# Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd

- **Citation:** 2025 INSC 445
- **Court:** Supreme Court of India
- **Decided:** 2025-04-01
- **Case number:** Criminal Appeal No. 1607 of 2025
- **Bench:** J.B. Pardiwala, R. Mahadevan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/rakesh-bhanot-v-m-s-gurdas-agro-pvt-ltd-38777
- **Pages:** 30

## Headnote

Issue arose whether the proceedings initiated against the appellants
u/s.138 rw s.141 of the Negotiable Instruments Act should be
stayed in view of the interim moratorium u/s.96 of the Insolvency
and Bankruptcy Code, 2016 having come into effect upon the
appellants filing applications u/s.94 IBC.
Headnotes†
Insolvency and Bankruptcy Code, 2016 - ss.94 and 96 -
Negotiable Instruments Act, 1881 - ss.138 and 141 -
Moratorium - Interim moratorium - Complaint u/s.138 NI
Act upon failure of the appellant-accused to make payment
after cheques were dishonoured due to insufficiency of
funds - Appellant filed an application u/s.94 IBC for personal
insolvency - During pendency, the appellant filed an
application for adjourning s.138 proceedings sine die, in view
of the pendency of s.94 IBC petition as well as the injunctive
provision u/s.96 IBC - Trial court rejected application -
Appellant then filed criminal petition - High Court dismissed
the same - Interference with:
Held: Not called for - Prayer of the appellants to stay the prosecution
u/s.138 of the NI Act relying on the interim moratorium u/s.96 IBC,
cannot be entertained - Moratorium provisions under the IBC offer
protection only to the corporate debtor-company, and is not intended
to shield individuals from personal criminal liabilities arising from their
actions outside the scope of corporate debt restructuring - Appellants
having filed insolvency applications as personal guarantors u/s.94
IBC, cannot extend this protection to avoid prosecution u/s.138 -
Object of moratorium or for that purpose, the provision enabling
* Author
574
[2025] 4 S.C.R.
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the debtor to approach the tribunal u/s.94 is not to stall the criminal
prosecution, but to only postpone any civil actions to recover any
debt - Deterrent effect of s.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 engage in commercial transactions are held accountable for
their actions - Thus, allowing the respective appellants to evade
prosecution u/s.138 by invoking the moratorium would undermine
the very purpose of the NI Act, which is to preserve the integrity
and credibility of commercial transactions Personal responsibility
persists, regardless of the insolvency proceedings and its outcome -
Scope and nature of the proceedings under the IBC may result in
extinguishment of the actual debt by restructuring or through the
process of liquidation - But such extinguishment will not absolve
its directors from the criminal liability - Statutory liability against the
directors u/s.138 is personal and hence, continues to bind natural
persons, irrespective of any moratorium applicable to corporate
debtor. [Paras 11-13, 17, 19]
Insolvency and Bankruptcy Code, 2016 - ss.14, 96, 101 -
Moratorium - Interim Moratorium - Object - Explained.
[Paras 10.1, 17]
Insolvency and Bankruptcy Code, 2016 - ss.94, 96 - Interim
moratorium to partners - Interim Moratorium to Company -
Difference between:
Held: There is a subtle difference in the protection of interim
moratorium available to Directors and Partners - For a partnership
firm, the interim moratorium protects not only the firm, but also the
partners - But for a company, such protection is available only to
the company and not to its directors. [Para 10.1]

## Text

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[2025] 4 S.C.R. 573 : 2025 INSC 445
Rakesh Bhanot
v.
M/s. Gurdas Agro Pvt. Ltd.
(Criminal Appeal No. 1607 of 2025)
01 April 2025
[J.B. Pardiwala and R. Mahadevan,* JJ.]
Issue for Consideration
Issue arose whether the proceedings initiated against the appellants
u/s.138 rw s.141 of the Negotiable Instruments Act should be
stayed in view of the interim moratorium u/s.96 of the Insolvency
and Bankruptcy Code, 2016 having come into effect upon the
appellants filing applications u/s.94 IBC.
Headnotes†
Insolvency and Bankruptcy Code, 2016 - ss.94 and 96 -
Negotiable Instruments Act, 1881 - ss.138 and 141 -
Moratorium - Interim moratorium - Complaint u/s.138 NI
Act upon failure of the appellant-accused to make payment
after cheques were dishonoured due to insufficiency of
funds - Appellant filed an application u/s.94 IBC for personal
insolvency - During pendency, the appellant filed an
application for adjourning s.138 proceedings sine die, in view
of the pendency of s.94 IBC petition as well as the injunctive
provision u/s.96 IBC - Trial court rejected application -
Appellant then filed criminal petition - High Court dismissed
the same - Interference with:
Held: Not called for - Prayer of the appellants to stay the prosecution
u/s.138 of the NI Act relying on the interim moratorium u/s.96 IBC,
cannot be entertained - Moratorium provisions under the IBC offer
protection only to the corporate debtor-company, and is not intended
to shield individuals from personal criminal liabilities arising from their
actions outside the scope of corporate debt restructuring - Appellants
having filed insolvency applications as personal guarantors u/s.94
IBC, cannot extend this protection to avoid prosecution u/s.138 -
Object of moratorium or for that purpose, the provision enabling
* Author
574
[2025] 4 S.C.R.
