Dineshchand Suranav.UCO Bank

Legal Analysis: Dineshchand Surana vs. UCO Bank

Citation: 2026 INSC 579
Court: Supreme Court of India
Bench: Division Bench comprising Justice J.B. Pardiwala & Justice K.V. Viswanathan 
Judgment Author: Justice J.B. Pardiwala
Date of Decision: May 27, 2026
Nature of Judgment: Criminal Appeals arising out of Special Leave Petitions (Crl.) against the judgment of the Madras High Court, which had held that moratorium provisions under Part‑III of the Insolvency and Bankruptcy Code, 2016 (IBC) do not apply to proceedings under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). The Supreme Court expressed disagreement with certain aspects of P. Mohanraj and referred the matter to a larger Bench.

Synopsis of the Judgment
The appellant, a former Managing Director of a company, was undergoing personal insolvency proceedings under Part‑III of the IBC. He sought quashing of a Section 138 complaint (cheque dishonour) pending against him, arguing that the interim moratorium under Section 96 IBC stayed all legal proceedings “in respect of any debt”, which should include Section 138 proceedings. The High Court dismissed his application, holding that Section 138 proceedings are criminal in nature and not mere recovery proceedings. The Supreme Court undertook a detailed analysis of the nature of Section 138 of the NI Act, its quasi‑criminal character, the distinction between fine and compensation, and the scope of moratorium provisions under Part‑III IBC. The Court held that Section 138 proceedings are predominantly criminal, not merely a “civil sheep in a criminal wolf’s clothing” as described in P. Mohanraj. However, the Court recognized that the compensatory aspect of Section 138 (Tier II) is civil in nature and should be subject to moratorium, while the criminal aspect (Tier I – imprisonment/fine) should not be stayed. The Court further held that directors vicariously liable under Section 141 of the NI Act are also entitled to the benefit of moratorium in respect of the compensatory liability when undergoing personal insolvency. Expressing disagreement with the three‑Judge Bench decision in P. Mohanraj on the characterization of Section 138, the Court referred the following questions to a larger Bench: (i) whether Section 138 is quasi‑criminal with a tilt towards the criminal side; and (ii) whether moratorium should apply to the entire proceedings or only to the compensatory aspect.

1. Basic Information of the Judgment

• Case Title: Dineshchand Surana vs. UCO Bank (with connected appeal)

• Criminal Appeal Nos.: Arising out of SLP (Crl.) No. 12135 of 2024 and SLP (Crl.) No. 12136 of 2024 (Leave granted)

• Bench: Justice J.B. Pardiwala &  Justice K.V. Viswanathan (Division Bench)

• Judgment Author: Justice J.B. Pardiwala

• Date of Decision: May 27, 2026

• Citation: 2026 INSC 579

• Appeal From: Judgment and order dated 18.10.2023 passed by the High Court of Judicature at Madras, dismissing the appellant’s application for quashing of a complaint under Section 138 of the NI Act on the ground that the moratorium under Section 96 IBC was not applicable.

2. Legal Framework

Laws and Provisions Involved:

• Negotiable Instruments Act, 1881 (NI Act): Section 138 (dishonour of cheque – offence, punishment of imprisonment up to two years, or fine up to twice the cheque amount, or both), Section 141 (offences by companies – vicarious liability of directors), Section 142 (cognizance of offences), Section 143‑A (interim compensation), Section 144 (service of summons), Section 145 (evidence by affidavit), Section 147 (compounding of offences), Section 148 (deposit pending appeal).

• Insolvency and Bankruptcy Code, 2016 (IBC): Part III (insolvency resolution and bankruptcy for individuals and partnership firms), Section 3(11) (definition of “debt”), Section 3(6) (definition of “claim”), Section 79(5) (definition of “bankruptcy debt”), Section 79(15) (definition of “excluded debt” – includes liability to pay fine, damages, etc.), Section 94 (application by debtor for insolvency), Section 95 (application by creditor), Section 96 (interim moratorium – stay of legal proceedings in respect of any debt), Section 100 (admission of application), Section 101 (moratorium after admission), Section 122 (bankruptcy application by debtor), Section 123 (bankruptcy application by creditor), Section 124 (interim moratorium in bankruptcy), Section 128 (effect of bankruptcy order – moratorium on actions against property).

