# AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM FINANCE CORPORATION OF INDIA LTD

- **Citation:** [2023] 4 S.C.R. 986
- **Court:** Supreme Court of India
- **Decided:** 2023-03-15
- **Case number:** Criminal Appeal No. 172 of 2023
- **Bench:** Sanjay Kishan Kaul, Abhay S. Oka, J. B. Pardiwala
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ajay-kumar-radheyshyam-goenka-v-tourism-finance-corporation-of-india-ltd-37142
- **Pages:** 67

## Headnote

Insolvency and Bankruptcy Code 2016 - ss. 1(3), 7, 8, 9, 13,
14, 15, 29, 30, 31, 32A, 53, 61, 238 - Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016 - Rule 6 -
Negotiable Instruments Act, 1881 - ss. 138, 139, 141, 142, 147 -
Code of Criminal Procedure, 1973 - ss. 190, 200, 256, 257, 305,
482 - A demand-cum-legal notice u/s. 138 of the NI Act was issued
on behalf of the respondent calling upon the company as accused
no.1 and appellant herein as accused no.2 to settle the debt advanced
by way of corporate loan - Amount was not paid - Criminal
complaint was filed u/s.190 Cr.P.C. r/w. ss.138, 141 and 142 of the
NI Act - One company, styling itself as 'operational creditor', filed
an application u/s. 9 of 2016 Code r/w. r. 6 of IB Rules, 2016 with
the request to initiate CIRP against the accused company, treating
it as the corporate debtor - Insolvency application was admitted -
Application filed for discharge of complaint case by appellant was
dismissed - Criminal revision was also dismissed - On appeal, held:
Per Sanjay Kishan Kaul, J. (For himself and Abhay S. Oka,J. ): A
bare reading of s.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 the nature of proceedings u/s. 138
of the N.I. Act - It cannot be said that the process under the IBC
whether u/s. 31 or ss. 38 to 41 which can extinguish the debt would
ipso facto apply to the extinguishment of the criminal proceedings
- The Court cannot accept the plea that if proceedings against the
company come to an end then the appellant as the Managing
Director cannot be proceeded against - Per J.B. Pardiwala, J.
(Concurring): Where the proceedings u/s. 138 of the NI Act had
already commenced with the Magistrate taking cognizance upon
the complaint and during the pendency, the company gets dissolved,
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the signatories/directors cannot escape from their penal liability u/
s. 138 of the NI Act by citing its dissolution - What is dissolved, is
only the company, not the personal penal liability of the accused
covered u/s. 141 of the NI Act - After passing of the resolution plan
u/s. 31 of the IBC by the adjudicating authority & in the light of the
provisions of s.32A of the IBC, the criminal proceedings u/s. 138 of
the NI Act will stand terminated only in relation to the corporate
debtor if the same is taken over by a new management - s.138
proceedings in relation to the signatories/directors who are liable/
covered by the two provisos to s. 32A(1) will continue in accordance
with law.
Dismissing the appeals, the Court
Per SANJAY KISHAN KAUL, J. (For himself and ABHAY
S. OKA, J.)
HELD: 1. 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
the nature of proceedings under Section 138 of the N.I. Act. It
cannot be said that the process under the IBC whether under
Section 31 or Sections 38 to 41 which can extinguish the debt
would ipso facto apply to the extinguishment of the criminal
proceedings. No doubt in terms of the Scheme under the IBC
there are sacrifices to be made by parties to settle the debts, the
company being liquidated or revitalized. The Appellant has been
roped in as a signatory of the cheque as well as the Promoter and
Managing Director of the Accused company, which availed of the
loan. The loan agreement was also signed by him on behalf of the
company. What the Appellant seeks is escape out of criminal
liability having defaulted in payment of the amount at a very early
stage of the loan. In fact, the loan account itself was closed. So
much for the bona fides of the Appellant. [Paras 16 and 17][997D-E, G-H; 998-A-B]
Per J.B. PARDIWALA, J. (Concurring)
HELD: 1. Section 141 of the NI Act states that if the person
committing an offence under Section 138 is a company, every
person who, at the time the offence was committed,

## Text

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[2023] 4 S.C.R.
[2023] 4 S.C.R. 986
986
AJAY KUMAR RADHEYSHYAM GOENKA
v.
TOURISM FINANCE CORPORATION OF INDIA LTD.