Digital Supreme Court Reports
the debtor to approach the tribunal u/s.94 is not to stall the criminal
prosecution, but to only postpone any civil actions to recover any
debt - Deterrent effect of s.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 engage in commercial transactions are held accountable for
their actions - Thus, allowing the respective appellants to evade
prosecution u/s.138 by invoking the moratorium would undermine
the very purpose of the NI Act, which is to preserve the integrity
and credibility of commercial transactions Personal responsibility
persists, regardless of the insolvency proceedings and its outcome -
Scope and nature of the proceedings under the IBC may result in
extinguishment of the actual debt by restructuring or through the
process of liquidation - But such extinguishment will not absolve
its directors from the criminal liability - Statutory liability against the
directors u/s.138 is personal and hence, continues to bind natural
persons, irrespective of any moratorium applicable to corporate
debtor. [Paras 11-13, 17, 19]
Insolvency and Bankruptcy Code, 2016 - ss.14, 96, 101 -
Moratorium - Interim Moratorium - Object - Explained.
[Paras 10.1, 17]
Insolvency and Bankruptcy Code, 2016 - ss.94, 96 - Interim
moratorium to partners - Interim Moratorium to Company -
Difference between:
Held: There is a subtle difference in the protection of interim
moratorium available to Directors and Partners - For a partnership
firm, the interim moratorium protects not only the firm, but also the
partners - But for a company, such protection is available only to
the company and not to its directors. [Para 10.1]
Case Law Cited
Dilip B. Jiwrajka v. Union of India (2023) SCC OnLine SC
1530:(2024) 5 SCC 435 - Distinguished.
P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd. (2021) 6 SCC 258;
State Bank of India v. V. Ramakrishnan [2018] 10 SCR 974 : (2018)
17 SCC 394; Dena Bank v. Bhikhabhai Prabhudas Parekh and
Co. & Ors. [2000] 3 SCR 509 : (2000) 5 SCC 694; Narinder Garg
and Others v. Kotham Mahindra Bank Ltd. and Others (2022) SCC
[2025] 4 S.C.R.
575
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
OnLine SC 517; Ajay Kumar Radheyshyam Goenka v. Tourism
Finance Corpn. of India Ltd. (2023) 10 SCC 545 : (2024) 1 SCC
(Cri) 128 : 2023 SCC OnLine SC 266 - referred to.
List of Acts
Negotiable Instruments Act, 1881; Insolvency and Bankruptcy
Code, 2016.
List of Keywords
Noscitur a sociis; Moratorium; Interim moratorium; Personal
insolvency; Stay of proceedings; Dishonour of cheques; Legislative
intent behind Insolvency and Bankruptcy Code; Extinguishment of
criminal liability of directors; Protection of moratorium; Moratorium
does not extend to criminal liability; Personal insolvency; Adjourning
s.138 NI Act proceedings sine die; Corporate debtor; Personal
guarantors; Recovery of the debt.
Case Arising From
CRIMINAL APPELLATE/CIVIL ORIGINAL JURISDICTION: Criminal
Appeal No. 1607 of 2025
From the Judgment and Order dated 23.03.2023 of the High Court
of Punjab & Haryana at Chandigarh in CRM-M No. 37169 of 2022
With
Criminal Appeal Nos. 1608, 1609, 1610, 1611, 1612, 1613-1649 of
2025, W.P. (C) No. 469 of 2024, Criminal Appeal Nos. 1650-1652,
1653-1688, 1689, 1690, 1691 And 1692 of 2025
Appearances for Parties
Advs. for the Appellants:
Dr. Yusuf Iqbal Yusuf, Bhavya Sethi, Ms. Gyanika Kochar, Mohd.
Abid Sheikh, Ms. Neelam Singh, R K Rathore, Jawahar Lal, Danish
Saifi, Subramaniam S, Naman Dwivedi, Shafik Ahmed, Bhaskar
Sundaram, P.R. Sreejith, Ms. Pallavi Anand, V. Elanchezhiyan,
Abhimanyu Tewari, Siddhant Saroha, Viren Sibal, Prashant Katara,
Soin Khan, Jaydip Pati, Nitish Kumar Rai, Ms. Anushruti Tripathi,
Ms. Anita, Chritarth Palli, Nakul Mohta, Puneet Pathak, Amulya
Upadhyay, Ayush Kashyap, Shashank Khurana, Ms. Misha Rohatgi,
Nitin Setia, Abhishek Baid, Mohit Kumar Bafna, Praneet Das, Anup
Jain, Ashok Kumar Jain (for M/s.Expletus Legal).
576
[2025] 4 S.C.R.
Digital Supreme Court Reports
Advs. for the Respondent:
Ms. S Janani, Sr. Adv., Shailendra Babbar, Devendra Kumar Shukla,
Avinash Das, Rahul Kumar, Rishi Kapoor, Ms. Deboleena Datta,
Ms. Maitri Goal, Ashish Kumar Upadhyay, Atul Mangla, Ashish
Pandey, Inderjeet, Shubham Saxena, Prateek Rai, Ashutosh
Bhardwaj, Pushkar Dwivedi, Anmol Goyal, Akshit Chauhan,
Ms. Sharika Rai, Deepak Goel, Ms. Alka Goyal, Ms. Archana Preeti
Gupta, Aditya Krishna, Siddharth Dharmadhikari, Aaditya Aniruddha
Pande, Md. Naushad Alam, Raghav Vij, Suraj Kumar Jha, Ms.
