Order 3

Order Details: Order Below EX 1
Pdf Text: MHMM180025292020
Summons Cases SS/5800231/2020
Arihantsidh Properties PRV Vs. Shamik
Enterprises Pvt Ltd
IN THE COURT OF THE METROPOLITAN MAGISTRATE, 58TH COURT,
BANDRA, MUMBAI
ORDER BELOW APPLICATIONS EXH.54
1. Vide captioned application the accused No.2 to 4 have
prayed for stay of the trial against them being the proceeding is in
violation of provision under section 96 and 101 of the Insolvency and
Bankruptcy Code 2016.
2. It is contended on behalf of accused that Piramal
Trusteeship Pvt. Ltd. who is one of the creditors has moved a company
petition against accused No.2 under the provisions of I.B.Code 2016.
In said proceeding Hon’ble NCLT Tribunal has granted moratorium
under section 101 of I.B.Code. Therefore, 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, Sheetal Gupta etc. present
proceeding is directly hit by section 96 of the I.B.Code.
3. Complainant objected the application vide reply Exh.65
mainly on the ground of attempt to take disadvantage of legal
machinery for personal gains etc.
4. Heard advocate Mr. Vinit Jain for the accused and advocate
Mr. Rahul Pande for the complainant.
5. It is submitted on behalf of accused that the proceeding
invoked before NCLT has restrained him indirectly to pay the dues as
-- 1 of 9 --
2 Summons Cases SS/5800231/2020
Order below Exh.54
the Resolution Professional has taken control over their assets and
funds. He tried to distinguish the ratio as well as observations of
Hon’ble Apex Court in the Judgment of
P. Mohanraj and others Vs.
Shah Brothers Ispat Pvt. Ltd., Rakesh Bhanot Vs. M/s. Gurdas Agro Pvt.
Ltd. etc. in consonance to the observations of Hon’ble High Court of
Madhya Pradesh in the case of
Surendra Kumar Patwa Vs. Dharmendra
Vohra mainly on the point of nature of the trial for the offence under
section 138 of Negotiable Instrument Act. Thereby he wanted to
suggest that the proceeding under section 138 are of Civil Nature
which has given criminal overtones. Thereafter, Ld. Advocate placed
much reliance on section 238 of I.B.Code which deals with the effect of
the provisions even on other statutes such as Code of Criminal
Procedure. The sum and substance of arguments was any how to stay
the proceeding on the ground of matter subjudice before Hon’ble NCLT.
Thereby he wanted to submit that the proceeding itself is not
maintainable at any cost against any of the accused.
6. 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 Stock 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. etc.. Rakesh Bhanot Vs. Gurdas Agro Pvt. Ltd.,
Surendrakumar Patwa Vs. Dharmendra Vohra and Judgment in the
case of
Sheetal Prasad Gupta,
7. 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.
-- 2 of 9 --
3 Summons Cases SS/5800231/2020
Order below Exh.54
8. 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 No.2 to 4 are the directors. Accused
No.2 is the signatory of the disputed cheques worth Rs.72,10,000/-
issued to the complainant against settlement of Rs.2,10,00,000/-. If
trial is stayed by considering the wording of section 96(1)(a) of IB
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.
9. In my view any legal action or proceeding mentioned in
section 96(1)(a) of IB Code means any other proceeding similar in
respect of debt under various previous laws such as Sick Industrial
Companies (Special Provisions) Act, 1985, the Recovery of Debt Due To
Banks and Financial Institutions Act, 1993, the Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 and the Companies Act, 2013 etc. Because the IB Code is
established to consolidate and amend the laws relating to
reorganization and insolvency resolution of corporate persons,
partnership firms and individuals in a time bound manner for
maximization of value of assets etc. Furthermore, the interim
moratorium under section 96(1)(a) or section 101 of the Code would
apply only during the interim or final moratorium period and not in
infinity. Further, the same shall cease to have effect at the end of the
period of 180 days.