• Code of Criminal Procedure, 1973 (CrPC) / Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS): Section 357 CrPC / Section 395 BNSS (order to pay compensation).

• Statement of Objects and Reasons of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988: Introduction of Sections 138 to 142 in the NI Act.

Key Precedents Cited and Applied:

• P. Mohanraj v. Shah Bros. Ispat (P) Ltd. (2021) 6 SCC 258 (Three‑Judge Bench) – Held that Section 138 is a “civil sheep in a criminal wolf’s clothing”, quasi‑criminal in nature; moratorium under Section 14 IBC applies to corporate debtor but natural persons continue to be liable under Section 141. The Court in the present case expressed disagreement with the characterization of Section 138 as predominantly civil.

• Ajay Kumar Radheshyam Goenka v. Tourism Finance Corporation of India Ltd. (2023) 10 SCC 545 – Section 138 proceedings are criminal in nature, not recovery proceedings; directors remain liable even after resolution plan for corporate debtor.

• Rakesh Bhanot v. Gurdas Agro Private Limited (2025) 6 SCC 781 – Moratorium under Part‑III IBC does not shield individuals from criminal prosecution under Section 138; the provision is deterrent and critical for trust in cheques.

• Bharat Mittal v. State of Rajasthan (2025 SCC OnLine SC 2856) – Compensatory provisions (Sections 143‑A and 148) should be applied to directors when the company cannot be prosecuted due to legal impediment; referred to larger Bench.

• Somnath Sarkar v. Utpal Basu Mallick (2013) 16 SCC 465 – Compensation under Section 357 CrPC must be paid out of the fine imposed; the outer limit of twice the cheque amount applies.

• R. Vijayan v. Baby (2012) 1 SCC 260 – Section 138 proceedings are not civil suits for recovery; the provision blends punitive and compensatory aims.

• Aneeta Hada v. Godfather Travels & Tours (P) Ltd. (2012) 5 SCC 661 – Directors can be prosecuted even if company cannot be proceeded against due to legal impediment (lex non cogit ad impossibilia).

• Dilip B. Jiwrajka v. Union of India (2024) 5 SCC 435 – Moratorium under Section 96 IBC is protective and operates “in respect of any debt”, unlike Section 14 which operates against the corporate debtor.

• Rajendra Bhagwanji Umraniya v. State of Gujarat (2024 SCC OnLine SC 927) – Compensation cannot substitute for punishment; fine and compensation stand on different footings.

• Saranga Anilkumar Aggarwal v. Bhavesh Dhirajjal Sheth (2025) 4 SCC 629 – Penalties and fines are excluded from the definition of “debt” under Section 79(15) IBC; regulatory punitive actions are not protected by moratorium.

What the Judgment is About: The judgment examines the conflict between the deterrent object of Section 138 of the NI Act (which criminalises cheque dishonour) and the protective object of the moratorium provisions under Part‑III of the IBC (which stay legal proceedings in respect of debts during personal insolvency). The Court holds that Section 138 proceedings are predominantly criminal and therefore the criminal aspect (punishment of imprisonment/fine) is not subject to moratorium; however, the compensatory aspect (recovery of the cheque amount by way of compensation under Section 395 BNSS) is civil in nature and should be stayed during insolvency. The Court disagrees with the three‑Judge Bench’s description of Section 138 as a “civil sheep in a criminal wolf’s clothing” and refers the matter to a larger Bench for an authoritative pronouncement.

3. Relevant Facts

• The appellant was the former Managing Director of M/s. Surana Power Ltd. (SPL). SPL availed financial facilities from the respondent bank, including an Irrevocable Letter of Credit for Rs.5,03,21,250/- issued on 26.12.2014.