Sakshi Tiwari, Pratham Malik, Palash Singhai, S. Vinay Ratnakar,
Apoorva Misra, Manish Gusain, Ankit Roy, Dr. Pankaj Garg, Milind
Garg, Ms. Nikita Garg, Yaksh Garg, Suvidutt M.S., Dr. Pankaj Garg,
Milind Garg, Ms. Nikita Garg, Yaksh Garg, Mrs. Saumya Jain,
Ms. Yashna Ahuja, Ms. Atulika Ghawana, Ms. Shambhavi Sharma,
Ms. Paromita Majumdar, Ms. Minakshi Vimal, Ms. Bhavana Jhakhar,
Ms. Astha Tyagi, Akhil Sachar, Ms. Sunanda Tulsyan, Ms. Henna
George, Ms. Purti Gupta, Ms. Henna George.
Judgment / Order of the Supreme Court
Judgment
R. Mahadevan, J.
1.
Leave granted.
2.
Since the facts and issues involved in all these cases are common,
they are clubbed together and disposed of, by this common judgment.
3.
All these appeals are filed against the orders passed by different
High Courts, which dismissed the petitions filed under Section
482 of the Criminal Procedure Code, 19731 and thereby affirmed
the orders passed by the trial Court rejecting the applications filed
for staying the proceedings under Section 138 of the Negotiable
Instruments Act, 18812, sine die till the conclusion of the proceedings
initiated under Section 94 of the Insolvency and Bankruptcy Code,
20163, before the National Company Law Tribunal. A writ petition
has also been filed for declaration and direction that section 138
1
For short, "Cr.P.C"
2
For short, "N.I. Act, 1881"
3
For short, "IBC"
[2025] 4 S.C.R.
577
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
proceedings shall be deemed to be stayed during the operation
of the moratorium period under section 96 IBC. The details of the
cases are tabulated below:
Case No.
Name of the
parties
Order impugned
before this Court
Order impugned
before the High
Court
SLP(Crl)
No.6087 of
2023
Rakesh
Bhanot v. M/s.
Gurdas Agro
Pvt. Ltd
Order dated
23.3.2023 passed
by the High Court of
Punjab and Haryana,
Chandigarh in
CRM - M -37169/
2022 (O&M)
Order dated
23.05.2022 passed
by the Judicial
Magistrate First
Class, Bathinda in
complaint No. COMA
1059/2019
SLP(Crl)
No.9316 of
2023
Sandeep
Gupta v. M/s.
Sri Ram Steel
Traders and
another
Order dated
15.5.2023 passed
by the High Court of
Delhi at New Delhi,
in Crl.M.C. No.381 of
2022
Order dated
03.12.2021 passed
by the Metropolitan
Magistrate Patiala
House Courts,
New Delhi, in CT
No.12161/2018
SLP(Crl)
No.12328
of 2023
SLP(Crl)
No.12327
of 2023
SLP(Crl)
No.12329
of 2023
Rakesh
Bhanot v. M/s.
Gurdas Agro
Pvt. Ltd
Order dated
23.03.2023 passed
by the High Court of
Punjab and Haryana,
Chandigarh in
CRM - M - 59371/
2022 (O&M)
Order dated
07.02.2023 passed
by the High Court of
Punjab and Haryana,
Chandigarh in
CRM - M - 39859/
2022 (O&M)
Order dated
23.03.2023 passed
by the High Court of
Punjab and Haryana,
Chandigarh in
CRM - M - 39885/
2022 (O&M)
Order dated
12.09.2022 passed
by the Judicial
Magistrate First
Class, Bathinda in
complaint No. COMA
89/2016
Order dated
23.05.2022 passed
by the Judicial
Magistrate First
Class, Bathinda in
complaint No. COMA
1060/2019
Order dated
23.05.2022 passed
by the Judicial
Magistrate First
Class, Bathinda in
complaint No. COMA
1061/2019
578
[2025] 4 S.C.R.
Digital Supreme Court Reports
SLP(Crl)
No.6835 of
2024
Sanjeev
Narula v.
M/s. Elkay
International
Ltd
Order dated
06.3.2024 passed
by the High Court of
Punjab and Haryana,
Chandigarh in
CRM - M - 9799/
2024 (O&M)
Order dated
18.01.2024 passed
by the Judicial
Magistrate First
Class, Faridabad
in complaint No.
NACT- 719/2016.
SLP (Crl)
Nos. 9104
-9140 of
2024
M/s. Shiva
Shakti Grains
(India) Pvt.
Ltd and
Another Etc.
v. M/s.Kaur
Chand Munish
Kumar Etc.
Order dated
12.03.2024 passed
by the High Court of
Punjab and Haryana,
Chandigarh in
CRM - M - 12807/
2019 etc. cases
Complaint in No.
NACT- 704/2017
dated 21.11.2017
as well as the
summoning orders
dated 14.09.2018
issued by the
Judicial Magistrate
First Class, Sri
Muktsar Sahib and
all consequential
proceedings.
W.P(C) No.
