catch all” provision, taking within itmatters which are not subsumed within the other sub-clauses.Even otherwise, in CED v. Kantilal Trikamlal [CED v. KantilalTrikamlal, (1976) 4 SCC 643 : 1977 SCC (Tax) 90] , this Courthas held that when an expression is residuary one, ejusdemgeneris will not apply. It was thus held: (SCC p. 655, para 21)

“21. … We have also to stress the expression “other right” inthe explanation which is of the widest import and cannot beconstricted by reading it ejusdem generis with “debt”. “Otherright”, in the context, is expressly meant considerably to widenthe concept and therefore suggests somewhat contraryintention to the application of the ejusdem generis rule. Wemay derive instruction from Green’s construction of the identical

expression in the English Act. [Section 45(2)]. The learnedauthor writes:

‘A disclaimer is an extinguishment of right for thispurpose. Although in the event the person disclaiming neverhas any right in the property, he has the right to obtain it, thisinchoate right is “right” for the purposes of Section 45(2).The ejusdem generis rule does not apply to the words “a debtor other right” and the word “right” is word of the widestimport. Moreover, the expression “at the expense of thedeceased” is used in an ordinary and natural manner; and isapt to cover not only cases where the extinguishment involvesa loss to the deceased of benefit he already enjoyed, but alsothose where it prevents him from acquiring the benefit.’”

85. Also, in Subramanian Swamy v. Union of India[Subramanian Swamy v. Union of India, (2016) 7 SCC 221 :(2016) 3 SCC (Cri) 1], this Court held: (SCC pp. 291-93, paras70-74)

“70. The other aspect that is being highlighted in the contextof Article 19(2) is that defamation even if conceived of to includea criminal offence, it must have the potentiality to “incite tocause an offence”. To elaborate, the submission is the words“incite to cause an offence” should be read to give attributesand characteristics of criminality to the word “defamation”. Itmust have the potentiality to lead to breach of peace and publicorder. It has been urged that the intention of clause (2) ofArticle 19 is to include public law remedy in respect of agrievance that has collective impact but not as an actionableclaim under the common law by an individual and, therefore,the word “defamation” has to be understood in that context, asthe associate words are “incitement to an offence” would sowarrant. Mr Rao, learned Senior Counsel, astutely canvassedthat unless the word “defamation” is understood in this mannerapplying the principle of noscitur sociis, the cherished andnatural right of freedom of speech and expression which hasbeen recognised under Article 19(1)(a) would be absolutely atperil. Mr Narasimha, learned ASG would contend that the saidrule of construction would not be applicable to understand themeaning of the term “defamation”. Be it noted, while construingthe provision of Article 19(2), it is the duty of the Court to keepin view the exalted spirit, essential aspects, the value andphilosophy of the Constitution. There is no doubt that theprinciple of noscitur sociis can be taken recourse to in orderto understand and interpret the Constitution but while applyingthe principle, one has to keep in mind the contours and scopeof applicability of the said principle.

71. In State of Bombay v. Hospital Mazdoor Sabha [Stateof Bombay v. Hospital Mazdoor Sabha, AIR 1960 SC 610 :(1960) 2 SCR 866] , it has been held that it must be borne inmind that noscitur sociis is merely rule of constructionand it cannot prevail in cases where it is clear that wider wordshave been deliberately used in order to make the scope of thedefined word correspondingly wider. It is only where theintention of the legislature in associating wider words with wordsof narrower significance is doubtful, or otherwise not clearthat the said rule of construction can be usefully applied. It canalso be applied where the meaning of the words of wider importis doubtful; but, where the object of the legislature in usingwider words is clear and free of ambiguity, the rule ofconstruction in question cannot be pressed into service.

72. In Bank of India v. Vijay Transport [Bank of India v.Vijay Transport, 1988 Supp SCC 47] , the Court was dealingwith the contention that literal interpretation is not alwaysthe only interpretation of provision in statute and the courthas to look at the setting in which the words are used and thecircumstances in which the law came to be passed to decidewhether there is something implicit behind the words actuallyused which would control the literal meaning of the words used.For the said purpose, reliance was placed on R.L. Arora v.State of U.P. [R.L. Arora v. State of U.P., (1964) 6 SCR 784: AIR 1964 SC 1230] Dealing with the said aspect, the Courthas observed thus: (Vijay Transport case [Bank ofIndia v. Vijay Transport, 1988 Supp SCC 47], SCC p. 51,para 11)

‘11. … It may be that in interpreting the words of theprovision of statute, the setting in which such words areplaced may be taken into consideration, but that does not

mean that even though the words which are to beinterpreted convey clear meaning, still differentinterpretation or meaning should be given to them becauseof the setting. In other words, while the setting of thewords may sometimes be necessary for the interpretationof the words of the statute, but that has not been ruled bythis Court to be the only and the surest method ofinterpretation.’

73. The Constitution Bench, in Godfrey Phillips (India) Ltd.v. State of U.P. [Godfrey Phillips (India) Ltd. v. State ofU.P., (2005) 2 SCC 515], while expressing its opinion on theaforesaid rule of construction, opined: (SCC pp. 550 & 551,paras 81 & 83)

‘81. We are aware that the maxim of noscitur sociis maybe treacherous one unless the “societas” to which the“socii” belong, are known. The risk may be present whenthere is no other factor except contiguity to suggest the“societas”. But where there is, as here, term of widedenotation which is not free from ambiguity, the addition ofthe words such as “including” is sufficiently indicative ofthe societas. As we have said, the word “includes” in thepresent context indicates commonality or shared featuresor attributes of the including word with the included.

83. Hence on an application of general principles ofinterpretation, we would hold that the word “luxuries” inEntry 62 of List II means the activity of enjoyment of orindulgence in that which is costly or which is generallyrecognised as being beyond the necessary requirements ofan average member of society and not articles of luxury.’

74. At this juncture, we may note that in Ahmedabad PrivatePrimary Teachers’ Assn. v. Administrative Officer[Ahmedabad Private Primary Teachers’ Assn. v. AdministrativeOfficer, (2004) 1 SCC 755 : 2004 SCC (L&S) 306], it hasbeen stated that noscitur sociis is legitimate rule ofconstruction to construe the words in an Act of Parliamentwith reference to the words found in immediate connection

with them. In this regard, we may refer to passage fromJustice G.P. Singh, Principles of Statutory Interpretation[(13th Edn., 2012) 509.] where the learned author has referredto the lucid explanation given by Gajendragadkar, J. We thinkit appropriate to reproduce the passage:

‘It is rule wider than the rule of ejusdem generis; ratherthe latter rule is only an application of the former. The rulehas been lucidly explained by Gajendragadkar, J. in thefollowing words:

“This rule, according to Maxwell [Maxwell, Interpretationof Statutes (11th Edn., 1962) 321.] , means that when twoor more words which are susceptible of analogous meaningare coupled together, they are understood to be used in theircognate sense. They take as it were their colour from eachother, that is, the more general is restricted to senseanalogous to less general.”’

The learned author on further discussion has expressed theview that meaning of word is to be judged from thecompany it keeps i.e. reference to words found in immediateconnection with them. It applies when two or more wordsare susceptible of analogous meanings are coupled together,to be read and understood in their cognate sense. [G.P. Singh,Principles of Statutory Interpretation (8th Edn.) 379.]Noscitur sociis is merely rule of construction and cannotprevail where it is clear that wider and diverse etymologyis intentionally and deliberately used in the provision. It isonly when and where the intention of the legislature inassociating wider words with words of narrowestsignificance is doubtful or otherwise not clear, that the ruleof noscitur sociis is useful.”

86. It is clear from reading of these judgments that noscitur asociis being mere rule of construction cannot be applied in thepresent case as it is clear that wider words have been deliberatelyused in residuary provision, to make the scope of the definitionof “financial debt” subsume matters which are not found in theother sub-clauses of Section 5(8). This contention must also,therefore, be rejected.”

A22. reading of these judgments would show that ejusdem generisand noscitur sociis, being rules as to the construction of statutes,cannot be exalted to nullify the plain meaning of words used in statuteif they are designedly used in wide sense. Importantly, where aresiduary phrase is used as catch-all expression to take within its scopewhat may reasonably be comprehended by provision, regard beingBhad to its object and setting, noscitur sociis cannot be used to colouran otherwise wide expression so as to whittle it down and stultify theobject of statutory provision.

OBJECT OF SECTION 14 OF THE IBC

C23. This then brings us to the object sought to be achieved bySection 14 of the IBC. The Report of the Insolvency Law Committee ofFebruary, 2020 throws some light on Section 14. Paragraphs 8.2 and8.11 thereof read as follows:

“8.2. The moratorium under Section 14 is intended to keep theDcorporate debtor’s assets together during the insolvency resolutionprocess and facilitating orderly completion of the processesenvisaged during the insolvency resolution process and ensuringthat the company may continue as going concern while thecreditors take view on resolution of default. Keeping thecorporate debtor running as going concern during the CIRPEhelps in achieving resolution as going concern as well, which islikely to maximize value for all stakeholders. In other jurisdictionstoo, moratorium may be put in place on the advent of formalinsolvency proceedings, including liquidation and reorganizationproceedings. The UNCITRAL Guide notes that moratorium isFcritical during reorganization proceedings since it facilitates thecontinued operation of the business and allows the debtor abreathing space to organize its affairs, time for preparation andapproval of reorganization plan and for other steps such asshedding unprofitable activities and onerous contracts, whereappropriate.”G

xxx xxx xxx

“8.11. Further, the purpose of the moratorium is to keep the assetsof the debtor together for successful insolvency resolution, and itdoes not bar all actions, especially where countervailing publicpolicy concerns are involved. For instance, criminal proceedings

are not considered to be barred by the moratorium, since they donot constitute “money claims or recovery” proceedings. In thisregard, the Committee also noted that in some jurisdictions, lawsallow regulatory claims, such as those which are not designed tocollect money for the estate but to protect vital and urgent publicinterests, restraining activities causing environmental damage oractivities that are detrimental to public health and safety to becontinued during the moratorium period.”

It can be seen that paragraph 8.11 refers to the very judgmentunder appeal before us, and cannot therefore be said to throw any lighton the correct position in law which has only to be finally settled by thisCourt. However, paragraph 8.2 is important in that the object of amoratorium provision such as Section 14 is to see that there is no depletionof corporate debtor’s assets during the insolvency resolution processso that it can be kept running as going concern during this time, thusmaximising value for all stakeholders. The idea is that it facilitates thecontinued operation of the business of the corporate debtor to allow itbreathing space to organise its affairs so that new management mayultimately take over and bring the corporate debtor out of financialsickness, thus benefitting all stakeholders, which would include workmenof the corporate debtor. Also, the judgment of this Court in SwissRibbons (P) Ltd. v. Union of India, (2019) 4 SCC 17 states the raisond’être for Section 14 in paragraph 28 as follows:“28. It can thus be seen that the primary focus of the legislation isto ensure revival and continuation of the corporate debtor byprotecting the corporate debtor from its own management andfrom corporate death by liquidation. The Code is thus beneficiallegislation which puts the corporate debtor back on its feet, notbeing mere recovery legislation for creditors. The interests ofthe corporate debtor have, therefore, been bifurcated andseparated from that of its promoters/those who are in management.Thus, the resolution process is not adversarial to the corporatedebtor but, in fact, protective of its interests. The moratoriumimposed by Section 14 is in the interest of the corporate debtoritself, thereby preserving the assets of the corporate debtor duringthe resolution process. The timelines within which the resolutionprocess is to take place again protects the corporate debtor’sassets from further dilution, and also protects all its creditors and

ABC

252SUPREME COURT REPORTS

[2021] 14 S.C.R.

Aworkers by seeing that the resolution process goes through asfast as possible so that another management can, through itsentrepreneurial skills, resuscitate the corporate debtor to achieveall these ends.”

24. It can thus be seen that regard being had to the object soughtBto be achieved by the IBC in imposing this moratorium, quasi-criminalproceeding which would result in the assets of the corporate debtorbeing depleted as result of having to pay compensation which canamount to twice the amount of the cheque that has bounced would directlyimpact the corporate insolvency resolution process in the same manneras the institution, continuation, or execution of decree in such suit in aCcivil court for the amount of debt or other liability. Judged from the pointof view of this objective, it is impossible to discern any difference betweenthe impact of suit and Section 138 proceeding, insofar as the corporatedebtor is concerned, on its getting the necessary breathing space to getback on its feet during the corporate insolvency resolution process. GivenDthis fact, it is difficult to accept that noscitur sociis or ejusdem generisshould be used to cut down the width of the expression “proceedings”so as to make such proceedings analogous to civil suits.

25. Viewed from another point of view, clause (b) of Section 14(1)also makes it clear that during the moratorium period, any transfer,Eencumbrance, alienation, or disposal by the corporate debtor of anyofits assets or anylegal right or beneficial interest therein being alsointerdicted, yet liability in the form of compensation payable underSection 138 would somehow escape the dragnet of Section 14(1). WhileSection 14(1)(a) refers to monetary liabilities of the corporate debtor,Section 14(1)(b) refers to the corporate debtor’s assets, and together,Fthese two clauses form scheme which shields the corporate debtorfrom pecuniary attacks against it in the moratorium period so that thecorporate debtor gets breathing space to continue as going concern inorder to ultimately rehabilitate itself. Any crack in this shield is bound tohave adverse consequences, given the object of Section 14, and cannot,Gby any process of interpretation, be allowed to occur.

SECTION 14 IN RELATION TO OTHER MORATORIUMSECTIONS IN THE IBC

26. Even otherwise, when some of the other provisions as tomoratorium are seen in the context of individuals and firms, the provisionsHof Section 14 become even clearer. Thus, in Part III of the IBC, which

deals with insolvency resolution and bankruptcy for individuals andpartnership firms, Section 81, which occurs in Chapter II thereof, entitled“Fresh Start Process”, an interim moratorium is imposed thus:

“81. Application for fresh start order.—(1) When an applicationis filed under Section 80 by debtor, an interim-moratorium shallcommence on the date of filing of said application in relation to allthe debts and shall cease to have effect on the date of admissionor rejection of such application, as the case may be.

(2) During the interim-moratorium period,—

(i)any legal action or legal proceeding pending in respectof any of his debts shall be deemed to have beenCstayed; and

(ii)no creditor shall initiate any legal action orproceedings in respect of such debt.

(3) The application under Section 80 shall be in such form andmanner and accompanied by such fee, as may be prescribed.

(4) The application under sub-section (3) shall contain the followinginformation supported by an affidavit, namely—

(a)a list of all debts owed by the debtor as on the dateof the said application along with details relating tothe amount of each debt, interest payable thereonand the names of the creditors to whom each debt isowed;

(b)the interest payable on the debts and the rate thereofstipulated in the contract;

(c)a list of security held in respect of any of the debts;(d)the financial information of the debtor and hisimmediate family up to two years prior to the date ofthe application;

(e)the particulars of the debtor’s personal details, asmay be prescribed;

(f)the reasons for making the application;

(g)the particulars of any legal proceedings which, to thedebtor’s knowledge has been commenced againsthim;

A(h)the confirmation that no previous fresh start orderunder this Chapter has been made in respect of thequalifying debts of the debtor in the preceding twelvemonths of the date of the application.”

Similarly, in Section 85, which also occurs in Chapter II in Part IIIBof the IBC, moratorium is imposed thus:

“85. Effect of admission of application.—(1) On the date ofadmission of the application, the moratorium period shallcommence in respect of all the debts.

(2) During the moratorium period—C

(a)any pending legal action or legal proceeding in respectof any debt shall be deemed to have been stayed;and

(b)subject to the provisions of Section 86, the creditorsDshall not initiate any legal action or proceedings inrespect of any debt.

(3) During the moratorium period, the debtor shall—

(a)not act as director of any company, or directly orindirectly take part in or be concerned in theEpromotion, formation or management of company;

(b)not dispose of or alienate any of his assets;

(c)inform his business partners that he is undergoing afresh start process;

(d)be required to inform prior to entering into anyfinancial or commercial transaction of such value asmay be notified by the Central Government, eitherindividually or jointly, that he is undergoing freshstart process;

(e)disclose the name under which he enters into businesstransactions, if it is different from the name in theapplication admitted under Section 84;

(f)not travel outside India except with the permissionof the Adjudicating Authority.

(4) The moratorium ceases to have effect at the end of the periodof one hundred and eighty days beginning with the date ofadmission unless the order admitting the application is revokedunder sub-section (2) of Section 91.”

27. When the language of Section 14 and Section 85 are contrasted,it becomes clear that though the language of Section 85 is only in respectof debts, the moratorium contained in Section 14 is not subject specific.The only light thrown on the subject is by the exception provision containedin Section 14(3)(a) which is that “transactions” are the subject matter ofSection 14(1). “Transaction” is, as we have seen, much wider expressionthan “debt”, and subsumes it. Also, the expression “proceedings” usedby the legislature in Section 14(1)(a) is not trammelled by the word “legal”as prefix that is contained in the moratorium provisions qua individualsand firms. Likewise, the provisions of Section 96 and Section 101 aremoratorium provisions in Chapter III of Part III dealing with the insolvencyresolution process of individuals and firms, the same expression, namely,“debts” is used as is used in Section 85. Sections 96 and 101 read asfollows:

“96. Interim-moratorium.—(1) When an application is filedunder Section 94 or Section 95—

(a)an interim-moratorium shall commence on the dateof the application in relation to all the debts and shallcease to have effect on the date of admission of suchapplication; and

(b)during the interim-moratorium period—

(i)any legal action or proceeding pending inrespect of any debt shall be deemed to haveFbeen stayed; and

(ii)the creditors of the debtor shall not initiate anylegal action or proceedings in respect of anydebt.

