The Supreme Court has ruled that a company’s director or a managing director or signatory to a cheque that is dishonoured is liable to criminal prosecution even if the company in question goes under resolution for insolvency under Insolvency and Bankruptcy Code, 2016 (IBC).

A bench of Justice Sanjay Kishan has held that notwithstanding the existence of a resolution process and the immunity available to a company from court proceedings under Section 14 of the IBC code, it will not insulate the signatory to such dishonoured cheque from criminal prosecution under Section 138 of the Negotiable Instruments Act, as the two laws operate on separate spheres.

“We have no hesitation in coming to the conclusion that the scope of nature of proceedings under the two Acts and quite different and would not intercede each other,” Justice Sanjay Kishan Kaul who authored the judgment said.

“In fact, a bare reading of Section 14 of the IBC would make it clear that the nature of proceedings which have to be kept in abeyance does not include criminal proceedings, which is the nature of proceedings under Section 138 of the NI Act.”

“We are unable to appreciate the plea of the learned counsel for the Appellant that because Section 138 of the N.I. Act proceedings arise from a default in financial debt, the proceedings under Section 138 should be taken as akin to civil proceedings rather than criminal proceedings.”

“We cannot lose sight of the fact that Section 138 of the NI Act is not recovery proceedings. They are penal in character.

“A person may face imprisonment or fine or both under Section 138 of the N.I. Act. It is not a recovery of the amount with interest as a debt recovery proceedings would be. They are not akin to suit proceedings,” the judgment said.

The bench passed the judgment on Wednesday, while dismissing the appeal filed by Ajay Kumar Radheyshyam Goenka, promoter and managing director of Rainbow Papers Limited.