469/2024
Vijay Chetan
Lilaramani
and another v.
Union of India
and others
(i)to declare that the
proceedings under
section 138 r/w 141
of the Negotiable
Instruments Act,
1881, shall be
covered under
moratorium imposed
by section 96 of the
IBC or shall deemed
to be stayed during
operation of the
moratorium under
section 96 of the
IBC; and (ii)to direct
that the trial pending
before the Additional
Chief Metropolitan
Magistrate,
Bengaluru in CC
No. 54895/2023
stands deemed to
be stayed, during
the continuation of
moratorium under
the IBC.
[2025] 4 S.C.R.
579
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
SLP(Crl)
Nos.272274 of 2025
Ashok B.
Jeswani and
another v.
M/s.Redington
India Ltd
Order of the High
Court of Madras
dated 07.12.2023 in
Crl.OP. No. 24506
of 2023 and dated
06.06.2024 in Crl.
M. P. Nos.7782 and
7783 of 2024 in Crl.
RC No.911 of 2024
Stay further
proceedings with
respect to the
recovery of debt
u/s.138 of the N.l.
Act, 1881, qua the
appellants in view of
Sections 94, 96 and
101 of the IBC.
SLP(Crl)
Nos. 48224857 of
2025
Jitender
Singh Sodhi
and another
v. Deputy
Commissioner
of Income Tax
and another
Order dated
13.03.2024 passed
by the High Court of
Punjab and Haryana,
Chandigarh in
CRM - M - 52874/
2023 etc. cases
Order dated
21.08.2023 passed
by the Judicial
Magistrate First
Class, Chandigarh, in
Complaint No. NACT
/3656/2015
SLP(Crl)
No.15852
of 2024
Yogesh
Jogindernath
Mehra and
another v.
State of
Maharashtra
and another
Order dated
15.10.2024 passed
by the High Court of
Bombay, in Criminal
Writ Petition (ST) No.
11799 of 2024
Stay the proceedings
in CC No.186/SS/
2018 pending before
the 30th Metropolitan
Magistrate, Kurla,
Mumbai
SLP(Crl)
No.15813
of 2024
Yogesh
Jogindernath
Mehra and
another v.
State of
Maharashtra
and another
Order dated
15.10.2024 passed
by the High Court of
Bombay, in Criminal
Writ Petition (ST) No.
11800 of 2024
Stay the proceedings
in CC No.186/SS/
2018 pending before
the 30th Metropolitan
Magistrate, Kurla,
Mumbai
SLP(Crl)
No.15933
of 2024
Yogesh
Jogindernath
Mehra and
another v.
State of
Maharashtra
and another
Order dated
15.10.2024 passed
by the High Court of
Bombay, in Criminal
Writ Petition (ST) No.
11950 of 2024
Stay the proceedings
in CC No.186/SS/
2018 pending before
the 30th Metropolitan
Magistrate, Kurla,
Mumbai
SLP(Crl)
No.15905
of 2024
Yogesh
Jogindernath
Mehra and
another v.
State of
Maharashtra
and another
Order dated
15.10.2024 passed
by the High Court of
Bombay, in Criminal
Writ Petition (ST) No.
12390 of 2024
Stay the proceedings
in CC No.186/SS/
2018 pending before
the 30th Metropolitan
Magistrate, Kurla,
Mumbai
580
[2025] 4 S.C.R.
Digital Supreme Court Reports
4.
The common legal question that arises for consideration herein is,
whether the proceedings initiated against the appellants / petitioners
under Section 138 read with Section 141 of the N.I. Act, 1881 should
be stayed in view of the interim moratorium under Section 96 IBC
having come into effect upon the appellants / petitioners' filing
applications under Section 94 IBC. In view of the commonality of
issues involved in all the cases, we need not necessarily review the
facts of each case individually.
5.
However, for ease of reference, the facts leading to the appeal arising
out of S.L.P (Crl.) No.6087 of 2023, in a nutshell are as under:
5.1. The respondent viz., M/s Gurdas Agro Pvt. Ltd. filed a
complaint under Section 138 of the N.I. Act, 1881, against
M/s Arjun Mall Retail Holdings Pvt. Ltd. through its Director-
Kiran Bhanot, Kiran Bhanot (wife of the appellant), Rakesh
Bhanot (appellant herein), and Arjun Bhanot (their son). It was
alleged in the complaint that the accused issued four cheques
each for Rs.50,00,000/- drawn on UCO Bank, Mid Corporate
Industrial Area, Ludhiana, in order to discharge their legally
enforceable liability. When the cheques were presented for
encashment, the same were returned with the endorsement
"Funds Insufficient". After issuance of a legal notice and
upon the failure of the accused to make payment within the
stipulated time, the respondent / complainant preferred a
complaint under Section 138 of the N.I. Act, 1881. The said
complaint was taken on file as COMA No.1059/2019 and
is pending adjudication before the Judicial Magistrate First
Class, Bhatinda.
5.2. During the pendency of the aforesaid proceedings under section
138 of the N.I. Act, 1881, the appellant Rakesh Bhanot filed an
application in CP(IB) No.147/CHD/PB/2021 under Section 94
IBC before the National Company Law Tribunal, Chandigarh
Bench, for personal insolvency. His wife, who is a co-accused,
also filed a similar application. The said applications are pending
adjudication. Pending the said proceedings, the appellant moved
an application before the trial Court for adjourning the section
138 proceedings sine die, in view of the pendency of section
94 IBC petition as well as the injunctive provision as envisaged
under section 96 IBC.
