NCLT Clears Path for Insolvency Proceedings Against Proto D Industries Despite Pending Cheque Bounce Case

Rexel India Pvt. Ltd. secures CIRP initiation under IBC as NCLT dismisses Res Judicata claim due to distinct legal proceedings.

In a significant ruling, the National Company Law Tribunal (NCLT) Mumbai Bench has admitted an application filed by Rexel India Private Limited to initiate the Corporate Insolvency Resolution Process (CIRP) against Proto D Industries Private Limited. The bench, comprising Shri. Nilesh Sharma and Shri. Sameer Kakar, decided on November 28, 2025, that the insolvency proceedings could proceed despite ongoing legal actions under Section 138 of the Negotiable Instruments Act, 1881.

Rexel India, an operational creditor, approached the tribunal under Section 9 of the Insolvency and Bankruptcy Code, 2016, claiming Proto D Industries defaulted on a payment amounting to Rs. 5.82 crore. The claim arose from unpaid invoices for goods supplied between March and May 2023. The application was supported by various documents, including an undertaking by Proto D Industries acknowledging the debt.

Proto D Industries contested the application, arguing that the pending cheque bounce case under Section 138 should preclude the insolvency proceedings due to the legal doctrine of Res Judicata. They claimed this doctrine barred the tribunal from hearing the insolvency case since the same issues were being litigated in a different court.

However, the tribunal refuted this argument, emphasizing the distinct nature and objectives of the two legal proceedings. It highlighted that the proceedings under the Negotiable Instruments Act focus on penal consequences for cheque dishonour, whereas the insolvency process aims at resolving financial distress and reviving the corporate debtor.

The tribunal further noted that Proto D Industries failed to demonstrate any pre-existing dispute over the debt, dismissing their contentions as unsubstantiated. Consequently, the tribunal appointed Mr. Rishabh Sethi as the Interim Resolution Professional (IRP) to oversee the insolvency process, with directions to manage the corporate debtor's affairs during the CIRP.

This decision underscores the insolvency code's overriding effect over other laws, as stipulated in Section 238 of the IBC. The ruling facilitates the progression of insolvency proceedings, ensuring that pending criminal cases do not obstruct corporate debt resolution efforts.

Bottom Line:

Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor is permissible even when proceedings under Section 138 of the Negotiable Instruments Act, 1881 are pending, as the nature and objective of these two proceedings differ significantly.

Statutory provision(s): 

• - Insolvency and Bankruptcy Code, 2016: Sections 9, 238
• - Negotiable Instruments Act, 1881: Section 138
• - Code of Civil Procedure, 1908: Section 11 (Res Judicata)

This judgment highlights the tribunal's commitment to the efficient resolution of corporate insolvency, reinforcing the independence of insolvency proceedings from other legal actions, thereby maintaining the integrity of the IBC framework.

Rexel India Private Limited v. Proto D Industries Private Limited, (NCLT)(Mumbai Bench) : Law Finder Doc Id # 2815865