1 week ago
Bombay HC Says Insolvency Cannot Halt Company Cheque Trials
Several company directors asked the Bombay High Court to pause cheque-bounce criminal cases against them.
They said their personal insolvency proceedings should protect them from prosecution.
National Spot Exchange Limited argued that the unpaid money belonged to the companies, not the directors personally.
The court said directors can still face legal responsibility for how their companies handled the cheques.
It explained that a company’s debt and a director’s liability under the cheque law are separate issues.
The court said insolvency protections might affect collection of compensation from a director.
However, those protections do not stop the criminal trial.
The cases can therefore continue in the lower courts.
Some of the cases have already been pending for more than 10 years.
The Bombay High Court rejected directors’ requests to halt cheque-bounce trials during their personal insolvency proceedings.
Justice N. J. Jamadar held that company debts and directors’ personal liability under the Negotiable Instruments Act are separate.
The cases were filed by National Spot Exchange Limited over unpaid company dues totaling hundreds of crores.
The court said an interim moratorium under Section 96 of the Insolvency and Bankruptcy Code may affect compensation recovery, but not the criminal trial itself.
Trial courts may continue witness examination and final arguments, including in cases pending for more than 10 years.
- Who
- The Bombay High Court, Justice N. J. Jamadar, several company directors, and National Spot Exchange Limited.
- What
- The court ruled that directors’ personal insolvency proceedings do not automatically halt criminal cheque-bounce trials involving their companies.
- Where
- The ruling was issued by the Bombay High Court in Mumbai.
- When
- Justice N. J. Jamadar issued the ruling on August 18, 2026; the report is dated August 20, 2026.
- Why
- The court found that the companies’ debts and the directors’ personal liability under the Negotiable Instruments Act are distinct.
Directors’ Position
NSEL and Court’s Position
Effect of personal insolvency
Directors’ Position
The directors argued that proceedings under the Insolvency and Bankruptcy Code and the Section 96 interim moratorium should protect them from prosecution in the cheque-bounce cases.
NSEL and Court’s Position
National Spot Exchange Limited argued that the debt belonged to the companies, while the court held that directors’ liability under the Negotiable Instruments Act is separate and that the criminal trials can continue.
Scope of the moratorium
Directors’ Position
The directors sought a stay of the complaints, including the criminal proceedings connected with the unpaid cheques.
NSEL and Court’s Position
The court distinguished criminal trial proceedings from recovery of compensation, holding that the moratorium does not require the trial itself to be stayed.
Pending Supreme Court reference
Directors’ Position
The directors relied on a pending Supreme Court reference concerning insolvency proceedings and the compensation-related aspects of cheque-bounce cases.
NSEL and Court’s Position
The High Court said the reference did not require a stay and that existing Supreme Court rulings remained applicable unless changed.
Key facts
- Court
- Bombay High Court
- Judge
- Justice N. J. Jamadar
- Complainant
- National Spot Exchange Limited
- Legal issue
- Whether personal insolvency proceedings under Section 96 of the Insolvency and Bankruptcy Code stop cheque-bounce trials
- Court holding
- The criminal trials may continue despite the directors’ interim moratorium
- Compensation
- The moratorium may apply to recovery of compensation ordered against an individual director
- Example liability
- A Settlement Award required Mohan India Private Limited to pay Rs 771 crore in 13 instalments
Quotes
Justice NJ Jamadar
Judge of the Bombay High Court
“Therefore, the principal submission on behalf of the Applicants / Petitioners that the trial itself is required to be stayed during the currency of the interim moratorium under Section 96 of IBC does not find support, the court ruled.”
freepressjournal.in
“The debt in question is that of the corporate entity, the court said, holding that the liability of directors under the Negotiable Instruments Act is personal and can continue even when a moratorium applies to the company.”
freepressjournal.in
Sources
Related news
Delhi court sets aside summon order in cheque bounce case
Punjab and Haryana HC Keeps Woman in Cheque-Bounce Trial
Mumbai NCLT Admits Insolvency Proceedings Against Landmark Motels Default
NCLT Admits Bank of Maharashtra Insolvency Plea Against Tirumalla Storehouse
How Personal Guarantees Work Under India’s Insolvency Code
Delhi Court Sentences Naftogaz India MD Over TDS Default
Supreme Court Questions IPS Deputation for CAPF Leadership Positions
Supreme Court Quashes 20-Year Conviction, Reaffirms Juvenile Legal Protections
Two Years After RG Kar Doctor's Rape-Murder, Case Remains Unresolved
ED widens Chhattisgarh probes with two arrests and searches
Delhi High Court Orders Madhya Pradesh to Pay Advocate Dues