• The appellant provided a blank cheque as security. Upon the letter of credit being invoked, the appellant issued a cheque dated 26.03.2015 to clear the dues. The cheque was dishonoured on 18.06.2015 with the endorsement “Funds Insufficient”.

• The respondent issued a statutory notice under Section 138 on 23.06.2015. On failure of payment, a complaint (C.C. No.3645 of 2015) was filed before the XIV Metropolitan Magistrate, Egmore, Chennai.

• On 24.10.2018, the appellant filed a quashing petition before the Madras High Court (Criminal OP No.24740/2019), which was dismissed.

• On 15.02.2022, the NCLT, Chennai admitted an insolvency application against the appellant under Section 95 IBC, triggering the interim moratorium under Section 96 IBC.

• On 09.08.2023, the appellant filed another application before the High Court seeking quashing of the Section 138 complaint on the ground of moratorium. The High Court dismissed the same on 18.10.2023, holding that Section 138 proceedings are criminal and not covered by moratorium.

• Subsequently, on 30.08.2024, the NCLT admitted the personal insolvency application and triggered moratorium under Section 101 IBC. On 03.01.2025, the NCLT closed the insolvency proceedings and granted liberty to file bankruptcy. A bankruptcy order was passed on 12.11.2025, triggering moratorium under Section 128 IBC.

• The appellant appealed to the Supreme Court. The Supreme Court, after extensive analysis, referred the matter to a larger Bench.

4. Issues

1. Whether the proceedings under Section 138 of the NI Act are in the nature of legal action for recovery of money (civil) or are predominantly criminal.

2. Whether the moratorium provisions under Part‑III of the IBC (Sections 96, 101, 124 and 128) protect proceedings under Section 138 of the NI Act during personal insolvency or bankruptcy of the drawer.

3. Whether directors or other persons vicariously liable under Section 141 of the NI Act, who are themselves undergoing personal insolvency, are entitled to the benefit of the moratorium in respect of Section 138 proceedings against them.

4. Whether the description of Section 138 proceedings as a “civil sheep in a criminal wolf’s clothing” in P. Mohanraj (three‑Judge Bench) is correct in light of the legislative intent and the criminal nature of the provision.

5. Ratio Decidendi

A. Section 138 of the NI Act is predominantly criminal in nature, not a “civil sheep in a criminal wolf’s clothing” (Paras 48-128).

The Court undertook a detailed analysis of the deeming fiction in Section 138, the Statement of Objects and Reasons, the stage of commission of the offence, the distinction between fine and compensation, and the quasi‑criminal nature recognized in earlier decisions. It held that the three‑Judge Bench in P. Mohanraj had focused on procedural departures (e.g., service of summons, affidavit evidence, compounding) but did not adequately consider that the legislature deliberately attached criminal consequences to the act of dishonour to deter the practice and maintain credibility of cheques. The punishment of imprisonment (without any fine) and the exclusion of “fine” from “debt” under Section 79(15) IBC indicate that the provision is primarily punitive. The compensatory aspect is discretionary and flows from Section 395 BNSS, not from Section 138 itself. Therefore, Section 138 proceedings cannot be equated with a civil recovery suit.

B. The moratorium under Part‑III IBC does not apply to the criminal aspect (Tier I) but applies to the compensatory aspect (Tier II) of Section 138 proceedings (Paras 129-158).

The Court distinguished between Tier I (conviction and punishment – imprisonment, fine, or both) which is mandatory and criminal, and Tier II (order of compensation under Section 395 BNSS) which is discretionary and civil in nature. The criminal aspect is not stayed because:

• Section 79(15) IBC excludes “liability to pay fine” from the definition of “debt” – fines are “excluded debts” and not subject to moratorium.

• The deterrent object of Section 138 would be defeated if an insolvent debtor could evade punishment merely by filing an insolvency application.

• Allowing moratorium on the criminal aspect would render the provision toothless and undermine commercial trust in cheques.

