7 October 2025 Legal Updates

PRIOR IBC PROCEEDINGS DON'T BAR CRIMINAL PROSECUTION OF DIRECTORS UNDER S. 138 NEGOTIABLE INSTRUMENTS ACT: BOMBAY HIGH COURT

(a) Case Title:

• Ortho Relief Hospital and Research Centre v. M/s. Anand Distilleries & Ors.

(b) Court:

• High Court of Judicature at Bombay, Nagpur Bench

(c) Date of Decision:

• October 01, 2025

(d) Bench:

• Justice M.M. Nerlikar

Facts of the Case

• The petitioner (Ortho Relief Hospital) extended a short-term loan of Rs. 15 lakhs in October 2015 to respondents 2 and 3 (Directors of Anand Distilleries) through Deep Aditi Multi Services Pvt. Ltd. A post-dated cheque for Rs. 15 lakhs was issued as security, signed by respondent no. 2 as Director and Authorized Signatory. The respondents initially paid interest at 18% p.a. but stopped payments after January 2018.
• In February 2018, insolvency proceedings were initiated against the company by Punjab National Bank under the Insolvency and Bankruptcy Code, 2016 (IB Code), and NCLT admitted the petition on 14.02.2018, appointing an Interim Resolution Professional. The petitioner lodged his claim before the IRP but received no communication. On the assurance of the Directors, the petitioner presented the cheque, which was dishonoured on 14.12.2018 with the remark "insufficient funds." A legal notice was issued on 05.01.2019, and a complaint under Section 138 of the Negotiable Instruments Act, 1881 was filed on 18.02.2019.
• The respondents filed an application seeking discharge from proceedings under Section 138, which was allowed by the Trial Court on 31.01.2025, discharging accused nos. 2 and 3.

Issue Before the Court

Whether prior initiation of proceedings under the IB Code would frustrate the claim of the petitioner under Section 138 of the NI Act?

• Petitioner's Arguments: Proceedings under Section 138 of the NI Act and the IB Code are distinct and operate in different spheres. The NI Act provisions are penal in nature, not recovery-oriented, so IB Code proceedings do not affect Section 138 proceedings. Approval of a resolution plan under Section 31 of the IB Code does not absolve respondents from penal action under Section 138. The liability of respondent no. 2 is in his personal capacity, and since liquidation order was passed, the moratorium period ended.
• Respondents' Arguments: IB Code proceedings were initiated much prior to Section 138 proceedings. Moratorium was imposed on 14.02.2018, and the cheque was dishonoured on 14.12.2018, with the complaint filed on 18.02.2019. Section 14 of the IB Code bars institution of suits or proceedings against a corporate debtor once moratorium is declared. The petitioner had also lodged a claim before the IRP, making Section 138 proceedings untenable in such circumstances.

Court's Reasoning and Judgment

The Court held that the moratorium provision in Section 14 of the IB Code applies only to the corporate debtor, while natural persons mentioned in Section 141 continue to be statutorily liable under Chapter XVII of the NI Act. The scope and nature of proceedings under these two Acts are quite different and do not intercede with each other. Section 138 proceedings are not recovery proceedings but are penal in nature.

Key Legal Principles Established

• Section 138 NI Act proceedings are not recovery proceedings
• Directors of a Company remain liable under Section 138, even if the Company's debt is resolved under the IB Code
• A resolution plan approved under the IB Code does not automatically extinguish criminal liability of Directors under Section 138
• Section 138 proceedings are penal in nature, aimed at maintaining integrity of commercial transactions
• Section 32A protects the corporate debtor, but not individuals responsible for the Company's conduct
• The IB Code and NI Act serve different purposes and do not conflict with each other

The Court held that it makes no difference whether proceedings are initiated prior to or after initiation of IB Code proceedings. Natural persons cannot escape from their personal liability under Section 138 of the NI Act. Section 138 proceedings in relation to signatories covered by the two provisos to Section 32A(1) will continue in accordance with law.

Decision

The High Court allowed the writ petition and quashed the Trial Court's order dated 31.01.2025 that had discharged accused nos. 2 and 3 from the offence punishable under Section 138 of the Negotiable Instruments Act, 1881. The stay application filed by respondents was also rejected.

SEPARATE PROPERTY ACQUIRED BY MITAKSHARA HINDU WHO DIED BEFORE 1956 COMPLETELY DEVOLVES UPON SON: KERALA HIGH COURT

(a) Case Title:

• Sivananda Prabhu & Ors. v. S.N. Govinda Prabhu & Brothers & Ors.

(b) Court:

• High Court of Kerala at Ernakulam

(c) Date of Decision:

• September 29, 2025

(d) Bench:

• Justice Sathish Ninan and Justice P. Krishna Kumar

Facts

Rama Pai owned 2.15 acres of self-acquired land in Kodungallur Village. He had two children: Yasodamma (daughter) and Hari Pai (son). Rama Pai died in 1950 (before the Hindu Succession Act, 1956 came into force). The family was governed by Mitakshara law.

In 1965, Hari Pai along with his wife and children sold the property to defendants 1-3 through a registered sale deed. Plaintiffs (legal heirs of Yasodamma) filed a partition suit claiming half share in the property.

• Plaintiffs' Contentions: Since the property was self-acquired, it should devolve equally on both children (son and daughter). Being Yasodamma's heirs, they were entitled to half share. Hindu Succession Act, 1956 (as amended in 2005) should apply.
• Defendants' Contentions: Rama Pai died before 1956. Under pristine Mitakshara law, separate property devolved solely on the male heir. The sale deed by Hari Pai was valid as he was the absolute owner.
• Legal Issue: Upon whom does the separate property of a person governed by Mitakshara law devolve if he died before the commencement of the Hindu Succession Act, 1956?

Court's Analysis

1. Applicability of Hindu Law of Inheritance (Amendment) Act, 1929

• The Court examined whether this Act gave daughters equal rights with sons. Held that the 1929 Act only introduced certain female heirs (son's daughter, daughter's daughter, sister, sister's son) in the order of succession after father's father. It did not modify fundamental concepts of Shastric Hindu law or give daughters equal status with sons. The Act was not applicable to the present case.

2. Mitakshara Law Before 1956

• Self-acquired property descended to male issue; only in default of male issue would it pass to others. Under pristine Mitakshara law, wife or daughter inherited separate property only if the deceased died without a male child.

3. Order of Succession Under Old Law

The Court noted the traditional order:

• Son, grandson, great-grandson
• Widow
• Predeceased son's widow
• Daughter (only at 5th position)

Judgment

Appeal dismissed. The trial court's finding that the property was not partible was upheld. Since Rama Pai died before 1956, his self-acquired property devolved entirely upon his son, Hari Pai. Daughter Yasodamma had no share in the property. Hari Pai's sale deed was valid and binding.