# P. MOHANRAJ & ORS v. M/S. SHAH BROTHERS ISPAT PVT. LTD

- **Citation:** [2021] 14 S.C.R. 204
- **Court:** Supreme Court of India
- **Decided:** 2021-03-01
- **Case number:** Civil Appeal No. 10355 of 2018
- **Bench:** Rohinton Fali Nariman, Navin Sinha, K. M. Joseph
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/p-mohanraj-ors-v-m-s-shah-brothers-ispat-pvt-ltd-35363
- **Pages:** 117

## Headnote

Insolvency and Bankruptcy Code, 2016 - s.14 - Negotiable
Instrument Act, 1881 - Chapter XVII - ss.138, 141 - Institution/
continuation of proceeding u/s.138/141, NI Act, if covered by the
moratorium provision i.e. s.14, IBC - Natural persons if covered by
s.14 - Held: A s.138/141 proceeding against a corporate debtor is
covered by s.14(1)(a), IBC - A quasi-criminal proceeding contained
in Chapter XVII of the NI Act would amount to a "proceeding"
within the meaning of s.14(1)(a), the moratorium therefore attaching
to such proceeding - As far as the Directors/persons in management
or control of the corporate debtor are concerned, a s.138/141
proceeding against them cannot be initiated or continued without
the corporate debtor - This is because s.141 speaks of persons in
charge of, and responsible to the company for the conduct of the
business of the company, as well as the company - For the period
of moratorium, since no s.138/141 proceeding can continue or be
initiated against the corporate debtor because of a statutory bar,
such proceedings can be initiated or continued against the persons
mentioned in s.141(1) and (2) of the NI Act - Thus, moratorium
provision contained in s.14, IBC would apply only to the corporate
debtor, the natural persons mentioned in s.141 continuing to be
statutorily liable under Chapter XVII of the NI Act - Interpretation
of Statutes.
Insolvency and Bankruptcy Code, 2016 - s.14, ss.3(33), 96(3),
101(3) - "Transaction" in s.3(33) - Scope of s.14 - Held: s.14(1)
makes it clear that subject to the exceptions contained in sub-sections
(2) and (3), on the insolvency commencement date, the Adjudicating
Authority shall mandatorily, by order, declare a moratorium to
prohibit what follows in clauses (a) to (d) - s.14(1)(a) does not
indicate as to what the proceedings contained therein apply to -
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Sub-section 3(a) provides the answer that such "proceedings" relate
to "transactions" entered into by the corporate debtor pre imposition
of the moratorium - s.3(33) defines " transaction" - This definition
being an inclusive one is extremely wide in nature and would include
a transaction evidencing a debt or liability - This is made clear by
s.96(3) and s.101(3) which contain the same language as s.14(3)(a),
these Sections speaking of 'debts' of the individual or firm.
Insolvency and Bankruptcy Code, 2016 - s.14(3)(b) - Held:
By s.14(3)(b), a surety in a contract of guarantee of a debt owed by
a corporate debtor cannot avail of the benefit of a moratorium as a
result of which a creditor can enforce a guarantee, though not being
able to enforce the principal debt during the period of moratorium.
Insolvency and Banckruptcy Code, 2016 - s.14 - Object of
- Discussed.
Doctrines/Principles - noscitur a sociis or ejusdem generis -
Insolvency and Bankruptcy Code, 2016 - s.14 - "proceedings" -
Negotiable Instrument Act, 1881 - ss.138, 141 - Held: Ejusdem
generis and noscitur a sociis cannot be exalted to nullify the plain
meaning of words used in a statute if they are designedly used in a
wide sense - Where a residuary phrase is used as a catch-all
expression to take within its scope what may reasonably be
comprehended by a provision, regard being had to its object and
setting, noscitur a sociis cannot be used to colour an otherwise wide
expression so as to whittle it down and stultify the object of a
statutory provision - noscitur a sociis or ejusdem generis should not
be used to cut down the width of the expression "proceedings" so
as to make such proceedings analogous to civil suits - Interpretation
of Statutes - Rules of construction.
Insolvency and Bankruptcy Code, 2016 - s.14 vis-à-vis ss.
81, 85, 96, 101 - Scope of proceedings - Held: When the language
of these Sections is juxtaposed against the language of s.14, it is
clear that the width of s.14 is even greater, given that s.14 declares
a moratorium prohibiting what is mentioned in clauses (a) to (d)
thereof in respect of transactions entered into

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[2021] 14 S.C.R.
[2021] 14 S.C.R. 204
204
P. MOHANRAJ & ORS.
v.
M/S. SHAH BROTHERS ISPAT PVT. LTD.