(2) Where the application has been made in relation to firm, theinterim-moratorium under sub-section (1) shall operate against allthe partners of the firm as on the date of the application.

(3) The provisions of sub-section (1) shall not apply to suchtransactions as may be notified by the Central Government inconsultation with any financial sector regulator.”

A“101. Moratorium.—(1) When the application is admitted underSection 100, moratorium shall commence in relation to all thedebts and shall cease to have effect at the end of the period ofone hundred and eighty days beginning with the date of admissionof the application or on the date the Adjudicating Authority passesan order on the repayment plan under Section 114, whichever isBearlier.

(2) During the moratorium period—

(a)any pending legal action or proceeding in respect ofany debt shall be deemed to have been stayed;

(b)the creditors shall not initiate any legal action or legalproceedings in respect of any debt; and

(c)the debtor shall not transfer, alienate, encumber ordispose of any of his assets or his legal rights orbeneficial interest therein;

(3) Where an order admitting the application under Section 96has been made in relation to firm, the moratorium under sub-section (1) shall operate against all the partners of the firm.

(4) The provisions of this Section shall not apply to such transactionsas may be notified by the Central Government in consultationEwith any financial sector regulator.”

legal action or proceeding in respect of any debt would, on itsplain language, include Section 138 proceeding. This is for the reasonthat Section 138 proceeding would be legal proceeding “in respectof” debt. “In respect of” is phrase which is wide and includes anythingFdone directly or indirectly – see Macquarie Bank Ltd. v. Shilpi CableTechnologies Ltd., (2018) 2 SCC 674 (at page 709) and Giriraj Gargv. Coal India Ltd., (2019) 5 SCC 192 (at pages 202-203). This, coupledwith the fact that the Section is not limited to ‘recovery’ of any debt,would indicate that any legal proceeding even indirectly relatable toGrecovery of any debt would be covered.

28. When the language of these Sections is juxtaposed againstthe language of Section 14, it is clear that the width of Section 14 is evengreater, given that Section 14 declares moratorium prohibiting what ismentioned in clauses (a) to (d) thereof in respect of transactions enteredHinto by the corporate debtor, inclusive of transactions relating to debts,

as is contained in Sections 81, 85, 96, and 101. Also, Section 14(1)(d) isconspicuous by its absence in any of these Sections. Thus, whereindividuals or firms are concerned, the recovery of any property by anowner or lessor, where such property is occupied by or in possession ofthe individual or firm can be recovered during the moratorium period,unlike the property of corporate debtor. For all these reasons, therefore,given the object and context of Section 14, the expression “proceedings”cannot be cut down by any rule of construction and must be given fairmeaning consonant with the object and context. It is conceded before usthat criminal proceedings which are not directly related to transactionsevidencing debt or liability of the corporate debtor would be outside thescope of this expression.

29. V. Ramakrishnan (supra) looked at and contrasted Section14 with Sections 96 and 101 from the point of view of guarantor to adebt, and in this context, held:

“26. We are also of the opinion that Sections 96 and 101, whencontrasted with Section 14, would show that Section 14 cannotpossibly apply to personal guarantor. When an application isfiled under Part III, an interim-moratorium or moratorium isapplicable in respect of any debt due. First and foremost, this is aseparate moratorium, applicable separately in the case of personalguarantors against whom insolvency resolution processes may beinitiated under Part III. Secondly, the protection of the moratoriumunder these Sections is far greater than that of Section 14 in thatpending legal proceedings in respect of the debt and not the debtorare stayed. The difference in language between Sections 14 and101 is for reason.

26.1. Section 14 refers only to debts due by corporate debtors,who are limited liability companies, and it is clear that in the vastmajority of cases, personal guarantees are given by Directorswho are in management of the companies. The object of the Codeis not to allow such guarantors to escape from an independentand co-extensive liability to pay off the entire outstanding debt,which is why Section 14 is not applied to them. However, insofaras firms and individuals are concerned, guarantees are given inrespect of individual debts by persons who have unlimited liabilityto pay them. And such guarantors may be complete strangers tothe debtor — often it could be personal friend. It is for this

Areason that the moratorium mentioned in Section 101 would coversuch persons, as such moratorium is in relation to the debt and notthe debtor.”

These observations, when viewed in context, are correct.However, this case is distinguishable in that the difference between theseBprovisions and Section 14 was not examined qua moratorium provisionsas whole in relation to corporate debtors vis-à-vis individuals/firms.

THE INTERPLAY BETWEEN SECTION 14 ANDSECTION 32A OF THE IBC

30. Shri Mehta, however, strongly relied upon Section 32A(1) ofCthe IBC, which was introduced by the Insolvency and Bankruptcy Code(Amendment) Act, 2020, to argue that the first proviso to Section 32A(1)would make it clear that “prosecutions” that had been instituted duringthe corporate insolvency resolution process against corporate debtorwill result in discharge of the corporate debtor from the prosecution,Dsubject to the other requirements of sub-section (1) having been fulfilled.According to him, therefore, prosecution of the corporate debtor underSection 138/141 of the Negotiable Instruments Act can be institutedduring the corporate insolvency resolution process, making it clear thatsuch prosecutions are, therefore, outside the ken of the moratoriumprovisions contained in Section 14 of the IBC. Section 32A(1) of theEIBC reads as follows:

“32A. Liability for prior offences, etc.—(1) Notwithstandinganything to the contrary contained in this Code or any other lawfor the time being in force, the liability of corporate debtor foran offence committed prior to the commencement of the corporateFinsolvency resolution process shall cease, and the corporate debtorshall not be prosecuted for such an offence from the date theresolution plan has been approved by the Adjudicating Authorityunder Section 31, if the resolution plan results in the change in themanagement or control of the corporate debtor to person whowas not—G

(a)a promoter or in the management or control of thecorporate debtor or related party of such person;or

(b)a person with regard to whom the relevantHinvestigating authority has, on the basis of material in

P. MOHANRAJ & ORS. v. M/S. SHAH BROTHERS ISPAT PVT. LTD.

[R. F. NARIMAN, J.]

its possession, reason to believe that he had abettedor conspired for the commission of the offence, andhas submitted or filed report or complaint to therelevant statutory authority or Court:

Provided that if prosecution had been instituted duringthe corporate insolvency resolution process against such corporatedebtor, it shall stand discharged from the date of approval of theresolution plan subject to requirements of this sub-section havingbeen fulfilled:

Provided further that every person who was “designatedpartner” as defined in clause (j) of Section 2 of the Limited LiabilityPartnership Act, 2008 (6 of 2009), or an “officer who is in default”,as defined in clause (60) of Section 2 of the Companies Act, 2013(18 of 2013), or was in any manner incharge of, or responsible tothe corporate debtor for the conduct of its business or associatedwith the corporate debtor in any manner and who was directly orindirectly involved in the commission of such offence as per thereport submitted or complaint filed by the investigating authority,shall continue to be liable to be prosecuted and punished for suchan offence committed by the corporate debtor notwithstandingthat the corporate debtor’s liability has ceased under this sub-section.

xxx xxx xxx”

31. The raison d’être for the enactment of Section 32A has beenstated by the Report of the Insolvency Law Committee of February,2020, which is as follows:

“17. LIABILITY OF CORPORATE DEBTOR FOROFFENCES COMMITTED PRIOR TO INITIATION OFCIRP

17.1. Section 17 of the Code provides that on commencement ofthe CIRP, the powers of management of the corporate debtorvest with the interim resolution professional. Further, the powersof the Board of Directors or partners of the corporate debtorstand suspended, and are to be exercised by the interim resolutionprofessional. Thereafter, Section 29A, read with Section 35(1)(f),places restrictions on related parties of the corporate debtor fromproposing resolution plan and purchasing the property of the

corporate debtor in the CIRP and liquidation process, respectively.Thus, in most cases, the provisions of the Code effectuate changein control of the corporate debtor that results in clean break ofthe corporate debtor from its erstwhile management. However,the legal form of the corporate debtor continues in the CIRP, andmay be preserved in the resolution plan. Additionally, while theproperty of the corporate debtor may also change hands uponresolution or liquidation, such property also continues to exist, eitheras property of the corporate debtor, or in the hands of thepurchaser.

17.2. However, even after commencement of CIRP or after itssuccessful resolution or liquidation, the corporate debtor, alongwith its property, would be susceptible to investigations orproceedings related to criminal offences committed by it prior tothe commencement of CIRP, leading to the imposition of certainliabilities and restrictions on the corporate debtor and its propertieseven after they were lawfully acquired by resolution applicantor successful bidder, respectively.

Liability where Resolution Plan has been Approved

17.3. It was brought to the Committee that this had createdapprehension amongst potential resolution applicants, who did notwant to take on the liability for any offences committed prior tocommencement of CIRP. In one case, JSW Steel had specificallysought certain reliefs and concessions, within an annexure tothe resolution plan it had submitted for approval of theAdjudicating Authority. Without relief from imposition of the suchliability, the Committee noted that in the long run, potentialresolution applicants could be disincentivised from proposing aresolution plan. The Committee was also concerned thatresolution plans could be priced lower on an average, even wherethe corporate debtor did not commit any offence and was notsubject to investigation, due to adverse selection by resolutionapplicants who might be apprehensive that they might be heldliable for offences that they have not been able to detect due toinformation asymmetry. Thus, the threat of liability falling onbona fide persons who acquire the legal entity, could substantiallylower the chances of its successful takeover by potentialresolution applicants.

17.4.This could have substantially hampered the Code’s goal ofvalue maximisation, and lowered recoveries to creditors, includingfinancial institutions who take recourse to the Code for resolutionof the NPAs on their balance sheet. At the same time, theCommittee was also conscious that authorities are duty bound topenalise the commission of any offence, especially in casesinvolving substantial public interest. Thus, two competing concernsneed to be balanced.

xxx xxx xxx

17.6. Given this, the Committee felt that distinction must bedrawn between the corporate debtor which may have committedoffences under the control of its previous management, prior tothe CIRP, and the corporate debtor that is resolved, and takenover by an unconnected resolution applicant. While the corporatedebtor’s actions prior to the commencement of the CIRP must beinvestigated and penalised, the liability must be affixed only uponthose who were responsible for the corporate debtor’s actions inthis period. However, the new management of the corporatedebtor, which has nothing to do with such past offences, shouldnot be penalised for the actions of the erstwhile management ofthe corporate debtor, unless they themselves were involved in thecommission of the offence, or were related parties, promoters orother persons in management and control of the corporate debtorat the time of or any time following the commission of the offence,and could acquire the corporate debtor, notwithstanding theprohibition under Section 29A.

17.7. Thus, the Committee agreed that new Section should beinserted to provide that where the corporate debtor is successfullyresolved, it should not be held liable for any offence committedprior to the commencement of the CIRP, unless the successfulresolution applicant was also involved in the commission of theoffence, or was related party, promoter or other person inmanagement and control of the corporate debtor at the time of orany time following the commission of the offence.

17.8. Notwithstanding this, those persons who were responsibleto the corporate debtor for the conduct of its business at the timeof the commission of such offence, should continue to be liable

for such an offence, vicariously or otherwise, regardless of the’”fact that the corporate debtors liability has ceased.

(emphasis supplied)

32. This Court, in Manish Kumar v. Union of India, 2021 SCCOnLine SC 30, upheld the constitutional validity of this provision. ThisBCourt observed:

“280. We are of the clear view that no case whatsoever is madeout to seek invalidation of Section 32A. The boundaries of thisCourt’s jurisdiction are clear. The wisdom of the legislation is notopen to judicial review. Having regard to the object of the Code,Cthe experience of the working of the code, the interests of allstakeholders including most importantly the imperative need toattract resolution applicants who would not shy away fromoffering reasonable and fair value as part of the resolution planif the legislature thought that immunity be granted to theDcorporate debtor as also its property, it hardly furnishes groundfor this this Court to interfere. The provision is carefully thoughtout. It is not as if the wrongdoers are allowed to get away.They remain liable. The extinguishment of the criminal liabilityof the corporate debtor is apparently important to the newmanagement to make clean break with the past and start onEa clean slate. We must also not overlook the principle that theimpugned provision is part of an economic measure. Thereverence courts justifiably hold such laws in cannot but beapplicable in the instant case as well. The provision deals withreference to offences committed prior to the commencementFof the CIRP. With the admission of the application themanagement of the corporate debtor passes into the hands ofthe Interim Resolution Professional and thereafter into thehands of the Resolution Professional subject undoubtedly tothe control by the Committee of Creditors. As far as protectionafforded to the property is concerned there is clearly rationaleGbehind it. Having regard to the object of the statute we hardlysee any manifest arbitrariness in the provision.”

33. Section 32A cannot possibly be said to throw any light on thetrue interpretation of Section 14(1)(a) as the reason for introducingSection 32A had nothing whatsoever to do with any moratorium provision.HAt the heart of the Section is the extinguishment of criminal liability of

the corporate debtor, from the date the resolution plan has been approvedby the Adjudicating Authority, so that the new management may make aclean break with the past and start on clean slate. moratoriumprovision, on the other hand, does not extinguish any liability, civil orcriminal, but only casts shadow on proceedings already initiated andon proceedings to be initiated, which shadow is lifted when themoratorium period comes to an end. Also, Section 32A(1) operates onlyafter the moratorium comes to an end. At the heart of Section 32A is theIBC’s goal of value maximisation and the need to obviate lower recoveriesto creditors as result of the corporate debtor continuing to be exposedto criminal liability. Unfortunately, the Section is inelegantly drafted. Thesecond proviso to Section 32A(1) speaks of persons who are in anymanner in charge of, or responsible to the corporate debtor for theconduct of its business or associated with the corporate debtor andwho are, directly or indirectly, involved in the commission of “suchoffence”, i.e., the offence referred to in sub-section (1), “as per thereport submitted or complaint filed by the investigating authority …”.The report submitted here refers to police report under Section 173of the CrPC, and complaints filed by investigating authorities underspecial Acts, as opposed to private complaints. If the language of thesecond proviso is taken to interpret the language of Section 32A(1) inthat the “offence committed” under Section 32A(1) would not includeoffences based upon complaints under Section 2(d) of the CrPC, thewidth of the language would be cut down and the object of Section32A(1) would not be achieved as all prosecutions emanating from privatecomplaints would be excluded. Obviously, Section 32A(1) cannot beread in this fashion and clearly incudes the liability of the corporatedebtor for all offences committed prior to the commencement of thecorporate insolvency resolution process. Doubtless, Section 138proceeding would be included, and would, after the moratorium periodcomes to an end with resolution plan by new management beingapproved by the Adjudicating Authority, cease to be an offence quathe corporate debtor.

34. section which has been introduced by an amendment intoan Act with its focus on cesser of liability for offences committed by thecorporate debtor prior to the commencement of the corporate insolvencyresolution process cannot be so construed so as to limit, by sidewind asit were, the moratorium provision contained in Section 14, with which itis not at all concerned. If the first proviso to Section 32A(1) is read in

DEF

Athe manner suggested by Shri Mehta, it will impact Section 14 by takingout of its ken Section 138/141 proceedings, which is not the object ofSection 32A(1) at all. Assuming, therefore, that there is clash betweenSection 14 of the IBC and the first proviso of Section 32A(1), this clashis best resolved by applying the doctrine of harmonious constructionso that the objects of both the provisions get subserved in the process,Bwithout damaging or limiting one provision at the expense of the other.If, therefore, the expression “prosecution” in the first proviso of Section32A(1) refers to criminal proceedings properly so-called either throughthe medium of First Information Reportor complaint filed by aninvestigating authority or complaint and not to quasi-criminal proceedingsCthat are instituted under Sections 138/141 of the Negotiable InstrumentsAct against the corporate debtor, the object of Section 14(1) of theIBC gets subserved, as does the object of Section 32A, which doesaway with criminal prosecutions in all cases against the corporate debtor,thus absolving the corporate debtor from the same after newmanagement comes in.DTHE NATURE OF PROCEEDINGS UNDER CHAPTERXVII OF THE NEGOTIABLE INSTRUMENTS ACT

35. This brings us to the nature of proceedings under ChapterXVII of the Negotiable Instruments Act. Sections 138 to 142 of theENegotiable Instruments Act were added by Chapter XVII by anAmendment Act of 1988. Section 138 reads as follows:

“138. Dishonour of cheque for insufficiency, etc., of fundsin the account.—Where any cheque drawn by person on anaccount maintained by him with banker for payment of anyFamount of money to another person from out of that account forthe discharge, in whole or in part, of any debt or other liability, isreturned by the bank unpaid, either because of the amount ofmoney standing to the credit of that account is insufficient to honourthe cheque or that it exceeds the amount arranged to be paidfrom that account by an agreement made with that bank, suchGperson shall be deemed to have committed an offence and shall,without prejudice to any other provision of this Act, be punishedwith imprisonment for term which may extend to two years, orwith fine which may extend to twice the amount of the cheque, orwith both:

HProvided that nothing contained in this Section shall apply unless—

(a)the cheque has been presented to the bank within aAperiod of six months from the date on which it isdrawn or within the period of its validity, whicheveris earlier;

(b)the payee or the holder in due course of the cheque,as the case may be, makes demand for the paymentBof the said amount of money by giving notice inwriting, to the drawer of the cheque, within thirty daysof the receipt of information by him from the bankregarding the return of the cheque as unpaid; and

(c)the drawer of such cheque fails to make the paymentof the said amount of money to the payee or as thecase may be, to the holder in due course of the chequewithin fifteen days of the receipt of the said notice.