[2025] 4 S.C.R.
581
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
5.3. The trial Court, vide order dated 23.05.2022, rejected the
aforesaid application. Aggrieved by the same, the appellant
approached the High Court of Punjab and Haryana, Chandigarh,
by filing a criminal petition bearing No.CRM-M-37169-2022
(O&M) under Section 482 Cr.P.C. By order dated 23.03.2023,
the said criminal petition came to be dismissed by the High
Court. Challenging the same, the appellant is before us with
the present appeal.
6.
The other appeals as well as the writ petition arising out of similar
set of facts, have been filed by the respective appellants / petitioners
before this court.
7.
The learned counsel appearing for all the parties, including the
applicant(s) / intervenor(s), made detailed submissions with respect
to the issues at hand. In order to avoid repetition, they are concisely
outlined as under:
7.1. On the side of the appellants / petitioners
(i)
There is a complete and unequivocal bar on continuation
of proceedings of the N.I. Act, 1881, in view of pendency of
the insolvency proceedings before the National Company
Law Tribunal, as envisaged under Section 96 IBC.
(ii)
Once the proceedings under Section 94 IBC have been
initiated before the Adjudicating Authority for personal
insolvency resolution process, on account of the appellants
/ petitioners having become personally insolvent,
necessarily all further proceedings under Section 138 of
the N.I. Act, 1881, would remain stayed in terms of Section
96(1)(b) IBC.
(iii) The legislative intent behind the IBC is to provide a
structured framework for debt resolution, while ensuring
that debtors are afforded a fair opportunity to reorganize
their financial affairs. The moratorium is designed to prevent
creditors from taking coercive actions that could further
destabilize the debtors' financial situation.
(iv) There is fine distinction in the statute between "Corporate
Insolvency Resolution Process" and "Personal Insolvency
Resolution Process". In case, where a Company is a
582
[2025] 4 S.C.R.
Digital Supreme Court Reports
corporate debtor and insolvency proceedings are initiated
against such corporate debtor under Section 7 or Section
9 IBC, the Adjudicating Authority under Section 14(1) IBC
passes an order to declare a moratorium. On the other
hand, Section 94 IBC provides for a situation wherein
a debtor may approach the Adjudicating Authority for
initiation of Personal Insolvency Resolution Process.
Similarly, Section 95 IBC provides for a situation wherein
a creditor may approach the Adjudicating Authority for
initiation of Personal Insolvency Resolution Process against
an individual. Section 96(1) IBC provides that in either
case, whether under Section 94 or Section 95, (a) Interim
moratorium comes into effect on the date of the application
itself; (b) This moratorium is in respect of all debts; (c)
This moratorium shall cease to have effect on the date
of admission of such application; (d) During this period,
all pending legal action or proceedings in respect of any
debt shall be deemed to have been stayed; (e) Creditors
of debt shall not initiate any legal action or proceeding in
respect of any debt.
(v)
In the present case, the moratorium came into effect in a
proceeding under Section 96 IBC and not under Section
14 IBC. However, the High Court erroneously relied on
the judgment in P.Mohanraj v. Shah Brothers Ispat Pvt.
Ltd.,4 as in that case, this court was concerned only with
the proceedings under section 14 IBC and not section 96
IBC. Hence, the observations made therein can be read
only in the context of a moratorium under section 14 IBC.
(vi) Further, the reliance placed in the decision in Ajay Kumar
Radheyshyam Goenka v. Tourism Finance Corporation
of India Ltd.,5 is misconceived, since the said judgement
merely holds that the moratorium under Section 14 IBC
shall not protect the signatories and the directors of the
corporate debtor because the said moratorium is only with
respect to the corporate debtor, and not the individuals.
4
(2021) 6 SCC 258
5
(2023) 10 SCC 545
[2025] 4 S.C.R.
583
Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
(vii) Once the application under Section 94 or 95 IBC has
been admitted, Section 101 IBC states that "the debtor
shall not transfer, alienate, encumber, or dispose of any of
his assets of his legal rights or beneficial interest therein"
thereby imposing an express bar on the individual/director/
signatory/cheque from making any payment in relation to
the dishonoured cheque. Thus, when the law prohibits
payment, it would create a dichotomy to simultaneously
proceed against the said individual under Section 138
read with Section 141 of the N.I. Act 1881 for dishonour
of the cheque and failure to make the payment to purge/
compound the said offence. Hence, the appellants /
petitioners cannot be penalised for not performing an act
expressly barred by law.
(viii) In State Bank of India v. V.Ramakrishnan 6 while adjudicating
on the applicability of moratorium under Section 14 IBC to
personal guarantors, it was held by this Court that personal
guarantors are covered by the moratorium under Section
96 IBC, while stating the protection of moratorium under
these sections 96 and 101 IBC is far greater than the
moratorium under section 14 IBC.
(ix) The IBC must prevail over Section 138/141 of the N.I.
