Filing for individual insolvency will not stall criminal proceedings for cheque bounce, rules Delhi High Court.

The petitioner filed a complaint under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) following the dishonor of four cheques totaling ₹20 lakhs, which were issued to repay a friendly loan.

During the proceedings, the parties settled for ₹20 lakhs; however, the respondent defaulted after paying ₹13.50 lakhs.

The Metropolitan Magistrate initially ordered the recovery of the balance as a fine via land revenue arrears.

Subsequently, on November 17, 2022, the Trial Court stayed the criminal proceedings, citing an interim moratorium initiated against the respondent under Section 96 of the Insolvency and Bankruptcy Code, 2016 (IBC) by the NCLT.

The petitioner challenged this stay order before the High Court.

1. Whether an interim moratorium under Section 96 of the IBC operates as a bar or stay on criminal proceedings initiated under Section 138 of the NI Act.

Section 96 of the Insolvency and Bankruptcy Code, 2016, which mandates an interim moratorium on "legal action or proceedings in respect of any debt" upon the filing of an insolvency application.

The precedent established by the Supreme Court in Rakesh Bhanot v. Gurdas Agro (P) Ltd. (2025), which clarified that the moratorium provisions of the IBC are intended to postpone civil debt recovery and do not encompass criminal prosecutions intended to maintain commercial discipline.

The court examined whether the statutory stay on "proceedings in respect of any debt" under Section 96 of the IBC extends to the penal nature of the NI Act.

Relying on the Rakesh Bhanot ruling, the court reasoned that Section 138 proceedings are criminal in nature and serve a deterrent purpose to preserve the integrity of negotiable instruments.

The court found that the objects of the IBC and the NI Act operate in distinct fields; while the IBC manages insolvency and civil liability, personal criminal responsibility for dishonored cheques persists regardless of the insolvency outcome.

The court found that the Trial Court’s reliance on the NCLT’s moratorium order to halt a criminal trial was a legal error.

The High Court set aside the impugned order dated November 17, 2022, and restored the complaint proceedings to the Trial Court's file, directing it to proceed in accordance with the law.