{"id":14366,"date":"2026-01-12T11:42:50","date_gmt":"2026-01-12T11:42:50","guid":{"rendered":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/?p=14366"},"modified":"2026-01-12T11:46:13","modified_gmt":"2026-01-12T11:46:13","slug":"ibc-moratorium-section-138-ni-act-director-liability","status":"publish","type":"post","link":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/ibc-moratorium-section-138-ni-act-director-liability\/","title":{"rendered":"The Insolvency and Bankruptcy Code (IBC), 2016, Moratorium and Section 138 NI Act : Understanding the Interplay"},"content":{"rendered":"\n<p>When cheques bounce and debts mount high, IBC shields the corp, but directors can&#8217;t fly. Section 138 NI Act, a vicarious bind, Liability lingers, like debts left behind.<\/p><div id=\"ez-toc-container\" class=\"ez-toc-v2_0_83 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #0c0c0c;color:#0c0c0c\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #0c0c0c;color:#0c0c0c\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/ibc-moratorium-section-138-ni-act-director-liability\/#Key_Legislations_Involved\" >Key Legislations Involved<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/ibc-moratorium-section-138-ni-act-director-liability\/#Understanding_the_Interplay_Between_IBC_and_Section_138\" >Understanding the Interplay Between IBC and Section 138<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/ibc-moratorium-section-138-ni-act-director-liability\/#Section_14_of_the_Insolvency_and_Bankruptcy_Code_2016_IBC_Moratorium\" >Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC): Moratorium<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/ibc-moratorium-section-138-ni-act-director-liability\/#Purpose\" >Purpose<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/ibc-moratorium-section-138-ni-act-director-liability\/#Core_Legal_Question\" >Core Legal Question<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/ibc-moratorium-section-138-ni-act-director-liability\/#Landmark_Judgment_Clarifying_the_Issue\" >Landmark Judgment Clarifying the Issue<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/ibc-moratorium-section-138-ni-act-director-liability\/#Key_Points_From_the_Judgment\" >Key Points From the Judgment<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/ibc-moratorium-section-138-ni-act-director-liability\/#Illustrative_Example\" >Illustrative Example<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/ibc-moratorium-section-138-ni-act-director-liability\/#Legal_Effect_of_the_Moratorium\" >Legal Effect of the Moratorium<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n\n\n\n\n<h2 class=\"wp-block-heading\" id=\"key-legislations-involved\"><span class=\"ez-toc-section\" id=\"Key_Legislations_Involved\"><\/span>Key Legislations Involved<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>IBC (Insolvency and Bankruptcy Code, 2016) and Section 138 of the Negotiable Instruments Act, 1881 are two important laws in India dealing with financial disputes.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Section 138 of the Negotiable Instruments Act, 1881<\/strong> specifically deals with cheque bounce cases, making it a criminal offense if a cheque is dishonoured due to insufficient funds.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"interplay-between-ibc-and-ni-act\"><span class=\"ez-toc-section\" id=\"Understanding_the_Interplay_Between_IBC_and_Section_138\"><\/span>Understanding the Interplay Between IBC and Section 138<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>To understand the relevance between these two provisions, let&#8217;s read Section 14 of the IBC, which has been discussed briefly below.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"section-14-ibc-moratorium\"><span class=\"ez-toc-section\" id=\"Section_14_of_the_Insolvency_and_Bankruptcy_Code_2016_IBC_Moratorium\"><\/span>Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC): Moratorium<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>When a Corporate Insolvency Resolution Process (CIRP) is initiated against a corporate debtor, a moratorium is imposed. During this period:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>No new suits or proceedings can be initiated against the corporate debtor.<\/li>\n\n\n\n<li>Ongoing suits or proceedings against the corporate debtor are stayed.<\/li>\n\n\n\n<li>No recovery of property belonging to the corporate debtor can be made.<\/li>\n\n\n\n<li>No enforcement of security interest over the assets of the corporate debtor can be done.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"purpose\"><span class=\"ez-toc-section\" id=\"Purpose\"><\/span>Purpose<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The moratorium provides a breathing space for the corporate debtor to restructure and resolve its debts without the pressure of creditor actions.