(Civil Appeal No. 10355 of 2018)
MARCH 01, 2021
[ROHINTON FALI NARIMAN, NAVIN SINHA AND
K. M. JOSEPH, JJ.]
Insolvency and Bankruptcy Code, 2016 - s.14 - Negotiable
Instrument Act, 1881 - Chapter XVII - ss.138, 141 - Institution/
continuation of proceeding u/s.138/141, NI Act, if covered by the
moratorium provision i.e. s.14, IBC - Natural persons if covered by
s.14 - Held: A s.138/141 proceeding against a corporate debtor is
covered by s.14(1)(a), IBC - A quasi-criminal proceeding contained
in Chapter XVII of the NI Act would amount to a "proceeding"
within the meaning of s.14(1)(a), the moratorium therefore attaching
to such proceeding - As far as the Directors/persons in management
or control of the corporate debtor are concerned, a s.138/141
proceeding against them cannot be initiated or continued without
the corporate debtor - This is because s.141 speaks of persons in
charge of, and responsible to the company for the conduct of the
business of the company, as well as the company - For the period
of moratorium, since no s.138/141 proceeding can continue or be
initiated against the corporate debtor because of a statutory bar,
such proceedings can be initiated or continued against the persons
mentioned in s.141(1) and (2) of the NI Act - Thus, moratorium
provision contained in s.14, IBC would apply only to the corporate
debtor, the natural persons mentioned in s.141 continuing to be
statutorily liable under Chapter XVII of the NI Act - Interpretation
of Statutes.
Insolvency and Bankruptcy Code, 2016 - s.14, ss.3(33), 96(3),
101(3) - "Transaction" in s.3(33) - Scope of s.14 - Held: s.14(1)
makes it clear that subject to the exceptions contained in sub-sections
(2) and (3), on the insolvency commencement date, the Adjudicating
Authority shall mandatorily, by order, declare a moratorium to
prohibit what follows in clauses (a) to (d) - s.14(1)(a) does not
indicate as to what the proceedings contained therein apply to -
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Sub-section 3(a) provides the answer that such "proceedings" relate
to "transactions" entered into by the corporate debtor pre imposition
of the moratorium - s.3(33) defines " transaction" - This definition
being an inclusive one is extremely wide in nature and would include
a transaction evidencing a debt or liability - This is made clear by
s.96(3) and s.101(3) which contain the same language as s.14(3)(a),
these Sections speaking of 'debts' of the individual or firm.
Insolvency and Bankruptcy Code, 2016 - s.14(3)(b) - Held:
By s.14(3)(b), a surety in a contract of guarantee of a debt owed by
a corporate debtor cannot avail of the benefit of a moratorium as a
result of which a creditor can enforce a guarantee, though not being
able to enforce the principal debt during the period of moratorium.
Insolvency and Banckruptcy Code, 2016 - s.14 - Object of
- Discussed.
Doctrines/Principles - noscitur a sociis or ejusdem generis -
Insolvency and Bankruptcy Code, 2016 - s.14 - "proceedings" -
Negotiable Instrument Act, 1881 - ss.138, 141 - Held: Ejusdem
generis and noscitur a sociis cannot be exalted to nullify the plain
meaning of words used in a statute if they are designedly used in a
wide sense - Where a residuary phrase is used as a catch-all
expression to take within its scope what may reasonably be
comprehended by a provision, regard being had to its object and
setting, noscitur a sociis cannot be used to colour an otherwise wide
expression so as to whittle it down and stultify the object of a
statutory provision - noscitur a sociis or ejusdem generis should not
be used to cut down the width of the expression "proceedings" so
as to make such proceedings analogous to civil suits - Interpretation
of Statutes - Rules of construction.
Insolvency and Bankruptcy Code, 2016 - s.14 vis-à-vis ss.
81, 85, 96, 101 - Scope of proceedings - Held: When the language
of these Sections is juxtaposed against the language of s.14, it is
clear that the width of s.14 is even greater, given that s.14 declares
a moratorium prohibiting what is mentioned in clauses (a) to (d)
thereof in respect of transactions entered into by the corporate
debtor, inclusive of transactions relating to debts, as contained in
ss.81, 85, 96, and 101 - Also, s.14(1)(d) is conspicuous by its
absence in any of these Sections - Thus, where individuals or firms
are concerned, the recovery of any property by an owner or lessor,
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where such property is occupied by or in possession of the individual
or firm can be recovered during the moratorium period, unlike the
property of a corporate debtor - Negotiable Instrument Act, 1881
- s.138, 141, 143A, 148.
Insolvency and Bankruptcy Code, 2016 - ss.14, 32A (1) -
Interplay between s.14, 32A - Moratorium - Prior offences, liability
of corporate debtor - Held: The reason for introducing s.32A had
nothing to do with any moratorium provision - It extinguishes
criminal liability of the corporate debtor, from the date the resolution
plan has been approved by the Adjudicating Authority, so that the
new management may make a clean break with the past and start
on a clean slate - Whereas, a moratorium provision only casts a
shadow on proceedings already initiated and to be initiated -
Insolvency and Bankruptcy Code (Amendment) Act, 2020 - Doctrine
of harmonious construction - Negotiable Instruments Act, 1881 -
ss.138, 141.
Negotiable Instruments Act, 1881 - Chapter XVII - s.138142 - Nature of proceeding under - Held: A s.138 proceeding can
be said to be a "civil sheep" in a "criminal wolf's" clothing, as it is
the interest of the victim that is sought to be protected, the larger
interest of the State being subsumed in the victim alone moving a
court in cheque bouncing cases - Code of Criminal Procedure,
1973 - Chapter XIII - ss.177 to 189; ss.62-64, 302, 357.
Negotiable Instruments Act, 1881 - s.138 - Object of -
Discussed.
Negotiable Instruments Act, 1881 - s.138 - Explanation to
s.138 - Held: It makes clear that the debt or other liability means a
legally enforceable debt or other liability - Thus, a debt or other
liability barred by the law of limitation would be outside the scope
of s.138.
Negotiable Instruments Act, 1881 - s.138 - Penal Code, 1860
- s.53 - Plea that proceedings u/s.138 can only be described as
criminal proceedings - Held: Rejected - There are many instances
of acts which are punishable by imprisonment or fine or both which
have been described as quasi-criminal - There is nothing wrong
with the appellation "quasi-criminal" being applied to a s.138
proceeding - Companies Act, 1956 - s.630 - Contempt of Courts
Act, 1971 - ss.2, 11, 12.
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Negotiable Instruments Act, 1881 - s.139 - Presumption
under - Discussed.
Negotiable Instruments Act, 1881 - s.140 - Held: It shall not
be a defence in a prosecution for an offence u/s.138 that the drawer
had no reason to believe when he issued the cheque that the cheque
may be dishonoured on presentment for the reasons stated in that
Section, thus strict liability will attach, mens rea being no ingredient
of the offence.
Insolvency and Bankruptcy Code, 2016 - ss.14, 25(2), 33(5)
- Negotiable Instruments Act, 1881 - ss.138, 141 - Doctrines of
ejusdem generis and noscitur a sociis - Non-application of - Held: U/
s.33, the expression "no suit or other legal proceeding" occurs
both in the enacting part as well as the proviso - Going by the
proviso first, given the object that the liquidator has to act on behalf
of the company after a winding-up order is passed, which includes
filing of suits and other legal proceedings on behalf of the company,
there is no reason as to why a s.138/141 proceeding would be outside
the ken of the proviso - There is no reason why the liquidator cannot
institute a s.138/141 proceeding against a defaulting debtor of the
company - Inelegant drafting cannot lead to absurd results or results
which stultify the object of a provision, given its otherwise wide
language - Interpretation of Statutes.
Arbitration and Conciliation Act, 1996 - s.34 - Insolvency
and Bankruptcy Code, 2016 - s.14 - Held: s.34 proceeding is
certainly a proceeding against the corporate debtor which may result
in an arbitral award against the corporate debtor being upheld, as
a result of which, monies would then be payable by the corporate
debtor - Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd.,
reported as (2018) 246 DLT 485 does not state the law correctly.
Words & Expressions:
"or" in s.14(1)(a) - Interpretation of - Held: expression "or"
occurs twice in the first part of s.14(1)(a)- first, between the
expressions "institution of suits" and "continuation of pending suits"
and second, between the expressions "continuation of pending suits"
and "proceedings against the corporate debtor..." - Expression
"institution of suits or continuation of pending suits" is to be read
as one category, and the disjunctive "or" before the word
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"proceedings" would make it clear that proceedings against the
corporate debtor would be a separate category.
"proceedings" - Meaning of - Discussed - Insolvency and
Bankruptcy Code, 2016 - s.14.
"in respect of" - Held: It is a phrase which is wide and
includes anything done directly or indirectly - Insolvency and
Bankruptcy Code, 2016 - ss. 81, 85, 96, 101.
"cause of action" - Held: Expression "cause of action" is a
foreigner to criminal jurisprudence, and would apply only in civil
cases to recover money - Insolvency and Bankruptcy Code, 2016 -
s.14 - Negotiable Instruments Act, 1881 - ss.138, 142 - Code of
Criminal Procdeure, 1973 - Chapter XIII - ss.177 to 189.
Disposing of the matters, the Court
HELD: 1.1 Section 14(1) makes it clear that subject to the
exceptions contained in sub-sections (2) and (3), on the insolvency
commencement date, the Adjudicating Authority shall
mandatorily, by order, declare a moratorium to prohibit what
follows in clauses (a) to (d). Importantly, under sub-section (4),
this order of moratorium does not continue indefinitely, but has
effect only from the date of the order declaring moratorium till
the completion of the corporate insolvency resolution process
which is time bound, either culminating in the order of the
Adjudicating Authority approving a resolution plan or in
liquidation. The two exceptions to Section 14(1) are contained in
sub-sections (2) and (3) of Section 14. Under sub-section (2), the
supply of essential goods or services to the corporate debtor
during this period cannot be terminated or suspended or even
interrupted, as otherwise the corporate debtor would be brought
to its knees and would not able to function as a going concern
during this period. The exception created in sub-section (3) is
important as it refers to "transactions" as may be notified by the
Central Government in consultation with experts in finance. Thus,
the Central Government, in consultation with experts, may state
that the moratorium provision will not apply to such transactions
as may be notified. Section 14(1)(a) does not indicate as to what
the proceedings contained therein apply to. Sub-section 3(a)
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provides the answer - that such "proceedings" relate to
"transactions" entered into by the corporate debtor pre
imposition of the moratorium. Section 3(33) defines "transaction".
