Whether the institution or continuation of a proceeding u/s 138/141 of the Negotiable Instruments Act can be said to be covered u/s 14 of the IBC?

Last updated: 10 March 2021

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The Supreme Court has considered whether proceedings under Section 138/141 of the Negotiable Instruments Act (NI Act) are encompassed by Section 14 of the Insolvency and Bankruptcy Code (IBC). This case involved a company that defaulted on payments for steel supplies, leading to dishonoured cheques and subsequent demand notices issued under the NI Act against the company and its directors. The court's decision clarifies the application of these laws when both are potentially invoked.

Court :
Supreme Court of India

Brief :
Steel products were supplied by the respondent to one M/s.Diamond Engineering Pvt. Ltd. [“the company”] from 21.09.2015 to11.11.2016, as a result of which INR 24,20,91,054/- was due and payableby the company. As many as 51 cheques were issued by the company infavour of the respondent towards amounts payable for supplies, all ofwhich were returned dishonoured for the reason “funds insufficient” on03.03.2017.

Citation :
CIVIL APPEAL NO.10355 OF 2018

IN THE SUPREME COURT OF INDIA
CIVIL/CRIMINAL APPELLATE JURISDICTION
CIVIL/CRIMINAL ORIGINAL JURISDICTION
CIVIL APPEAL NO.10355 OF 2018

P. MOHANRAJ & ORS. … APPELLANTS

VERSUS

M/S. SHAH BROTHERS ISPAT PVT. LTD. …RESPONDENT
WITH
CRIMINAL APPEAL NO._239___ OF 2021

SPECIAL LEAVE PETITION (CRL.) NO._1955__ OF 2021)
(Diary No.32585/2019)

CRIMINAL APPEAL NO.___240________ OF 2021
SPECIAL LEAVE PETITION (CRL.) NO.10587 OF 2019)

CRIMINAL APPEAL NO.__241______ OF 2021
SPECIAL LEAVE PETITION (CRL.) NO.10857 OF 2019)

CRIMINAL APPEAL NO.__242_______ OF 2021
SPECIAL LEAVE PETITION (CRL.) NO.10550 OF 2019)
CRIMINAL APPEAL NO.__243_______ OF 2021

SPECIAL LEAVE PETITION (CRL.) NO.10858 OF 2019)
CRIMINAL APPEAL NO.___244______ OF 2021

SPECIAL LEAVE PETITION (CRL.) NO.10860 OF 2019)

CRIMINAL APPEAL NO.____245_____ OF 2021
SPECIAL LEAVE PETITION (CRL.) NO.10861 OF 2019)

J U D G M E N T

R.F. Nariman, J.

1. Steel products were supplied by the respondent to one M/s.Diamond Engineering Pvt. Ltd. [“the company”] from 21.09.2015 to11.11.2016, as a result of which INR 24,20,91,054/- was due and payableby the company. As many as 51 cheques were issued by the company infavour of the respondent towards amounts payable for supplies, all ofwhich were returned dishonoured for the reason “funds insufficient” on03.03.2017. As a result, on 31.03.2017, the respondent issued a statutorydemand notice under Section 138 read with Section 141 of the NegotiableInstruments Act, 1881, calling upon the company and its three Directors,the appellants no.1-3 herein, to pay this amount within 15 days of the receipt of the notice.

2. On 28.04.2017, two cheques for a total amount of INR 80,70,133/- presented by the respondent for encashment were returned dishonouredfor the reason “funds insufficient”. A second demand notice dated05.05.2017 was therefore issued under the selfsame Sections by therespondent, calling upon the company and the appellants to pay this amount within 15 days of the receipt of the notice.

To know more in details find the attachment file

FAQ :

The judgement addresses whether proceedings initiated or continued under Section 138/141 of the Negotiable Instruments Act are covered by Section 14 of the Insolvency and Bankruptcy Code.

The case involved P. Mohanraj & Ors. as appellants and M/s. Shah Brothers Ispat Pvt. Ltd. as the respondent.

The proceedings were initiated because a company failed to pay for steel supplies, resulting in 51 cheques being dishonoured due to insufficient funds.

The proceedings involved Section 138 read with Section 141 of the Negotiable Instruments Act, 1881, and Section 14 of the Insolvency and Bankruptcy Code.

Statutory demand notices were issued under Section 138 read with Section 141 of the Negotiable Instruments Act, calling upon the company and its directors to pay the outstanding amounts within 15 days.