MORATORIUM UNDER SEC 14 OF IBC BARS PARALLEL PROCEEDING U/S 138 NI ACT

1st  MARCH

“A parallel proceeding u/s 138 of the NI Act against a corporate debtor, cannot be allowed if an order of moratorium under IBC has been already passed as barred under sec 14 of IBC Act” ruled by The Supreme Court bench- Justice Rohinton Nariman, Justice  Navin Sinha and Justice  KM Joseph. However, it is important to note that such bars will only apply to corporate debtors and not natural persons.

The  Supreme Court bench delivered this judgement in an appeal by (P Mohanraj and others V M/s Shah Brothers Ispat Pvt Ltd) challenging the continuation of parallel proceeding u/s 138 NI act during the pendency of liquidation in NCLT delivered by NCLAT on 20th July 2018.

The Supreme Court held, “In conclusion, disagreeing with the view of Bombay High Court and the Calcutta High Court judgments, held that 138 of the NI Act is a quasi-criminal proceeding which means enforcement of civil remedies and therefore amounts the proceeding within the meaning of Sec 14 of IBC attracting moratorium.

Respectively, we hold that a Section 138/141 proceeding against a corporate debtor is covered by Section 14(1)(a) of the IBC”.

Author: Papiha Ghoshal