Act, 1881, for the want of the non-obstante provision of
Section 238. Further, it will override anything inconsistent
contained in any other enactment, including the Income-Tax
Act, 1961. Reference can be in this connection made to
Dena Bank vs. Bhikhabhai Prabhudas Parekh and Co. &
Ors.,7 which made it clear that income-tax dues, being in
the nature of Crown debts, do not take precedence even
over secured creditors, who are private persons.
(x)
Reference was made to the decision in Dilip B. Jiwrajka vs.
Union of India8, wherein, while upholding the constitutional
validity of Sections 95-100 IBC, this court explained the
concept of a moratorium under Section 14 of Part II vis6
(2018) 17 SCC 394
7
(2000) 5 SCC 694
8
(2023) SCC OnLine SC 1530) : (2024) 5 SCC 435
584
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à-vis interim moratorium under Section 96 of Chapter III
of Part III. Ultimately, it was inter alia concluded that the
purpose of the interim moratorium under section 96 is to
protect the debtor from further legal proceedings.
(xi) Thus, according to the learned counsel, the proceedings
under section 138 r/w 141 of the N.I. Act, 1881, which
is concerned with the dishonour of the alleged cheques
under the signatures of the appellants / petitioners, would
undoubtedly fall within the prohibition contained in section
96 IBC. However, the Courts below erred in rejecting
the petitions filed for staying the 138 proceedings till the
conclusion of the insolvency proceedings pending before
the Tribunal. Hence, the impugned orders passed by them
are liable to be set aside.
7.2. On the side of the applicant(s) / intervenor(s)
Since the decision on the question of law involved herein, shall
impact on the applicants / intervenors undergoing insolvency
proceedings, they sought to make their submissions.
(i)
The Insolvency and Bankruptcy Code, 2016 (IBC) was
enacted in order to consolidate and amend the laws
relating to reorganisation and insolvency resolution of
corporate persons, partnership firms and individuals
in a time bound manner for maximization of value of
assets of such persons, to promote entrepreneurship,
availability of credit and balance the interests of all the
stakeholders. Further, it was enacted with an object to
maximize the wealth of person undergoing insolvency
proceedings, to enable a purposeful and constructive
interpretation.
(ii)
On initiation of insolvency proceedings under IBC, Section
14 provides for a moratorium during which all legal
proceedings against the insolvent Company stand stayed.
Whereas, on the filing/initiation of personal insolvency,
moratorium under Sections 96 and 101 IBC come into
effect. When the moratorium comes into effect, then, no
legal proceeding against him can be initiated for recovery
of any debt. Generally, when an individual is prosecuted
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Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
even for dishonour of cheque, then in effect, he is being
prosecuted for "non-payment of debt". As such, such legal
proceedings are covered under Sections 96 and 101 IBC
and the same do not lie/ cannot be continued. Therefore,
all types of debt recovery proceedings are stayed and
all types of assets of the individual are pooled to pay-off
the debts.
(iii) During moratorium under section 14 IBC, the Company
is protected from any civil or legal proceedings including
Section 138 of the N.I. Act, 1881 proceedings. Similarly,
when the resolution of debts of an individual takes place
under the aegis of personal insolvency under IBC, in such
a situation, continuing with the offence of cheque dishonour
case shall double jeopardize the individual, since he has
already utilized all his assets to enter into a resolution
and shall have no means to compound/settle the offence
of cheque dishonour and shall be forced to face criminal
prosecution. Therefore, similar protection under Section 96
IBC ought to be granted to the individual under personal
insolvency as is available to the Company under Section
14 IBC on the initiation of insolvency process.
(iv) The proceedings under Section 138 / 141 of the N.I. Act,
1881 qua the Directors are civil in nature and should be
considered as such for the cases which lie under Section
96/101 IBC. The role of Directors has to be specific,
meaning thereby that the liability under Section 138/141
of the N.I. Act, 1881, is vicarious in nature. Similarly,
the offences under all the statutes, whether under the
Companies Act, Income Tax Act, or any other Act, where
punishment may be imposed by way of fine, must be
considered under the domain of the provisions of section
96/101 IBC.
(v)
Thus, according to the learned counsel, the benefit of
moratorium under Section 96 IBC and Section 101 IBC be
extended to the individuals against criminal proceedings
pending under Section 138 of N.I. Act, 1881, as the
same is in consonance with the scope and intent of the
legislature.
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7.3. On the side of the respondents
(i)
The IBC is meant to resolve genuine financial distress,
and not to shield individuals from criminal liability.
(ii)
Furthermore, the interim moratorium under Section 96 IBC
is intended to operate in respect of debt as opposed to a
debtor and that the purpose of interim moratorium under
Section 96 is to restrain the initiation or continuation of
legal action or proceedings against the debt. The words
used both in clause (b) (i) and clause (b) (ii) of Section
96(1) are "in respect of any debt" and therefore, moratorium
would strictly apply to the security interest created by the
debtors / appellants / petitioners herein in their personal
capacity, wherein personal guarantee is given in respect
of a debt and in no manner can be stretched to include
the criminal proceedings under Section 138 of the N.I.
Act, 1881, since the same is not qua the debt, but is
built on the principle of not honouring the cheques, when
presented for encashment which in turn attract the criminal
liability and fines.
(iii) The interim moratorium under Section 96 IBC will not apply
to the criminal proceedings under Section 138 of the N.I.