Explanation.—For the purposes of this Section, “debt or otherliability” means legally enforceable debt or other liability.”

36. Section 138 contains within it the ingredients of the offencemade out. The deeming provision is important in that the legislature iscognizant of the fact that what is otherwise civil liability is now alsodeemed to be an offence, since this liability is made punishable by law. Itis important to note that the transaction spoken of is commercialtransaction between two parties which involves payment of money for adebt or liability. The explanation to Section 138 makes it clear that suchdebt or other liability means legally enforceable debt or other liability.Thus, debt or other liability barred by the law of limitation would beoutside the scope of Section 138. This, coupled with fine that may extendto twice the amount of the cheque that is payable as compensation tothe aggrieved party to cover both the amount of the cheque and theinterest and costs thereupon, would show that it is really hybrid provisionto enforce payment under bounced cheque if it is otherwise enforceablein civil law. Further, though the ingredients of the offence are containedin the first part of Section 138 when the cheque is returned by the bankunpaid for the reasons given in the Section, the proviso gives anopportunity to the drawer of the cheque, stating that the drawer mustfail to make payment of the amount within 15 days of the receipt of anotice, again making it clear that the real object of the provision is not topenalise the wrongdoer for an offence that is already made out, but tocompensate the victim.

A37. Likewise, under Section 139, presumption is raised that theholder of cheque received the cheque for the discharge, in whole or inpart, of any debt or other liability. To rebut this presumption, facts mustbe adduced which, on preponderance of probability (not beyondreasonable doubt as in the case of criminal offences), must then beproved. Section 140 is also important, in that it shall not be defence inBa prosecution for an offence under Section 138 that the drawer had noreason to believe when he issued the cheque that the cheque may bedishonoured on presentment for the reasons stated in that Section, thusmaking it clear that strict liability will attach, mens rea being no ingredientof the offence. Section 141 then makes Directors and other personsCstatutorily liable, provided the ingredients of the section are met.Interestingly, for the purposes of this Section, explanation (a) defines“company” as meaning any body corporate and includes firm or otherassociation of individuals.

38. We have already seen how the language of Sections 96 andD101 would include Section 138/141 proceeding against firm so thatthe moratorium stated therein would apply to such proceedings. If ShriMehta’s arguments were to be accepted, under the same Section, namely,Section 141, two different results would ensue – so far as bodiescorporate, which include limited liability partnerships, are concerned, themoratorium provision contained in Section 14 of the IBC would not apply,Ebut so far as partnership firm is concerned, being covered by Sections96 and 101 of the IBC, Section 138/141 proceeding would be stoppedin its tracks by virtue of the moratorium imposed by these Sections.Thus, under Section 141(1), whereas Section 138 proceeding against acorporate body would continue after initiation of the corporate insolvencyFresolution process, yet, the same proceeding against firm, beinginterdicted by Sections 96 and 101, would not so continue. This startlingresult is one of the consequences of accepting the argument of ShriMehta, which again leads to the position that inelegant drafting alonecannot lead to such startling results, the object of Sections 14 and 96 and101 being the same, namely, to see that during the insolvency resolutionGprocess for corporate persons/individuals and firms, the corporate body/firm/individual should be given breathing space to recuperate for asuccessful resolution of its debts – in the case of corporate debtor,through new management coming in; and in the case of individuals andfirms, through resolution plans which are accepted by committee ofHcreditors, by which the debtor is given breathing space in which to pay

back his/its debts, which would result in creditors getting more than theywould in bankruptcy proceeding against an individual or firm.

39. Section 142 is important and is set out hereunder:

“142. Cognizance of offences.—(1) Notwithstanding anything

contained in the Code of Criminal Procedure, 1973 (2 of 1974),—

(a)no court shall take cognizance of any offencepunishable under Section 138 except upon acomplaint, in writing, made by the payee or, as thecase may be, the holder in due course of the cheque;

(b)such complaint is made within one month of the dateon which the cause of action arises under clause (c)of the proviso to Section 138:

Provided that the cognizance of complaint may be takenby the court after the prescribed period, if the complainant satisfiesthe court that he had sufficient cause for not making complaintwithin such period.

(c)no court inferior to that of Metropolitan Magistrateor Judicial Magistrate of the first class shall tryany offence punishable under Section 138.

(2) The offence under Section 138 shall be inquired into and triedonly by court within whose local jurisdiction,—

(a)if the cheque is delivered for collection through anaccount, the branch of the bank where the payee orholder in due course, as the case may be, maintainsthe account, is situated; or

(b)if the cheque is presented for payment by the payeeor holder in due course, otherwise through anaccount, the branch of the drawee bank where thedrawer maintains the account, is situated.

Explanation.—For the purposes of clause (a), where acheque is delivered for collection at any branch of the bank of thepayee or holder in due course, then, the cheque shall be deemedto have been delivered to the branch of the bank in which thepayee or holder in due course, as the case may be, maintains theaccount.”

A40. cursory reading of Section 142 will again make it clear thatthe procedure under the CrPC has been departed from. First andforemost, no court is to take cognizance of an offence punishable underSection 138 except on complaint made in writing by the payee or theholder in due course of the cheque – the victim. Further, the languageof Section 142(1)(b) would again show the hybrid nature of theseBprovisions inasmuch as complaint must be made within one month ofthe date on which the “cause of action” under clause (c) of the provisoto Section 138 arises. The expression “cause of action” is foreignerto criminal jurisprudence, and would apply only in civil cases to recovermoney. Chapter XIII of the CrPC, consisting of Sections 177 to 189, isCa chapter dealing with the jurisdiction of the criminal courts in inquiriesand trials. When the jurisdiction of criminal court is spoken of bythese Sections, the expression “cause of action” is conspicuous by itsabsence.41. By an Amendment Act of 2002, various other sections wereDadded to this Chapter. Thus, under Section 143, it is lawful for Magistrateto pass sentence of imprisonment for term not exceeding one yearand fine exceeding INR 5,000/- summarily. This provision is again animportant pointer to the fact that the payment of compensation is at theheart of the provision in that fine exceeding INR 5000/-, the sky beingEthe limit, can be imposed by way of summary trial which, afterapplication of Section 357 of the CrPC, results in compensating the victimup to twice the amount of the bounced cheque. Under Section 144, themode of service of summons is done as in civil cases, eschewing themode contained in Sections 62 to 64 of the CrPC. Likewise, under Section145, evidence is to be given by the complainant on affidavit, as it is givenFin civil proceedings, notwithstanding anything contained in the CrPC.Most importantly, by Section 147, offences under this Act arecompoundable without any intervention of the court, as is required bySection 320(2) of the CrPC.

42. By another amendment made in 2018, the hybrid nature ofGthese provisions gets further tilt towards civil proceeding, by thepower to direct interim compensation under Sections 143A and 148 whichare set out hereinbelow:

“143-A. Power to direct interim compensation.—(1)Notwithstanding anything contained in the Code of CriminalH

Procedure, 1973 (2 of 1974), the Court trying an offence underSection 138 may order the drawer of the cheque to pay interimcompensation to the complainant—

(a)in summary trial or summons case, where he pleadsnot guilty to the accusation made in the complaint; and

(b)in any other case, upon framing of charge.

(2) The interim compensation under sub-section (1) shall notexceed twenty per cent of the amount of the cheque.

(3) The interim compensation shall be paid within sixty days fromthe date of the order under sub-section (1), or within such furtherperiod not exceeding thirty days as may be directed by the Courton sufficient cause being shown by the drawer of the cheque.

(4) If the drawer of the cheque is acquitted, the Court shall directthe complainant to repay to the drawer the amount of interimcompensation, with interest at the bank rate as published by theReserve Bank of India, prevalent at the beginning of the relevantfinancial year, within sixty days from the date of the order, orwithin such further period not exceeding thirty days as may bedirected by the Court on sufficient cause being shown by thecomplainant.

(5) The interim compensation payable under this Section may berecovered as if it were fine under Section 421 of the Code ofCriminal Procedure, 1973 (2 of 1974).

(6) The amount of fine imposed under Section 138 or the amountof compensation awarded under Section 357 of the Code ofCriminal Procedure, 1973 (2 of 1974), shall be reduced by theamount paid or recovered as interim compensation under thisSection.”

“148. Power of Appellate Court to order payment pendingappeal against conviction.—(1) Notwithstanding anythingcontained in the Code of Criminal Procedure, 1973 (2 of 1974), inan appeal by the drawer against conviction under Section 138, theAppellate Court may order the appellant to deposit such sum whichshall be minimum of twenty per cent of the fine or compensationawarded by the trial Court:

Provided that the amount payable under this sub-section shall bein addition to any interim compensation paid by the appellant underSection 143-A.

(2) The amount referred to in sub-section (1) shall be depositedwithin sixty days from the date of the order, or within such furtherBperiod not exceeding thirty days as may be directed by the Courton sufficient cause being shown by the appellant.

(3) The Appellate Court may direct the release of the amountdeposited by the appellant to the complainant at any time duringthe pendency of the appeal:

Provided that if the appellant is acquitted, the Court shall directthe complainant to repay to the appellant the amount so released,with interest at the bank rate as published by the Reserve Bankof India, prevalent at the beginning of the relevant financial year,within sixty days from the date of the order, or within such furtherDperiod not exceeding thirty days as may be directed by the Courton sufficient cause being shown by the complainant.”

43. With this analysis of Chapter XVII, let us look at some of thedecided cases. In CIT v. Ishwarlal Bhagwandas, (1966) 1 SCR 190,this Court distinguished between civil proceedings and criminalEproceedings in the context of Article 132 of the Constitution thus:

“… The expression “civil proceeding” is not defined in theConstitution, nor in the General Clauses Act. The expression inour judgment covers all proceedings in which party asserts theexistence of civil right conferred by the civil law or by statute,Fand claims relief for breach thereof. criminal proceeding on theother hand is ordinarily one in which if carried to its conclusion itmay result in the imposition of sentences such as death,imprisonment, fine or forfeiture of property. It also includesproceedings in which in the larger interest of the State, orders toprevent apprehended breach of the peace, orders to bind downGpersons who are danger to the maintenance of peace and order,or orders aimed at preventing vagrancy are contemplated to bepassed. But the whole area of proceedings, which reach the HighCourts is not exhausted by classifying the proceedings as civiland criminal. There are certain proceedings which may be regardedas neither civil nor criminal. For instance, proceeding for contempt

of court, and for exercise of disciplinary jurisdiction against lawyersor other professionals, such as Chartered Accountants may notfall within the classification of proceedings, civil or criminal. Butthere is no warrant for the view that from the category of civilproceedings, it was intended to exclude proceedings relating to orwhich seek relief against enforcement of taxation laws of theState. The primary object of taxation statute is to collect revenuefor the governance of the State or for providing specific servicesand such laws directly affect the civil rights of the tax-payer. If aperson is called upon to pay tax which the State is not competentto levy, or which is not imposed in accordance with the law whichpermits imposition of the tax, or in the levy, assessment andcollection of which rights of the tax-payer are infringed in mannernot warranted by the statute, proceeding to obtain relief whetherit is from the tribunal set up by the taxing statute, or from the civilcourt would be regarded as civil proceeding. The character ofthe proceeding, in our judgment, depends not upon the nature ofthe tribunal which is invested with authority to grant relief, butupon the nature of the right violated and the appropriate reliefwhich may be claimed. civil proceeding is, therefore, one inwhich person seeks to enforce by appropriate relief the allegedinfringement of his civil rights against another person or the State,and which if the claim is proved would result in the declarationexpress or implied of the right claimed and relief such as paymentof debt, damages, compensation, delivery of specific property,enforcement of personal rights, determination of status etc.”

(at pages 196-197)

“A large number of cases have arisen before the HighCourts in India in which conflicting views about the meaning ofthe expression “civil proceeding” were pressed. In some cases itwas held that the expression “civil proceeding” excludes aproceeding instituted in the High Court for the issue of writwhatever may be the nature of the right infringed and the reliefclaimed in other cases it has been held that proceeding resultingfrom an application for writ under Article 226 of the Constitutionmay in certain cases be deemed to be “civil proceeding”, if theclaim made, the right infringed and the relief sought warrant thatinference: in still another set of cases it has been held that even if

ABC

Aa proceeding commenced by petition for writ be generallycategorised as civil proceeding, where the jurisdiction which theHigh Court exercises relates to revenue, the proceeding is notcivil. perusal of the reasons given in the cases prompt thefollowing observations. There are two preliminary conditions tothe exercise of the power to grant certificate: (a) there must be aBjudgment, decree or final order, and that judgment, decree or finalorder must be made in civil proceeding. An advisory opinion in atax reference may not be appealed from with certificate underArticle 133 because the opinion is not judgment, decree or finalorder, and (b) proceeding does not cease to be civil, when reliefCis claimed for enforcement of civil rights merely because theproceeding is not tried as civil suit. In large majority of thecases in which the jurisdiction of the High Court to certify caseunder Article 133(1) was negatived it appears to have beenassumed that the expression “other proceeding” used in Article132 of the Constitution is or includes proceeding of the nature ofDa revenue proceeding, and therefore the expression “civilproceeding” in Article 133(1) does not include revenueproceeding. This assumption for reasons already set out iserroneous.”

(at page 199)

perusal of this judgment would show that civil proceeding isnot necessarily proceeding which begins with the filing of suit andculminates in execution of decree. It would include revenue proceedingas well as writ petition filed under Article 226 of the Constitution, if thereliefs therein are to enforce rights of civil nature. Interestingly, criminalFproceedings are stated to be proceedings in which the larger interest ofthe State is concerned. Given these tests, it is clear that Section 138proceeding can be said to be “civil sheep” in “criminal wolf’s”clothing, as it is the interest of the victim that is sought to be protected,the larger interest of the State being subsumed in the victim alone movingGa court in cheque bouncing cases, as has been seen by us in the analysismade hereinabove of Chapter XVII of the Negotiable Instruments Act.

44. In Goaplast (P) Ltd. v. Chico Ursula D’Souza, (2003) 3SCC 232, the object sought to be achieved by Section 138 is succinctlyset out in paragraph 3 thereof:

“3. The learned counsel for the appellant has submitted that merewriting of letter to the bank stopping payment of the post-datedcheques does not take the case out of the purview of the Act. Hehas invited our attention to the object behind the provision containedin Chapter XVII of the Act. For appreciating the issue involved inthe present case, it is necessary to refer to the object behindintroduction of Chapter XVII containing Sections 138 to 142. Thischapter was introduced in the Act by the Banking, Public FinancialInstitutions and Negotiable Instruments Laws (Amendment) Act,1988 (Act 66 of 1988) with the object of inculcating faith in theefficacy of banking operations and giving credibility to negotiableinstruments in business transactions and in order to promoteefficacy of banking operations. With the policy of liberalisationadopted by the country which brought about increase ininternational trade and commerce, it became necessary to inculcatefaith in banking. World trade is carried through banking operationsrather than cash transactions. The amendment was intended tocreate an atmosphere of faith and reliance on banking system.Therefore, while considering the question of applicability of Section138 of the Act to situation presented by the facts of the presentcase, it is necessary to keep the objects of the legislation in mind.If party is allowed to use cheque as mode of deferredpayment and the payee of the cheque on the faith that he will gethis payment on the due date accepts such deferred payment byway of cheque, he should not normally suffer on account of non-payment. The faith, which the legislature has desired that suchinstruments should inspire in commercial transactions would becompletely lost if parties are as matter of routine allowed tointerdict payment by issuing instruction to banks to stop paymentof cheques. In today’s world where use of cash in day-to-day lifeis almost getting extinct and people are using negotiableinstruments in commercial transactions and plastic money for theirdaily needs as consumers, it is all the more necessary that people’sfaith in such instruments should be strengthened rather thanweakened. Provisions contained in Sections 138 to 142 of the Actare intended to discourage people from not honouring theircommitments by way of payment through cheques. It is desirablethat the court should lean in favour of an interpretation whichserves the object of the statute. The penal provisions contained in

ABC

ASections 138 to 142 of the Act are intended to ensure that obligationsundertaken by issuing cheques as mode of payment arehonoured. post-dated cheque will lose its credibility andacceptability if its payment can be stopped routinely. cheque isa well-recognized mode of payment and post-dated cheques areoften used in various transactions in daily life. The purpose of aBpost-dated cheque is to provide some accommodation to the drawerof the cheque. Therefore, it is all the more necessary that thedrawer of the cheque should not be allowed to abuse theaccommodation given to him by creditor by way of acceptanceof post-dated cheque. If stoppage of payment of post-datedCcheque is permitted to take the case out of the purview of Section138 of the Act, it will amount to allowing the party to take advantageof his own wrong.”

45. In Vinay Devanna Nayak v. Ryot Sewa Sahakari BankLtd., (2008) 2 SCC 305, Division Bench of this Court referred to theDobject of Section 138 thus:

“16. Section 138 of the Act was inserted by the Banking, PublicFinancial Institutions and Negotiable Instruments Law(Amendment) Act, 1988 (Act 66 of 1988) to regulate financialpromises in growing business, trade, commerce and industrialEactivities of the country and the strict liability to promote greatervigilance in financial matters. The incorporation of the provisionis designed to safeguard the faith of the creditor in the drawer ofthe cheque, which is essential to the economic life of developingcountry like India. The provision has been introduced with viewto curb cases of issuing cheques indiscriminately by makingFstringent provisions and safeguarding interest of creditors.

17. As observed by this Court in Electronics Trade & TechnologyDevelopment Corpn. Ltd. v. Indian Technologists & Engineers(Electronics) (P) Ltd. [(1996) 2 SCC 739 : 1996 SCC (Cri) 454]the object of bringing Section 138 in the statute book is to inculcatefaith in the efficacy of banking operations and credibility intransacting business on negotiable instruments. The provision isintended to prevent dishonesty on the part of the drawer ofnegotiable instruments in issuing cheques without sufficient fundsor with view to inducing the payee or holder in due course to actupon it. It thus seeks to promote the efficacy of bank operations

and ensures credibility in transacting business through cheques.In such matters, therefore, normally compounding of offencesshould not be denied. Presumably, Parliament also realised thisaspect and inserted Section 147 by the Negotiable Instruments(Amendment and Miscellaneous Provisions) Act, 2002 (Act 55of 2002). The said Section reads thus:

“147. Offences to be compoundable.—Notwithstandinganything contained in the Code of Criminal Procedure, 1973 (2of 1974), every offence punishable under this Act shall becompoundable.”

46. Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC663 is an important judgment of three Hon’ble Judges of this Court. Thisjudgment dealt, in particular, with the compounding provision containedin Section 147 of the Negotiable Instruments Act. Setting out theprovision, the Court held:

“10. At present, we are of course concerned with Section 147 ofthe Act, which reads as follows:

“147. Offences to be compoundable.—Notwithstandinganything contained in the Code of Criminal Procedure, 1973 (2of 1974), every offence punishable under this Act shall becompoundable.”

At this point, it would be apt to clarify that in view of the nonobstante clause, the compounding of offences under the NegotiableInstruments Act, 1881 is controlled by Section 147 and the schemecontemplated by Section 320 of the Code of Criminal Procedure(hereinafter “CrPC”) will not be applicable in the strict sensesince the latter is meant for the specified offences under the PenalCode, 1860.

11. So far as CrPC is concerned, Section 320 deals with offenceswhich are compoundable, either by the parties without the leaveof the court or by the parties but only with the leave of the court.Sub-section (1) of Section 320 enumerates the offences whichare compoundable without the leave of the court, while sub-section(2) of the said Section specifies the offences which arecompoundable with the leave of the court.

12. Section 147 of the Negotiable Instruments Act, 1881 is in thenature of an enabling provision which provides for thecompounding of offences prescribed under the same Act, therebyserving as an exception to the general rule incorporated in sub-section (9) of Section 320 CrPC which states that “No offenceshall be compounded except as provided by this Section”. barereading of this provision would lead us to the inference thatoffences punishable under laws other than the Penal Code alsocannot be compounded. However, since Section 147 was insertedby way of an amendment to special law, the same will overridethe effect of Section 320(9) CrPC, especially keeping in mindthat Section 147 carries non obstante clause.”

xxx xxx xxx

“15. The compounding of the offence at later stages of litigationin cheque bouncing cases has also been held to be permissible ina recent decision of this Court, reported as K.M. Ibrahim v. K.P.Mohammed [(2010) 1 SCC 798 : (2010) 1 SCC (Cri) 921 : (2009)14 Scale 262] wherein Kabir, J. has noted (at SCC p. 802, paras13-14):

“13. As far as the non obstante clause included in Section 147of the 1881 Act is concerned, the 1881 Act being specialstatute, the provisions of Section 147 will have an overridingeffect over the provisions of the Code relating to compoundingof offences. …

14. It is true that the application under Section 147 of theNegotiable Instruments Act was made by the parties after theproceedings had been concluded before the appellate forum.However, Section 147 of the aforesaid Act does not bar theparties from compounding an offence under Section 138 evenat the appellate stage of the proceedings. Accordingly, we findno reason to reject the application under Section 147 of theaforesaid Act even in proceeding under Article 136 of theConstitution.”

16. It is evident that the permissibility of the compounding of anoffence is linked to the perceived seriousness of the offence andthe nature of the remedy provided. On this point we can refer tothe following extracts from an academic commentary [cited from:

K.N.C. Pillai, R.V. Kelkar’s Criminal Procedure, Fifth Edn.(Lucknow: Eastern Book Company, 2008) at p. 444]:

“17.2. Compounding of offences.—A crime is essentially awrong against the society and the State. Therefore anycompromise between the accused person and the individualvictim of the crime should not absolve the accused from criminalresponsibility. However, where the offences are essentially ofa private nature and relatively not quite serious, the Codeconsiders it expedient to recognise some of them ascompoundable offences and some others as compoundable onlywith the permission of the court.”

17. In recently published commentary, the following observationshave been made with regard to the offence punishable underSection 138 of the Act [cited from: Arun Mohan, Some thoughtstowards law reforms on the topic of Section 138, NegotiableInstruments Act—Tackling an avalanche of cases (New Delhi:Universal Law Publishing Co. Pvt. Ltd., 2009) at p. 5]:

“… Unlike that for other forms of crime, the punishment here(insofar as the complainant is concerned) is not means ofseeking retribution, but is more means to ensure payment ofmoney. The complainant’s interest lies primarily in recoveringthe money rather than seeing the drawer of the cheque in jail.The threat of jail is only mode to ensure recovery. As againstthe accused who is willing to undergo jail term, there is littleavailable as remedy for the holder of the cheque.

If we were to examine the number of complaints filed which were‘compromised’ or ‘settled’ before the final judgment on one sideand the cases which proceeded to judgment and conviction on theother, we will find that the bulk was settled and only minisculenumber continued.”

18. It is quite obvious that with respect to the offence of dishonourof cheques, it is the compensatory aspect of the remedy whichshould be given priority over the punitive aspect. …”

(emphasis supplied)

This judgment was followed by Division Bench of this Court inJIK Industries Ltd. v. Amarlal V. Jumani, (2012) 3 SCC 255,stating:

“68. It is clear from perusal of the aforesaid Statement ofObjects and Reasons that offence under the NI Act, which waspreviously non-compoundable in view of Section 320 sub-section(9) of the Code has now become compoundable. That does notmean that the effect of Section 147 is to obliterate all statutoryprovisions of Section 320 of the Code relating to the mode andmanner of compounding of an offence. Section 147 will onlyoverride Section 320(9) of the Code insofar as offence underSection 147 of the NI Act is concerned. This is also the ratioin Damodar [(2010) 5 SCC 663 : (2010) 2 SCC (Civ) 520 : (2010)2 SCC (Cri) 1328] (see para 12). Therefore, the submission ofthe learned counsel for the appellant to the contrary cannot beaccepted.”

The Court then went into the history of compounding in criminallaw as follows:

“78. Compounding as codified in Section 320 of the Code has ahistorical background. In common law compounding wasconsidered misdemeanour. In Kenny’s Outlines of CriminalLaw (19th Edn., 1966) the concept of compounding has been tracedas follows: (p. 407, para 422)

“422. Mercy should be shown, not sold.—It is amisdemeanour at common law to ‘compound’ felony (andperhaps also to compound misdemeanour); i.e. to bargain,for value, to abstain from prosecuting the offender who hascommitted crime. You commit this offence if you promise athief not to prosecute him if only he will return the goods hestole from you; but you may lawfully take them back if youmake no such promise. You may show mercy, but must not sellmercy. This offence of compounding is committed by the bareact of agreement; even though the compounder afterwardsbreaks his agreement and prosecutes the criminal. Andinasmuch as the law permits not merely the person injured bya crime, but also all other members of the community, toprosecute, it is criminal for anyone to make such composition;even though he suffered no injury and indeed has no concernwith the crime.”

(emphasis in original)

P. MOHANRAJ & ORS. v. M/S. SHAH BROTHERS ISPAT PVT. LTD.

79. Russell on Crime (12th Edn.) also describes:

“Agreements not to prosecute or to stifle prosecution for acriminal offence are in certain cases criminal.”

(Ch. 22 — Compounding Offences, p. 339.)

80. Later on compounding was permitted in certain categories ofcases where the rights of the public in general are not affectedbut in all cases such compounding is permissible with the consentof the injured party.

81. In our country also when the Criminal Procedure Code, 1861was enacted it was silent about the compounding of offence.Subsequently, when the next Code of 1872 was introduced itmentioned about compounding in Section 188 by providing themode of compounding. However, it did not contain any provisiondeclaring what offences were compoundable. The decision as towhat offences were compoundable was governed by referenceto the exception to Section 214 of the Penal Code. The subsequentCode of 1898 provided Section 345 indicating the offences whichwere compoundable but the said section was only made applicableto compounding of offences defined and permissible under thePenal code. The present Code, which repealed the 1898 Code,contains Section 320 containing comprehensive provisions forcompounding.82. perusal of Section 320 makes it clear that the provisionscontained in Section 320 and the various sub-sections is code byitself relating to compounding of offence. It provides for the variousparameters and procedures and guidelines in the matter ofcompounding. If this Court upholds the contention of the appellantthat as result of incorporation of Section 147 in the NI Act, theentire gamut of procedure of Section 320 of the Code are madeinapplicable to compounding of an offence under the NI Act, inthat case the compounding of offence under the NI Act will beleft totally unguided or uncontrolled. Such an interpretation apartfrom being an absurd or unreasonable one will also be contrary tothe provisions of Section 4(2) of the Code, which has been discussedabove. There is no other statutory procedure for compounding ofoffence under the NI Act. Therefore, Section 147 of the NI Actmust be reasonably construed to mean that as result of the said

section the offences under the NI Act are made compoundable,but the main principle of such compounding, namely, the consentof the person aggrieved or the person injured or the complainantcannot be wished away nor can the same be substituted by virtueof Section 147 of the NI Act.”

47. In Kaushalya Devi Massand v. Roopkishore Khore,(2011) 4 SCC 593, Division Bench of this Court succinctly stated:

“11. Having considered the submissions made on behalf of theparties, we are of the view that the gravity of complaint underCthe Negotiable Instruments Act cannot be equated with an offenceunder the provisions of the Penal Code, 1860 or other criminaloffences. An offence under Section 138 of the NegotiableInstruments Act, 1881, is almost in the nature of civil wrong”which has been given criminal overtones.

(emphasis supplied)

(This is the clearest enunciation of Section 138 proceeding beinga “civil sheep” in “criminal wolf’s” clothing.)

48. In R. Vijayan v. Baby, (2012) 1 SCC 260, this Court referredto the provisions of Chapter XVII of the Negotiable Instruments Act,Eobserving that Chapter XVII is unique exercise which blurs the dividingline between civil and criminal jurisdictions. The Court held:

“16. We propose to address an aspect of the cases under Section138 of the Act, which is not dealt with in Damodar S.Prabhu [(2010) 5 SCC 663 : (2010) 2 SCC (Cri) 1328 : (2010) 2FSCC (Civ) 520] . It is sometimes said that cases arising underSection 138 of the Act are really civil cases masquerading ascriminal cases. The avowed object of Chapter XVII of the Act isto “encourage the culture of use of cheques and enhance thecredibility of the instrument”. In effect, its object appears to beGboth punitive as also compensatory and restitutive, in regard tocheque dishonour cases. Chapter XVII of the Act is uniqueexercise which blurs the dividing line between civil and criminaljurisdictions. It provides single forum and single proceeding, forenforcement of criminal liability (for dishonouring the cheque) andfor enforcement of the civil liability (for realisation of the cheque

amount) thereby obviating the need for the creditor to move twodifferent fora for relief. This is evident from the followingprovisions of Chapter XVII of the Act:

(i)The provision for levy of fine which is linked to thecheque amount and may extend to twice the amount ofthe cheque (Section 138) thereby rendering SectionB357(3) virtually infructuous insofar as cheque dishonourcases are concerned.

(ii)The provision enabling First Class Magistrate to levyfine exceeding Rs 5000 (Section 143) notwithstandingthe ceiling to the fine, as Rs 5000 imposed by Section29(2) of the Code.

(iii)The provision relating to mode of service of summons(Section 144) as contrasted from the mode prescribedfor criminal cases in Section 62 of the Code.

(iv)The provision for taking evidence of the complainant byaffidavit (Section 145) which is more prevalent in civilproceedings, as contrasted from the procedure forrecording evidence in the Code.

(v)The provision making all offences punishable underSection 138 of the Act compoundable.

17. The apparent intention is to ensure that not only the offenderis punished, but also ensure that the complainant invariably receivesthe amount of the cheque by way of compensation under Section357(1)(b) of the Code. Though complaint under Section 138 ofthe Act is in regard to criminal liability for the offence ofdishonouring the cheque and not for the recovery of the chequeamount (which strictly speaking, has to be enforced by civilsuit), in practice once the criminal complaint is lodged under Section138 of the Act, civil suit is seldom filed to recover the amount ofthe cheque. This is because of the provision enabling the court tolevy fine linked to the cheque amount and the usual direction insuch cases is for payment as compensation, the cheque amount,as loss incurred by the complainant on account of dishonour ofcheque, under Section 357(1)(b) of the Code and the provisionfor compounding the offences under Section 138 of the Act. Mostof the cases (except those where liability is denied) get

Acompounded at one stage or the other by payment of the chequeamount with or without interest. Even where the offence is notcompounded, the courts tend to direct payment of compensationequal to the cheque amount (or even something more towardsinterest) by levying fine commensurate with the cheque amount.A stage has reached when most of the complainants, in particularBthe financing institutions (particularly private financiers) view theproceedings under Section 138 of the Act, as proceeding for therecovery of the cheque amount, the punishment of the drawer ofthe cheque for the offence of dishonour, becoming secondary.”

(emphasis supplied)

49. In Dashrath Rupsingh Rathod v. State of Maharashtra,(2014) 9 SCC 129, three-Judge Bench of this Court answered thequestion as to whether the territorial jurisdiction for filing of chequedishonour complaints is restricted to the court within whose territorialjurisdiction the offence is committed, which is the location where theDcheque is dishonoured, i.e., returned unpaid by the bank on which it isdrawn. This judgment has been legislatively overruled by Section 142(2)of the Negotiable Instruments Act set out hereinabove. However, ShriMehta relied upon paragraphs 15.2 and 17 of the judgment of VikramjitSen, J., which states as follows:

“15.2. We have undertaken this succinct study mindful of the factthat Parliamentary debates have limited part to play ininterpretation of statutes, the presumption being that legislatorshave the experience, expertise and language skills to draft lawswhich unambiguously convey their intentions and expectations forFthe enactments. What is palpably clear is that Parliament wasaware that they were converting civil liability into criminal contentinter alia by the deeming fiction of culpability in terms of the pandectcomprising Section 138 and the succeeding sections, whichseverely curtail defences to prosecution. Parliament was alsoaware that the offence of cheating, etc. already envisaged in IPC,Gcontinued to be available.”

xxx xxx xxx

“17. The marginal note of Section 138 of the NI Act explicitlydefines the offence as being the dishonour of cheques forinsufficiency, etc. of funds in the account. Of course, the headings,

captions or opening words of piece of legislation are normallynot strictly or comprehensively determinative of the sweep of theactual Section itself, but it does presage its intendment. See FrickIndia Ltd. v. Union of India [(1990) 1 SCC 400 : 1990 SCC(Tax) 185] and Forage & Co. v. Municipal Corpn. of GreaterBombay [(1999) 8 SCC 577]. Accordingly, unless the provisionsof the section clearly point to the contrary, the offence isconcerned with the dishonour of cheque; and in the conundrumbefore us the body of this provision speaks in the same timbresince it refers to cheque being “returned by the bank unpaid”.None of the provisions of IPC have been rendered nugatory bySection 138 of the NI Act and both operate on their own. It istrite that mens rea is the quintessential of every crime. Theobjective of Parliament was to strengthen the use of cheques,distinct from other negotiable instruments, as mercantile tenderand therefore it became essential for Section 138 of the NI Actoffence to be freed from the requirement of proving mens rea.This has been achieved by deeming the commission of an offencedehors mens rea not only under Section 138 but also by virtue ofthe succeeding two sections. Section 139 carves out thepresumption that the holder of cheque has received it for thedischarge of any liability. Section 140 clarifies that it will not beavailable as defence to the drawer that he had no reason tobelieve, when he issued the cheque, that it would be dishonoured.Section 138 unequivocally states that the offence is committedno sooner the drawee bank returns the cheque unpaid.”

The focus in this case was on the court within whose jurisdictionthe offence under Section 138 can be said to have taken place. Thiscase, therefore, has no direct relevance to the point that has been urgedbefore us.

50. In Lafarge Aggregates & Concrete India (P) Ltd. v.Sukarsh Azad, (2014) 13 SCC 779, this Court, continuing the trend ofthe earlier judgments in describing the hybrid nature of these provisions,held:

“6. The respondents have agreed to pay the said amount but theappellant has refused to accept the payment and insisted that theappeal against rejection of the recall application should be allowedby this Court. The counsel for the appellant submitted that merely

ABC

because the accused has offered to make the payment at laterstage, the same cannot compel the complainant appellant to acceptit and the complainant appellant would be justified in pursuing thecomplaint which was lodged under the Negotiable InstrumentsAct, 1881. In support of his submission, the counsel for the appellantalso relied on Rajneesh Aggarwal v. Amit J. Bhalla [(2001) 1SCC 631 : 2001 SCC (Cri) 229].[1]

7. However, we do not feel persuaded to accept this submissionas the appellant has to apprise himself that the primary object andreason of the Negotiable Instruments Act, 1881, is not merelypenal in nature but is to maintain the efficiency and value of anegotiable instrument by making the accused honour the negotiableinstrument and paying the amount for which the instrument hadbeen executed.

