The Inherent Fallacy: Examining the Scope of Interim Moratorium and Its Impact on Proceedings Under the Negotiable Instruments Act, 1881

Abstract

This paper examines the applicability of the interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 to proceedings initiated under Section 138 of the Negotiable Instruments Act, 1881 for dishonour of cheques. While it is settled that the moratorium under Section 14 of the Code suspends such proceedings against corporate debtors, there is a judicial divide regarding the effect of the interim moratorium on personal guarantors of a corporate debtor, particularly those who are also directors and are vicariously liable under the Negotiable Instruments Act when such an offence is committed by the corporate debtor. This paper critiques the reasoning adopted by various High Courts in declining to suspend proceedings under the Act in view of the interim moratorium under Section 96 of the Code and, in particular, the inherent fallacy identified by the Delhi High Court in Sandeep Gupta v Shree Ram Traders. The author, through an analysis of the statutory framework, attempts to highlight the interpretative differences in the moratoriums under Sections 14 and 96 of the Code and argues that proceedings under the Act shall stand suspended once the interim moratorium is invoked.