Directors' Liability under IBC & NI Act
Even after approval of RP under IBC, Directors will remain liable under NI Act
Ajay Kumar Radhey Shyam Goenka Vs Tourism Finance Corporation of India Ltd (2023) SCC OnLine SC 266 on 15 Mar 2023
This Supreme Court judgment clears the confusion over the liability of directors under IBC and NI Act.
Rainbow Papers Ltd. (“Company”) took a loan of Rs. 30 Cr. from TFCIL in March 2012 and issued PDCs in February 2016 which got bounced because of “Account Closed”. TFCIL issued a legal notice u/s 138 of NI Act in April 2016 and filed a criminal complaint in May 2016.
In 2017, CIRP proceedings u/s 9 of IBC were initiated against the Company by one operational creditor, Neeraj Paper Agencies Ltd. (another company).
In November 2018, MM held that the proceedings u/s Section 138 of NI Act could proceed concurrently as IBC proceedings were distinct.
In November 2019, MM dismissed the application for discharge of the criminal case filed by the MD of the Company, Ajay Kumar Radhey Shyam Goenka (“Ajay”). After that, the High Court also dismissed the criminal revision petition filed by Ajay. ?
The SC clarified that approving a corporate debtor's resolution plan does not extinguish its erstwhile directors' criminal liability for offenses such as u/s 138 of NI Act. It means that a company may be protected from prior liabilities post-resolution approval u/s 32A of IBC, however, individual directors (who were in charge during the commission of an offense will remain liable.
This SC judgment sets a precedent for future cases involving insolvency and criminal liability, reinforcing that personal accountability remains intact despite corporate restructuring or resolution plans. It emphasised that the signatories/directors cannot evade responsibility for their actions simply due to a company's insolvency status.
Head of Legal Department at Groupe Veritas
5 个月Nag Leathers (P) Ltd Vs Dynamic Marketing Partnership dated 18 Nov 2021 https://indiankanoon.org/doc/20380475/ In this case, the SC also addressed whether proceedings u/s 138 and 141 of the NI Act can be instituted against the corporate debtor. In other words, whether, after the issuance of the moratorium under IBC, a corporate debtor is liable for the proceedings initiated u/s 138 of the NI Act. ? The SC held that Sec. 138/141 proceedings will not continue against the company. However, in this present case, no natural person was made accused; the complaint was filed only against the company and not against its directors. Thus, the SC held that the appellant/corporate debtor, i.e., the company cannot be proceeded against u/s 138 of the NI Act in this case. Had the directors been arrayed as accused,?the proceedings under Section 138/141 of the NI Act would have been allowed to be continued against such natural persons. Consequently, the petition u/s 482 was allowed and the proceedings initiated against the company were quashed.