However, the compensatory aspect (payment of the cheque amount as compensation) is civil in nature and should be stayed during insolvency to prevent depletion of the debtor’s assets and to give breathing space for resolution. Differential treatment of debts payable by cheque versus other modes would be unjust, so the compensation recovery must be subject to the same moratorium as other civil debts.

C. Directors vicariously liable under Section 141 are entitled to the benefit of moratorium in respect of the compensatory liability when undergoing personal insolvency (Paras 159-193).

The Court held that the expression “any debt” in Sections 96 and 101 IBC is wide enough to include debts that are not personally incurred by the director but have become his liability by virtue of Section 141 (when the company cannot be prosecuted due to a legal impediment). The moratorium stays legal proceedings “in respect of any debt” – not limited to debts that the debtor personally contracted. Therefore, during personal insolvency of a director, the recovery of compensation (not the punishment) under Section 138 should be stayed. The criminal liability of the director (imprisonment or fine) remains unaffected. The Court also contrasted the language of Sections 96/101 (“any debt”) with Sections 124/128 (“any of his debts” or “bankruptcy debt”) and explained that the protective scope is wider at the insolvency stage than at the bankruptcy stage.

D. The matter involves substantial questions of law requiring an authoritative pronouncement by a larger Bench (Paras 210-212).

Given the divergence between the three‑Judge Bench decision in P. Mohanraj (which described Section 138 as quasi‑criminal with civil predominance) and the present Bench’s analysis (which holds that Section 138 is predominantly criminal), and the practical importance of the issue for thousands of pending cheque bounce cases and insolvency proceedings, the Court referred the following two questions to a larger Bench:

(i) Whether the provisions of Section 138 of the NI Act and the objective underlying the enactment thereof indicate that it is quasi‑criminal in nature with a tilt towards the criminal side?

(ii) Whether the moratorium provisions under Part‑III of the IBC should be made applicable to the entire proceedings under Section 138 of the NI Act or only to the compensatory aspect thereof?

6. New Legal Principles Established / Reiterated

• Distinction between “fine” and “compensation” in Section 138 proceedings: The Court reiterated that fine is punishment; compensation is reparation. Fine is imposed under Section 138 and can be ordered to be paid as compensation under Section 395 BNSS, but the outer limit of twice the cheque amount applies to compensation as well (following Somnath Sarkar). However, the power to order compensation does not convert the criminal proceeding into a civil suit.

• Tiered understanding of Section 138: The Court proposed a bifurcation: Tier I (criminal – conviction and punishment) and Tier II (discretionary – compensation). This distinction is crucial for applying moratorium provisions under the IBC.

• Applicability of moratorium to directors: Directors undergoing personal insolvency are entitled to stay of compensation recovery under Section 138, even if the liability originally belonged to the company, because “any debt” in Sections 96/101 includes debts that have become payable by the director by operation of law.

• Excluded debts under Section 79(15) IBC: Liability to pay fine is excluded from the definition of “debt” and therefore cannot be the subject of moratorium. This statutory exclusion supports the conclusion that the criminal aspect (fine) is not protected.

• Conflict between NI Act and IBC to be resolved by balancing objectives: The Court held that the two statutes serve different purposes – one promotes commercial credibility through deterrence, the other provides a fresh start to insolvent individuals. A balanced approach (staying compensation but not punishment) best serves both objectives.

7. Court’s Examination and Analysis of Concepts

• Analysis of the deeming fiction in Section 138 (Paras 48-52): The Court noted that the word “deemed” creates a legal fiction, converting a civil wrong (non-payment of debt via cheque) into a criminal offence. However, the fiction must be given full effect; it cannot be ignored to treat the provision as civil.

• Comparison of notices under Section 93 and Section 138(b) (Paras 85-87): The Court distinguished the civil notice of dishonour under Section 93 (which informs parties of liability) from the statutory demand notice under Section 138(b) (which offers an opportunity to avoid criminal prosecution). This distinction underscores the criminal character of Section 138.

