Court finds no grounds for proceedings under Section 138 NI Act due to account control loss during CIRP and liquidation.
In a significant judgment, the Delhi High Court has quashed summons issued in three separate criminal complaints under Section 138 of the Negotiable Instruments Act, 1881, against Farhad Suri and Dhiren Navlakha, directors of M/s Sumeru Processors Pvt. Ltd. The decision, delivered by Ms. Neena Bansal Krishna, J., on December 16, 2025, highlights the impact of insolvency proceedings on cheque dishonour cases, emphasizing the loss of control over company accounts during Corporate Insolvency Resolution Process (CIRP) and liquidation.
The case revolved around cheques issued by M/s Sumeru Processors Pvt. Ltd. that were dishonoured with the remark "Account Blocked." The complainants, Praveen and Jitender Choudhary, alleged that the cheques were issued in settlement of loans and rental agreements, but were returned unpaid due to the account being blocked. The petitioners argued that the initiation of insolvency proceedings under the Insolvency and Bankruptcy Code, 2016, resulted in the accounts being handed over to an Interim Resolution Professional (IRP) and later a Liquidator, stripping them of control and authority over the company's accounts.
The court referred to the Supreme Court's decision in P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd., which established that once insolvency proceedings are initiated, a moratorium is imposed, preventing legal proceedings against the corporate debtor. Consequently, any cheques issued post-moratorium cannot be considered valid under Section 138 NI Act, as the directors lose control over the company's bank accounts.
Additionally, the court examined whether the dishonour of cheques due to "Account Blocked" falls under the purview of Section 138 NI Act, which requires dishonour due to "insufficiency of funds." The judgment clarified that when an account is blocked due to statutory reasons, such as insolvency proceedings, it does not satisfy the statutory requirement for prosecution under Section 138.
The Delhi High Court's ruling underscores the legal complexities arising from insolvency proceedings and their impact on cheque dishonour cases. The court's decision to quash the summons and complaints is a reminder of the importance of understanding statutory provisions and their implications on financial transactions during corporate insolvency.
Bottom Line:
Section 138 of the Negotiable Instruments Act, 1881 - Dishonour of cheques with the remark "Account Blocked" due to moratorium under Insolvency and Bankruptcy Code (IBC) and accounts being taken over by IRP/Liquidator does not constitute an offence under Section 138 NI Act.
Statutory provision(s): Section 138 of the Negotiable Instruments Act, 1881; Sections 14, 17, and 18 of the Insolvency and Bankruptcy Code, 2016
Farhad Suri v. Praveen Choudhary, (Delhi) : Law Finder Doc Id # 2822464