(Criminal Appeal No. 172 of 2023)
MARCH 15, 2023
[SANJAY KISHAN KAUL, ABHAY S. OKA AND
J. B. PARDIWALA, JJ.]
Insolvency and Bankruptcy Code 2016 - ss. 1(3), 7, 8, 9, 13,
14, 15, 29, 30, 31, 32A, 53, 61, 238 - Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016 - Rule 6 -
Negotiable Instruments Act, 1881 - ss. 138, 139, 141, 142, 147 -
Code of Criminal Procedure, 1973 - ss. 190, 200, 256, 257, 305,
482 - A demand-cum-legal notice u/s. 138 of the NI Act was issued
on behalf of the respondent calling upon the company as accused
no.1 and appellant herein as accused no.2 to settle the debt advanced
by way of corporate loan - Amount was not paid - Criminal
complaint was filed u/s.190 Cr.P.C. r/w. ss.138, 141 and 142 of the
NI Act - One company, styling itself as 'operational creditor', filed
an application u/s. 9 of 2016 Code r/w. r. 6 of IB Rules, 2016 with
the request to initiate CIRP against the accused company, treating
it as the corporate debtor - Insolvency application was admitted -
Application filed for discharge of complaint case by appellant was
dismissed - Criminal revision was also dismissed - On appeal, held:
Per Sanjay Kishan Kaul, J. (For himself and Abhay S. Oka,J. ): A
bare reading of s.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 the nature of proceedings u/s. 138
of the N.I. Act - It cannot be said that the process under the IBC
whether u/s. 31 or ss. 38 to 41 which can extinguish the debt would
ipso facto apply to the extinguishment of the criminal proceedings
- The Court cannot accept the plea that if proceedings against the
company come to an end then the appellant as the Managing
Director cannot be proceeded against - Per J.B. Pardiwala, J.
(Concurring): Where the proceedings u/s. 138 of the NI Act had
already commenced with the Magistrate taking cognizance upon
the complaint and during the pendency, the company gets dissolved,
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the signatories/directors cannot escape from their penal liability u/
s. 138 of the NI Act by citing its dissolution - What is dissolved, is
only the company, not the personal penal liability of the accused
covered u/s. 141 of the NI Act - After passing of the resolution plan
u/s. 31 of the IBC by the adjudicating authority & in the light of the
provisions of s.32A of the IBC, the criminal proceedings u/s. 138 of
the NI Act will stand terminated only in relation to the corporate
debtor if the same is taken over by a new management - s.138
proceedings in relation to the signatories/directors who are liable/
covered by the two provisos to s. 32A(1) will continue in accordance
with law.
Dismissing the appeals, the Court
Per SANJAY KISHAN KAUL, J. (For himself and ABHAY
S. OKA, J.)
HELD: 1. 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
the nature of proceedings under Section 138 of the N.I. Act. It
cannot be said that the process under the IBC whether under
Section 31 or Sections 38 to 41 which can extinguish the debt
would ipso facto apply to the extinguishment of the criminal
proceedings. No doubt in terms of the Scheme under the IBC
there are sacrifices to be made by parties to settle the debts, the
company being liquidated or revitalized. The Appellant has been
roped in as a signatory of the cheque as well as the Promoter and
Managing Director of the Accused company, which availed of the
loan. The loan agreement was also signed by him on behalf of the
company. What the Appellant seeks is escape out of criminal
liability having defaulted in payment of the amount at a very early
stage of the loan. In fact, the loan account itself was closed. So
much for the bona fides of the Appellant. [Paras 16 and 17][997D-E, G-H; 998-A-B]
Per J.B. PARDIWALA, J. (Concurring)
HELD: 1. Section 141 of the NI Act states that if the person
committing an offence under Section 138 is a company, every
person who, at the time the offence was committed, was in charge
of, and was responsible to the company for the conduct of the
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM
FINANCE CORP. OF INDIA LTD.
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business of the company, as well as the company, shall be deemed
to be guilty of the offence and shall be liable to be proceeded
against and punished accordingly. The expression "as well" is
occurring in Section 141 of the NI Act. This expression means
"on par". Therefore, the liability of such persons in charge of
and responsible to the company for the conduct of its business is
thus co-extensive. [Para 33][1007-H; 1008-A-B]
2. The creditor has no option but to join the process under
the IBC. Once the plan is approved, it would bind everyone under
the sun. The making of a claim and accepting whatever share is
allotted could be termed as an "Involuntary Act" on behalf of the
creditor. The making of a claim under the IBC and accepting the
same and not making any claim, will not make any difference in
light of Section 31 of the IBC. Both the situations will lead to
Section 31 and the finality and binding value of the resolution
plan. At best, it could be said that from the cheque amount under
Section 138 of the NI Act, the amount received under the
resolution plan may be deducted. [Paras 41, 42][1020-D-F]
3. It is true that by virtue of Section 238 of the IBC, the
provisions of the CrPC shall have effect notwithstanding anything
inconsistent therewith contained in any other law for the time
being in force or any instrument having effect by virtue of any
such law. But, no provision of the IBC bars the continuation of
the criminal prosecution initiated against the directors and
officials. It is equally true that once the corporate debtor comes
under the resolution process, its erstwhile managing director(s)
cannot continue to represent the company. Section 305(2) of the
CrPC states that where a corporation is the accused person or
one of the accused persons in an inquiry or trial, it may appoint a
representative for the purpose of the inquiry or trial and such
appointment need not be under the seal of the corporation.
