No moratorium on criminal proceedings under section 14 of the IBC

The NCLAT settled a very important question of law under the IBC and held that no criminal proceeding is covered under Section 14 of IBC. It means that there is no moratorium granted to the criminal proceedings during the corporate insolvency resolution process.

The NCLAT was dealing with a case wherein the creditors had filed criminal complaints u/s 138 of the NI Act, after the corporate insolvency resolution process was initiated against the corporate debtor.

The NCLAT held that section 138 of NI Act is a penal provision and empowers the competent court to pass order of imprisonment or fine and such imposition imprisonment or fine by the competent court cannot held to be a money claim or recovery against the corporate debtor. The NCLAT further held that in fact no criminal proceeding is covered under section 14 of the IBC.

It means that even though the insolvency resolution process is on, the creditors can file criminal proceedings against the corporate debtors for fraudulent or wrongful transactions done by the corporate debtors and its directors.

IBC under section 46,  49 and 66 prescribe look- back provisions under which the fraudulent or wrongful transactions (both regular and related party) carried out by the corporate debtors and its directors can be penalised. In such case, “once a fraud, always a fraud” doctrine applies.

Reference: Shah Brothers Ispat Private Limitedv.P Mohanraj & Others