8. The object of bringing Sections 138 to 142 of the NegotiableInstruments Act on statute appears to be to inculcate faith in theDefficacy of banking operations and credibility in transacting businessof negotiable instruments. Despite several remedies, Section 138of the Act is intended to prevent dishonesty on the part of thedrawer of negotiable instrument to draw cheque without sufficientfunds in his account maintained by him in bank and induces theEpayee or holder in due course to act upon it. Therefore, once acheque is drawn by person of an account maintained by him forpayment of any amount or discharge of liability or debt or isreturned by bank with endorsement like (i) refer to drawer, (ii)exceeds arrangements, and (iii) instruction for stop payment andlike other usual endorsement, it amounts to dishonour within theFmeaning of Section 138 of the Act. Therefore, even after issuanceof notice if the payee or holder does not make the payment withinthe stipulated period, the statutory presumption would be ofdishonest intention exposing to criminal liability.”

xxx xxx xxxG

1 The judgment in Rajneesh Aggarwal v. Amit J. Bhalla, (2001) 1 SCC 631 wasdelivered prior to the 2002 and 2018 Amendment Acts to the Negotiable InstrumentsAct. The perceptible shift in the provisions by introducing Sections 143 to 148 hasbeen noticed by this Court hereinabove, as result of which the observations containedHin this judgment would no longer be valid.

“10. However, in the interest of equity, justice and fair play, wedeem it appropriate to direct the respondents to make the paymentto the appellant by issuing demand draft in their favour for sumof Rs 5 lakhs, which would be treated as an overall amount includinginterest and compensation towards the cheque for which stop-payment instructions had been issued. If the same is not acceptableto the appellant, it is their choice but that would not allow them toprosecute the respondents herein in pursuance to the complaintwhich they have lodged implicating these two respondents.”

51. In Meters and Instruments (P) Ltd. v. Kanchan Mehta,(2018) 1 SCC 560, this Court noticed the object of Section 138 and theamendments made to Chapter XVII, and summarised the case law asfollows:

“6. The object of introducing Section 138 and other provisions ofChapter XVII in the Act in the year 1988 [Vide the Banking,Public Financial Institutions and Negotiable Instruments Laws(Amendment) Act, 1988] was to enhance the acceptability ofcheques in the settlement of liabilities. The drawer of cheque ismade liable to prosecution on dishonour of cheque with safeguardsto prevent harassment of honest drawers. The NegotiableInstruments (Amendment and Miscellaneous Provisions) Act,2002 to amend the Act was brought in, inter alia, to simplify theprocedure to deal with such matters. The amendment includesprovision for service of summons by speed post/courier, summarytrial and making the offence compoundable.7. This Court has noted that the object of the statute was to facilitatesmooth functioning of business transactions. The provision isnecessary as in many transactions cheques were issued merely asa device to defraud the creditors. Dishonour of cheque causesincalculable loss, injury and inconvenience to the payee and credibilityof business transactions suffers setback. [Goaplast (P)Ltd. v. Chico Ursula D’Souza, (2004) 2 SCC 235, p. 248, para 26: 2004 SCC (Cri) 499] At the same time, it was also noted thatnature of offence under Section 138 primarily related to civil wrongand the 2002 Amendment specifically made it compoundable. [VinayDevanna Nayak v. Ryot Sewa Sahakari Bank Ltd., (2008) 2 SCC305 : (2008) 1 SCC (Civ) 542 : (2008) 1 SCC (Cri) 351] The offencewas also described as “regulatory offence”. The burden of proof

Awas on the accused in view of presumption under Section 139 andthe standard of proof was of “preponderance of probabilities”.[Rangappa v. Sri Mohan, (2010) 11 SCC 441, p. 454, para 28 :(2010) 4 SCC (Civ) 477 : (2011) 1 SCC (Cri) 184] The object of theprovision was described as both punitive as well as compensatory.The intention of the provision was to ensure that the complainantBreceived the amount of cheque by way of compensation. Thoughproceedings under Section 138 could not be treated as civil suits forrecovery, the scheme of the provision, providing for punishmentwith imprisonment or with fine which could extend to twice theamount of the cheque or to both, made the intention of law clear.CThe complainant could be given not only the cheque amount butdouble the amount so as to cover interest and costs. Section357(1)(b) CrPC provides for payment of compensation for the losscaused by the offence out of the fine. [R. Vijayan v. Baby, (2012)1 SCC 260, p. 264, para 9 : (2012) 1 SCC (Civ) 79 : (2012) 1 SCC(Cri) 520] Where fine is not imposed, compensation can be awardedDunder Section 357(3) CrPC to the person who suffered loss.Sentence in default can also be imposed. The object of the provisionis not merely penal but to make the accused honour the negotiableinstruments. [Lafarge Aggregates & Concrete India (P)Ltd. v. Sukarsh Azad, (2014) 13 SCC 779, p. 781, para 7 : (2014)E5 SCC (Cri) 818]”

The Court then concluded:

“18. From the above discussion the following aspects emerge:

18.1. Offence under Section 138 of the Act is primarily civilwrong.Burden of proof is on the accused in view of presumptionFunder Section 139 but the standard of such proof is “preponderanceof probabilities”. The same has to be normally tried summarily asper provisions of summary trial under CrPC but with such variationas may be appropriate to proceedings under Chapter XVII of theAct. Thus read, principle of Section 258 CrPC will apply and theGcourt can close the proceedings and discharge the accused onsatisfaction that the cheque amount with assessed costs andinterest is paid and if there is no reason to proceed with the punitiveaspect.

18.2. The object of the provision being primarily compensatory,punitive element being mainly with the object of enforcing the

compensatory element, compounding at the initial stage has to beencouraged but is not debarred at later stage subject to appropriatecompensation as may be found acceptable to the parties or thecourt.

18.3. Though compounding requires consent of both parties, evenin absence of such consent, the court, in the interests of justice,on being satisfied that the complainant has been duly compensated,can in its discretion close the proceedings and discharge theaccused.

18.4. Procedure for trial of cases under Chapter XVII of the Acthas normally to be summary. The discretion of the Magistrateunder second proviso to Section 143, to hold that it was undesirableto try the case summarily as sentence of more than one year mayhave to be passed, is to be exercised after considering the furtherfact that apart from the sentence of imprisonment, the court hasjurisdiction under Section 357(3) CrPC to award suitablecompensation with default sentence under Section 64 IPC andwith further powers of recovery under Section 431 CrPC. Withthis approach, prison sentence of more than one year may not berequired in all cases.

18.5. Since evidence of the complaint can be given on affidavit,subject to the court summoning the person giving affidavit andexamining him and the bank’s slip being prima facie evidence ofthe dishonour of cheque, it is unnecessary for the Magistrate torecord any further preliminary evidence. Such affidavit evidencecan be read as evidence at all stages of trial or other proceedings.The manner of examination of the person giving affidavit can beas per Section 264 CrPC. The scheme is to follow summaryprocedure except where exercise of power under second provisoto Section 143 becomes necessary, where sentence of one yearmay have to be awarded and compensation under Section 357(3)is considered inadequate, having regard to the amount of thecheque, the financial capacity and the conduct of the accused orany other circumstances.”[2]

(emphasis supplied)

2 This judgment was subsequently referred to with approval in Makwana MangaldasTulsidas v. State of Gujarat, (2020) 4 SCC 695 (at paragraphs 17 and 18).

A52. In recent judgment in M. Abbas Haji v. T.N.Channakeshava, (2019) 9 SCC 606, this Court held:

“6. It is urged before us that the High Court overstepped the limitswhich the appellate court is bound by criminal cases setting asidean order of acquittal. Proceedings under Section 138 of the Act-Bare quasicriminal proceedings.The principles, which apply toacquittal in other criminal cases, cannot apply to these cases. …”

(emphasis supplied)

Likewise, in H.N. Jagadeesh v. R. Rajeshwari, (2019) 16 SCC730, this Court again alluded to the quasi-criminal nature of the offenceCas follows:

“7. The learned counsel for the respondent has submitted that inorder to advance the cause of justice, such an approach ispermissible and for this purpose he has relied upon the judgmentof this Court in Zahira Habibulla H. Sheikh v. State ofDGujarat [Zahira Habibulla H. Sheikh v. State of Gujarat,(2004) 4 SCC 158 : 2004 SCC (Cri) 999] . We are afraid that theratio of the aforesaid judgment cannot be extended to the facts ofthis case, particularly when we find that the present case is acomplaint case filed by the respondent under Section 138 of theEAct and where the proceedings are also of quasi-criminal nature.”

(emphasis supplied)

53. conspectus of these judgments would show that the gravamenof proceeding under Section 138, though couched in language makingthe act complained of an offence, is really in order to get back through aFsummary proceeding, the amount contained in the dishonoured chequetogether with interest and costs, expeditiously and cheaply. We havealready seen how it is the victim alone who can file the complaint whichordinarily culminates in the payment of fine as compensation which mayextend to twice the amount of the cheque which would include the amountof the cheque and the interest and costs thereupon. Given our analysisGof Chapter XVII of the Negotiable Instruments Act together with theamendments made thereto and the case law cited hereinabove, it is clearthat quasi-criminal proceeding that is contained in Chapter XVII of theNegotiable Instruments Act would, given the object and context of Section14 of the IBC, amount to “proceeding” within the meaning of SectionH14(1)(a), the moratorium therefore attaching to such proceeding.

P. MOHANRAJ & ORS. v. M/S. SHAH BROTHERS ISPAT PVT. LTD.

QUASI-CRIMINAL PROCEEDINGS

54. Shri Lekhi, learned Additional Solicitor General, took strongobjection to the use of the expression “quasi-criminal” to describeproceedings under Section 138 of the Negotiable Instruments Act, which,according to him, can only be described as criminal proceedings. This isfor the reason that these proceedings result in imprisonment or fine orboth, which are punishments that can be imposed only in criminalproceedings as stated by Section 53 of the Indian Penal Code. It isdifficult to agree with Shri Lekhi. There are many instances of actswhich are punishable by imprisonment or fine or both which have beendescribed as quasi-criminal. One instance is the infraction of Section630 of the Companies Act, 1956. This section reads as follows:

“630. Penalty for wrongful withholding of property.—(1) Ifany officer or employee of company—

(a) wrongfully obtains possession of any property of company;or

(b) having any such property in his possession, wrongfullywithholds it or knowingly applies it to purposes other than thoseexpressed or directed in the articles and authorised by this Act;

he shall, on the complaint of the company or any creditor orcontributory thereof, be punishable with fine which may extend toten thousand rupees.

(2) The Court trying the offence may also order such officer oremployee to deliver up or refund, within time to be fixed by theCourt, any such property wrongfully obtained or wrongfullywithheld or knowingly misapplied or in default, to sufferimprisonment for term which may extend to two years.”

In Abhilash Vinodkumar Jain v. Cox & Kings (India) Ltd.,(1995) 3 SCC 732, this Court examined whether petition under Section630 of the Companies Act, 1956 is maintainable against the legal heirs ofa deceased officer or employee for retrieval of the company’s property.In holding that it was so retrievable, this Court held:

“15. Even though Section 630 of the Act falls in Part XIII of theCompanies Act and provides for penal consequences for wrongfulwithholding of the property of the company, the provisions strictlyspeaking are not penal in the sense as understood under the penal

law. The provisions are quasi-criminal. They have been enactedwith the main object of providing speedy relief to company whenits property is wrongfully obtained or wrongfully withheld by an--employee or officer or an exemployee or exofficer or anyoneclaiming under them. In our opinion, proper construction of thesection would be that the term “officer or employee” of companyin Section 630 of the Act would by deeming fiction include thelegal heirs and representatives of the employee or the officerconcerned continuing in occupation of the property of the companyafter the death of the employee or the officer.

16. Under sub-section (1) of Section 630 for the wrongful obtainingCof the possession of the property of the company or wrongfullywithholding it or knowingly applying it to purpose other than thatauthorised by the company, the employee or the officer concernedis “punishable with fine which may extend to one thousand rupees”.The ‘fine’ under this sub-section is to be understood in the natureDof ‘compensation’ for wrongful withholding of the property of thecompany. Under sub-section (2) what is made punishable isthe disobedience of the order of the Court, directing the person,continuing in occupation, after the right of the employee or theofficer to occupation has extinguished, to deliver up or refundwithin time to be fixed by the court, the property of the companyEobtained or wrongfully withheld or knowingly misapplied. Thus, itis in the event of the disobedience of the order of the court, thatimprisonment for term which may extend to two years has beenprescribed. The provision makes the defaulter, whether anemployee or past employee or the legal heir of the employee,Fwho disobeys the order of the court to hand back the property tothe company within the prescribed time liable for punishment.”

(emphasis supplied)

Having so held, the Court did not construe the provision strictly,which it would have been bound to do had it been purely criminal one,Gbut instead gave it broad, liberal, and purposeful construction as follows:

“18. Section 630 of the Act provides speedy relief to the companywhere its property is wrongfully obtained or wrongfully withheldby an “employee or an officer” or “past employee or an officer”or “legal heirs and representatives” deriving their colour andHcontent from such an employee or officer insofar as the occupation

and possession of the property belonging to the company isconcerned. The failure to deliver property back to the employeron the termination, resignation, superannuation or death of anemployee would render the ‘holding’ of that property wrongfuland actionable under Section 630 of the Act. To hold that the“legal heirs” would not be covered by the provisions of Section630 of the Act would be unrealistic and illogical. It would defeatthe ‘beneficent’ provision and ignore the factual realities that thelegal heirs or family members who are continuing in possession ofthe allotted property had obtained the right of occupancy withthe employee concerned in the property of the employer only byvirtue of their relationship with the employee/officer and had notobtained or acquired the right to possession of the property inany other capacity, status or right. The legislature, which issupposed to know and appreciate the needs of the people, byenacting Section 630 of the Act manifested that it was consciousof the position that today in the corporate sector — private orpublic enterprise — the employees/officers are often providedresidential accommodation by the employer for the “use andoccupation” of the employee concerned during the course of hisemployment. More often than not, it is part of the serviceconditions of the employee that the employer shall provide himresidential accommodation during the course of his employment.If an employee or past employee or anyone claiming the right ofoccupancy under them, were to continue to ‘hold’ the propertybelonging to the company after the right to be in occupation hasceased for one reason or the other, it would not only createdifficulties for the company, which shall not be able to allot thatproperty to its other employees, but would also cause hardship forthe employee awaiting allotment and defeat the intention of thelegislature. The courts are therefore obliged to place broader,liberal and purposeful construction on the provisions of Section630 of the Act in furtherance of the object and purpose of thelegislation and construe it in wider sense to effectuate theintendment of the provision. The “heirs and legal representatives”of the deceased employee have no independent capacity or statusto continue in occupation and possession of the property, whichstood allotted to the employee or the officer concerned or resistthe return of the property to the employer in the absence of any

ABC

DEF

Aexpress agreement to the contrary entered with them by theemployer. The court, when approached by the employer for takingaction under Section 630 of the Act, can examine the basis onwhich the petition/complaint is filed and if it is found that thecompany’s right to retrieve its property is quite explicit and thestand of the employee, or anyone claiming through him, to continueBin possession is baseless, it shall proceed to act under Section 630of the Act and pass appropriate orders. Only an independent validright, not only to occupation but also to possession of the propertybelonging to the company, unconnected with the employment ofthe deceased employee can defeat an action under Section 630Cof the Act if it can be established that the deceased employeeconcerned had not wrongfully nor knowingly applied it for purposesother than those authorised by the employer. In interpreting abeneficent provision, the court must be forever alive to the principlethat it is the duty of the court to defend the law from clever evasionand defeat and prevent perpetration of legal fraud.”

55. Likewise, contempt of court proceedings have been describedas “quasi-criminal” in long series of judgments. We may point out thatthe predecessor to the Contempt of Courts Act, 1971, namely, theContempt of Courts Act, 1952 did not contain any definition of theexpression “contempt of court”. Committee was appointed by theEGovernment of India, referred to as the Sanyal Committee, which thenwent into whether this expression needs to be defined. The SanyalCommittee Report, 1963 then broadly divided contempts into two kinds– civil and criminal contempt – as follows:

“2.1. … Broadly speaking, the classification follows the methodof dividing contempt into criminal and civil contempts. TheShawcross Committee adopted the same classification on thegrounds of convenience. Broadly speaking, civil contempts arecontempts which involve private injury occasioned bydisobedience to the judgment, order or other process of the court.On the other hand, criminal contempts are right from their inceptionin the nature of offences. In Legal Remembrancer v. MatilalGhose, I.L.R. 41 Cal. 173 at 252, Mukerji J. observed thus: “Acriminal contempt is conduct that is directed against the dignityand authority of the court. civil contempt is failure to do somethingordered to be done by court in civil action for the benefit of the

opposing party therein. Consequently, in the case of civil contempt,the proceeding for its punishment is at the instance of the partyinterested and is civil in its character; in the case of criminalcontempt, the proceeding is for punishment of an act committedagainst the majesty of the law, and, as the primary purpose of thepunishment is the vindication of the public authority, the proceedingsconform as nearly as possible to proceedings in criminal cases. Itis conceivable that the dividing line between the acts constitutingcriminal and those constituting civil contempts may becomeindistinct in those cases where the two gradually merge into eachother.”