10. The intention of legislature is quiet clear from the wording
of section 101 of the Code. The same neither confers any blanket right
upon the defaulter/debtor nor the constructive meaning of the section
-- 3 of 9 --
4 Summons Cases SS/5800231/2020
Order below Exh.54
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 IB 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 it’s directors 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, 2016 would not apply against natural persons
referred in section 141 of the Negotiable Instrument Act, 1881.
12. Much reliance is placed on the observation of Hon’ble
Madhya Pradesh High Court in para 12 and words used nature of civil
wrong which have been given criminal overtones coupled with section
238 of I.B.Code, 2016. It seems rather it apprises that advocate for
accused has misread the gist of the ratio and observations of Hon'ble
Supreme Court, as well as Madhya Pradesh High Court to escape his
client from legal liability to face the trial. 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 criminal under section 94 is not to start a
-- 4 of 9 --
5 Summons Cases SS/5800231/2020
Order below Exh.54
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 Mr. Jain has also 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. The cheques in question are issued on 21.10.2019 and
20.11.2019. Piramal Trusteeship Pvt. Ltd. has invoked the proceeding
under I.B.Code against accused No.1 to 4 in the year 2022.
Moratorium under section 101 ordered on 02.12.2024. On the date of
cheques and initiating present proceeding, the accused No.1 company
was not declared insolvent. Matter is pending for cross examination. All
these aspects are also crucial for considering the rival submissions.
16. 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 as the application is preferred after more than one
year of granting interim moratorium. Hon’ble Supreme Court in the
case of
Ajay Kumar Radheyshyam Goenka, and
Rakesh Bhanot which
has cleared position of law in respect of invoking the provisions of the
-- 5 of 9 --
6 Summons Cases SS/5800231/2020
Order below Exh.54
Insolvency and Bankruptcy Code 2016 as well as legal liability of the
directors of the company which went in liquidation.
17. 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.”
18. 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.
19. 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 Stock Exchange
Limited and another, delivered by Hon’ble Bombay High Court. With
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.
-- 6 of 9 --
7 Summons Cases SS/5800231/2020
Order below Exh.54
20. The observations made by Hon’ble Madhya Pradesh High
Court in the case of
Surendra Kumar Patwa Vs. Dharmendra Vohra
would also not be helpful to accept arguments on behalf of accused to
stay the trial. The statute for the offence under section 138 of
Negotiable Instrument Act, is a special statue. Section 142 of the
Negotiable Instrument Act deals with cognizance of offences which
starts from the wording ‘Nothwithstanding anything contained in the
Code of Criminal Procedure’. The same is more than sufficient to say
that even though proceeding under section 138 of the Act are of quasi
civil nature, the same are to be regulated by the trial of criminal
nature. Act provides substantive sentence for committing an offence.
Therefore, in any case, the trial can not be stayed merely on
considering the words used in the Judgment of
Surendra Kumar Patwa.
A wrong may be a civil wrong but statute regulates the action of civil
wrong in a criminal manner thereby give deterrence for the wrong
doer. In the facts and circumstances, when the remedy is provided by
the statue itself, the same can not be taken away on the basis of
observations made in the Judgment which may not be relevant.
21. 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 No.2 to 4 are liable for
prosecution even if accused No.1 company goes in liquidation.
22. 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/Partnership Firm which has to be
-- 7 of 9 --
8 Summons Cases SS/5800231/2020
Order below Exh.54
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.
23. 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 garb 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
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 : 11.07.2025. Judicial Magistrate(First Class),
58th Court, Bandra, Mumbai.
J.O.Code-MH01362
-- 8 of 9 --
9 Summons Cases SS/5800231/2020
Order below Exh.54
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 : 11.07.2025.
Transcribed and Typed on : 11.07.2025.
Order printed and Signed on : 11.07.2025.
Order Uploaded on : 11.07.2025.
-- 9 of 9 --