A) ABSTRACT / HEADNOTE

Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd., [2025] 4 S.C.R. 573 : 2025 INSC 445, examines whether the interim moratorium that arises on filing an application under Section 94 of the Insolvency and Bankruptcy Code, 2016 (IBC) crystallised in Section 96 bars or stays criminal prosecution under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 (NI Act). The appellants, who faced complaints for cheque dishonour, sought ad-interim protection from criminal proceedings by invoking the interim moratorium available on initiation of personal insolvency proceedings. The trial courts and multiple High Courts refused to stay the NI Act prosecutions; these orders were challenged before the Supreme Court. The majority held that the moratorium provisions are directed to stay civil proceedings aimed at recovery of debts and to preserve assets for resolution or liquidation. The moratorium under Sections 96/101 cannot be stretched to shield individuals from personal criminal liability arising from issuance and dishonour of cheques. Reliance on prior pronouncements that moratorium under Section 14 protects only the corporate debtor and does not absolve natural persons was affirmed and extended to the personal insolvency context. The Court emphasised the distinct objects of the IBC (debt resolution and asset maximization) and the NI Act (deterrence and protection of cheque credibility), observing that extinguishment or restructuring of debt under IBC does not automatically extinguish personal penal liability of directors/signatories. The appeals and connected writs were dismissed, holding that interim moratorium cannot be used as a shield against prosecution under Section 138 NI Act.

Keywords: interim moratorium, Section 96 IBC, Section 138 NI Act, personal insolvency, criminal liability of directors.

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The appeals arise from multiple proceedings where accused persons facing prosecution for cheque dishonour under Section 138 NI Act simultaneously filed applications under Section 94 IBC for initiation of the personal insolvency resolution process. Filing under Section 94 triggers an interim moratorium by operation of Section 96(1) IBC, which suspends “any legal action or proceeding in respect of any debt” until admission or disposal. Appellants asked trial courts to adjourn or stay criminal prosecutions sine die citing this moratorium.

Trial courts and High Courts rejected those pleas. The central question presented for Supreme Court determination was statutory scope: whether the moratorium protects accused natural persons from criminal prosecutions that are penal in nature though they arise from debt-related instruments (cheques). The litigants advanced competing characterisations: appellants contended that moratorium protects “all debts” and attendant legal actions, thereby including NI Act prosecutions; respondents argued moratorium targets civil recovery proceedings, not penal deterrent processes.

The Court reviewed the language and scheme of IBC (distinguishing corporate moratorium under Section 14 from interim moratorium under Section 96/101 for individuals/partners), prior precedents (P. Mohanraj, Narinder Garg, Ajay Goenka) and legislative purpose. The Supreme Court interim-stayed proceedings in certain matters during early adjudication but ultimately decided the legal question against extending moratorium protection to criminal prosecutions under Section 138.

D) FACTS OF THE CASE

The respondent company, M/s. Gurdas Agro Pvt. Ltd., lodged complaint(s) alleging issuance of multiple cheques (each for ₹50,00,000) by persons connected to Arjun Mall Retail Holdings Pvt. Ltd., including the appellant Rakesh Bhanot and family members. The cheques returned with endorsement “Funds Insufficient”. After statutory notice and non-payment within 15 days, prosecution under Section 138 NI Act was initiated and complaints registered (e.g., COMA No.1059/2019).

While criminal proceedings were pending, the accused filed personal insolvency applications under Section 94 IBC before the NCLT, invoking Section 96 interim moratorium. The trial court refused to stay criminal proceedings; High Courts dismissed petitioners’ challenges under Section 482 Cr.P.C. The appellants therefore approached the Supreme Court (multiple SLPs and connected matters). Intervenors and other applicants with pending insolvency proceedings supported extension of moratorium protection; respondents and prosecuting parties resisted, emphasising the penal purpose of Section 138 and the legislative separation of insolvency relief and criminal accountability.

The Supreme Court consolidated similar appeals given common legal question and heard extensive arguments on statutory text, purposive intent and precedent.

E) LEGAL ISSUES RAISED

i. Whether the interim moratorium under Section 96 IBC (arising on presentation of an application under Section 94) operates to stay criminal proceedings instituted under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881?

ii. Whether the moratorium under Sections 96/101 IBC extends protection to natural persons (directors/signatories/personal guarantors) from penal liability flowing from cheque dishonour?

iii. Whether the legislative purpose and textual scheme of IBC permits Section 238 non-obstante clause to override criminal prosecutions under the NI Act?

F) PETITIONER / APPELLANT’S ARGUMENTS

i. The interim moratorium under Section 96(1)(b) IBC begins on the date of application and expressly provides that “any legal action or proceeding in respect of any debt shall be deemed to have been stayed.” Thus, proceedings arising out of dishonoured cheques (which respond to debt/liability) are covered.

ii. The distinction between corporate and personal insolvency cannot lead to harsher consequences for natural persons; the moratorium is intended to preserve debtor assets and prevent multiplicity of actions, including cheque prosecutions that effectively pursue debt recovery.

iii. Section 101 imposes an express bar on transferring or making payments; where the law prohibits payment during moratorium, penal consequences for non-payment would create impossibility and inequity, attracting lex non cogit ad impossibilia.

iv. Earlier pronouncements validating the scope of interim moratorium (e.g., Dilip B. Jiwrajka) support protective reading for individuals and the injunction should be extended to avoid double jeopardy and protect the insolvency process.

G) RESPONDENT’S ARGUMENTS

i. The moratorium under IBC targets civil recovery processes and preserves assets; it was not intended to obstruct penal prosecutions intended to maintain the sanctity of negotiable instruments.

ii. Section 138 NI Act is penal and deterrent; the cause of action is the cheque dishonour and statutory conditions for prosecution are distinct from civil debt enforcement. Extending moratorium to criminal prosecutions would remove deterrence and undermine commercial confidence.

iii. Precedents (P. Mohanraj, Narinder Garg, Ajay Goenka) sustain the view that moratorium does not protect natural persons from criminal liability; Section 141 creates personal statutory culpability that is not displaced by IBC moratorium.

iv. The IBC’s non-obstante clause (Section 238) cannot be read so as to defeat specific penal enactments which have independent public purpose.

H) JUDGEMENT

The Supreme Court, after hearing counsels and reviewing statutory provisions and precedent, held that interim moratorium under Section 96 IBC does not stay criminal prosecutions under Section 138 NI Act. The Court analysed the language of Sections 96 and 101 and observed the qualifying phrase “in respect of any debt” must be read with noscitur a sociis; moratorium is intended to bar civil actions for recovery and not to impede penal actions whose object is deterrence and public interest. The Court contrasted partnership-firm protection (where moratorium extends to partners) with company scenario (where corporate moratorium does not extend to directors). Reliance on P. Mohanraj and Narinder Garg was affirmed, and Ajay Goenka was followed to emphasise that acceptance of a resolution plan or liquidation does not absolve personal penal liability. The Court rejected appellants’ reliance on Dilip B. Jiwrajka as inapposite.

The judgment framed the functional distinction: IBC moratorium preserves assets and prevents piecemeal enforcement; it does not extinguish statutory penal liability which is personal. Further, the Court observed that even if debt is extinguished by resolution, the penal consequence relating to cheque dishonour remains independent and continues to serve deterrent purpose. Lex non cogit ad impossibilia was discussed but not found to mandate stay; statutory prohibition on transfer under Section 101 cannot operate as license to commit offences or to immunise accused persons. The Supreme Court thus dismissed all criminal appeals and writ petitions, upholding trial courts’ and High Courts’ refusals to stay NI Act prosecutions.

a. RATIO DECIDENDI

The operative ratio is that the interim moratorium under Section 96 IBC, arising on filing personal insolvency application, is confined to staying “legal action or proceeding in respect of any debt” taken in the civil recovery context, and does not extend to penal proceedings instituted under Section 138 NI Act which are directed to punishment and deterrence for dishonour of negotiable instruments. The moratorium’s object is to protect the insolvency process and assets, not to enable debtors or directors to escape criminal responsibility. Consequently, natural persons who sign cheques remain personally liable; personal insolvency filing does not operate as a shield against criminal prosecution.

