Cheque Bouncing vs Insolvency – Whether Moratorium Is A Boon Or Curse?

Background

On 1^st March 2021, a three-judge bench of Hon'ble Supreme Court, in P. Mohanraj & Ors. vs M/s Shah Bros Ispat Ltd¹, adjudicated on an important issue which arose in the said appeal. The question was whether the institution or continuation of a proceeding of dishonour of cheque against companies² under the provisions of Negotiable Instruments Act, 1888 ("NI Act") can be said to fall within the ambit of moratorium provision of the Insolvency and Bankruptcy Code, 2016³ ("Code").The Supreme Court ruled that when an order of moratorium is in force under the Code, a parallel proceeding under Section 138 or 141 of the NI Act against a corporate debtor cannot be allowed to continue because the same shall fall under the relief of Section 14(1)(a) of the Code.