This definition being an inclusive one is extremely wide in nature
and would include a transaction evidencing a debt or liability. This
is made clear by Section 96(3) and Section 101(3) which contain
the same language as Section 14(3)(a), these Sections speaking
of 'debts' of the individual or firm. Equally important is Section
14(3)(b), by which a surety in a contract of guarantee of a debt
owed by a corporate debtor cannot avail of the benefit of a
moratorium as a result of which a creditor can enforce a guarantee,
though not being able to enforce the principal debt during the
period of moratorium. [Paras 10-13][232-G-H; 233-A-C, F-G;
234-B-D]
1.2 The expression "or" occurs twice in the first part of
Section 14(1)(a) - first, between the expressions "institution of
suits" and "continuation of pending suits" and second, between
the expressions "continuation of pending suits" and "proceedings
against the corporate debtor...". The sweep of the provision is
very wide indeed as it includes institution, continuation, judgment
and execution of suits and proceedings. An award of an arbitration
panel or an order of an authority is also included. This being the
case, it would be incongruous to hold that the expression "the
institution of suits or continuation of pending suits" must be read
disjunctively as otherwise, the institution of arbitral proceedings
and proceedings before authorities cannot be subsumed within
the expression institution of "suits" which are proceedings in
civil courts instituted by a plaint (see Section 26 of the Code of
Civil Procedure, 1908). Therefore, it is clear that the expression
"institution of suits or continuation of pending suits" is to be
read as one category, and the disjunctive "or" before the word
"proceedings" would make it clear that proceedings against the
corporate debtor would be a separate category. What throws light
on the width of the expression "proceedings" is the expression
"any judgment, decree or order" and "any court of law, tribunal,
arbitration panel or other authority". Since criminal proceedings
under the Code of Criminal Procedure, 1973 ["CrPC"] are
conducted before the courts mentioned in Section 6, CrPC, it is
clear that a Section 138 proceeding being conducted before a
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Magistrate would certainly be a proceeding in a court of law in
respect of a transaction which relates to a debt owed by the
corporate debtor. [Para 14][234-D-H; 235-A-B]
1.3 Ejusdem generis and noscitur a sociis, being rules as to
the construction of statutes, cannot be exalted to nullify the plain
meaning of words used in a statute if they are designedly used in
a wide sense. Importantly, where a residuary phrase is used as a
catch-all expression to take within its scope what may reasonably
be comprehended by a provision, regard being had to its object
and setting, noscitur a sociis cannot be used to colour an otherwise
wide expression so as to whittle it down and stultify the object of
a statutory provision. [Para 22][250-A-B]
State of Assam v. Ranga Mahammad, [1967] 1 SCR 454;
Jagdish Chander Gupta v. Kajaria Traders (India) Ltd.,
[1964] 8 SCR 50; Rajasthan State Electricity Board v.
Mohan Lal, [1967] 3 SCR 377; CBI v. Braj Bhushan
Prasad, (2001) 9 SCC 432 : [2001] 3 Suppl. SCR 627;
Godfrey Phillips India Ltd. v. State of U.P., (2005) 2
SCC 515 : [2005] 1 SCR 732; Vikram Singh v. Union
of India, (2015) 9 SCC 502 : [2015] 10 SCR 816;
Pioneer Urban Land and Infrastructure Ltd. v. Union
of India, (2019) 8 SCC 416 : [2019] 10 SCR 381 -
referred to.
2. The object of a moratorium provision such as Section 14
is to see that there is no depletion of a corporate debtor's assets
during the insolvency resolution process so that it can be kept
running as a going concern during this time, thus maximizing
value for all stakeholders. The idea is that it facilitates the
continued operation of the business of the corporate debtor to
allow it breathing space to organise its affairs so that a new
management may ultimately take over and bring the corporate
debtor out of financial sickness, thus benefiting all stakeholders,
which would include workmen of the corporate debtor. Regard
being had to the object sought to be achieved by the IBC in
imposing this moratorium, a quasi-criminal proceeding which
would result in the assets of the corporate debtor being depleted
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as a result of having to pay compensation which can amount to
twice the amount of the cheque that has bounced would directly
impact the corporate insolvency resolution process in the same
manner as the institution, continuation, or execution of a decree
in such suit in a civil court for the amount of debt or other liability.
