The Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “IBC”) provides moratorium once an application for insolvency is filed under the provision of IBC and accepted by the National Company Law Tribunal (hereinafter referred to as NCLT). Post imposition of moratorium against the corporate debtor, halts the other legal proceedings against the corporate debtor. The object of moratorium as provided under Section 14 of IBC is to protect the corporate debtor’s assets during the insolvency proceedings, and there should not be any further depletion of a corporate debtor’s assets during insolvency proceedings and yields maximum value of the corporate debtor’s assets.

Prior imposition of moratorium, the corporate debtor i.e. company which was engaged in regular monetary transactions with third parties issue a cheque(s) as one of the mode for their monetary transactions. Since, the corporate debtor was financially struggling, it may lead to default in payment and cheques get bounced, which lead to commencement of proceedings under Section 138 of Negotiable Instruments Act, 1881 (hereinafter referred to as the “NI Act”) prior to imposition of moratorium.

Post moratorium, leads to conflict between IBC and NI Act, as IBC clearly restricts any and all proceedings against the corporate debtor, company.

In our present article, we have reviewed the judicial pronouncements, where the Courts have analyzed such situation where proceedings under NI Act has been commenced and then moratorium has been imposed.

Issue: Does the insolvency proceedings against the corporate debtor ends the cheque bouncing proceedings in the Court?

Analysis: The hon’ble Supreme Court in the matter of P. Mohanraj & ors. Vs. M/s. Shah Brothers Ispat Pvt. Ltd.[1] while deciding on the issue of whether the institution or continuation of a proceedings under Section 138/141 of the NI Act can be covered by the moratorium provision of IBC has held that- “the proceedings under the NI Act against the corporate debtor would be halted by the moratorium and however, the proceedings against the directors/signatories would continue even if the proceedings against the corporate debtor stand on hold due to the moratorium.” Post P. Mohanraj, there was difference of stand taken by different high courts w.r.t application of the personal insolvency under Section 94 and thereafter Section 96 of IBC, post moratorium and continuation of cheque bouncing case under Section 138 of the NI Act, which has been settled by the hon’ble Supreme Court in the matter of Rakesh Bhanot vs. M/s. Gurudas Agro Pvt. Ltd.,[2] wherein the hon’ble Supreme Court decided the issue of whether the proceedings initiated against the directors/signatory under Section 138, read with Section 141 of the NI Act, should be stayed in view of the interim moratorium, after application under Section 94 IBC has been accepted. The hon’ble Supreme Court held that- “the objective of the moratorium is to offer protection only against civil claims to recover the debt. Therefore, the moratorium given under Section 14 or 96 of IBC is restricted in its applicability only to protection against civil claims and not from criminal action. The liability against the director/signatory under Section 138 of the NI Act is personal and hence continues to bind a natural person, irrespective of the moratorium applicable to the corporate debtor.”

[1] (2021) 6 SCC 258

[1] 2025 SCC OnLine SC 728

Concluding Remarks: Both the NI Act and IBC are special acts, enacted for the protection of the creditors under different perspective. The issue of conflict between NI Act and IBC w.r.t. continuation of cheque bouncing case post moratorium seems to be settled where the imposition of moratorium will not protect the directors/signatories from criminal liability in cheque bounce cases.  The decisions given by hon’ble Supreme Court