Interim Order 3

Order Details: Order Below EX 1
Pdf Text: MHMM180006732020
Summons Case No.5800221/SS/2020
KOTAK MAHINDRA BANK LTD Vs. GUPTA SYNTHETICS LTD AND ORS
IN THE COURT OF THE JUDICIAL MAGISTRATE, FIRST CLASS,
58TH COURT, BANDRA, MUMBAI
COMMON ORDER BELOW APPLICATIONS EXH.26 AND 27
Vide captioned applications accused Nos.2 and 3 have
prayed for stay of the trial against them till the adjudication of
proceeding under section 94 of the Insolvency and Bankruptcy Code
2016.
2. It is contended on behalf of the accused that Kotak
Mahindra Bank Ltd. has filed company petition under section 7 of
I.B.Code 2016 against accused No.1 company before National
Company Law Tribunal. In said petition Corporate Insolvency
Resolution Process has been initiated. Accused have filed Insolvency
Petition under section 94 of I.B.Code for initiating the Insolvency
Resolution Process on 05.03.2022.
3. It is further contended that as per section 96(1) of the Code,
as soon as any proceeding filed either by individual under section 94 or
by financial or operational creditor against individual under section 95
of the Code for declaring him insolvent, all the proceeding against said
individual would have to be stayed as Interim Moratorium has came
into effect. Accordingly prayed for stay of the trial considering
provision under section 96 r/w.101 of I.B.Code coupled with ratio laid
down by the Supreme Court in the case of
P. Mohanraj and
Sheetal
Gupta etc.
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Common order below Exh.26 and Exh.27
4. Complainant objected both applications vide reply Exh.34
and 35 mainly on the ground of attempt to take disadvantage of legal
machinery for personal gains etc.
5. Heard advocate Gauri Sawant for complainant and advocate
Prashant Parsurampuria for the accused.
6. Ld. Advocate for accused drawn my attention towards section
96(1) and section 101 of the I.B.Code, 2016. Gist of his arguments
indicates that in view of pending proceeding before National Company
Law Tribunal, the trial for an offence under section 138 of the
Negotiable Instrument Act or any other proceeding needs to be stayed
till final adjudication of proceeding under section 94 of I.B.Code. In
support of his submissions he has relied upon Judgment of Hon’ble
Bombay High Court in the case of
Sheetal Gupta Vs. National Spot
Exchange Ltd. in Criminal Application No.1151 of 2022.
7. Perused the Judgments of Hon'ble Apex Court in the case of
P.
Mohanraj & Ors. Vs. Shah Brothers Ispat Pvt. Ltd.,
Sheetal Gupta w/o
Surendra Gupta Vs. National Spot Exchange Limited and another relied
upon by the advocate for accused at length. I have also gone through
the Judgments cited on behalf of the complainant in the case of
Ajay
Kumar Radheyshyam Goenka Vs. Tourism Finance Corporation of India
Ltd. I have also gone through the Judgment of Hon’ble Supreme Court
in the case of
Rakesh Bhanot Vs. Gurdas Agro Pvt. Ltd.
8. On hearing advocate for accused, it apprises that the
accused want to stay the entire trial lodged against them taking
recourse to the wording mentioned in section 96 (1)(b)(i) and section
101 of the Insolvency and Bankruptcy Code 2016.
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Common order below Exh.26 and Exh.27
9. After minutely going through the provisions of the Insolvency
and Bankruptcy Code 2016 coupled with the provision of section 141
of the Negotiable Instrument Act, there appears no legal nexus to stay
the trial on account of appointment of Liquidator and insolvency of
accused No.1 of which the accused are the directors. If trial is stayed by
considering the wording of section 96(1)(a) of I.B. Code, the
proceedings under 138 of N.I.Act would become infructuious. It would
be as good as taking away the legal remedy given by the special
statute.
10. On going through the scheme of provisions under I.B.Code,
2016, the same neither confers any blanket right upon the
defaulter/debtor nor the constructive meaning of the section 96(1)(b)
(i) contemplates taking away the statutory right conferred upon the
creditors under different statutes either to initiate criminal proceedings
or continue such proceedings, if already pending before granting
moratorium though the debt might be same as of claimed under
insolvency proceedings.
11. So also, on perusal of entire I.B. Code, it is crystal clear
that a civil remedy is made available by the Code which would not
apply ipso facto to the criminal litigation's and mainly to the cases
instituted under section 138 r/w. section 141 of Negotiable Instrument
Act. The remedy to prosecute the company and/or it’s directors in
individual capacity under section 141 will not be diluted by the
application of section 96(1) r/w. Section 101 by saying that
any legal
action or proceeding in respect of any debt would mean and include
the criminal litigation under section 138 of Negotiable Instrument Act
also or it will fall within said exception. It is crystal clear by the
Judgments of Hon’ble Supreme Court that the provisions of I.B.Code,
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2016 would not apply against natural persons referred in section 141
of the Negotiable Instrument Act, 1881.
12. Irrespective of section 238 of the I.B.Code, 2016, no
provision of I.B.Code bars the continuation of the criminal prosecution
initiated against the directors and officials.
13. In the case of
Rakesh Bhanot Hon’ble Apex Court has held
that, “
Object of moratorium or for that purpose, the provision enabling
the debtor to approach the Tribunal under section 94 is not to stall a
criminal prosecution, but to only postpone any civil actions to recover
any debt. The deterrent effect of section 138 is critical to maintain the
trust in the use of negotiable instruments like cheques in business
dealings. Criminal liability for dishonoring cheques ensures that
individuals who engaged in commercial transactions are held
accountable for their actions.”
14. Ld. Advocate for accused has placed reliance upon the
Judgment in the case of
Sheetal Gupta in support of his submissions.
Hon’ble High Court has held that, “
Whenever any application is filed
under section 94 or 95 of the Insolvency and Bankruptcy Code 2016,
any legal action or proceeding pending in respect of any debt shall be
deemed to have been stayed.” It is further held that, “
The terminology
of clause (1) of Section 101(2) of the Insolvency and Bankruptcy Code
2016, unequivocally states that any pending legal action or proceeding
pending in respect of debt shall to be deemed to have been stayed and
therefore, Magistrate ought to have allowed impugned applications.”
15. Now coming to applicability of ratio laid down in the case of
Sheetal Gupta, with due respect to the ratio laid down in above case, it
would be of no use considering the ratio laid down by the Hon’ble
Supreme Court in the case of
Ajay Kumar Radheyshyam Goenka and
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Rakesh Bhanot which has cleared position of law in respect of invoking
the provisions of the Insolvency and Bankruptcy Code 2016 as well as
legal liability of the directors of the company which went in
liquidation.
16. Hon’ble Supreme court in the case cited supra has held
that, “
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 do not
include criminal proceedings, which is in the nature of proceedings
under section 138 of the Negotiable Instrument Act. It can not be said
that the process under the IBC whether under section 31 or section 38
to 41 which can extinguish the debt would ipso facto apply to the
extinguishment of the criminal proceedings. The court can not accept
the plea that if proceeding against the company come to an end then
the Managing Director can not be proceeded. Where the proceeding
under section 138 of the Negotiable Instrument Act had already
commenced and during the pendency the company gets dissolved, the
signatories/directors can not escape from their penal liability under
section 138 of Negotiable Instrument Act by citing its dissolution. What
is dissolved is only the company and not the personal liability of the
accused covered under section 141 of the Negotiable Instrument Act.”
17. In nut shell, Hon’ble Supreme Court has made clear
position of law on the point of stay of trial of cases under section 138
of Negotiable Instrument Act vide the provisions of the Insolvency and
Bankruptcy Code 2016.
18. Therefore, in view of ratio laid down by the Hon’ble Apex
Court, the same will prevail over the ratio laid down in the case of
Sheetal Gupta w/o Surendra Gupta Vs. National Spot Exchange
Limited and another, delivered by Hon’ble Bombay High Court. With
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due respect to the ratio laid down by the Ho’ble Bombay High Court, in
the case of
Sheetal Gupta, the same would not come to aid of the
accused to prolonging the proceeding years together.
19. The statute for the offence under section 138 of Negotiable
Instrument Act, is a special statue. Therefore, the application is without
merits and seems to be preferred only to protract the litigation knowing
well that the directors of accused No.1 company that accused are liable
for prosecution even if accused No.1 company goes in liquidation.
20. The application seems to be given to give go by to the
mandate of law to decide the criminal trial under section 138 of
Negotiable Instrument Act within six months as contemplated under
section 143(3) of Negotiable Instrument Act. Section 141 of the
Negotiable Instrument Act is very clear on the point of legal
responsibility of the person in-charge or the persons looking after day
to day affairs of the Company which has to be represented by some
legal persons. Therefore, the application is nothing but simply misuse
of the provisions of law. It is nothing but abuse of process of law with
the ulterior motive of protracting the litigation.
21. Giving such application in several matters have become
fashion as of routine course to delay the trial. The same hampers the
smooth running process of a trial. The practice needs to be stopped by
saddling heavy costs upon the unscrupulous actions on the part of
accused in the guise of so called right to defend the matter. That
effects on delay in hearing of other cases thereby indirectly denying or
delaying justice. Hence, I pass following order.
ORDER
1. Application is rejected with costs of Rs.50,000/- to be paid to
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Legal Aid Fund.
2. Costs are condition precedent to exercise further right of
cross examination, lead evidence in defence.
3. Order dictated and pronounced in open court.
4. Order be uploaded on Court Web Portal.
Mumbai, (M.P.Saraf)
Dated : 18.07.2025. Judicial Magistrate(First Class),
58th Court, Bandra, Mumbai.
J.O.Code-MH01362
CERTIFICATE
I affirm that the contents of this P.D.F. file Order are same, word to word as per the
original Order.
Name of Stenographer : Mrs. Aditi Ravikiran Dalvi
Court : Judicial Magistrate(First Class), 58th Court, Bandra,
Mumbai.
Dictated in open court on : 18.07.2025.
Transcribed and Typed on : 18.07.2025.
Order printed and Signed on : 18.07.2025.
Order Uploaded on : 19.07.2025.
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