Therefore, it is only the Resolution Professional who can
represent the accused company during the pendency of the
proceedings under IBC. After the proceedings are over, either
the corporate entity may be dissolved or it can be taken over by
a new management in which event the company will continue to
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exist. When a new management takes over, it will have to make
arrangements for representing the company. If the company is
dissolved as a result of the resolution process, obviously
proceedings against it will have to be terminated. But even then,
its erstwhile directors may not be able to take advantage of the
situation. Where the proceedings under Section 138 of the NI
Act had already commenced and during the pendency the plan is
approved or the company gets dissolved, the directors and the
other accused cannot escape from their liability by citing its
dissolution. What is dissolved is only the company, not the
personal penal liability of the accused covered under Section 141
of the NI Act. They will have to continue to face the prosecution
in view of the law laid down in Aneeta Hada [Paras 49, 50 and
52][1030-H; 1031-B-D; 1032-B-C]
4. While interpreting Sections 14, 31 & 32A resply of the
IBC vis-a-vis Sections 138 and 141 resply of the NI Act, the
principle of harmonious construction should be applied and
followed. By permitting to proceed against the signatories/
directors even after the approval of the plan, what is achieved is
uniformity in the functioning of the law by removing the anomalous
and absurd situations, thereby, making it compliant with Article
14 of the Constitution. The said interpretation shields the
relevant provisions from attack of being manifestly arbitrary. [Para
54][1033-C-E]
5. If the argument that extinguishment of debt under Section
31 of the IBC leads to the discharge of signatory/director under
Section 138 proceedings is accepted, the same will lead to conflict
in law as laid down compared to the guarantor's liability wherein
in spite of the plan being approved, the guarantor is held separately
liable for the remaining amount. If the guarantor does not get the
benefit of extinguishment of debt under Section 31 of the IBC,
then similarly for extinguishment of debt, the signatory/director
cannot get any benefit. If accepted, this may lead to uncertainty
in the first Principles of law on interpretation of extinguishment
of debt. [Para 60][1034-G-H; 1035-A-B]
6. Section 30(2)(e) of the IBC requires the resolution
professional to approve the resolution plan, only if the same does
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM
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not violate any of the provisions of the law for the time being in
force. Thus, the clauses of the resolution plan cannot control the
Enactment/Rules in force. It is the resolution plan which has to
comply with the laws in force. In the case on hand, any clause
giving any effect to the corporate debtor under Section 138 NI
Act proceedings, cannot be used to protect the signatories/
directors under Section 138/141 NI Act. [Para 65][1039-F-G]
7. 'Compounding' and 'quashing' are not synonymous
terms. In law, they have different meanings and consequences.
They arise from different situations and operate in different fields
and stages. There is no apparent legal interdependence or
interlink to the extent that one could exist only if the conditions
of the other were satisfied or vice-versa. Quashing is one of the
facets of inherent powers, while compounding of an offence being
a statutory expression contained under Section 320 the CrPC is
entirely a different concept. [Para 71][1040-E-F]
8. The expressions 'compromise' and 'compounding' are
not synonyms in criminal jurisprudence even though these
expressions are usually used without any distinction. Any dispute
can be compromised between the parties if the terms are not
illegal. But only a compoundable offence allowed by law can be
compounded. A dispute relating to a crime can be compromised
even before the case is registered, and in that case, victim of the
crime may refuse to file a complaint. But if in spite of compromise,
if he files a complaint and court finds that what is compromised is
a compoundable offence, depending upon the facts and
circumstances of each case Magistrate can refuse to take
cognizance, or acquit the accused as offence was compounded or
the complaint can be quashed in proceedings under Section 482
of the CrPC. In a compromise, consensus between the parties to
give and take is more important and in a compounding, decision
of the victim of the offence not to prosecute and not to continue
with prosecution is more important. [Paras 72, 73][1040-F-H;
1041-A-B]
9. As per Section 138 of the NI Act, when the cheque was
dishonoured and a statutory notice demanding the cheque amount
was issued, the accused shall pay the cheque amount within 15
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days from the date of receipt of the said notice. The moment the
said 15 days expired, the cause of action arises. In other words,
the offence under Section 138 of the NI Act is complete. Once
the cause of action arose for the offence committed, the
complainant has to approach the criminal court within one month
to take penal action under Section 138 of the NI Act. To put it
clearly, the complainant approaches the criminal court not for
recovery of the legally enforceable debt, but for taking penal action
under Section 138 of the NI Act for the offence already committed
by the accused by not making the payment of the cheque amount
despite the receipt of the statutory notice. The only question
before the criminal court is whether the cheque issued by the
accused towards the discharge of his liability was dishonoured
and despite the service of demand notice, whether he had not
paid the amount. There is no bar contained in any of the provisions
of the IBC, and the NI Act from approaching the criminal court
to seek penal action under Section 138 of the NI Act. [Para
75][1041-C-F]
10. Thus, the upshot of all the decisions referred to above
is where the proceedings under Section 138 of the NI Act had
already commenced with the Magistrate taking cognizance upon
the complaint and during the pendency, the company gets
dissolved, the signatories/directors cannot escape from their
penal liability under Section 138 of the NI Act by citing its
dissolution. What is dissolved, is only the company, not the
personal penal liability of the accused covered under Section 141
of the NI Act. [Para 85][1051-G-H; 1052-A-B]
11. Final conclusions may be drawn as under: (a) After
passing of the resolution plan under Section 31 of the IBC by the
adjudicating authority & in the light of the provisions of Section
32A of the IBC, the criminal proceedings under Section 138 of
the NI Act will stand terminated only in relation to the corporate
debtor if the same is taken over by a new management. (b) Section
138 proceedings in relation to the signatories/directors who are
liable/covered by the two provisos to Section 32A(1) will continue
in accordance with law. [Para 86][1052-B-D]
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM
FINANCE CORP. OF INDIA LTD.