2.2. Notwithstanding the existence of broad distinction betweencivil and criminal contempts, large number of cases have shownthat the dividing line between the two is almost imperceptible. Forinstance, in Dulal Chandra v. Sukumar, A.I.R. 1958 Cal. 474at 476, 477, the following observations occur:

“The line between civil and criminal contempt can be broad aswell as thin. Where the contempt consists in mere failure tocomply with or carry out an order of court made for thebenefit of private party, it is plainly civil contempt and it hasbeen said that when the party, in whose interest the order wasmade, moves the court for action to be taken in contempt againstthe contemner with view to an enforcement of his right, theproceeding is only form of execution. In such case, there isno criminality in the disobedience, and the contempt, such as itis, is not criminal. If, however, the contemner adds defiance ofthe court to disobedience of the order and conducts himself ina manner which amounts to obstruction or interference withthe course of justice, the contempt committed by him is of amixed character, partaking as between him and his opponentof the nature of civil contempt and as between him and thecourt or the State, of the nature of criminal contempt. Incases of this type, no clear distinction between civil and criminalcontempt can be drawn and the contempt committed cannotbe broadly classed as either civil or criminal contempt … Toput the matter in other words, contempt is merely civilwrong where there has been disobedience of an order madefor the benefit of particular party, but where it has consisted

in setting the authority of the courts at nought and has had atendency to invade the efficacy of the machinery maintainedby the State for the administration of justice, it is public wrongand consequently criminal in nature.”

2.3.In other words, the question whether contempt is civil orcriminal is not to be judged with reference to the penalty whichmay be inflicted but with reference to the cause for which thepenalty has been inflicted. …”

(at pages 21-22)(emphasis supplied)

56. The Statement of Objects and Reasons for the Contempt ofCourts Act, 1971 expressly states that the said Act was in pursuance ofthe Sanyal Committee Report as follows:

“Statement of Objects and Reasons.—It is generally felt thatDthe existing law relating to contempt of courts is somewhatuncertain, undefined and unsatisfactory. The jurisdiction to punishfor contempt touches upon two important fundamental rights ofthe citizen, namely, the right to personal liberty and the right tofreedom of expression. It was, therefore, considered advisable tohave the entire law on the subject scrutinised by specialEcommittee. In pursuance of this, Committee was set up in 1961under the Chairmanship of the late Shri H. N. Sanyal the thenAdditional Solicitor General. The Committee made acomprehensive examination of the law and problems relating tocontempt of Court in the light of the position obtaining in our ownFcountry and various foreign countries. The recommendationswhich the Committee made took note of the importance given tofreedom of speech in the Constitution and of the need forsafeguarding the status and dignity of Courts and interests ofadministration of justice.

The recommendations of the Committee have beengenerally accepted by Government after considering the viewsexpressed on those recommendations by the State Governments,Union Territory Administrations the Supreme Court, the HighCourts and the Judicial Commissioners. The Bill seeks to giveeffect to the accepted recommendations of the SanyalCommittee.”

57. The Contempt of Courts Act, 1971 defines “civil contempt”and “criminal contempt” as follows:

“2. Definitions.—In this Act, unless the context otherwiserequires,—

xxx xxx xxx

(b) “civil contempt” means wilful disobedience to any judgment,decree, direction, order, writ or other process of court or wilfulbreach of an undertaking given to court;

(c) “criminal contempt” means the publication (whether by words,spoken or written, or by signs, or by visible representations, orotherwise) of any matter or the doing of any other act whatsoeverwhich—

(i) scandalises or tends to scandalise, or lowers or tends tolower the authority of any court; or

(ii) prejudices, or interferes or tends to interfere with, the duecourse of any judicial proceeding; or

(iii) interferes or tends to interfere with, or obstructs or tendsto obstruct, the administration of justice in any other manner;

xxx xxx xxx”

58. Whether the contempt committed is civil or criminal, the HighCourt is empowered to try such “offences” whether the person allegedlyguilty is within or outside its territorial jurisdiction. Thus, Section 11 ofthe Contempt of Courts Act, states:

“11. Power of High Court to try offences committed oroffenders found outside jurisdiction.—A High Court shall havejurisdiction to inquire into or try contempt of itself or of anycourt subordinate to it, whether the contempt is alleged to havebeen committed within or outside the local limits of its jurisdiction,and whether the person alleged to be guilty of contempt is withinor outside such limits.”

Punishments awarded for contempt of court, whether civil orcriminal, are then dealt with by Section 12 of the Act, which states:

“12. Punishment for contempt of court.—(1) Save as otherwiseexpressly provided in this Act or in any other law, contempt of

court may be punished with simple imprisonment for term whichmay extend to six months, or with fine which may extend to twothousand rupees, or with both:

Provided that the accused may be discharged or thepunishment awarded may be remitted on apology being made tothe satisfaction of the court.

Explanation.—An apology shall not be rejected merely onthe ground that it is qualified or conditional if the accused makesit bona fide.

(2) Notwithstanding anything contained in any law for the timebeing in force, no court shall impose sentence in excess of thatspecified in sub-section(1) for any contempt either in respect ofitself or of court subordinate to it.

(3) Notwithstanding anything contained in this section, where aperson is found guilty of civil contempt, the court, if it considersthat fine will not meet the ends of justice and that sentence ofimprisonment is necessary shall, instead of sentencing him to simpleimprisonment, direct that he be detained in civil prison for suchperiod not exceeding six months as it may think fit.

(4) Where the person found guilty of contempt of court in respectof any undertaking given to court is company, every personwho, at the time the contempt was committed, was in charge of,and was responsible to, the company for the conduct of the businessof the company, as well as the company, shall be deemed to beguilty of the contempt and the punishment may be enforced withthe leave of the court, by the detention in civil prison of each suchperson:

Provided that nothing contained in this sub-section shallrender any such person liable to such punishment if he provesthat the contempt was committed without his knowledge or thathe exercised all due diligence to prevent its commission.

(5) Notwithstanding anything contained in sub-section (4), wherethe contempt of court referred to therein has been committed bya company and it is proved that the contempt has been committedwith the consent or connivance of, or is attributable to any neglecton the part of, any director, manager, secretary or other officer of

the company, such director, manager, secretary or other officershall also be deemed to be guilty of the contempt and the punishmentmay be enforced, with the leave of the court, by the detention incivil prison of such director, manager, secretary or other officer.

Explanation.—For the purpose of sub-sections (4) and (5),—

(a)“company” means any body corporate and includes afirm or other association of individuals; and

(b)“director”, in relation to firm, means partner in thefirm.”

59. In criminal contempt cases, “cognizance” in contempts otherthan those referred to in Section 14 of the Act is taken by the SupremeCourt or the High Court in the manner provided by Section 15. Section17 then lays down the procedure that is to be followed after cognizanceis taken. Finally, by Section 23, the Supreme Court and the High Courtsare given the power to make rules, not inconsistent with the provisionsof the Act, providing for any matter relating to its procedure.

60. This Court, in Niaz Mohd. v. State of Haryana, (1994) 6SCC 332, spoke of the hybrid nature of civil contempt as follows:

“9. Section 2(b) of the Contempt of Courts Act, 1971 (hereinafterreferred to as ‘the Act’) defines “civil contempt” to mean “wilfuldisobedience to any judgment, decree, direction, order, writ orother process of court …”. Where the contempt consists infailure to comply with or carry out an order of court made infavour of party, it is civil contempt. The person or persons inwhose favour such order or direction has been made can movethe court for initiating proceeding for contempt against the allegedcontemner, with view to enforce the right flowing from the orderor direction in question. …

10. … In Halsbury’s Laws of England, 4th Edn., Vol. 9, para53, p. 34, it has been said:

“Although contempt may be committed in the absence of wilfuldisobedience on the part of the contemner, committal orsequestration will not be order unless the contempt involves adegree of fault or misconduct.”

AIt has been further stated:

“In circumstances involving misconduct, civil contempt bearsa twofold character, implying as between the parties to theproceedings merely right to exercise and liability to submitto form of civil execution, but as between the party in defaultand the State, penal or disciplinary jurisdiction to be exercisedby the court in the public interest.”

(emphasis supplied)

In T.N. Godavarman Thirumulpad (102) v. Ashok Khot,(2006) 5 SCC 1, this Court held:

“33.Proceedings for contempt are essentially personal andpunitive. This does not mean that it is not open to the court, as amatter of law to make finding of contempt against any officialof the Government say, Home Secretary or Minister.

34. While contempt proceedings usually have these characteristicsand contempt proceedings against government department or aMinister in an official capacity would not be either personal orpunitive (it would clearly not be appropriate to fine or sequesterthe assets of the Crown or government department or an officerof the Crown acting in his official capacity), this does not meanthat finding of contempt against government department orMinister would be pointless. The very fact of making such findingwould vindicate the requirements of justice. In addition, an orderfor costs could be made to underline the significance of contempt.A purpose of the court’s powers to make findings of contempt isto ensure that the orders of the court are obeyed. This jurisdictionis required to be coextensive with the court’s jurisdiction to makeorders which need the protection which the jurisdiction to makefindings of contempt provides. In civil proceedings the court cannow make orders (other than injunctions or for specificperformance) against authorised government departments or theAttorney General. On applications for judicial review orders canbe made against Ministers. In consequence such orders must betaken not to offend the theory that the Crown can supposedly dono wrong. Equally, if such orders are made and not obeyed, thebody against whom the orders were made can be found guilty ofcontempt without offending that theory, which could be the only

justifiable impediment against making finding of contempt.(See M. v. Home Office [(1993) 3 All ER 537 : (1994) 1 AC 377: (1993) 3 WLR 433 (HL)]).”

(emphasis supplied)

61. The description of contempt proceedings being “quasi-criminal”in nature has its origin in the celebrated Privy Council judgment of AndrePaul Terence Ambard v. Attorney-General of Trinidad andTobago, AIR 1936 PC 141 in which Lord Atkin referred to contempt ofcourt proceedings as quasi-criminal (see page 143).

62. In Sahdeo v. State of U.P., (2010) 3 SCC 705, this Courtagain referred to the “quasi-criminal” nature of contempt proceedingsas follows:

“15. The proceedings of contempt are quasi-criminal in nature.In case where the order passed by the court is not compliedwith by mistake, inadvertence or by misunderstanding of themeaning and purport of the order, unless it is intentional, no chargeof contempt can be brought home. There may possibly be casewhere disobedience is accidental. If that is so, there would beno contempt. [Vide B.K. Kar v. Chief Justice and Justices ofthe Orissa High Court [AIR 1961 SC 1367 : (1961) 2 Cri LJ438] (AIR p. 1370, para 7).]

xxx xxx xxx

18. In Sukhdev Singh v. Teja Singh [AIR 1954 SC 186 : 1954Cri LJ 460] this Court placing reliance upon the judgment of thePrivy Council in Andre Paul Terence Ambard v. AttorneyGeneral of Trinidad and Tabago [AIR 1936 PC 141], held thatthe proceedings under the Contempt of Courts Act are quasi-criminal in nature and orders passed in those proceedings are tobe treated as orders passed in criminal cases.

19. In S. Abdul Karim v. M.K. Prakash [(1976) 1 SCC 975 :1976 SCC (Cri) 217 : AIR 1976 SC 859] , Chhotu Ram v. UrvashiGulati [(2001) 7 SCC 530 : 2001 SCC (L&S) 1196] , Anil RatanSarkar v. Hirak Ghosh [(2002) 4 SCC 21 : AIR 2002 SC 1405],Daroga Singh v. B.K. Pandey [(2004) 5 SCC 26 : 2004 SCC(Cri) 1521] and All India Anna Dravida Munnetra Kazhagamv. L.K. Tripathi [(2009) 5 SCC 417 : (2009) 2 SCC (Cri) 673 :

AIR 2009 SC 1314] , this Court held that burden and standard ofproof in contempt proceedings, being quasi-criminal in nature, isthe standard of proof required in criminal proceedings, for thereason that contempt proceedings are quasi-criminal in nature.

20. Similarly, in Mrityunjoy Das v. Sayed Hasibur Rahaman[(2001) 3 SCC 739 : (2006) 1 SCC (Cri) 296 : AIR 2001 SC 1293]this Court placing reliance upon large number of its earlierjudgments, including V.G. Nigam v. Kedar Nath Gupta [(1992) 4SCC 697 : 1993 SCC (L&S) 202 : (1993) 23 ATC 400 : AIR 1992SC 2153] and Murray & Co. v. Ashok Kumar Newatia [(2000)2 SCC 367 : 2000 SCC (Cri) 473 : AIR 2000 SC 833], held thatjurisdiction of contempt has been conferred on the Court to punishan offender for his contemptuous conduct or obstruction to themajesty of law, but in the case of quasi-criminal in nature, chargeshave to be proved beyond reasonable doubt and the allegedcontemnor becomes entitled to the benefit of doubt. It would bevery hazardous to impose sentence in contempt proceedings onsome probabilities.

xxx xxx xxx

27. In view of the above, the law can be summarised that theHigh Court has power to initiate the contempt proceedings suomotu for ensuring the compliance with the orders passed by theCourt. However, contempt proceedings being quasi-criminal innature, the same standard of proof is required in the same manneras in other criminal cases. The alleged contemnor is entitled tothe protection of all safeguards/rights which are provided in thecriminal jurisprudence, including the benefit of doubt. There mustbe clear-cut case of obstruction of administration of justice by aparty intentionally to bring the matter within the ambit of the saidprovision. The alleged contemnor is to be informed as to what isthe charge, he has to meet. Thus, specific charge has to be framedin precision. The alleged contemnor may ask the Court to permithim to cross-examine the witnesses i.e. the deponents of affidavits,who have deposed against him. In spite of the fact that contemptproceedings are quasi-criminal in nature, provisions of the Codeof Criminal Procedure, 1973 (hereinafter called “CrPC”) and theEvidence Act are not attracted for the reason that proceedings

have to be concluded expeditiously. Thus, the trial has to beconcluded as early as possible. The case should not rest only onsurmises and conjectures. There must be clear and reliableevidence to substantiate the allegations against the allegedcontemnor. The proceedings must be concluded giving strictadherence to the statutory rules framed for the purpose.”

In Maninderjit Singh Bitta v. Union of India, (2012) 1 SCC273, this Court again referred to “civil” and “criminal” contempt as follows:

“17. Section 12 of the 1971 Act deals with the contempt of courtand its punishment while Section 15 deals with cognizance ofcriminal contempt. Civil contempt would be wilful breach of anundertaking given to the court or wilful disobedience of anyjudgment or order of the court, while criminal contempt woulddeal with the cases where by words, spoken or written, signs orany matter or doing of any act which scandalises, prejudices orinterferes, obstructs or even tends to obstruct the due course ofany judicial proceedings, any court and the administration of justicein any other manner. Under the English law, the distinction betweencriminal and civil contempt is stated to be very little and that tooof academic significance. However, under both the English andIndian law these are proceedings sui generis.

xxx xxx xxx

19. Under the Indian law the conduct of the parties, the act ofdisobedience and the attendant circumstances are relevant toconsider whether case would fall under civil contempt or criminalcontempt. For example, disobedience of an order of courtsimpliciter would be civil contempt but when it is coupled withconduct of the parties which is contemptuous, prejudicial and is inflagrant violation of the law of the land, it may be treated as acriminal contempt. Even under the English law, the courts havethe power to enforce its judgment and orders against therecalcitrant parties.”

That contempt proceedings are “quasi-criminal” is also stated inKanwar Singh Saini v. High Court of Delhi, (2012) 4 SCC 307 (atparagraph 38) and in T.C. Gupta v. Bimal Kumar Dutta, (2014) 14SCC 446 (at paragraph 10).

A63. What is clear from the aforesaid is that though there may notbe any watertight distinction between civil and criminal contempt, yet,an analysis of the aforesaid authorities would make it clear that civilcontempt is essentially an action which is moved by the party in whoseinterest an order was made with view to enforce its personal right,where contumacious disregard for such order results in punishment ofBthe offender in public interest, whereas criminal contempt is, in essence,a proceeding which relates to the public interest in seeing that theadministration of justice remains unpolluted. What is of importance is tonote that even in cases of civil contempt, fine or imprisonment or bothmay be imposed. The mere fact that punishments that are awardableCrelate to Section 53 of the Indian Penal Code would not, therefore, rendera civil contempt proceeding criminal proceeding. There is great dealof wisdom in the finding of the Sanyal Committee Report that the questionwhether contempt is civil or criminal is not to be judged with referenceto the penalty which may be inflicted but with reference to the cause forwhich the penalty has been inflicted.D

64. Clearly, therefore, given the hybrid nature of civil contemptproceeding, described as “quasi-criminal” by several judgments of thisCourt, there is nothing wrong with the same appellation “quasi-criminal”being applied to Section 138 proceeding for the reasons given by us onan analysis of Chapter XVII of the Negotiable Instruments Act. We,Etherefore, reject the learned Additional Solicitor General’s strenuousargument that the appellation “quasi-criminal” is misnomer when itcomes to Section 138 proceedings and that therefore some of the casescited in this judgment should be given fresh look.

