IBC Moratorium Does Not Extinguish Directors' Criminal Liability Under NI Act: Punjab & Haryana High Court
Overview of the Case
The Punjab and Haryana High Court recently delivered a significant ruling in Ajay Gupta Vs Can Bank Factors Limited (CRM-M-45498-2019), clarifying the interplay between the moratorium provisions under the Insolvency and Bankruptcy Code, 2016 and criminal proceedings initiated under Section 138 of the Negotiable Instruments Act, 1881. The judgment, pronounced on 20th July 2026, unequivocally held that the commencement of insolvency proceedings against a corporate debtor — or even a subsequent liquidation order — does not have the effect of wiping out the personal criminal liability of Directors who were responsible for the dishonour of cheques prior to such proceedings.
Background and Facts of the Case
M/s Can Bank Factors Limited, a trade finance company, had extended a factoring credit facility of ₹5 crore to M/s Supreme Tex Mart Limited under a factoring agreement for invoice discounting. The accused company allegedly defaulted on its repayment obligations, causing its account to be classified as a Non-Performing Asset (NPA).
In an attempt to discharge its outstanding dues, the accused company issued eight cheques drawn on its State Bank of India account. The details of these cheques were as follows:
- Cheque No. 582873 dated 05.06.2015 for Rs.45,00,000/-
- Cheque No. 582874 dated 05.06.2015 for Rs.45,00,000/-
- Cheque No. 582875 dated 05.06.2015 for Rs.11,81,748/-
- Cheque No. 582876 dated 16.06.2015 for Rs.50,00,000/-
- Cheque No. 582877 dated 16.06.2015 for Rs.42,38,692/-
- Cheque No. 582878 dated 24.06.2015 for Rs.12,00,000/-
- Cheque No. 922622 dated 08.06.2015 for Rs.50,05,903/-
- Cheque No. 922638 dated 08.06.2015 for Rs.1,50,36,320/-
When the complainant presented all these cheques within their validity period, every single one was dishonoured by the bank with the remark "Exceeds Arrangement." Following this, a statutory demand notice dated 21.07.2015 was served upon the accused. Since the accused failed to make payment within the stipulated period, M/s Can Bank Factors Limited filed a complaint under Section 138 read with Section 420 of the IPC before the Judicial Magistrate First Class, Ludhiana.
After recording preliminary evidence, the Magistrate found a prima facie case and issued a summoning order dated 31.05.2016, directing the petitioners (Directors of the accused company) to face trial for the alleged offence under Section 138 of the Negotiable Instruments Act, 1881.
Contentions Raised by the Petitioners
The Directors approached the Punjab and Haryana High Court by filing a petition under Section 482 Cr.P.C. seeking quashing of Criminal Complaint No. 6614 dated 29.09.2015, the summoning order dated 31.05.2016, and all related proceedings. Their principal arguments were: