Supreme Court to Assess IBC Impact on Cheque Dishonour Cases

The Supreme Court of India has referred the question of whether the IBC's moratorium halts cheque bounce proceedings to a three-judge bench. This crucial move involves assessing if such cases, entailing director liability, are paused during insolvency to ensure fair treatment to creditors.

The Supreme Court has escalated to a three-judge bench the crucial issue of whether the Insolvency and Bankruptcy Code's (IBC) moratorium will also apply to cheque bounce proceedings. This decision could affect how financial recovery cases against insolvent firms are handled.

In its judgment, the bench, including Justices J B Pardiwala and K V Viswanathan, asked the larger bench to consider if the entire trial of cheque dishonour cases or just the recovery of compensation should be suspended under the IBC moratorium. The court also seeks clarification on whether Section 138 of the Negotiable Instruments Act, under which these cases are filed, is of a quasi-criminal nature.

This deliberation stems from the need to balance asset protection during insolvency with preventing the evasion of legal liabilities tied to cheque dishonours. The case in reference, 'Dineshchand Surana vs UCO Bank,' questions if individuals in personal insolvency can avoid criminal trials under the existing law.

The court previously described cheque bounce proceedings as predominantly civil, designed to secure financial recovery. However, Justice Pardiwala argued the necessity of retaining the criminal undertone to uphold trust in transactions. The resolution of these queries could redefine enforcement practices during insolvency.