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We may argue that it is a criminal proceeding is different from civil recoveries in the connotation of law. Obviously it is right, but the legislative intent of Insolvency and Bankruptcy Code and the word 'proceedings' give a vast thinking about the applicability of moratorium on 138 proceedings.

The code prohibits institution of suits or continuation of pending suits and proceedings; normally, other than civil suits, the terminology of 'proceedings' has been used for other kinds of adjudication / recoveries i.e. Arbitration proceedings, DRT proceedings, 138 proceedings etc., albeit the summary procedure is being called as summary proceeding.

By using a separate word 'proceeding' in addition to the word suit in Section 14, the intention of the legislature is to give a larger meaning by covering all the other adjudications filed towards recovery.

The dictionary meaning of proceedings -

a. the instituting or carrying on of an action at law
b. a legal step or measure.

Law to institute proceedings against a person.

Normally, the 138 proceeding has been initiated as a part of recovery process not with an intention to punish the offender, since most of the time the instruments were transpired through commercial transactions. Moreover, the offence under 138 is compoundable in nature and can be withdrawn at any time, even in appeal stages. If it is the case, nothing will change the circumstances, by stopping the 138 proceedings for 180 days, to achieve the object of the Code.

It is inevitable to harmoniously read the object behind both the legislations. The object of the IBC is reorganisation of the Corporate debtor in a time-bound manner. The point to be construed herein is the time limitation. It is not so easy, for the Insolvency professional, to scrutinize all the relevant documents, taking the business and assets, creating creditors list, updating claims etc., without help of the Corporate debtor; and a resolution plan also may be proposed by the Corporate debtor within this restricted period. In this occasion, while working towards a workable solution, rushing to the court for participating the 138 proceeding will consume its valuable time, which is in need to rejuvenate its debt / scheme to achieve the object of the Code.

If the proceeding under IBC is not a time bound, one may strengthen its argument as it is a time-consuming process, then why should I keep pending the 138 proceeding, which is very easy measure to recover its debt. It is needless to repeat the object of the Code is the reorganisation. By reorganizing, if the Creditors are agreed for a resolution plan which is fruitful for all the Creditors, then reason to punish the Corporate debt for dishonouring the cheque would not arise.

One may argue, the word 'criminal' is not prefixed the word 'proceedings' so it won't apply to 138 proceeding.

There is two way of criminal proceedings. One is based on police report and another is based on other than police report. So viewing both the cases in the same purview would not be rational as well as should always keep the nature of the offence in mind before comparing it.

In Rajneesh Agarwal v. Amit J Bhalla, AIR 2012 SC 518, the Supreme Court of India observed:

So far as the criminal complaint is concerned, once the offence is committed, any payment made subsequent thereto will not absolve the accused of the liability of criminal offence, though in the matter of awarding of sentence, it may have some effect on the Court trying the offence. But by no stretch of imagination, a criminal proceeding could be quashed on account of deposit of money in the Court or that the order of quashing of criminal proceeding, which is otherwise unsustainable in law, could be sustained because of the deposit of money in this Court. In this view of the matter, the so called deposit of money by the respondent in this Court is of no consequence.

Without any doubt, the NI act itself has a way to compound the offence under section 147 of NI Act.

It is essential to high light theBankruptcy Law Reforms Committee Report:

The motivation behind the moratorium is that it is value maximising for the entity to continue operations even as viability is being assessed during the IRP. There should be no additional stress on the business after the public announcement of the IRP. The order for the moratorium during the IRP imposes a stay not just on debt recovery actions, but also any claims or expected claims from old lawsuits, or on new lawsuits, for any manner of recovery from the entity.

One of the goals of having an insolvency law is to ensure the suspension of debt collection actions by the creditors, and provide time for the debtors and creditors to re-negotiate their contract. This requires a moratorium period in which there is no collection or other action by creditors against debtors.

The intention behind the proposal of 'no additional stress on the business after the public announcement of the IRP' is using the time after public announcement optimistically. So rushing to the court for participating the proceeding under 138 of NI Act, which is similar to recovery would not be logical and may be a road block to effective implementation of IBC.

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Category Corporate Law, Other Articles by - Raja Mani.K