Beyond the Moratorium

In recent times, the “tug-of-war” between Section 138 of the Negotiable Instruments Act, 1881 and Section 96 of India’s Insolvency and Bankruptcy Code, 2016 has reached its zenith. With inconsistent judgments and fragmented verdicts, the uncertainty regarding the enforceability of cheques during insolvency has reached a critical point. This uncertainty has been addressed recently by the Supreme Court in Rakesh Bhanot v Gurdas Agro Pvt Ltd. The case aimed to answer the simple question of whether insolvency proceedings pause or suspend a criminal trial. While answering this question, the Court placed emphasis on the “criminal nature” of cheque bounce cases and the distinction between civil debt recovery and the criminal liability arising from dishonoured cheques. The article aims to critically analyze this fine line between financial distress and criminal wrongdoing, and how it may act as a double-edged sword for corporate institutions. By examining prior precedents, weighing the advantages and limitations of the Court’s approach, and evaluating its consequences, the article seeks to understand the future course of litigation involving cheque dishonour proceedings during CIRP.