Act, 1881 and hence, there is no bar for continuation of
the said proceedings. In this regard, reference was made
to the decisions of this Court in P.Mohanraj (supra), and
Narinder Garg and Others v. Kotham Mahindra Bank Ltd.,
and Others.9
(iv) Reliance was also placed on the Report of the Insolvency
Law Committee of 2020, Chapter V of which explained
the scope of moratorium, and according to which, the
moratorium provisions under Part III IBC were not meant
to stay actions against the corporate debtor or other third
parties involved in the debt. Therefore, the Committee
agreed that the moratorium and interim moratorium under
Part III should be interpreted only to be limited to the
'debtor' and its assets.
9
(2022) SCC OnLine SC 517
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Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd.
(v)
Section 138 of the N.I. Act, 1881, was enacted to enhance
the credibility of cheques in commercial transactions
and penalize the wilful dishonour of such instruments.
It criminalizes the act of dishonouring cheques due to
insufficiency of funds or other similar reasons. Section 141
extends liability to individuals who were in charge of and
responsible for the conduct of the company's business at
the time of the offence. On the other hand, the appellants /
petitioners attempted to use the insolvency proceedings
before the National Company Law Tribunal in order to stay
the section 138 proceedings pending before the trial court.
Thus, they cannot absolve themselves of personal liability
merely by citing insolvency proceedings under the IBC.
(vi) As reiterated in P. Mohanraj (supra), "proceedings under
Section 138/141 of the N.I. Act, 1881 are distinct and
operate independently of insolvency proceedings." Any
contrary interpretation would render creditors powerless
and undermine the effectiveness of the N.I. Act, 1881.
(vii) Whether moratorium is under Section 14 or Section 96
IBC, the provision of section 141 is equally applicable
and remains the same. The judgement of this court
in P.Mohanraj (supra) holding that "it is clear that the
moratorium provision contained in Section 14 IBC would
apply only to the corporate debtor, the natural persons
mentioned in Section 141 continuing to be statutorily
liable under Chapter XVII of the Negotiable Instruments
Act", would be applicable in the case of moratorium under
Section 96 IBC as well.
(viii) On proper appreciation of facts, the courts below rightly
dismissed the petitions filed by the appellants and hence,
the same need not be interfered with by this court.
8.
We have considered the contentions made by the learned counsel
appearing for all the parties and also perused the materials available
on record.
9.
Vide order dated 16.05.2023 in SLP (Crl) No.6087 of 2023 titled
"Rakesh Bhanot v. M/s Gurdas Agro Pvt. Ltd.", this Court granted
an order of stay of further proceedings in COMA No.1059 of 2019.
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Following the same, an order of interim stay of further proceedings
pending before the trial Court was subsequently granted in all other
connected matters as well.
10. At the outset, it will be useful to refer to the relevant provisions of
law connected to the issues at hand, which are as follows:
(A) The Insolvency and Bankruptcy Code, 2016.
"14. Moratorium -
(1) Subject to provisions of sub-sections (2) and (3), on
the insolvency commencement date, the Adjudicating
Authority shall by order declare moratorium for prohibiting
all of the following, namely:--
(a) the institution of suits or continuation of pending suits
or proceedings against the corporate debtor including
execution of any judgment, decree or order in any court
of law, tribunal, arbitration panel or other authority;
(b) transferring, encumbering, alienating or disposing of
by the corporate debtor any of its assets or any legal right
or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security
interest created by the corporate debtor in respect of its
property including any action under the Securitization and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (54 of 2002);
(d) the recovery of any property by an owner or lessor
where such property is occupied by or in the possession
of the corporate debtor.
[Explanation.--For the purposes of this sub-section, it is
hereby clarified that notwithstanding anything contained
in any other law for the time being in force, a license,
permit, registration, quota, concession, clearances or a
similar grant or right given by the Central Government,
State Government, local authority, sectoral regulator or
any other authority constituted under any other law for the
time being in force, shall not be suspended or terminated
on the grounds of insolvency, subject to the condition that
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there is no default in payment of current dues arising for
the use or continuation of the license, permit, registration,
quota, concession, clearances or a similar grant or right
during the moratorium period;]
(2) The supply of essential goods or services to the
corporate debtor as may be specified shall not be
terminated or suspended or interrupted during moratorium
period.
[(2A) Where the interim resolution professional or
resolution professional, as the case may be, considers
the supply of goods or services critical to protect and
preserve the value of the corporate debtor and manage
the operations of such corporate debtor as a going
concern, then the supply of such goods or services
shall not be terminated, suspended or interrupted during
the period of moratorium, except where such corporate
debtor has not paid dues arising from such supply during
the moratorium period or in such circumstances as may
be specified;]
[(3) The provisions of sub-section (1) shall not apply to-
[(a) such transactions, agreements or other arrangements
as may be notified by the Central Government in
consultation with any financial sector regulator or any
other authority;]
(b) a surety in a contract of guarantee to a corporate
debtor.].
(4) The order of moratorium shall have effect from the
date of such order till the completion of the corporate
insolvency resolution process:
Provided that where at any time during the corporate
insolvency resolution process period, if the Adjudicating
Authority approves the resolution plan under sub-section
(1) of section 31 or passes an order for liquidation of
corporate debtor under section 33, the moratorium shall
cease to have effect from the date of such approval or
liquidation order, as the case may be."