Judged from the point of view of this objective, it is impossible
to discern any difference between the impact of a suit and a Section
138 proceeding, insofar as the corporate debtor is concerned, on
its getting the necessary breathing space to get back on its feet
during the corporate insolvency resolution process. Given this
fact, it is difficult to accept that noscitur a sociis or ejusdem generis
should be used to cut down the width of the expression
"proceedings" so as to make such proceedings analogous to civil
suits. Clause (b) of Section 14(1) also makes it clear that during
the moratorium period, any transfer, encumbrance, alienation, or
disposal by the corporate debtor of any of its assets or any legal
right or beneficial interest therein being also interdicted, yet a
liability in the form of compensation payable under Section 138
would somehow escape the dragnet of Section 14(1). While Section
14(1)(a) refers to monetary liabilities of the corporate debtor,
Section 14(1)(b) refers to the corporate debtor's assets, and
together, these two clauses form a scheme which shields the
corporate debtor from pecuniary attacks against it in the
moratorium period so that the corporate debtor gets breathing
space to continue as a going concern in order to ultimately
rehabilitate itself. [Paras 23-25][251-C-D; 252-B-D, E-G]
Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC
17: [2019] 3 SCR 535 - relied on.
Report of the Insolvency Law Committee of February,
2020 - referred to.
3. In Part III of the IBC, which deals with insolvency
resolution and bankruptcy for individuals and partnership firms,
Section 81, which occurs in Chapter II thereof, entitled "Fresh
Start Process", an interim moratorium is imposed. Similarly, in
Section 85, which also occurs in Chapter II in Part III of the IBC,
a moratorium is imposed. When the language of Section 14 and
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Section 85 are contrasted, it becomes clear that though the
language of Section 85 is only in respect of debts, the moratorium
contained in Section 14 is not subject specific. The only light
thrown on the subject is by the exception provision contained in
Section 14(3)(a) which is that "transactions" are the subject
matter of Section 14(1). "Transaction" is a much wider expression
than "debt", and subsumes it. Also, the expression "proceedings"
used by the legislature in Section 14(1)(a) is not trammelled by
the word "legal" as a prefix that is contained in the moratorium
provisions qua individuals and firms. Likewise, the provisions of
Section 96 and Section 101 are moratorium provisions in Chapter
III of Part III dealing with the insolvency resolution process of
individuals and firms, the same expression, namely, "debts" is
used as is used in Section 85. A legal action or proceeding in
respect of any debt would, on its plain language, include a Section
138 proceeding. This is for the reason that a Section 138
proceeding would be a legal proceeding "in respect of" a debt.
"In respect of" is a phrase which is wide and includes anything
done directly or indirectly. This, coupled with the fact that the
Section is not limited to 'recovery' of any debt, would indicate
that any legal proceeding even indirectly relatable to recovery of
any debt would be covered. When the language of these Sections
is juxtaposed against the language of Section 14, it is clear that
the width of Section 14 is even greater, given that Section 14
declares a moratorium prohibiting what is mentioned in clauses
(a) to (d) thereof in respect of transactions entered into by the
corporate debtor, inclusive of transactions relating to debts, as
is contained in Sections 81, 85, 96, and 101. Also, Section 14(1)(d)
is conspicuous by its absence in any of these Sections. Thus,
where individuals or firms are concerned, the recovery of any
property by an owner or lessor, where such property is occupied
by or in possession of the individual or firm can be recovered
during the moratorium period, unlike the property of a corporate
debtor. For all these reasons, therefore, given the object and
context of Section 14, the expression "proceedings" cannot be
cut down by any rule of construction and must be given a fair
meaning consonant with the object and context. It is conceded
that criminal proceedings which are not directly related to
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transactions evidencing debt or liability of the corporate debtor
would be outside the scope of this expression. [Paras 26, 27,
28][253-A; 255-B-D; 256-F-H; 257-A-C]
State Bank of India v. V. Ramakrishnan, (2018) 17 SCC
394 : [2018] 10 SCR 974 - distinguished.
Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd.,
(2018) 2 SCC 674 : [2017] 13 SCR 751; Giriraj Garg
v. Coal India Ltd., (2019) 5 SCC 192 : [2019] 2 SCR
239 - referred to.
4. Section 32A cannot possibly be said to throw any light on
the true interpretation of Section 14(1)(a) as the reason for
introducing Section 32A had nothing whatsoever to do with any
moratorium provision. At the heart of the Section is the
extinguishment of criminal liability of the corporate debtor, from
the date the resolution plan has been approved by the Adjudicating
Authority, so that the new management may make a clean break
with the past and start on a clean slate. A moratorium provision,
on the other hand, does not extinguish any liability, civil or
criminal, but only casts a shadow on proceedings already initiated
and on proceedings to be initiated, which shadow is lifted when
the moratorium period comes to an end. Also, Section 32A(1)
operates only after the moratorium comes to an end. At the heart
of Section 32A is the IBC's goal of value maximisation and the
need to obviate lower recoveries to creditors as a result of the
corporate debtor continuing to be exposed to criminal liability.