• Distinction between fine and compensation (Paras 82-100): The Court examined Sections 117 (compensation under NI Act), 138 (fine), and 395 BNSS (compensation). It held that compensation is not an inherent part of Section 138; it is awarded under the general criminal procedure code. Therefore, the criminal punishment (fine/imprisonment) remains the core of the provision.

• Co‑existence of civil suit and Section 138 complaint (Paras 101-110): The Court noted that a civil suit for recovery of the cheque amount is maintainable alongside a Section 138 complaint. This confirms that Section 138 is not a substitute for a civil remedy; it is an additional penal mechanism.

• Interpretation of “any debt” in Sections 96 and 101 IBC (Paras 177-193): The Court contrasted “any debt” (wide) with “any of his debts” (narrower) appearing in Section 124 IBC. It concluded that the insolvency‑stage moratorium protects legal proceedings in respect of any debt that the debtor may be called upon to pay, even if not personally incurred, while the bankruptcy‑stage moratorium protects only actions against property in respect of the debtor’s own debts.

• Application of moratorium to directors (Paras 168-176): Relying on Aneeta Hada and Ajay Kumar Radheshyam Goenka, the Court affirmed that directors remain personally liable under Section 141 even when the company is protected by a legal impediment. That personal liability includes both criminal punishment and, where ordered, compensation. The compensation part, being civil, is subject to moratorium.

8. Critical Analysis

Strengths: The judgment is a masterful and nuanced analysis of two important economic legislations – the NI Act and the IBC. It correctly identifies that the three‑Judge Bench in P. Mohanraj may have over‑emphasised the procedural civil‑like features of Section 138 while downplaying its punitive core. By distinguishing between fine (punishment) and compensation (reparation), the Court provides a workable framework to resolve the conflict: the deterrent purpose of Section 138 is preserved (criminal prosecution continues), while the insolvent debtor gets breathing space from debt enforcement (compensation recovery is stayed). The interpretation of “any debt” to include vicarious liability of directors is practical and prevents abuse. The referral to a larger Bench is appropriate given the importance of the issue and the perceived divergence from P. Mohanraj.

Potential concerns: The judgment does not finally answer the referred questions; the matter remains pending before a larger Bench. Until then, there is uncertainty for litigants and lower courts. The distinction between Tier I and Tier II, though logical, may be difficult to implement in practice because the same trial proceedings determine both conviction and compensation. Moreover, the Court’s statement that compensation can be ordered only out of fine (following Somnath Sarkar) may be contested in light of the 2002 amendment introducing Section 357(3) CrPC (now Section 395(3) BNSS), which allows compensation even without fine. The judgment acknowledges this but does not resolve it. Another concern is that the Court expressed strong disagreement with a three‑Judge Bench decision (P. Mohanraj) but being a two‑Judge Bench, it could not overrule it; the referral is the correct course. However, the language used (“the attention of the three‑Judge Bench was not drawn to …”) may be seen as unnecessary criticism.

Practical impact: Until the larger Bench decides, the legal position remains unsettled. Lower courts will have to follow P. Mohanraj (which held Section 138 to be quasi‑criminal and subject to moratorium for firms but not for corporate debtors? Actually P. Mohanraj dealt with Section 14 IBC, not Part III). This judgment provides persuasive reasoning that may be cited to argue that at least the compensatory aspect should be stayed. The referral also signals that the Supreme Court is likely to clarify that Section 138 proceedings are predominantly criminal and not to be stayed entirely. For insolvency professionals and creditors, the judgment highlights the need to differentiate between the punitive and compensatory parts of a cheque bounce case.

9. Final Outcome

• The appeals were not finally disposed of. The judgment referred the matter to a larger Bench.

• The Division Bench expressed its disagreement with the description of Section 138 of the NI Act as a “civil sheep in a criminal wolf’s clothing” and held that the provision is predominantly criminal.