OTHER SECTIONS OF THE IBC IN RELATION TOFSECTION 14 OF THE IBC

65. Shri Mehta then argued that Section 33(5) of the IBC mayalso be seen, as it is provision analogous to Section 14(1)(a). Section33(5) states as follows:

G“33. Initiation of liquidation.—

xxx xxx xxx

(5) Subject to Section 52, when liquidation order has been passed,no suit or other legal proceeding shall be instituted by or againstthe corporate debtor:H

Provided that suit or other legal proceeding may beinstituted by the liquidator, on behalf of the corporate debtor, withthe prior approval of the Adjudicating Authority.

xxx xxx xxx”

It will be noted that under this Section, the expression “no suit orother legal proceeding” occurs both in the enacting part as well as theproviso. Going by the proviso first, given the object that the liquidatornow has to act on behalf of the company after winding-up order ispassed, which includes filing of suits and other legal proceedings onbehalf of the company, there is no earthly reason as to why Section138/141 proceeding would be outside the ken of the proviso. On thecontrary, as the liquidator alone now represents the company, it is obviousthat whatever the company could do pre-liquidation is now vested in theliquidator, and in order to realise monies that are due to the company,there is no reason why the liquidator cannot institute Section 138/141proceeding against defaulting debtor of the company. Obviously, thislanguage needs to be construed in the widest possible form as therecannot be any residuary category of “other legal proceedings” whichcan be instituted against some person other than the liquidator or by theliquidator who now alone represents the company. Given the object ofthis provision also, what has been said earlier with regard to the non-application of the doctrines of ejusdem generis and noscitur sociiswould apply with all force to this provision as well.66. In fact, several other provisions of the IBC may also be lookedat in this context. Thus, when it comes to the duties of resolutionprofessional who takes over the management of the company during thecorporate insolvency resolution process, Section 25(2)(b) states asfollows:

“25. Duties of resolution professional.—

xxx xxx xxx

(2) For the purposes of sub-section (1), the resolution professionalshall undertake the following actions, namely—

xxx xxx xxx

(b) represent and act on behalf of the corporate debtor withthird parties, exercise rights for the benefit of the corporatedebtor in judicial, quasi-judicial or arbitration proceedings;

xxx xxx xxx”

AHere again, given the fact that it is the resolution professionalalone who is now to preserve and protect the assets of the corporatedebtor in this interregnum, the resolution professional therefore is torepresent and act on behalf of the corporate debtor in all judicial, quasi-judicial, or arbitration proceedings, which would include criminalproceedings. Here again, the word “judicial” cannot be construed nosciturBa sociis so as to cut down its plain meaning, as otherwise, quasi-judicialor arbitration proceedings, not being criminal proceedings, the word“judicial” would then take colour from them. This would stultify the objectsought to be achieved by Section 25 and result in an absurdity, namely,that during this interregnum, nobody can represent or act on behalf ofCthe corporate debtor in criminal proceedings. Likewise, if corporatedebtor cannot be taken over by new management and has to becondemned to liquidation, the powers and duties of the liquidator, whilerepresenting the corporate debtor, are enumerated in Section 35. Section35(1)(k), in particular, states as follows:D“

“35. Powers and duties of liquidator.—(1) Subject to thedirections of the Adjudicating Authority, the liquidator shall havethe following powers and duties, namely:—

xxx xxx xxxEk

(k) to institute or defend any suit, prosecution or other legalproceedings, civil or criminal, in the name of on behalf of thecorporate debtor;

xxx xxx xxx”FThis provision specifically speaks of “prosecution” and “criminalproceedings”. Contrasted with Section 25(2)(b) and Section 33(5), anargument could be made that the absence of the expressions“prosecution” and “criminal proceedings” in Section 25(2)(b) and Section33(5) would show that they were designedly eschewed by the legislature.We have seen how inelegant drafting cannot lead to absurd results orGresults which stultify the object of provision, given its otherwise widelanguage. Thus, nothing can be gained by juxtaposing various provisionsagainst each other and arriving at conclusions that are plainly untenablein law.

P. MOHANRAJ & ORS. v. M/S. SHAH BROTHERS ISPAT PVT. LTD.

CASE LAW UNDER PROVISIONS OF OTHER STATUTES

67. Shri Mehta then relied strongly upon judgments under Section22(1) of the SICA and under Section 446(2) of the Companies Act,1956. He relied upon BSI Ltd. v. Gift Holdings (P) Ltd., (2000) 2SCC 737, which judgment held that the expression “suit” in Section 22(1)of the SICA would not include Section 138 proceeding. The Court wasdirectly concerned with only this expression and, therefore, held:

“19. The said contention is also devoid of merits. The word “suit”envisaged in Section 22(1) cannot be stretched to criminalprosecutions. The suit mentioned therein is restricted to “recoveryof money or for enforcement of any security against the industrialcompany or of any guarantee in respect of any loans or advancegranted to the industrial company”. As the suit is clearly delineatedin the provision itself, the context would not admit of any otherstretching process.

20. criminal prosecution is neither for recovery of money norfor enforcement of any security etc. Section 138 of the NI Act isa penal provision the commission of which offence entails aconviction and sentence on proof of the guilt in duly conductedcriminal proceedings. Once the offence under Section 138 iscompleted the prosecution proceedings can be initiated not forrecovery of the amount covered by the cheque but for bringingthe offender to penal liability. What was consideredin Maharashtra Tubes Ltd. [(1993) 2 SCC 144] is whether theremedy provided in Section 29 or Section 31 of the State FinanceCorporation Act, 1951 could be pursued notwithstanding the bancontained in Section 22 of SICA. Hence the legal principleadumbrated in the said decision is of no avail to the appellants.

21. In the above context it is pertinent to point out that Section138 of the NI Act was introduced in 1988 when SICA was alreadyin vogue. Even when the amplitude of the word “company”mentioned in Section 141 of the NI Act was widened through theexplanation added to the Section, Parliament did not think itnecessary to exclude companies falling under Section 22 of SICAfrom the operation thereof. If Parliament intended to exempt sickcompanies from prosecution proceedings, necessary provisionwould have been included in Section 141 of the NI Act. More

DEF

[2021] 14 S.C.R.

Asignificantly, when Section 22(1) of SICA was amended in 1994by inserting the words

“and no suit for the recovery of money or for the enforcementof any security against the industrial company or of anyguarantee in respect of any loans or advance granted to theBindustrial company”

Parliament did not specifically include prosecution proceedingswithin the ambit of the said ban.”

This case is wholly distinguishable as the word “proceedings” didnot come up for consideration at all. Further, given the object of SectionC22(1) of the SICA, which was amended in 1994 by inserting the wordsthat were interpreted by this Court, parliament restricted proceedingsonly to suits for recovery of money etc., thereby expressly not includingprosecution proceedings, as was held by this Court. The observationscontained in paragraph 20, that Section 138 of the Negotiable InstrumentsDAct is penal provision in criminal proceeding cannot now be said tobe good law given the march of events, in particular, the amendments of2002 and 2018 to the Negotiable Instruments Act, as pointed outhereinabove, and the later judgments of this Court interpreting ChapterXVII of the Negotiable Instruments Act.

E68. The next decision relied upon by Shri Mehta is the judgment inKusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd.,(2000) 2 SCC 745, which merely followed this judgment (see paragraphs15-18).

69. Likewise, all the judgments cited under Section 446(2) of theFCompanies Act, 1956 are distinguishable. Section 446(2) states as follows:

“446. Suits stayed on winding up order.—

xxx xxx xxx

(2) The Tribunal shall, notwithstanding anything contained in anyGother law for the time being in force, have jurisdiction to entertain,or dispose of—

(a)any suit or proceeding by or against the company;

(b)any claim made by or against the company (including claimsby or against any of its branches in India);H

P. MOHANRAJ & ORS. v. M/S. SHAH BROTHERS ISPAT PVT. LTD.[R. F. NARIMAN, J.](c)any application made under Section 391 by or in respect ofthe company;

(d)any question of priorities or any other question whatsoever,whether of law or fact, which may relate to or arise incourse of the winding up of the company;

whether such suit or proceeding has been instituted or is instituted,or such claim or question has arisen or arises or such applicationhas been made or is made before or after the order for the windingup of the company, or before or after the commencement of theCompanies (Amendment) Act, 1960.

xxx xxx xxx”

70. In S.V. Kandeakar v. V.M. Deshpande, (1972) 1 SCC438[“S.V. Kandeakar”], this Court explained why income taxproceedings would be outside the purview of Section 446(2) as follows:

“17. Turning now to the Income Tax Act it is noteworthy thatSection 148 occurs in Chapter XIV which beginning with Section139 prescribes the procedure for assessment and Section 147provides for assessment or reassessment of income escapingassessment. This Section empowers the Income Tax Officerconcerned subject to the provisions of Sections 148 to 153 to assessor re-assess escaped income. While holding these assessmentproceedings the Income Tax Officer does not, in our view, performthe functions of Court as contemplated by Section 446(2) of theAct. Looking at the legislative history and the scheme of the IndianCompanies Act, particularly the language of Section 446, read asa whole, it appears to us that the expression “other legalproceeding” in sub-section (1) and the expression “legalproceeding” in sub-section (2) convey the same sense and theproceedings in both the sub-sections must be such as canappropriately be dealt with by the winding up court. The IncomeTax Act is, in our opinion, complete code and it is particularly sowith respect to the assessment and re-assessment of income taxwith which alone we are concerned in the present case. The factthat after the amount of tax payable by an assessee has beendetermined or quantified its realisation from company in liquidationis governed by the Act because the income tax payable also beinga debt has to rank pari passu with other debts due from the company

Adoes not mean that the assessment proceedings for computingthe amount of tax must be held to be such other legal proceedingsas can only be started or continued with the leave of the liquidationcourt under Section 446 of the Act. The liquidation court, in ouropinion, cannot perform the functions of Income Tax Officerswhile assessing the amount of tax payable by the assessees evenBif the assessee be the company which is being wound up by theCourt. The orders made by the Income Tax Officer in the courseof assessment or re-assessment proceedings are subject to appealto the higher hierarchy under the Income Tax Act. There are alsoprovisions for reference to the High Court and for appeals fromCthe decisions of the High Court to the Supreme Court and thenthere are provisions for revision by the Commissioner of IncomeTax. It would lead to anomalous consequences if the winding upcourt were to be held empowered to transfer the assessmentproceedings to itself and assess the company to income tax. Theargument on behalf of the appellant by Shri Desai is that the windingDup court is empowered in its discretion to decline to transfer theassessment proceedings in given case but the power on theplain language of Section 446 of the Act must be held to vest inthat court to be exercised only if considered expedient. We arenot impressed by this argument. The language of Section 446Emust be so construed as to eliminate such startling consequencesas investing the winding up court with the powers of an IncomeTax Officer conferred on him by the Income Tax Act, because inour view the legislature could not have intended such result.18. The argument that the proceedings for assessment or re-assessment of company which is being wound up can only bestarted or continued with the leave of the liquidation court is also,on the scheme both of the Act and of the Income Tax Act,unacceptable. We have not been shown any principle on whichthe liquidation court should be vested with the power to stopassessment proceedings for determining the amount of tax payableby the company which is being wound up. The liquidation courtwould have full power to scrutinise the claim of the revenue afterincome tax has been determined and its payment demanded fromthe liquidator. It would be open to the liquidation court then todecide how far under the law the amount of income tax determinedby the Department should be accepted as lawful liability on the

funds of the company in liquidation. At that stage the winding upcourt can fully safeguard the interests of the company and itscreditors under the Act. Incidentally, it may be pointed out that atthe Bar no English decision was brought to our notice under whichthe assessment proceedings were held to be controlled by thewinding up court. On the view that we have taken, the decisionsin the case of Seth Spinning Mills Ltd., (In Liquidation) andthe Mysore Spun Silk Mills Ltd., (In Liquidation) do not seemto lay down the correct rule of law that the Income Tax Officersmust obtain leave of the winding up court for commencing orcontinuing assessment or re-assessment proceedings.”

From this judgment, what becomes clear is the fact that thewinding-up court under Section 446(2) is to take up all matters whichthe company court itself can conveniently dispose of rather than exposinga company which is under winding up to expensive litigation in othercourts. This being the object of Section 446(2), the expression“proceeding” was given limited meaning as it is obvious that companycourt cannot dispose of an assessment proceeding in income tax or acriminal proceeding. This is further made clear in Sudarshan Chits (I)Ltd. v. O. Sukumaran Pillai, (1984) 4 SCC 657 (at paragraph 8) andin Central Bank of India v. Elmot Engineering Co., (1994) 4 SCC159 (at paragraph 14).

71. Shri Mehta also relied upon D.K. Kapur v. Reserve Bankof India, 2001 SCC OnLine Del 67 : (2001) 58 DRJ 424 (DB). Thisjudgment referred to Section 446(1) and (2) of the Companies Act, 1956and contrasted the language contained therein with the language containedin Section 457 of the same Act, which made it clear that the liquidator ina winding up by the court shall have power, with the sanction of thecourt, to institute or defend any suit, prosecution, or other legal proceeding,civil or criminal, in the name and on behalf of the company. Thus, theDelhi High Court held:

“12. Mere look at the aforesaid provisions would show that onthe one hand, in Section 457 of the Act, the legislature hasempowered the liquidator to institute or defend any ‘suit’ or‘prosecution’ or ‘other legal proceedings’ civil or criminal in thename and on behalf of company after permission from the court;and by Section 454 (5A) of the Act the legislature has empoweredthe Company Court itself to take cognizance of the offence under

Asub-section (5) of Section 454 of the Act and to try such offendersas per the procedure provided for trial of summons cases underthe Code of Criminal Procedure, 1974; but on the other hand inSections 442 and 446 of the Act the legislature has used only theexpression “suit or other legal proceedings”. The words“prosecution” or “criminal case” are conspicuously missing in theseBSections. It appears quite logical as purpose and object of Sections442 and 446 of the Act is to enable the Company Court to overseethe affairs of the company and to avoid wasteful expenditure.Therefore the intention of the legislature under these Sectionsdoes not appear to provide jurisdiction to the Company Court overCcriminal proceedings either against the company or against itsdirectors. Wherever legislature thought it necessary to providesuch jurisdiction it has used the appropriate expressions.”

It then set out the judgment in S.V. Kandeakar (supra) inparagraph 14, and concluded:

D“15. The reasoning adopted by the Supreme Court in the abovecase would be fully applicable to the facts at hand. Complaintsunder the penal provisions of other statutes against the companyor its directors, (except those provided under the Companies Act)cannot be appropriately dealt with by the Company Court. OrdersEpassed by the criminal court are subject to the appeal and revisionetc. under the Code of Criminal Procedure. If the winding upcourt is held to be empowered to transfer these criminalproceedings to itself it would lead to anomalous consequences.”

It was in this context that the Court therefore ultimately held:F“20. … The expression “other legal proceedings” must be readin ejusdem generis with the expression “suit” in Section 446 ofthe Act. If so read it can only refer to any civil proceedings andcriminal proceedings have to be excluded. Therefore, no permissionwas required to be taken from Company Court for filing criminalGcomplaint either against the company or against its directors.”

72. Shri Mehta’s reliance on Indorama Synthetics (I) Ltd. v.State of Maharashtra, 2016 SCC OnLine Bom 2611 : (2016) 4 Mah LJ249, is also misplaced, for the reason that the finding of the BombayHigh Court that Section 138 proceedings were not included in Section446 of the Companies Act only follows the reasoning of the earlierH

judgments on the scope of Section 446 of the Companies Act.Significantly, given the object of Section 446 of the Companies Act, itwas held that Section 138 proceeding is not proceeding which has adirect bearing on the collection or distribution of assets in the winding upof company. The ultimate conclusion of the court is contained inparagraph 30, which reads as follows:

“30. Thus, there is long line of decisions making the positionclear that the expression ‘suit or legal proceedings’, used inSection 446(1) of the Companies Act, can mean only thoseproceedings which can have bearing on the assets of thecompanies in winding-up or have some relation with the issue inwinding-up. It does not mean each and every civil proceedings,which has no bearing on the winding-up proceedings, or criminaloffences where the Director of the Company is presently liablefor penal action.”

73. As the language, object, and context of Section 22(1) of theSICA and Section 446(2) of the Companies Act are far removed fromSection 14(1) of the IBC, none of the aforesaid judgments have anyapplication to Section 14 of the IBC and are therefore distinguishable.

74. Shri Mehta then relied upon Power Grid Corporation ofIndia Ltd. v. Jyoti Structures Ltd., 2017 SCC OnLine Del 12189 :(2018) 246 DLT 485, in which the Delhi High Court held that Section34 application to set aside an award under the Arbitration and ConciliationAct, 1996 would not be covered by Section 14 of the IBC. This judgmentdoes not state the law correctly as it is clear that Section 34 proceedingis certainly proceeding against the corporate debtor which may resultin an arbitral award against the corporate debtor being upheld, as resultof which, monies would then be payable by the corporate debtor. ASection 34 proceeding is proceeding against the corporate debtor in acourt of law pertaining to challenge to an arbitral award and would becovered just as an appellate proceeding in decree from suit would becovered. This judgment does not, therefore, state the law correctly.

