RAKESH BHANOT VS M/S GURDAS AGRO PVT. LTD. : CASE SUMMARY

The Supreme Court in Rakesh Bhanot Vs. M/S Gurdas Agro Pvt. Ltd. (Criminal Appeal No 1607/2025 ) held that Interim Moratorium under Section 96 does not stall criminal prosecution under Section 138 of the Negotiable Instrument Act, 1881.

FACTS OF THE CASE

Several Petitions were filed before the Supreme Court against refusal of the High Courts to stay the proceedings sine die under Section 138 R/w Section 142 of Negotiable Instruments Act, 1881 till conclusion of insolvency proceedings under Section 94 IBC.

The Common legal question before the Supreme Court was whether Section 138 NI proceedings should be stayed in view of interim moratorium under Section 96 IBC coming into effect after filing of Applications under Section 94 IBC.

FINDINGS OF THE SUPREME COURT

The Supreme Court after surveying Section 14,  94, 96 and  101 IBC  observed as under :

10.1. From the above provisions, it is clear that the term “Corporate Person” includes a company as defined under Section 2 (2)) of 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 form 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 the protection against civil claims which are directed towards recovery and not from criminal action.

The Supreme Court observed that upon filing of the Application under Section 94 IPC, a moratorium comes into effect, designed to protect the debtors from any legal actions concerning their debts. Specifically, Section 96 IBC provides that any legal proceedings pending against the debtor concerning any debt shall be deemed to have been stayed. The term “any legal action or proceedings” does not mean “every legal action or proceedings”. In sub-clause 96 (b) (i) and (ii), the term “legal action or proceedings”  would have to be understood to include such legal action or proceedings relating to recovery of debt by invoking the principles of Noscitur a Sociius. The purpose of interim moratorium contemplated under Section 96 is to be derived form the object of the act, which is not to stall the proceedings unrelated to the recovery of the debt. The protection is not available against penal actions, the object of which is to not recover any debt. This moratorium serves as a critical mechanism, allowing the debtor to reorganize their financial affairs without the immediate threat of creditor actions. The clear and unequivocal language of this provision reflects the legislative intent to provide a protective shield for debtors during the insolvency process.

The Supreme Court observed that the object of moratorium or for that purpose, the provision enabling the debtor to approach the Tribunal under Section 94 is not to stall the criminal prosecution, but to only postpone any civil actions to recover any debt.  The deterrent effect of the Section 138 of Negotiable Instrument Act, 1881 is essential for maintaining trust in negotiable instruments.

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