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"core-legal-question\"><span class=\"ez-toc-section\" id=\"Core_Legal_Question\"><\/span>Core Legal Question<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Now, the key question that arises is whether moratorium under IBC, which primarily ensures providing a period of calmness to the CD and applies to civil and recovery proceedings, extends to cheque dishonour proceedings or not?<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"landmark-judgment\"><span class=\"ez-toc-section\" id=\"Landmark_Judgment_Clarifying_the_Issue\"><\/span>Landmark Judgment Clarifying the Issue<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The P. Mohanraj &amp; Ors. vs M\/s Shah Brothers Ispat Pvt. Ltd. (2021) 6 SCC 258 judgment is a landmark case that clarifies the applicability of the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) to proceedings under Section 138 of the Negotiable Instruments Act.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"key-points-from-judgment\"><span class=\"ez-toc-section\" id=\"Key_Points_From_the_Judgment\"><\/span>Key Points From the Judgment<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The Supreme Court held that the moratorium under Section 14 of the IBC applies to proceedings under Section 138 of the NI Act against the corporate debtor. This means that during the moratorium period, no new proceedings can be initiated, and ongoing proceedings will be stayed against the corporate debtor.<\/li>\n\n\n\n<li>However, proceedings under Section 138\/141 of the NI Act can continue against directors or natural persons in management or control of the corporate debtor, even if the corporate debtor is under moratorium.<\/li>\n\n\n\n<li>The court characterised proceedings under Section 138 of the NI Act as quasi-criminal, with the primary objective of enforcing civil liability through criminal procedure.<\/li>\n\n\n\n<li>The judgment amplified the ambit of Section 14 of the IBC, allowing the scope of moratorium to cover proceedings instituted under the NI Act against the corporate debtor.<\/li>\n\n\n\n<li>The ruling promotes a more seamless process of insolvency resolution by protecting the corporate debtor&#8217;s assets during the moratorium period, while also holding natural persons accountable for their actions.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"illustrative-example\"><span class=\"ez-toc-section\" id=\"Illustrative_Example\"><\/span>Illustrative Example<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Suppose a company, XYZ Pvt. Ltd., issues a cheque that is dishonored due to insufficient funds. Before the notice period for the dishonored cheque expires, a moratorium is imposed on XYZ Pvt. Ltd. under Section 14 of the IBC.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"legal-effect-of-moratorium\"><span class=\"ez-toc-section\" id=\"Legal_Effect_of_the_Moratorium\"><\/span>Legal Effect of the Moratorium<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th>Proceedings<\/th><th>Status During Moratorium<\/th><\/tr><\/thead><tbody><tr><td>Proceedings under Section 138 of the NI Act against XYZ Pvt. Ltd.<\/td><td>Will be stayed due to the moratorium<\/td><\/tr><tr><td>Proceedings under Section 138 of the NI Act against directors or authorised signatories<\/td><td>Can continue<\/td><\/tr><\/tbody><\/table><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>Section 14 of The IBC,2016 Moratorium, Imposes a stay on legal proceedings against a corporate debtor undergoing insolvency, protecting its assets. Whereas section 138 of NI Act, Cheque Dishonour Makes cheque bounce a criminal offense if issued without sufficient funds, allowing legal action against the issuer.<\/p>\n","protected":false},"author":890,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_bbp_topic_count":0,"_bbp_reply_count":0,"_bbp_total_topic_count":0,"_bbp_total_reply_count":0,"_bbp_voice_count":0,"_bbp_anonymous_reply_count":0,"_bbp_topic_count_hidden":0,"_bbp_reply_count_hidden":0,"_bbp_forum_subforum_count":0,"two_page_speed":[],"_jetpack_memberships_contains_paid_content":false,"_joinchat":[],"footnotes":""},"categories":[7],"tags":[28],"class_list":{"0":"post-14366","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-banking-finance-laws","7":"tag-top-news"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/posts\/14366","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/users\/890"}],"replies":[{"embeddable":true,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/comments?post=14366"}],"version-history":[{"count":0,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/posts\/14366\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/media?parent=14366"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/categories?post=14366"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/tags?post=14366"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}