75. Shri Mehta then relied upon Inderjit C. Parekh v. V.K. Bhatt,(1974) 4 SCC 313. This judgment dealt with moratorium provisioncontained in the Bombay Relief Undertakings (Special Provisions) Act,1958. In the context of prosecution under paragraph 76(a) of theEmployees’ Provident Fund Scheme, 1952 this Court held:

A“6. The object of Section 4(1)(a)(iv) is to declare, so to say, amoratorium on actions against the undertaking during the currencyof the notification declaring it to be relief undertaking. By sub-clause (iv), any remedy for the enforcement of an obligation orliability against the relief undertaking is suspended and proceedingswhich are already commenced are to be stayed during theBoperation of the notification. Under Section 4(b), on the notificationceasing to have force, such obligations and liabilities revive andbecome enforceable and the proceedings which are stayed canbe continued. These provisions are aimed at resurrecting andrehabilitating industrial undertakings brought by inefficiency orCmismanagement to the brink of dissolution, posing thereby thegrave threat of unemployment of industrial workers. “Reliefundertaking” means under Section 2(2) an industrial undertakingin respect of which declaration under Section 3 is in force. BySection 3, power is conferred on the State Government to declarean industrial undertaking as relief undertaking, “as measure ofDpreventing unemployment or of unemployment relief”. Reliefundertakings, so long as they continue as such, are given immunityfrom legal actions so as to render their working smooth andeffective. Such undertakings can be run more effectively as ameasure of unemployment relief, if the conduct of their affairs isEunhampered by legal proceedings or the threat of such proceedings.That is the genesis and justification of Section 4(1)(a)(iv) of theAct.

7. Thus, neither the language of the statute nor its object wouldjustify the extension of the immunity so as to cover the individualFobligations and liabilities of the directors and other officers of theundertaking. If they have incurred such obligations or liabilities,as distinct from the obligations or liabilities of the undertaking,they are liable to be proceeded against for their personal acts ofcommission and omission. The remedy in that behalf cannot besuspended nor can proceeding already commenced against themGin their individual capacity be stayed. Indeed, it would be strangeif any such thing was within the contemplation of law. Normally,the occasion for declaring an industry as relief undertaking wouldarise out of causes connected with defaults on the part of itsdirectors and other officers. To declare moratorium on legalHactions against persons whose activities have necessitated the

issuance of notification in the interest of unemployment relief isto give to such persons the benefit of their own wrong. Section4(1)(a)(iv) therefore advisedly limits the power of the StateGovernment to direct suspension of remedies and stay ofproceedings involving the obligations and liabilities in relation to arelief undertaking and which were incurred before the undertakingwas declared relief undertaking.

8. Para 38(1) of the Employees’ Provident Funds Scheme, 1952imposes an obligation on “The employer” to pay the providentfund contribution to the Fund within 15 days of the close of everymonth. The Scheme does not define “Employee” but para 2(m)says that words and expressions which are not defined by theScheme shall have the meaning assigned to them in the Employees’Provident Funds Act. Section 2(e)(ii) of that Act defines an“Employer”, to the extent material, as the person who, or theauthority which, has the ultimate control over the affairs of anestablishment and where the said affairs are entrusted to amanager, managing director or managing agent, such manager,managing director or managing agent. Thus the responsibility topay the contributions to the Fund was of the appellants and if theyhave defaulted in paying the amount, they are liable to beprosecuted under para 76(a) of the Scheme which says that ifany person fails to pay any contribution which he is liable to payunder the Scheme, he shall be punishable with six months’imprisonment or with fine which may extend to one thousandrupees or with both. Such personal liability does not fall withinthe scope of Section 4(1)(a)(iv) of the Act.”

Significantly, this Court did not hold that the moratorium provisionwould not extend to criminal liability. On the contrary, on the assumptionthat it would so extend, distinction was made between personal liabilityof the Directors of the undertaking and the undertaking itself, statingthat as the “employer” under the Employees’ Provident Fund Schemewould only refer to those individuals managing the relief undertakingand not the relief undertaking itself, the personal liability of such personswould not fall within the scope of the moratorium provision. This judgmentalso, therefore, does not, in any manner, support Shri Mehta.

76. Lastly, Shri Mehta relied upon Deputy Director, Directorateof Enforcement Delhi v. Axis Bank, 2019 SCC OnLine Del 7854 :

A(2019) 259 DLT 500, and in particular, on paragraphs 127, 128, and 146to 148 for the proposition that an offence under the Prevention of Money-Laundering Act could not be covered under Section 14(1)(a). The DelhiHigh Court’s reasoning is contained in paragraphs 139 and 141, whichare set out hereinbelow:

B“139. From the above discussion, it is clear that the objects andreasons of enactment of the four legislations are distinct, eachoperating in different field. There is no overlap. While RDBA hasbeen enacted to provide for speedier remedy for banks andfinancial institutions to recover their dues, SARFAESI Act (withadded chapter on registration of secured creditor) aims atCfacilitating the secured creditors to expeditiously and effectivelyenforce their security interest. In each case, the amount to berecovered is “due” to the claimant i.e. the banks or the financialinstitutions or the secured creditor, as the case may be, the claimbeing against the debtor (or his guarantor). The Insolvency Code,Din contrast, seeks to primarily protect the interest of creditors byentrusting them with the responsibility to seek resolution througha professional (RP), failure on his part leading eventually to theliquidation process.”

xxx xxx xxxE“

“141. This court finds it difficult to accept the proposition that thejurisdiction conferred on the State by PMLA to confiscate the“proceeds of crime” concerns property the value whereof is“debt” due or payable to the Government (Central or State) orlocal authority. The Government, when it exercises its power underFPMLA to seek attachment leading to confiscation of proceeds ofcrime, does not stand as creditor, the person alleged to becomplicit in the offence of money-laundering similarly not acquiringthe status of debtor. The State is not claiming the prerogative todeprive such offender of ill-gotten assets so as to be perceived tobe sharing the loot, not the least so as to levy tax thereupon suchGas to give it colour of legitimacy or lawful earning, the ideabeing to take away what has been illegitimately secured byproscribed criminal activity.”

This raison d’être is completely different from what has beenadvocated by Shri Mehta. The confiscation of the proceeds of crime isH

by the government acting statutorily and not as creditor. This judgment,again, does not further his case.

WHETHER NATURAL PERSONS ARE COVERED BYSECTION 14 OF THE IBC

77. As far as the Directors/persons in management or control ofthe corporate debtor are concerned, Section 138/141 proceedingagainst them cannot be initiated or continued without the corporatedebtor – seeAneeta Hada (supra). This is because Section 141 of theNegotiable Instruments Act speaks of persons in charge of, andresponsible to the company for the conduct of the business of thecompany, as well as the company. The Court, therefore, in AneetaHada (supra) held as under:

“51. We have already opined that the decision in SheoratanAgarwal [(1984) 4 SCC 352 : 1984 SCC (Cri) 620] runs counterto the ratio laid down in C.V. Parekh [(1970) 3 SCC 491 : 1971SCC (Cri) 97] which is by larger Bench and hence, is bindingprecedent. On the aforesaid ratiocination, the decision in AnilHada [(2000) 1 SCC 1 : 2001 SCC (Cri) 174] has to be treated asnot laying down the correct law as far as it states that the Directoror any other officer can be prosecuted without impleadment ofthe company. Needless to emphasise, the matter would stand ona different footing where there is some legal impediment and thedoctrine of lex non cogit ad impossibilia gets attracted.”

xxx xxx xxx

“56. We have referred to the aforesaid passages only to highlightthat there has to be strict observance of the provisions regardbeing had to the legislative intendment because it deals with penalprovisions and penalty is not to be imposed affecting the rightsof persons, whether juristic entities or individuals, unless they arearrayed as accused. It is to be kept in mind that the power ofpunishment is vested in the legislature and that is absolute in Section141 of the Act which clearly speaks of commission of offence bythe company. The learned counsel for the respondents havevehemently urged that the use of the term “as well as” in theSection is of immense significance and, in its tentacle, it brings inthe company as well as the Director and/or other officers whoare responsible for the acts of the company and, therefore,

prosecution against the Directors or other officers is tenable evenif the company is not arraigned as an accused. The words “aswell as” have to be understood in the context.”

xxx xxx xxx

“58. Applying the doctrine of strict construction, we are of theconsidered opinion that commission of offence by the company isan express condition precedent to attract the vicarious liability ofothers. Thus, the words “as well as the company” appearing inthe Section make it absolutely unmistakably clear that when thecompany can be prosecuted, then only the persons mentioned inthe other categories could be vicariously liable for the offencesubject to the averments in the petition and proof thereof. Onecannot be oblivious of the fact that the company is juristic personand it has its own respectability. If finding is recorded against it,it would create concavity in its reputation. There can be situationswhen the corporate reputation is affected when Director isindicted.

59. In view of our aforesaid analysis, we arrive at the irresistibleconclusion that for maintaining the prosecution under Section141 of the Act, arraigning of company as an accused isimperative. The other categories of offenders can only be broughtEin the drag-net on the touchstone of vicarious liability as thesame has been stipulated in the provision itself. We say so onthe basis of the ratio laid down in C.V. Parekh [(1970) 3 SCC491 : 1971 SCC (Cri) 97] which is three-Judge Bench decision.Thus, the view expressed in Sheoratan Agarwal [(1984) 4 SCCF352 : 1984 SCC (Cri) 620] does not correctly lay down the lawand, accordingly, is hereby overruled. The decision in Anil Hada[(2000) 1 SCC 1 : 2001 SCC (Cri) 174] is overruled with thequalifier as stated in para 51. The decision in Modi Distillery[(1987) 3 SCC 684 : 1987 SCC (Cri) 632] has to be treated to berestricted to its own facts as has been explained by usGhereinabove.”

Since the corporate debtor would be covered by the moratoriumprovision contained in Section 14 of the IBC, by which continuation ofSection 138/141 proceedings against the corporate debtor and initiationof Section 138/141 proceedings against the said debtor during theH

corporate insolvency resolution process are interdicted, what is stated inparagraphs 51 and 59 in Aneeta Hada (supra) would then becomeapplicable. The legal impediment contained in Section 14 of the IBCwould make it impossible for such proceeding to continue or be institutedagainst the corporate debtor. Thus, for the period of moratorium, sinceno Section 138/141 proceeding can continue or be initiated against thecorporate debtor because of statutory bar, such proceedings can beinitiated or continued against the persons mentioned in Section 141(1)and (2) of the Negotiable Instruments Act. This being the case, it isclear that the moratorium provision contained in Section 14 of the IBCwould apply only to the corporate debtor, the natural persons mentionedin Section 141 continuing to be statutorily liable under Chapter XVII ofthe Negotiable Instruments Act.

CONCLUSION

78. In conclusion, disagreeing with the Bombay High Court andthe Calcutta High Court judgments in Tayal Cotton Pvt. Ltd. v. Stateof Maharashtra, 2018 SCC OnLine Bom 2069 : (2019) 1 Mah LJ 312and M/s MBL Infrastructure Ltd. v. Manik Chand Somani, CRR3456/2018 (Calcutta High Court; decided on 16.04.2019), respectively,we hold that Section 138/141 proceeding against corporate debtor iscovered by Section 14(1)(a) of the IBC.

79. Resultantly, the civil appeal is allowed and the judgment underappeal is set aside. However, the Section 138/141 proceedings in thiscase will continue both against the company as well as the appellants forthe reason given by us in paragraph 77 above as well as the fact that theinsolvency resolution process does not involve new management takingover. We may also note that the moratorium period has come to an endin this case.

Criminal Appeal arising out of SLP (Criminal) DiaryNo.32585 of 2019

1. Delay condoned. Leave granted.

2. Shri S. Nagamuthu, learned Senior Advocate appearing onbehalf of the appellant, has made various submissions before us. Sufficeit to state that his first submission is that as moratorium is imposedagainst the corporate debtor w.e.f. 10.07.2017, the Section 138 complaintthat was preferred on 19.09.2017 must be quashed.

A3. On the facts of this case, three cheques – for INR 25,00,000/-dated 31.05.2017, for INR 25,00,000/- dated 30.06.2017, and for INR23,51,408/- dated 31.07.2017 were issued by the appellant in favour ofthe respondent. Before the cheques could be presented for payment, on10.07.2017, the Adjudicating Authority admitted petition by an operationalcreditor under Section 9 of the IBC and imposed moratorium underBSection 14. The three cheques were presented for payment, but werereturned citing “insufficient funds” as the reason on 04.08.2017. Thelegal notice to initiate proceedings under Section 138 of the NegotiableInstruments Act was issued by the respondent on 12.08.2017. As nopayment was forthcoming within the time specified, the respondentCpreferred complaint against the corporate debtor alone on 19.09.2017.

4. The respondent did not dispute the aforesaid dates, onlyreiterating that the High Court was right in dismissing quash petitionfiled by the appellant under Section 482 of the CrPC.

D5. Since the complaint that has been filed in the present case isagainst the corporate debtor alone, without joining any of the persons incharge of and responsible for the conduct of the business of the corporatedebtor, the complaint needs to be quashed, given our judgment in CivilAppeal No.10355 of 2018. The judgment under appeal, dated 02.04.2019,is therefore set aside and the appeal is allowed.E

Criminal Appeals arising out of SLP (Criminal) Nos.10587/2019, 10857/2019, 10550/2019, 10858/2019, 10860/2019, 10861/2019, 10446/2019.

1. Leave granted.

2. On the facts of these cases, all the complaints filed by differentcreditors of the same appellant under Section 138 read with Section 141of the Negotiable Instruments Act were admittedly filed long before theAdjudicating Authority admitted petition under Section 7 of the IBCand imposed moratorium on 19.03.2019.

3. Given our judgment in Civil Appeal No.10355 of 2018, the saidmoratorium order would not cover the appellant in these cases, who isnot corporate debtor, but Director thereof. Thus, the impugned orderissuing proclamation under Section 82 CrPC cannot be faulted with onthis ground. The appeals are therefore dismissed.

-Criminal Appeal arising out of SLP (Criminal) Nos.22462247 of 2020

1. Leave granted.

2. In this case, the two complaints dated 12.03. 2018 and14.03.2018 under Section 138 read with Section 141 of the NegotiableInstruments Act were filed by the respondent against the corporate debtoralong with persons in charge of and responsible for the conduct of businessof the corporate debtor. On 14.02.2020, the Adjudicating Authorityadmitted petition under Section 9 of the IBC against the corporatedebtor and imposed moratorium. The impugned interim order dated20.02.2020 is for the issuance of non-bailable warrants against two ofthe accused individuals.

3. Given our judgment in Civil Appeal No.10355 of 2018, themoratorium provision not extending to persons other than the corporatedebtor, this appeal also stands dismissed.

Criminal Appeal arising out of SLP (Criminal) No.2496 of 2020

1. Leave granted.

2. In the present case, complaint under Section 138 read withSection 141 of the Negotiable Instruments Act was filed by RespondentNo.1 against the corporate debtor together with its Managing Directorand Director on 15.05.2018. It is only thereafter that petition underSection 9 of the IBC, filed by Respondent No.1, was admitted by theAdjudicating Authority and moratorium was imposed on 30.10.2018.The impugned judgment dated 16.10.2019 held that petition under Section482, CrPC to quash the said proceeding would be rejected as Section 14of the IBC did not apply to Section 138 proceedings.

3. The impugned judgment is set aside in view of our judgment inCivil Appeal No.10355 of 2018, and the complaint is directed to becontinued against the Managing Director and Director, respectively.

Criminal Appeal arising out of SLP (Criminal) No.3500 of 2020

1. Leave granted.

2. The complaint in the present case was filed by the respondenton 28.07.2016. An application under Section 7, IBC was admitted by theAdjudicating Authority only on 20.02.2018 and moratorium imposed onthe same date. The impugned judgment rejected petition under Section

A482 of the CrPC on the ground that Section 138 proceedings are notcovered by Section 14 of the IBC.

3. The impugned judgment is set aside in view of our judgment inCivil Appeal No.10355 of 2018, and the complaint is directed to becontinued against the appellant.

BCriminal Appeal arising out of SLP (Criminal) No.5638-5651/2020, 5653-5668/2020

Leave granted.

In these appeals, the appellants have approached us directly fromCthe learned Magistrate’s impugned orders. The learned Magistrate hasheld that Section 14 of the IBC would not cover proceedings underSection 138 of the Negotiable Instruments Act. As result, warrants ofattachment have been issued under Section 431 read with Section 421CrPC against various accused persons, including the corporate debtorand persons who are since deceased. While setting aside the impugnedDjudgments, given our judgment in Civil Appeal No.10355 of 2018, weremand these cases to the Magistrate to apply the law laid down by us inCivil Appeal No.10355 of 2018, and thereafter decide all other pointsthat may arise in these cases in accordance with law.

Writ Petition (Criminal) Nos.330/2020, 339/2020, WritEPetition (Civil) No.982/2020, Writ Petition (Criminal) Nos.297/2020, 342/2020, Writ Petition (Civil) No.1417/2020, 1439/2020,18/2021, Writ Petition (Criminal) No.9/2021, 26/2021.

1. All these writ petitions have been filed under Article 32 of theConstitution of India by erstwhile Directors/persons in charge of andFresponsible for the conduct of the business of the corporate debtor. Theyare all premised upon the fact that Section 138 proceedings are coveredby Section 14 of the IBC and hence, cannot continue against the corporatedebtor and consequently, against the petitioners.

2. Given our judgment in Civil Appeal No.10355 of 2018, all theseGwrit petitions have to be dismissed in view of the fact that suchproceedings can continue against erstwhile Directors/persons in chargeof and responsible for the conduct of the business of the corporate debtor.

Divya Pandey