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"Section 94 - Application by Debtor to Initiate Insolvency
Resolution Process:
"(1) A debtor who commits a default may apply, either
personally or through a resolution professional, to the
Adjudicating Authority for initiating the insolvency resolution
process, by submitting an application.
(2) Where the debtor is a partner of a firm, such debtor
shall not apply under this Chapter to the Adjudicating
Authority in respect of the firm unless all or a majority of
the partners of the firm file the application jointly.
(3) An application under sub-section (1) shall be submitted
only in respect of debts which are not excluded debts.
(4) A debtor shall not be entitled to make an application
under sub-section (1) if he is-(a) an undischarged
bankrupt; (b) undergoing a fresh start process;(c)
undergoing an insolvency resolution process; or (d)
undergoing a bankruptcy process.
(5) A debtor shall not be eligible to apply under sub-section
(1) if an application under this Chapter has been admitted
in respect of the debtor during the period of twelve months
preceding the date of submission of the application under
this section.
(6) The application referred to in sub-section (1) shall be
in such form and manner and accompanied with such fee
as may be prescribed."
"96. Interim-moratorium-
(1) When an application is filed under Section 94 or
Section 95-
(a) an interim moratorium shall commence on the date
of the application in relation to all the debts and shall
cease to have effect on the date of admission of such
application; and
(b) during the interim moratorium period-
(i) any legal action or proceeding pending in respect of
any debt shall be deemed to have been stayed; and
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(ii) the creditors of the debtor shall not initiate any legal
action or proceedings in respect of any debt.
(2) Where the application has been made in relation to a
firm, the interim moratorium under sub-section (1) shall
operate against all the partners of the firm as on the date
of the application.
(3) The provisions of sub-section (1) shall not apply to such
transactions as may be notified by the Central Government
in consultation with any financial sector regulator."
"101. Moratorium.-
(1) When the application is admitted under Section 100,
a moratorium shall commence in relation to all the debts
and shall cease to have effect at the end of the period of
one hundred and eighty days beginning with the date of
admission of the application or on the date the Adjudicating
Authority passes an order on the repayment plan under
Section 114, whichever is earlier.
(2) During the moratorium period-
(a) any pending legal action or proceeding in respect of
any debt shall be deemed to have been stayed;
(b) the creditors shall not initiate any legal action or legal
proceedings in respect of any debt; and
(c) the debtor shall not transfer, alienate, encumber or
dispose of any of his assets or his legal rights or beneficial
interest therein;
(3) Where an order admitting the application under Section
96 has been made in relation to a firm, the moratorium
under sub-section (1) shall operate against all the partners
of the firm.
(4) The provisions of this Section shall not apply to such
transactions as may be notified by the Central Government
in consultation with any financial sector regulator."
10.1. From the above provisions, it is clear that the term "Corporate
Person" includes a company as defined under Section 2(20) of
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the Companies Act, 2013, and a Limited Liability Partnership.
However, there is a subtle difference in the protection available
to the Directors and the Partners. In case of a partnership firm,
the interim moratorium protects not only the firm, but also the
partners. But in case of a company, such protection is available
only to the company and not to its directors. That apart, the
object of interim moratorium can be no different from that of
the moratorium specified under Section 14. It is also clear
from Section 14 that the protection from legal action during
the period of moratorium is not available to the surety or in
other words, to a personal guarantor. The use of the words
"all the debts" and "in respect of any debt" in Sub-section (1)
of Section 96 is not without a purpose, as the moratorium is
intended to offer protection only against civil claim to recover
the debt. Hence, such period of moratorium prescribed under
Section 14 or 96 is restricted in its applicability only to protection
against civil claims which are directed towards recovery and
not from criminal action.
(B) Negotiable Instruments Act, 1881.
"138. Dishonour of cheque for insufficiency, etc.,
of funds in the account.-
Where any cheque drawn by a person on an account
maintained by him with a banker for payment of any
amount of money to another person from out of that
account for the discharge, in whole or in part, of any
debt or other liability, is returned by the bank unpaid,
either because of the amount of money standing to
the credit of that account is insufficient to honour the
cheque or that it exceeds the amount arranged to
be paid from that account by an agreement made
with that bank, such person shall be deemed to have
committed an offence and shall, without prejudice
to any other provision of this Act, be punished with
imprisonment for [a term which may be extended to
two years], or with fine which may extend to twice
the amount of the cheque, or with both:
Provided that nothing contained in this section shall
apply unless-
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(a) the cheque has been presented to the bank within
a period of six months from the date on which it is
drawn or within the period of its validity, whichever
is earlier;
(b) the payee or the holder in due course of the
cheque, as the case may be, makes a demand for
the payment of the said amount of money by giving
a notice; in writing, to the drawer of the cheque,
[within thirty days] of the receipt of information by
him from the bank regarding the return of the cheque
as unpaid; and
(c) the drawer of such cheque fails to make the
payment of the said amount of money to the payee
or, as the case may be, to the holder in due course
of the cheque, within fifteen days of the receipt of
the said notice.
Explanation.-For the purposes of this section, "debt
of other liability" means a legally enforceable debt
or other liability.
141.