The Nagpur Bench of the Bombay High Court has ruled that legal proceedings under the Negotiable Instruments Act (NIA) for cheque dishonour cannot be suspended merely because loan recovery has been temporarily halted under the Insolvency and Bankruptcy Code (IBC).
Justice M.M. Nerlikar delivered the ruling while hearing a plea filed by Shri Ramdev Cotspin, an Akola-based firm, against Ashok Mehra (Chairman) and Chandraprakash Mehra (Managing Director) of Pacific Cotspin Company, Kolkata. The case stemmed from the dishonour of ten cheques amounting to ₹1.05 crore, issued as payment for a cotton bale transaction.
Earlier, on April 7, 2022, the National Company Law Tribunal (NCLT) had ordered a temporary suspension of loan recovery proceedings against the accused firm under the IBC. Following this, on August 17, 2023, the Judicial Magistrate First Class (JMFC), Akola, had stayed the cheque bounce case proceedings.
Challenging the stay, Shri Ramdev Cotspin approached the High Court, which set aside the lower court’s order. The bench directed the JMFC, Akola, to resume the trial, observing that criminal liability under Section 138 of the Negotiable Instruments Act is independent of insolvency-related civil proceedings.
Advocate Palash Mohta appeared on behalf of Shri Ramdev Cotspin before the High Court.
The ruling underscores that insolvency proceedings cannot serve as a legal defence against criminal prosecution for dishonoured cheques, reaffirming the principle that financial accountability under the NIA stands apart from IBC protections.
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