Unfortunately, the Section is inelegantly drafted. The second
proviso to Section 32A(1) speaks of persons who are in any
manner in charge of, or responsible to the corporate debtor for
the conduct of its business or associated with the corporate debtor
and who are, directly or indirectly, involved in the commission of
"such offence", i.e., the offence referred to in sub-section (1),
"as per the report submitted or complaint filed by the investigating
authority ...". The report submitted here refers to a police report
under Section 173 of the CrPC, and complaints filed by
investigating authorities under special Acts, as opposed to private
complaints. If the language of the second proviso is taken to
interpret the language of Section 32A(1) in that the "offence
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committed" under Section 32A(1) would not include offences
based upon complaints under Section 2(d) of the CrPC, the width
of the language would be cut down and the object of Section 32A(1)
would not be achieved as all prosecutions emanating from private
complaints would be excluded. Section 32A(1) cannot be read in
this fashion and clearly incudes the liability of the corporate debtor
for all offences committed prior to the commencement of the
corporate insolvency resolution process. Doubtless, a Section
138 proceeding would be included, and would, after the
moratorium period comes to an end with a resolution plan by a
new management being approved by the Adjudicating Authority,
cease to be an offence qua the corporate debtor. A section which
has been introduced by an amendment into an Act with its focus
on cesser of liability for offences committed by the corporate
debtor prior to the commencement of the corporate insolvency
resolution process cannot be so construed so as to limit, by a
sidewind as it were, the moratorium provision contained in Section
14, with which it is not at all concerned. If the first proviso to
Section 32A(1) is read in the manner suggested , it will impact
Section 14 by taking out of its ken Section 138/141 proceedings,
which is not the object of Section 32A(1) at all. Assuming,
therefore, that there is a clash between Section 14 of the IBC
and the first proviso of Section 32A(1), this clash is best resolved
by applying the doctrine of harmonious construction so that the
objects of both the provisions get subserved in the process,
without damaging or limiting one provision at the expense of the
other. If, therefore, the expression "prosecution" in the first
proviso of Section 32A(1) refers to criminal proceedings properly
so-called either through the medium of a First Information Report
or complaint filed by an investigating authority or complaint and
not to quasi-criminal proceedings that are instituted under
Sections 138/141 of the Negotiable Instruments Act against the
corporate debtor, the object of Section 14(1) of the IBC gets
subserved, as does the object of Section 32A, which does away
with criminal prosecutions in all cases against the corporate
debtor, thus absolving the corporate debtor from the same after
a new management comes in. [Paras 33, 34][262-H; 263-A-H;
264-A-D]
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Manish Kumar v. Union of India, 2021 SCC OnLine
SC 30; CIT v. Ishwarlal Bhagwandas, [1966] 1 SCR
190 - relied on.
Report of the Insolvency Law Committee of February,
2020 - referred to.
5. Section 138 contains within it the ingredients of the
offence made out. The deeming provision is important in that the
legislature is cognizant of the fact that what is otherwise a civil
liability is now also deemed to be an offence, since this liability is
made punishable by law. The transaction spoken of is a commercial
transaction between two parties which involves payment of money
for a debt or liability. The explanation to Section 138 makes it
clear that such debt or other liability means a legally enforceable
debt or other liability. Thus, a debt or other liability barred by the
law of limitation would be outside the scope of Section 138. This,
coupled with fine that may extend to twice the amount of the
cheque that is payable as compensation to the aggrieved party to
cover both the amount of the cheque and the interest and costs
thereupon, would show that it is really a hybrid provision to enforce
payment under a bounced cheque if it is otherwise enforceable in
civil law. Further, though the ingredients of the offence are
contained in the first part of Section 138 when the cheque is
returned by the bank unpaid for the reasons given in the Section,
the proviso gives an opportunity to the drawer of the cheque,
stating that the drawer must fail to make payment of the amount
within 15 days of the receipt of a notice, again making it clear
that the real object of the provision is not to penalise the
wrongdoer for an offence that is already made out, but to
compensate the victim. Likewise, under Section 139, a
presumption is raised that the holder of a cheque received the
cheque for the discharge, in whole or in part, of any debt or other
liability. To rebut this presumption, facts must be adduced which,
on a preponderance of probability (not beyond reasonable doubt
as in the case of criminal offences), must then be proved. Section
140 is also important, in that it shall not be a defence in a
prosecution for an offence under Section 138 that the drawer had
no reason to believe when he issued the cheque that the cheque
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may be dishonoured on presentment for the reasons stated in
that Section, thus making it clear that strict liability will attach,
mens rea being no ingredient of the offence. Section 141 then
makes Directors and other persons statutorily liable, provided
the ingredients of the section are met. Interestingly, for the
purposes of this Section, explanation (a) defines "company" as
meaning any body corporate and includes a firm or other
association of individuals. It has already been seen how the
language of Sections 96 and 101 would include a Section 138/141
proceeding against a firm so that the moratorium stated therein
would apply to such proceedings. If the arguments were to be
accepted, under the same Section, namely, Section 141, two
different results would ensue - so far as bodies corporate, which
include limited liability partnerships, are concerned, the
moratorium provision contained in Section 14 of the IBC would
not apply, but so far as a partnership firm is concerned, being
covered by Sections 96 and 101 of the IBC, a Section 138/141
proceeding would be stopped in its tracks by virtue of the
moratorium imposed by these Sections. Thus, under Section
141(1), whereas a Section 138 proceeding against a corporate
body would continue after initiation of the corporate insolvency
resolution process, yet, the same proceeding against a firm, being
interdicted by Sections 96 and 101, would not so continue.
