01/07/2026
Can a company facing insolvency also be prosecuted for cheque bounce?
The Supreme Court settled the conflict in P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd. by holding that Section 14 of the IBC stays proceedings under Sections 138/141 of the Negotiable Instruments Act against the corporate debtor during the moratorium.
The reasoning was simple yet significant. Although cheque bounce proceedings carry criminal consequences, their primary purpose is recovery of a legally enforceable debt. Because of this hybrid or "quasi-criminal" nature, allowing them to continue would defeat the very purpose of the IBC, which is to preserve the company's assets and maximise the chances of successful resolution.
The protection, however, is not absolute. Directors and other responsible officers do not receive the benefit of the moratorium and may still face prosecution.
A landmark judgment that clarified the intersection of the NI Act and the IBC while strengthening the insolvency framework.