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In the Judgment of J.B. PARDIWALA, J.:
Swiss Ribbons Private Limited and Another v. Union of
India and Others (2019) 4 SCC 17 : [2019] 3 SCR
535; Committee of Creditors of Essar Steel India Limited
v. Satish Kumar Gupta and Others (2020) 8 SCC 531 :
[2019] 16 SCR 275; P. Mohanraj and Others v. Shah
Brothers Ispat Private Limited (2021) 6 SCC 258; Ebix
Singapore Private Limited v. Committee of Creditors of
Educomp Solutions Limited and Another (2022) 2 SCC
401; Lalit Kumar Jain v. Union of India and Others
(2021) 9 SCC 321; Goa State Cooperative Bank Limited
v. Krishna Nath A. and Others (2019) 20 SCC 38; State
Bank of India v. V. Ramakrishnan and Another (2018)
17 SCC 394 : [2018] 10 SCR 974; Vijay Kumar Jain v.
Standard Chartered Bank (2019) 20 SCC 455; JIK
Industries Limited and Others v. Amarlal V. Jumani and
Another (2012) 3 SCC 255 : [2012] 3 SCR 114;
Narinder Garg and Others v. Kotak Mahindra Bank
Ltd. and Others (2022) SCC OnLine SC 517 - relied
on.
Ajit Balse v. Ranga Karkere (2015) 15 SCC 748;
Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset
Reconstruction Co. Ltd., (2021) 9 SCC 657; Manish
Kumar v. Union of India and Another (2021) 5 SCC 1;
Anil Hada v. Indian Acrylic Ltd. (2000) 1 SCC 1 : [1999]
5 Suppl. SCR 6 - referred to.
Indorama Synthetics (I) Ltd., Nagpur v. State of
Maharashtra and others 2016 SCC OnLine Bom 2611
- referred to.
Case Law Reference
(2015) 15 SCC 748
referred to
Para 20
(2021) 6 SCC 258
referred to
Para 20
[2019] 3 SCR 535
relied on
Para 40
[2019] 16 SCR 275
relied on
Para 40
(2021) 9 SCC 657
referred to
Para 40
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(2022) 2 SCC 401
referred to
Para 40
(2021) 5 SCC 1
referred to
Para 44
[2012] 3 SCR 114
relied on
Para 48
[1999] 5 Suppl. SCR 6
referred to
Para 50
(2019) 20 SCC 38
referred to
Para 62
[2018] 10 SCR 974
relied on
Para 76
(2019) 20 SCC 455
referred to
Para 78
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
172 of 2023.
From the Judgment and Order dated 23.11.2019 of the Additional
Sessions Judge-02 South East District, Saket, New Delhi in Crl. Rev.
No. 784 of 2019.
With
Crl. A. Nos.170 and 171 of 2023.
Nikhil Goel, Aditya Sharma, Kartik Kaushal, Manoj Rajpoot, Advs.
for the Appellant.
Rajiv Ranjan Dwivedi, Ved Prakash, Manoj Kr. Jha, Ashish Kr.
Singh, Sunil Kumar, Advs. for the Respondent.
The Judgments of the Court were delivered by
SANJAY KISHAN KAUL, J.
Factual Background:
1. M/s Rainbow Papers Limited (company incorporated and
registered under the Companies Act, 1956), of which Ajay Kumar
Radheyshyam Goenka, the Appellant before us, was the Promoter and
Managing Director, sought loans from a public financial institution, Tourism
Finance Corporation of India Limited, the Respondent before us, to fulfil
its various corporate requirements. The proposal of the company was
considered by the Respondent and approval was granted for a Term
Loan of Rs. 30.00 crores. In pursuance to the approval, a Loan
Agreement was executed on 27.03.2012 in New Delhi.
2. In order to satisfy its obligations under the Agreement, the
Accused company issued post-dated cheque of Rs. 25,47,945/- bearing
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM
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cheque number 090656 dated 15.02.2016, drawn on Indian Overseas
Bank, Kalupur Circle Branch, Railway Pura, Ahmedabad, towards the
payment of one of the instalments. On the cheque being presented to
the bankers of the Respondent i.e., HDFC Bank Limited, Nehru Place
Branch, New Delhi, the cheque was returned vide Memo dated
07.04.2016 for the reason "Account Closed".
3. On 19.04.2016, a demand-cum-legal notice under Section 138
of Negotiable Instruments Act, 1881, (hereinafter referred to as 'the NI
Act') was issued on behalf of the Respondent calling upon the company
as Accused no.1 and the Appellant herein as Accused no. 2 to settle the
debt advanced by way of corporate loan dated 27.03.2012. The Accused
acknowledged their liability to pay the loan amount vide reply dated
28.04.2016. The amount was not paid and, thus, on 16.05.2016, Criminal
Complaint No. 632982/2016 was filed in the Court of Chief Metropolitan
Magistrate, Saket Courts, New Delhi, under Section 190 of the Code of
Criminal Procedure, 1973, read with Section 1381, Section 1412 and
Section 1423 of the NI Act. The complaint was signed and verified by
Mr. N. Ramachandran, Deputy General Manager (Law) of the
Respondent company. An endeavor for mediation was made but was
not successful and, thus, the next date was scheduled before the
Magistrate for 15.01.2018. In the meantime, a development, which took
place, was that in 2017 M/s Neeraj Paper Agencies Limited, styling
itself as 'Operational Creditor', filed an application under Section 9 of
the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as
'IBC') read with Rule 6 of Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016, (hereinafter referred to as 'IB Rules,
2016') with the request to initiate Corporate Insolvency Resolution
Process against the Accused company, treating it as the 'Corporate
Debtor'. The National Company Law Tribunal vide order dated
12.09.2017 admitted the aforesaid insolvency application.
4. The Respondent herein filed its claim qua the debt, which was
the subject matter of the N.I. Act proceedings, on 13.10.2017. In terms
of the Resolution Plan dated 26.05.2018, the Resolution Applicant (Kushal
Limited) filed the Resolution Plan and during the course of meeting the
Committee of Creditors on 05.06.2018, it was informed that the
respondent herein could not be considered as a Secured Financial Creditor
1 Dishonour of cheque for insufficiency, etc., of funds in the account.
2 Offences by companies.
3 Cognizance of offences.
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as per definitions contained in Section 3(30) and Section 3(31) of the
IBC. In effect, on legal advice, the Respondent was opined as an
Unsecured Financial Creditor. This resulted in the Respondent filing
applications, in the form of objections, before the NCLAT where the
status was sought to be changed from the Unsecured to Secured Financial
Creditor.
5. Now turning back to the NIA proceedings, the Metropolitan
Magistrate passed an interim order dated 12.11.2018 dismissing the
application of the Appellant for exemption from personal appearance.
This, in turn, was predicated on the observations of NCLAT in Shah
Brothers Ispat Pvt. Ltd. Vs P. Mohan Raj &Ors, Company Appeal
(AT) Insolvency No.306 of 2018, opining that Section 138 of NI Act is
a penal provision, which empowers the court of competent jurisdiction
to pass order of imprisonment or fine, which cannot be held to be
proceedings or any judgment or decree of money claim. Thus, it would
not come within the purview of Section 14 of the IBC and, thus, the
proceedings under Section 138 of the NI Act, 1881 could continue
simultaneously.
6. The Appellant, thus, filed an application for discharge of the
Complaint Case in question herein in the present case, which was
dismissed by the Metropolitan Magistrate vide order dated 01.11.2019.
The Criminal Revision Petition preferred by the Appellant bearing
Criminal Revision Petition No. 784 of 2019 also met with a similar fate
before the High Court and was dismissed with cost of Rs. 20,000/- to be
paid by the Appellant to the Respondent. It is this order, which is now,
sought to be assailed before us.
Appellant's submissions:
7. Mr. Nikhil Goel, learned counsel, sought to urge on behalf of
the appellant that the trigger of Section 138 of the NI Act, is the nonpayment of legally enforceable debt. Once the debt is itself extinguished,
either under Section 31 or in process from Sections 38 to 41 and 54 of
IBC, the basis of Section 138 of the NI Act disappears. We may note
that these provisions fall under Chapter III4 of the IBC.
8. The term 'Debt' would mean 'legally enforceable debt' under
the Explanation to Section 138 of the NI Act and this may be read with
Sections 2(6) and 2(8) of the IBC.
4 Liquidation Process
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM
FINANCE CORP. OF INDIA LTD. [SANJAY KISHAN KAUL, J.]
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9. It was submitted that the nature of the proceedings under Section
138 of the NI Act is primarily compensatory in nature and the punitive
element is incorporated at enforcing the compensatory provisions.
Therefore, once recovery is made partly by the receipt of money and
partly by waiver, Section 138 of the NI Act should not be permitted to be
continued.
10. It was lastly urged that if the debt of the company is resolved
then the payment would be governed under the Resolution Plan. If the
debts are not resolved, then the assets of the company are to be distributed
in terms of Section 53 of the IBC.
Plea of the Respondent:
11. On behalf of the Respondent, it was urged that the cheque
was given for repayment of the aforementioned loan amount of Rs.30
crore for which the accused company agreed to repay the principal
amount in two installments with first installment of Rs.10 crore payable
on 31.03.2015 and the second installment of Rs.20 crore payable on
31.03.2016. The accused company had to pay interest @ 15 per cent
per annum on the said principal amount of loan and such interest was
payable monthly on the 15th day of every month, which was in consonance
with the dates and the cheque amount.
12. It was urged that the accused company along with the Appellant
deliberately and with the mala fide intention gave the cheque to defraud
the Respondent to take loan from it and subsequently to usurp the loan
amount and hence had closed the bank account. The Appellant being
the signatory was directly liable along with the accused company. The
Appellant was actively involved in the day to day affairs of the company
as can be inferred from the aforementioned loan agreement signed by
him as well.
Our View:
13. We may note that on 20.09.2022 with some of the SLPs being
withdrawn, in respect of the SLPs in question, the interim order was
made absolute with the direction for urgent listing as criminal proceedings
had been stayed. Learned counsel for the parties stated that they will
file short synopsis not running into more than three pages each and will
not take more than 15-20 minutes each for their respective submissions.
On the conspectus of the aforesaid we heard the arguments on
17.01.2023 when we granted leave and reserved the judgment.
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14. The Appellant had submitted the synopsis in advance. The
Respondent however, despite assuring that they would submit the synopsis
has not cared to do so and we have gone on the basis of the record. This
position is prevalent right till 12.03.2023 and we do not consider it
appropriate to wait any more. We assume that the Respondent is not
interested in rendering any further assistance to the Court by filing
synopsis. Fortunately for them, for the reasons to be recorded hereinafter,
they have not really suffered the consequences thereof.
15. The issue whether the respondent is a Secured Financial
Creditor or an Unsecured Financial Creditor within the meaning of the
said Code is not something we can deal with as that is the matter of the
proceedings under the said Code or any appeal preferred therefrom.
The only issue with which we are concerned with is whether during the
pendency of the proceedings under the said Code which have been
admitted, the present proceedings under the N.I. Act can continue
simultaneously or not.
16. 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. 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 do not include criminal proceedings, which
is the nature of proceedings under Section 138 of the N.I. 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 N.I. Act are 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.
17. It cannot be said that the process under the IBC whether
under Section 31 or Sections 38 to 41 which can extinguish the debt
would ipso facto apply to the extinguishment of the criminal proceedings.
No doubt in terms of the Scheme under the IBC there are sacrifices to
be made by parties to settle the debts, the company being liquidated or
revitalized. The Appellant before us has been roped in as a signatory of
the cheque as well as the Promoter and Managing Director of the Accused
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM
FINANCE CORP. OF INDIA LTD. [SANJAY KISHAN KAUL, J.]
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company, which availed of the loan. The loan agreement was also signed
by him on behalf of the company. What the Appellant seeks is escape
out of criminal liability having defaulted in payment of the amount at a
very early stage of the loan. In fact, the loan account itself was closed.
So much for the bona fides of the Appellant.
18. We are unable to accept the plea that if proceedings against
the company come to an end then the Appellant as the Managing Director
cannot be proceeded against. We are unable to accept the plea that
Section 138 of the N.I. Act proceedings are primarily compensatory in
nature and that the punitive element is incorporated only at enforcing the
compensatory proceedings. The criminal liability and the fines are built
on the principle of not honouring a negotiable instrument, which affects
trade. This is apart from the principle of financial liability per se. To say
that under a scheme which may be approved, a part amount will be
recovered or if there is no scheme a person may stand in a queue to
recover debt would absolve the consequences under Section 138 of the
N.I. Act, is unacceptable.
19. We are, thus, conclusively of the view that the impugned order
takes the correct view in law and cannot be assailed before us.
Conclusion:
20. The appeals are accordingly dismissed but without costs before
us on account of what we have recorded in para 14.