Inelegant drafting alone cannot lead to such startling results, the
object of Sections 14 and 96 and 101 being the same namely, to
see that during the insolvency resolution process for corporate
persons/individuals and firms, the corporate body/firm/individual
should be given breathing space to recuperate for a successful
resolution of its debts - in the case of a corporate debtor, through
a new management coming in; and in the case of individuals and
firms, through resolution plans which are accepted by a committee
of creditors, by which the debtor is given breathing space in which
to pay back his/its debts, which would result in creditors getting
more than they would in a bankruptcy proceeding against an
individual or a firm. A cursory reading of Section 142 will again
make it clear that the procedure under the CrPC has been
departed from. First and foremost, no court is to take cognizance
of an offence punishable under Section 138 except on a complaint
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made in writing by the payee or the holder in due course of the
cheque - the victim. Further, the language of Section 142(1) (b)
would again show the hybrid nature of these provisions inasmuch
as a complaint must be made within one month of the date on
which the "cause of action" under clause (c) of the proviso to
Section 138 arises. The expression "cause of action" is a
foreigner to criminal jurisprudence, and would apply only in civil
cases to recover money. Chapter XIII of the CrPC, consisting of
Sections 177 to 189, is a chapter dealing with the jurisdiction of
the criminal courts in inquiries and trials. When the jurisdiction
of a criminal court is spoken of by these Sections, the expression
"cause of action" is conspicuous by its absence. By an
Amendment Act of 2002, various other sections were added to
this Chapter. Thus, under Section 143, it is lawful for a Magistrate
to pass a sentence of imprisonment for a term not exceeding one
year and a fine exceeding INR 5,000/- summarily. This provision
is again an important pointer to the fact that the payment of
compensation is at the heart of the provision in that a fine
exceeding INR 5000/-, the sky being the limit, can be imposed
by way of a summary trial which, after application of Section 357
of the CrPC, results in compensating the victim up to twice the
amount of the bounced cheque. Under Section 144, the mode of
service of summons is done as in civil cases, eschewing the mode
contained in Sections 62 to 64 of the CrPC. Likewise, under
Section 145, evidence is to be given by the complainant on
affidavit, as it is given in civil proceedings, notwithstanding
anything contained in the CrPC. Most importantly, by Section
147, offences under this Act are compoundable without any
intervention of the court, as is required by Section 320(2) of the
CrPC. By another amendment made in 2018, the hybrid nature
of these provisions gets a further tilt towards a civil proceeding,
by the power to direct interim compensation under Sections 143A
and 148. A civil proceeding is not necessarily a proceeding which
begins with the filing of a suit and culminates in execution of a
decree. It would include a revenue proceeding as well as a writ
petition filed under Article 226 of the Constitution, if the reliefs
therein are to enforce rights of a civil nature. Interestingly,
criminal proceedings are stated to be proceedings in which the
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larger interest of the State is concerned. Given these tests, it is
clear that a Section 138 proceeding can be said to be a "civil
sheep" in a "criminal wolf's" clothing, as it is the interest of the
victim that is sought to be protected, the larger interest of the
State being subsumed in the victim alone moving a court in cheque
bouncing cases. The gravamen of a proceeding under Section
138, though couched in language making the act complained of
an offence, is really in order to get back through a summary
proceeding, the amount contained in the dishonoured cheque
together with interest and costs, expeditiously and cheaply. It is
the victim alone who can file the complaint which ordinarily
culminates in the payment of fine as compensation which may
extend to twice the amount of the cheque which would include
the amount of the cheque and the interest and costs thereupon.
A quasi-criminal proceeding that is contained in Chapter XVII of
the Negotiable Instruments Act would, given the object and
context of Section 14 of the IBC, amount to a "proceeding" within
the meaning of Section 14(1)(a), the moratorium therefore
attaching to such proceeding. [Paras 36-38, 40-43 and 53]
[265-D-H; 266-A-H; 267-A; 268-A-H; 272-E-G; 288-F-H]
Goaplast (P) Ltd. v. Chico Ursula D'Souza, (2003) 3
SCC 232 : [2003] 2 SCR 712; Vinay Devanna Nayak
v. Ryot Sewa Sahakari Bank Ltd., (2008) 2 SCC 305 :
[2007] 12 SCR 1134; Damodar S. Prabhu v. Sayed
Babalal H., (2010) 5 SCC 663 : [2010] 5 SCR 678;
JIK Industries Ltd. v. Amarlal V. Jumani, (2012) 3 SCC
255 : [2012] 3 SCR 114; Kaushalya Devi Massand v.
Roopkishore Khore, (2011) 4 SCC 593 : [2011] 3 SCR
879; R. Vijayan v. Baby, (2012) 1 SCC 260 : [2011] 14
SCR 712; Dashrath Rupsingh Rathod v. State of
Maharashtra, (2014) 9 SCC 129 : [2014] 11 SCR 921;
Lafarge Aggregates & Concrete India (P) Ltd. v.
