Summary: The Bombay High Court's Nagpur Bench decided on a case involving a bounced cheque and insolvency proceedings. The court ruled that the case under the Negotiable Instruments Act should continue despite a pause from the Insolvency and Bankruptcy Code.
In this case, Ramdev Cotspin, represented by Pramod Lunkaran Chandak, took on Pacific Cotspin Ltd., now known as Silverton Spinners Ltd. The main figures from Pacific Cotspin were Ashok Mehra and Chandra Prakash Mehra, who held important roles in the company.
Ramdev Cotspin filed a complaint because Pacific Cotspin issued cheques totaling over Rs. 1 crore, which bounced due to not having enough money in the account. The cheques were meant to settle part of a larger debt for cotton bales purchased.
"All the cheques returned back with memo and endorsement 'funds insufficient'."
The trial began in 2017, with the accused saying they were not guilty. Initially, there were seven accused, but four were later removed from the case with the court's permission.
While the case was ongoing, insolvency proceedings were started against Pacific Cotspin's directors by the State Bank of India. The National Company Law Tribunal (NCLT) issued a temporary pause, stopping proceedings related to the company's debts.
For Ramdev Cotspin: Their lawyer argued that the proceedings under the Negotiable Instruments Act should continue despite the insolvency pause. They referred to Supreme Court decisions supporting this view.
For Pacific Cotspin: Their lawyer argued that the insolvency pause should stop the cheque bounce case, as it related to debt recovery.
Judge M.M. Nerlikar ruled that the cheque bounce case should continue. The judge emphasized that the proceedings are criminal, not just about debt recovery. The court relied on Supreme Court decisions stating that directors remain responsible for cheque bounce cases, even if the company is going through insolvency proceedings.
"The proceedings under Section 138 of the NI Act will continue against both the Company and its office bearers."
The court canceled the lower court's order to pause the proceedings, allowing the case against Pacific Cotspin and its directors to move forward. This decision shows that personal responsibility for bounced cheques remains, even if a company is dealing with insolvency.