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

#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 A B C D E F G H 216 SUPREME COURT REPORTS [2021] 14 S.C.R. 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 A B C D E F G H P. MOHANRAJ & ORS. v. M/S. SHAH BROTHERS ISPAT PVT. LTD. 217 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 A B C D E F G H 218 SUPREME COURT REPORTS [2021] 14 S.C.R. 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. A B C D E F G H P. MOHANRAJ & ORS. v. M/S. SHAH BROTHERS ISPAT PVT. LTD. 219

#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. A B C D E F G H 220 SUPREME COURT REPORTS [2021] 14 S.C.R.

#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 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 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 A B C D E F G H P. MOHANRAJ & ORS. v. M/S. SHAH BROTHERS ISPAT PVT. LTD. 221 enumerated in Section 35. Section 35(1)(k) specifically speaks of “prosecution” and “criminal proceedings”. Contrasted with Section 25(2)(b) and Section 33(5), an argument could be made that the absence of the expressions “prosecution” and “criminal proceedings” in Section 25(2)(b) and Section 33(5) would show that they were designedly eschewed by the legislature. Inelegant drafting cannot lead to absurd results or results which stultify the object of a provision, given its otherwise wide language. Thus, nothing can be gained by juxtaposing various provisions against each other and arriving at conclusions that are plainly untenable in law. [Paras 65, 66][303-B-F; 304-A-D, F-G]

#8. A Section 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. A Section 34 proceeding is a proceeding against the corporate debtor in a court of law pertaining to a challenge to an arbitral award and would be covered just as an appellate proceeding in a decree from a suit would be covered. [Para 74][311-F-G] Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd., 2017 SCC OnLine Del 12189 : (2018) 246 DLT 485 – held not correct law.

#9. As far as the Directors/persons in management or control of the corporate debtor are concerned, a Section 138/141 proceeding against them cannot be initiated or continued without the corporate debtor. This is because Section 141 of the Negotiable Instruments Act 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. Since the corporate debtor would be covered by the moratorium provision contained in Section 14 of the IBC, by which continuation of Section 138/141 proceedings against the corporate debtor and initiation of Section 138/141 proceedings against the said debtor during the corporate insolvency resolution process are interdicted, what is stated in paragraphs 51 and 59 in Aneeta Hada would then become applicable. The legal impediment contained in Section 14 of the A B C D E F G H 222 SUPREME COURT REPORTS [2021] 14 S.C.R. IBC would make it impossible for such proceeding to continue or be instituted against the corporate debtor. Thus, for the period of moratorium, since no Section 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 Section 141(1) and (2) of the Negotiable Instruments Act. This being the case, it is clear that the moratorium provision contained in Section 14 of the 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. A Section 138/141 proceeding against a corporate debtor is covered by Section 14(1)(a) of the IBC. The civil appeal is allowed and the judgment under appeal is set aside. However, the Section 138/141 proceedings in this case will continue both against the company as well as the appellants for the reason given in paragraph 77 in the present judgment as well as the fact that the insolvency resolution process does not involve a new management taking over. The moratorium period has come to an end in this case. [Paras 77-79][315-B-C; 316-H; 317-A-F] Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 : [2012] 5 SCR 503 – relied on. Tayal Cotton Pvt. Ltd. v. State of Maharashtra, 2018 SCC OnLine Bom 2069 : (2019) 1 Mah LJ 312; M/s MBL Infrastructure Ltd. v. Manik Chand Somani, CRR 3456/2018 – disapproved. BSI Ltd. v. Gift Holdings (P) Ltd., (2000) 2 SCC 737 : [2000] 1 SCR 815; Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd., (2000) 2 SCC 745 : [2000] 1 SCR 1120; S.V. Kandeakar v. V.M. Deshpande, (1972) 1 SCC 438 : [1972] 2 SCR 965; D.K. Kapur v. Reserve Bank of India, 2001 SCC OnLine Del 67 : (2001) 58 DRJ 424 (DB); Indorama Synthetics (I) Ltd. v. State of Maharashtra, 2016 SCC OnLine Bom 2611 : (2016) 4 Mah LJ 249; Sudarshan Chits (I) Ltd. v. O. Sukumaran Pillai, (1984) 4 SCC 657 : [1985] 1 SCR A B C D E F G H P. MOHANRAJ & ORS. v. M/S. SHAH BROTHERS ISPAT PVT. LTD. 223