• The Court directed the Registry to place the matters before the Hon’ble Chief Justice of India for constitution of an appropriate three‑Judge Bench to consider the following questions:(i) Whether the provisions of Section 138 of the NI Act and the objective underlying the enactment thereof indicate that it is quasi‑criminal in nature with a tilt towards the criminal side?(ii) Whether the moratorium provisions under Part‑III of the IBC should be made applicable to the entire proceedings under Section 138 of the NI Act or only to the compensatory aspect thereof?

• The interim protection granted earlier (stay of execution of death sentence? – no, that was in another case) – actually the Court had earlier stayed the proceedings? The judgment does not specify any interim order pending reference.

10. Practical Application

• For a debtor undergoing personal insolvency facing a Section 138 complaint: Argue that at least the compensatory aspect (recovery of the cheque amount as compensation) should be stayed under Sections 96/101 IBC. Distinguish between the criminal punishment (fine/imprisonment) which may continue, and the civil compensation which should be stayed to give breathing space. If you are a director of a company that cannot be prosecuted (e.g., in liquidation), argue that “any debt” in Section 96 includes the liability that has fallen on you by operation of Section 141 NI Act.

• For a creditor (payee) in a Section 138 complaint against an insolvent individual: Argue that Section 138 proceedings are criminal, not “legal proceedings in respect of any debt”, because the core of the offence is the act of dishonour, not the recovery of money. Rely on the Statement of Objects and Reasons and the fact that the punishment includes imprisonment. Cite Rakesh Bhanot and the present judgment’s analysis that the criminal aspect is not subject to moratorium. However, be aware that the compensation order may be stayed; you may need to file a separate civil suit for recovery, which will also be stayed during moratorium.

• For a director of a company that is in liquidation or CIRP, who is also undergoing personal insolvency: Argue that the moratorium under Sections 96/101 stays the recovery of compensation from you, but your criminal liability (fine/imprisonment) remains. If the court orders compensation, its enforcement should be stayed until the insolvency resolution process is complete or the bankruptcy order is passed. You cannot be imprisoned for non‑payment of compensation (as imprisonment is a separate sentence for the offence).

• For a trial court judge dealing with a Section 138 complaint where the accused has filed for personal insolvency: First, determine whether the accused has obtained an order of moratorium under Section 96 or 101 IBC. If yes, you may proceed with the criminal trial (examine witnesses, record evidence) because the criminal aspect is not stayed. However, if you reach the stage of sentencing and consider ordering compensation, you should stay the enforcement (recovery) of the compensation amount pending the insolvency proceedings. The sentence of imprisonment or fine (without compensation direction) can be executed. If the IBC resolution plan discharges the debt, you may take that into account while determining compensation.

11.  Court Lines

• “The word ‘deemed’ holds some significance in the scheme of the provision for the reason that it gives rise to a legal fiction. The deeming provision indicates that the nature of the proceedings under Section 138 per se is civil as it arises from a transaction of a civil nature. Therefore, had it not been for the legislation of the deeming fiction by way of Section 138, the dishonour of cheque could not have constituted a criminal offence.” (Para 48)

• “The Legislature recognized that strict liability imposed under Section 138 may cause undue harassment to such drawers who may intend to discharge their debt but are unable to do so via a cheque due to temporary shortage of funds… It is for this reason that additional conditions apart from the commission of the offence, are required to be met for prosecution under Section 138.” (Para 59)

• “The offence of dishonour of cheque under Section 138 of the NI Act fulfils the requirements of a compoundable offence. The reason as to why some offences are compoundable and others are not, depends on two considerations: (i) the public interest; and (ii) the seriousness of the offence.” (Para 70)

• “We have no qualms in saying that the language of clause (b) of Section 138 indicates that the statutory notice is for the purpose of demanding the amount of money for which the cheque was drawn. The said notice serves as the first expression of a dispute as regards the payment of money and offers the drawer an opportunity to absolve himself of criminal liability by paying the demanded amount.” (Para 87(e))

• “The punishment of ‘fine’ provided under Section 138 cannot be treated as a compensatory provision per se. The fine amount is payable as compensation only in cases where the courts exercise their discretion under Section 357(1) of the CrPC (Section 395(1) of the BNSS).” (Para 96)