J. B. PARDIWALA, J.
1. I have carefully, gone through the perspicuous opinion of my
esteemed brother Sanjay Kishan Kaul, J. I am entirely in agreement
with the discussion contained in the said judgment on all the cardinal
issues that have arisen for consideration in these proceedings. At the
same time, having regard to the fact that the issues involved are of
seminal importance, I am also inclined to pen down my thoughts.
2. For the sake of convenience, the Criminal Appeal No. 170 of
2023 (@ SLP (Crl) No. 417 of 2020) is treated as the lead matter.
3. This appeal by special leave is at the instance of the original
accused No. 2 in a complaint lodged by the respondent herein (original
complainant) for the offence punishable under Section 138 of the
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Negotiable Instruments Act, 1881 (for short, 'the NI Act') and is directed
against the order passed by the Additional Sessions Judge-02 South East
District, Saket Court, New Delhi dated 23.11.2019 in the Criminal
Revision Application No. 593 of 2019 by which the Additional Sessions
Judge affirmed the order passed by the Metropolitan Magistrate - 09,
SED dated 01.11.2019 rejecting the application filed by the appellant
herein seeking discharge from the criminal proceedings i.e. Complaint
Case No. 632984 of 2016 instituted by the respondent-complainant under
Section 138 of the NI Act.
4. It is necessary to clarify why the appellant challenged the
impugned order passed by the Additional Sessions Judge directly before
this Court invoking Article 136 of the Constitution of India. In this regard,
the following averments made in the synopsis are reproduced hereinbelow:
"The petitioner is directly approaching this Hon'ble Court,
because the first two facets are already being considered by
this Hon'ble Court, in which view, the Hon'ble High Court is
not likely to entertain a quashing petition. This apart, a petition
before any other court is likely to result in conflicting orders
and would be an exercise in futility. The earlier matters
pending before this Hon'ble Court also arose directly out of
the summons issued by the concerned Learned Magistrate."
FACTUAL MATRIX
5. The respondent herein, namely, the "Tourism Finance
Corporation of India Limited" (hereinafter shall be referred to as, 'the
complainant'), had advanced a sum of Rs. 30,00,00,000/- (thirty crore)
as a corporate loan to the Rainbow Papers Limited (Original Accused
No. 1/corporate debtor). The appellant herein at the relevant point of
time was the Managing Director of the company i.e. the corporate debtor.
The transaction between the parties took place on 31.03.2012. It appears
that an amount of Rs. 10.88 crore came to be repaid before the disputes
arose between the parties. Sometime in 2016, the complainant issued a
notice to the corporate debtor to settle the balance amount. On 16.05.2016,
a complaint was lodged under Section 138 of the NI Act by the
complainant against the corporate debtor and the appellant herein
(Managing Director of the Corporate Debtor) for dishonour of the three
cheques issued by the appellant herein for discharge of the debt in part
to the tune of Rs. 57,00,000/- (fifty-seven lakhs).
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
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6. The aforesaid complaint under Section 138 of the NI Act was
registered in the Court of the Chief Metropolitan Magistrate, Saket Court,
New Delhi.
7. In 2017, one of the operational creditors filed an application
under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for short,
'the IBC' or 'the IBC, 2016') before the NCLT, Ahmedabad, seeking to
initiate Corporate Insolvency Resolution Process (for short, 'the CIRP')
with respect to the corporate debtor.
8. The Insolvency application came to be admitted by the NCLT
on 12.09.2017.
9. On 3.10.2017, the complainant filed its claim of Rs. 22,50,00,000/
- crore (approximately) before the Interim Resolution Professional (for
short, 'the IRP').
10. On 26.05.2018, the resolution applicant filed its resolution plan
under the terms of which, the payment to the complainant was in full
and final settlement of all its claims against the corporate debtor.
11. On 05.06.2018, the Committee of Creditors (for short, 'the
CoC') approved the resolution plan proposed by the resolution applicant.
The complainant was one of the members of the CoC.
12. On 23.07.2018, the complainant lodged his objections before
the NCLT to the resolution plan in so far as it changed its status from
secured to unsecured creditor.
13. It appears that in the meantime, the appellant preferred an
application before the trial court seeking exemption from his personal
appearance invoking a moratorium under Section 14 of the IBC. The
Magistrate vide order dated 12.11.2018 rejected the said application on
the ground that the criminal proceedings under the NI Act had nothing to
do with the proceedings under the IBC.
14. On 27.02.2019, the NCLT approved the resolution plan so far
as the corporate debtor is concerned.
15. As the resolution plan came to be approved by the NCLT, the
appellant herein filed an application dated 20.07.2019 before the trial
court, praying that he be discharged from the criminal proceedings. The
case of the appellant herein before the Magistrate was that as the debt
stood settled in the proceedings under the IBC, the criminal proceedings
would not survive.
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16. The trial court vide order dated 01.11.2019 rejected the
aforesaid application essentially on the ground that it had no jurisdiction
to discharge an accused in a summons triable case.