b. OBITER DICTA

The Court observed obiter that while Section 96 protects debt-recovery actions, the legislature deliberately excluded sureties/personal guarantors from the protections of corporate moratorium under Section 14(3)(b) IBC, indicating legislative intent not to immunise personal liabilities. The judgment also opined that extinguishment of debt under IBC (post-admission or resolution) may not legally discharge penal consequences and that the policy of IBC maximisation of asset value should not be read to negate penal public policy. The Court noted the nuanced distinction between partners (where moratorium affects partners) and corporate directors, underscoring textual and purposive interpretation differences.

c. GUIDELINES 

i. Interim moratorium under Section 96 IBC shall be interpreted narrowly to stay civil proceedings directly aimed at debt recovery, not to bar criminal prosecutions under statutory penal provisions like Section 138 NI Act.

ii. Trial courts must examine whether pending proceedings are civil recovery actions in substance; where criminal prosecution under NI Act is independent and instituted for dishonour and deterrence, moratorium will not apply.

iii. Filings under Section 94/95 IBC cannot be used as a stratagem to delay or evade criminal proceedings; courts should guard against misuse of insolvency petitions to frustrate penal policy.

iv. Where corporate resolution results in practical impossibility to prosecute the corporate entity, prosecution of natural persons (signatories/directors) may continue subject to legal safeguards; lex non cogit ad impossibilia shall be applied with caution and not to defeat penal enforcement.

v. Adjudicating authorities under IBC and criminal courts should coordinate where overlapping interests arise, but the legal distinction between civil/asset-protective relief and criminal punishment must be maintained.

I) CONCLUSION & COMMENTS

The decision reinforces the separation between insolvency relief and penal accountability in Indian law. By confining Section 96 moratorium to civil debt recovery, the Court balanced the remedial aims of the IBC with the public interest served by criminal sanctions under the NI Act. Practically, this prevents debtors and corporate officers from insulating themselves from personal criminal culpability through tactical insolvency filings. The judgment aligns with precedents and statutory text, and its guidance reduces litigation uncertainty by clarifying that personal liability under Section 141 remains intact despite personal insolvency petitions.

For practitioners, the ruling signals caution: insolvency strategy must not be used to delay criminal process; defence and resolution planning should be run in parallel, recognising that criminal trials may proceed contemporaneously. The judgment also invites careful drafting of insolvency petitions and calls for cross-disciplinary awareness among insolvency professionals, criminal defence lawyers and adjudicating tribunals to handle juxtaposed civil and criminal proceedings coherently while respecting statutory limits. Finally, the Court’s approach preserves the deterrent value of cheque-law enforcement, thereby sustaining commercial trust in negotiable instruments.

J) REFERENCES

a. Important Cases Referred

i. P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd., (2021) 6 SCC 258.
ii. State Bank of India v. V. Ramakrishnan, [2018] 10 SCR 974 : (2018) 17 SCC 394.
iii. Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., [2000] 3 SCR 509 : (2000) 5 SCC 694.
iv. Narinder Garg & Ors. v. Kotak Mahindra Bank Ltd. & Ors., (2022) SCC OnLine SC 517.
v. Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corpn. of India Ltd., (2023) 10 SCC 545 : 2023 SCC OnLine SC 266.
vi. Dilip B. Jiwrajka v. Union of India, (2023) SCC OnLine SC 1530 : (2024) 5 SCC 435 (distinguished).
vii. Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661.
viii. Lalit Kumar Jain v. Union of India, (2021) 9 SCC 321.
ix. Manish Kumar v. Union of India, (2021) 5 SCC 1.

b. Important Statutes Referred

i. Insolvency and Bankruptcy Code, 2016 — Sections 14, 94, 95, 96, 100, 101, 238.
ii. Negotiable Instruments Act, 1881 — Sections 138, 141.
iii. Code of Criminal Procedure, 1973 (Cr.P.C.)