• “In our considered view, the reasoning adopted by the three‑Judge Bench in P. Mohanraj (supra) for calling Section 138 of the NI Act a ‘civil sheep in criminal wolf’s clothing’ is based primarily on how the proceedings under Section 138 come to be prosecuted. While we agree that the procedure for the prosecution of the offence of cheque dishonour makes a departure from the procedure ordinarily followed under the CrPC, yet such difference, in our opinion, is only because cheque dishonour has been statutorily designated as a criminal offence.” (Para 122)

• “The criminal aspect of Section 138 proceedings results in punishment including imprisonment, fine or both. This makes it sufficiently clear that moratorium provisions under Part III of the IBC cannot be made applicable on the criminal impact of Section 138 of the NI Act. We have said so because Section 79(15) of the IBC which defines ‘excluded debts’ has excluded the ‘liability to pay fine’ from debts in respect of which legal actions and proceedings are stayed by the operation of moratorium.” (Para 201)

• “The expression ‘any debt’ appearing in Sections 96 and 101 IBC is so wide as to include debts other than the personal debts of the director. There is no gainsaying that in the absence of payment by the corporate debtor, which is not a party to the complaint under Section 138 of the NI Act because of some legal snag, the onus to repay the said debt falls onto the director(s) of the corporate debtor.” (Para 186)

12. Legal Strategy Insight

• For a debtor facing a Section 138 complaint while undergoing personal insolvency: Immediately file an application before the trial court under Section 96 IBC (if the insolvency application is pending admission) or under Section 101 IBC (if admitted), seeking a stay only on the enforcement of any compensation order that may be passed. Do not seek a stay of the entire criminal trial – that is unlikely to be granted. Instead, request the court to record that the criminal trial may proceed but any monetary recovery (compensation) shall be stayed pending insolvency resolution. Also, if you are a director of a company in liquidation, argue that the debt (cheque amount) is not your personal debt but has become payable by you only vicariously; nonetheless, “any debt” under Section 96 includes such liability.

• For a creditor (complainant) in a Section 138 case against an insolvent individual: Oppose any application for stay of the criminal trial. Argue that the criminal aspect (punishment) is not subject to moratorium; the accused cannot escape imprisonment or fine. If the court orders a stay of compensation recovery, ask the court to at least proceed with the trial and record a finding of guilt, leaving the compensation part to be enforced after insolvency proceedings are complete. Also, consider filing a separate civil suit for recovery of the cheque amount – that civil suit will be stayed, but it will preserve your claim in the insolvency process.

• For a legal practitioner advising on the interplay between IBC and NI Act: Carefully document the stage of the Section 138 proceedings. If the complaint is at an early stage (summons, evidence), the moratorium is less likely to affect it because no compensation has been ordered yet. If a conviction has been passed and compensation has been ordered, the enforcement of that compensation order should be stayed. However, the sentence of imprisonment (if any) cannot be stayed – the accused may have to serve the sentence or apply for suspension of sentence on other grounds. Also, note that the IBC does not bar the filing of a fresh Section 138 complaint after the moratorium period is over, unless the debt has been discharged in the resolution plan.

• For a trial court judge: When an accused produces an order of admission of insolvency under Section 100 IBC or an order of moratorium under Section 101 IBC, you cannot stay the criminal trial merely on that ground. You may proceed with the trial, record evidence, and hear arguments. At the stage of sentencing, you may impose a sentence of imprisonment without fine, or impose a fine but order its immediate execution (as fine is an excluded debt under Section 79(15) IBC). However, if you intend to order compensation out of the fine, the recovery of that compensation may be stayed. To avoid complications, you may consider imposing a fine and separately directing compensation under Section 395(3) BNSS (without linking it to fine), but note the outer limit issue. The safest approach is to complete the trial, convict the accused, and then adjourn the matter for arguments on sentence, giving the insolvency proceedings time to conclude.