17. In view of the aforesaid, the appellant herein filed the Criminal
Revision Application No. 593 of 2019 before the Additional Sessions
Court, challenging the order passed by the Magistrate dated 01.11.2019
referred to above. The appellant contended before the revisional court
that as the debt in connection with which the criminal proceedings had
been initiated, formed part of the approved resolution plan the outstanding
debt under the NI Act could be said to have stood settled.
18. The Additional Judge vide the impugned order dated 23.11.2019
rejected the Revision Application.
19. In such circumstances, referred to above, the appellant is here
before this Court with the present appeal.
THE SUBMISSIONS ON BEHALF OF THE APPELLANT
20. Mr. Nikhil Goel, the learned counsel appearing for the appellant
made the following submissions:
A.
The trigger of Section 138 of the NI Act, is the non-payment
of legally enforceable debt. Once the debt itself gets
extinguished either under Section 31 of the IBC or in the
process from Sections 38 to 41 and 54 resply of the IBC,
the basis of Section 138 of the NI Act no longer remains.
The term debt would mean the 'legally enforceable debt'
under the explanation to Section 138 of the NI Act. This
may be read with Section 2(6) & 2(8) resply of the IBC.
B.
The liability is primarily of the company and prosecution of
natural persons under Section 141 of the NI Act is vicarious
to the prosecution of the company. It is for this reason that
a director cannot be prosecuted without making the
company as an accused. [See Ajit Balse v. Ranga
Karkere: (2015) 15 SCC 748.]
C.
The nature of proceedings under Section 138 of the NI Act
is primarily compensatory and the punitive element is
incorporated at enforcing the compensatory provisions.
(paras 53 & 63 resply in P. Mohanraj and Others v. Shah
Brothers Ispat Private Limited reported in (2021) 6 SCC
AJAY KUMAR RADHEYSHYAM GOENKA v. TOURISM
FINANCE CORP. OF INDIA LTD. [J. B. PARDIWALA, J.]
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258). Therefore, once recovery is made, partly by receipt
of money and partly by waiver, Section 138 of the NI Act
should not be permitted to be continued.
D.
If the debt of the company is resolved then payments would
be governed under the resolution plan. If the debts are not
resolved then the assets of the company are to be distributed
in terms of Section 53 of the IBC. Permitting two
proceedings to continue would therefore defeat either
Section 31 or Section 53 of the IBC, as the case may be.
E.
Mr. Goel submitted that this Court in P. Mohanraj (supra)
considered the position of law as regards the continuation
of the criminal proceedings under Section 138 of the NI
Act vis-a-vis the proceedings under the IBC and answered
the same in para 102 of the judgment. It was pointed out by
Mr. Goel that this Court drew a fine distinction between
the corporate debtor and natural persons & ultimately held
that while a corporate debtor would be protected from
Section 138 proceedings during the period of moratorium,
the natural persons would not enjoy such protection and
Section 138 proceedings would continue against the natural
persons. However, according to Mr. Goel, this Court may
not go in the correctness of such bifurcation as in the case
on hand, the proceedings are beyond the period of
moratorium. Mr. Goel pointed out that the question framed
in para 6 of the decision in P. Mohanraj (supra) is restricted
only to the applicability of Section 14 of the IBC to the
proceedings under Section 138 of the NI Act.
F.
The principal argument of Mr. Goel is that if the IBC
proceedings have travelled beyond Section 14, the process
would either lead to acceptance of a resolution plan under
Section 31 of the IBC or liquidation of the company after
determination of the claims under Chapter III of the IBC.
According to Mr. Goel, Section 31 of the IBC is applicable
to the present litigation.
21. In such circumstances referred to above, Mr. Goel prays that
there being merit in his appeal, the same may be allowed and the appellant
may be discharged from the criminal liability under Section 138 of the
NI Act.
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THE SUBMISSIONS ON BEHALF OF THE RESPONDENT
(COMPLAINANT)
22. On the other hand, this appeal has been vehemently opposed
by Mr. Rajiv Ranjan Dwivedi, the learned counsel appearing for the
complainant by submitting that in the case on hand, the criminal
proceedings under the NI Act were initiated much before the proceedings
under the IBC came to be initiated. In other words, cognizance was
taken by the learned Magistrate upon the complaint filed under Section
138 of the NI Act much before the scheme came to be approved under
the IBC. He would submit that the offence alleged to have been
committed by the appellant herein prior to the scheme would not get
automatically compounded only as a result of the said scheme. He would
further submit that none of the provisions of the IBC bars the continuation
of the criminal prosecution initiated against the corporate debtor or its
directors or officials. According to the learned counsel, if the company
is dissolved as a result of the resolution process, the criminal proceedings
against it would stand terminated, however, the signatory to the cheque
or its erstwhile directors are not entitled in law to take advantage of
such a situation created by operation of law.
23.