Sukarsh Azad, (2014) 13 SCC 779 : [2013] 11 SCR
74; Meters and Instruments (P) Ltd. v. Kanchan Mehta,
(2018) 1 SCC 560 : [2017] 10 SCR 66; M. Abbas Haji
v. T.N. Channakeshava, (2019) 9 SCC 606; H.N.
Jagadeesh v. R. Rajeshwari, (2019) 16 SCC 730 -
relied on.
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6. There are many instances of acts which are punishable
by imprisonment or fine or both which have been described as
quasi-criminal. Though there may not be any watertight distinction
between civil and criminal contempt, yet, an analysis of the
aforesaid authorities would make it clear that civil contempt is
essentially an action which is moved by the party in whose interest
an order was made with a view to enforce its personal right, where
contumacious disregard for such order results in punishment of
the offender in public interest, whereas a criminal contempt is, in
essence, a proceeding which relates to the public interest in
seeing that the administration of justice remains unpolluted. What
is of importance is to note that even in cases of civil contempt,
fine or imprisonment or both may be imposed. The mere fact
that punishments that are awardable relate to Section 53 of the
Indian Penal Code would not, therefore, render a civil contempt
proceeding a criminal proceeding. There is a great deal of wisdom
in the finding of the Sanyal Committee Report that the question
whether a contempt is civil or criminal is not to be judged with
reference to the penalty which may be inflicted but with reference
to the cause for which the penalty has been inflicted. Clearly,
therefore, given the hybrid nature of a civil contempt proceeding,
described as "quasi-criminal" by several judgments of this Court,
there is nothing wrong with the same appellation "quasi-criminal"
being applied to a Section 138 proceeding. [Paras 63, 64]
[302-A-E]
Abhilash Vinodkumar Jain v. Cox & Kings (India) Ltd.,
(1995) 3 SCC 732 : [1995] 2 SCR 873; Niaz Mohd. v.
State of Haryana, (1994) 6 SCC 332 : [1994] 3 Suppl.
SCR 720; T.N. Godavarman Thirumulpad (102) v. Ashok
Khot, (2006) 5 SCC 1 : [2006] 2 Suppl. SCR 215;
Sahdeo v. State of U.P., (2010) 3 SCC 705 : [2010] 2
SCR 1086; Maninderjit Singh Bitta v. Union of India,
(2012) 1 SCC 273; Kanwar Singh Saini v. High Court
of Delhi, (2012) 4 SCC 307 : [2011] 15 SCR 972; T.C.
Gupta v. Bimal Kumar Dutta, (2014) 14 SCC 446 :
[2013] 12 SCR 170 - relied on.
Andre Paul Terence Ambard v. Attorney-General of
Trinidad and Tobago, AIR 1936 PC 141 - relied on.
Sanyal Committee Report, 1963 - referred to.
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7. Under Section 33, IBC, the expression "no suit or other
legal proceeding" occurs both in the enacting part as well as the
proviso. Going by the proviso first, given the object that the
liquidator now has to act on behalf of the company after a windingup order is passed, which includes filing of suits and other legal
proceedings on behalf of the company, there is no reason as to
why a Section 138/141 proceeding would be outside the ken of
the proviso. On the contrary, as the liquidator alone now
represents the company, it is obvious that whatever the company
could do pre-liquidation is now vested in the liquidator, and in
order to realise monies that are due to the company, there is no
reason why the liquidator cannot institute a Section 138/141
proceeding against a defaulting debtor of the company. Obviously,
this language needs to be construed in the widest possible form
as there cannot be any residuary category of "other legal
proceedings" which can be instituted against some person other
than the liquidator or by the liquidator who now alone represents
the company. Given the object of this provision also, what has
been said earlier with regard to the non- application of the
doctrines of ejusdem generis and noscitur a sociis would apply with
all force to this provision as well. Several other provisions of the
IBC may also be looked at in this context. In Section 25(2)(b)
again, given the fact that it is the resolution professional alone
who is now to preserve and protect the assets of the corporate
debtor in this interregnum, the resolution professional therefore
is to represent and act on behalf of the corporate debtor in all
judicial, quasi-judicial, or arbitration proceedings, which would
include criminal proceedings. Here again, the word "judicial"
cannot be construed noscitur a sociis so as to cut down its plain
meaning, as otherwise, quasi-judicial or arbitration proceedings,
not being criminal proceedings, the word "judicial" would then
take colour from them. This would stultify the object sought to
be achieved by Section 25 and result in an absurdity, namely, that
during this interregnum, nobody can represent or act on behalf
of the corporate debtor in criminal proceedings. Likewise, if a
corporate debtor cannot be taken over by a new management
and has to be condemned to liquidation, the powers and duties of
the liquidator, while representing the corporate debtor, are
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enumerated in Section 35. Section 35(1)(k) specifically speaks of
"prosecution" and "criminal proceedings".