Section 138 Cheque Cases and Suits during IBC Moratorium

Creditors of a company in a CIRP often have suits and cheque cases already running. Questions ask which of these stop, which continue, and against whom. The answer depends on three distinctions: the company versus its directors, proceedings against the company versus proceedings by it, and offences complete before the insolvency versus those whose cause of action arose after the interim resolution professional took control.

1. The Law in Brief

• Section 14(1)(a). Bars the institution and continuation of suits and proceedings against the corporate debtor, including execution of decrees.
• Section 138 cases. Are proceedings against the company within section 14(1)(a), but directors and signatories liable under section 141 are not protected (P. Mohanraj, 2021)
• Section 32A. After a plan is approved and control changes, the company is not liable for offences committed before the CIRP, but its former officers remain liable (second proviso to section 32A(1); Topic 46)
• Section 60(6). In computing limitation for suits or applications by or against the corporate debtor, the moratorium period is excluded.

Figure 1: Civil proceedings during the moratorium

2. What Happens to Pending Suits during the Moratorium?

• Issue. The effect of the moratorium on suits by and against the corporate debtor, and on limitation for the debtor's claims.
• Law. Section 14(1)(a) bars continuation of pending suits against the corporate debtor, including pronouncement of judgment and execution. Suits by the corporate debtor are not barred, as the moratorium protects the debtor. Section 60(6) excludes the moratorium period in computing limitation for suits or applications by or against the corporate debtor.
• Application. The supplier's suit is against BC Ltd and must stop at whatever stage it has reached. BC Ltd's suit against the customer may continue through the resolution professional. The distributor claim, due to expire in July 2026, gets the benefit of the exclusion of the moratorium period.
• Conclusion. The supplier's suit is stayed, and it must file its claim in the CIRP. BC Ltd's suit continues. The resolution professional may still sue the distributor, as the period from May 2026 is excluded, but should act promptly.

3. Does the Moratorium Stop Section 138 Cases against Directors?

• Issue. Whether the moratorium bars section 138 proceedings against the corporate debtor and its directors.
• Law. In P. Mohanraj v Shah Brothers Ispat (2021), the Supreme Court held that section 138 proceedings are a civil sanction in criminal garb and are proceedings against the corporate debtor covered by section 14(1)(a), so they cannot continue against the company during the moratorium. The moratorium protects only the corporate debtor, so persons liable under section 141 may continue to be prosecuted.
• Application. The offence was complete in January 2026, before the CIRP. DE Ltd is the corporate debtor; Mr H and the other directors are natural persons in charge of its business.
• Conclusion. The complaint is stayed against DE Ltd but continues against Mr H and the other directors. FG Ltd should also file its claim for ₹50 lakh in the CIRP.

Figure 2: Section 138 liability of the company and its directors

4. Does a Resolution Plan End Directors' Cheque Liability?

• Issue. Whether approval of a resolution plan ends section 138 liability of the company and its former directors.
• Law. Section 32A(1) provides that the corporate debtor shall not be liable for an offence committed before the commencement of the CIRP once the plan is approved and control passes to persons who were not its promoters or connected with them; its second proviso preserves the liability of every person who was in charge of the company's business. In Ajay Kumar Radheyshyam Goenka v Tourism Finance Corporation (2023), the Supreme Court held that directors cannot escape section 138 liability because the company has been resolved or dissolved.
• Application. The offence was committed in January 2026, before the CIRP, and control has passed to an unconnected investor. Mr H was the managing director who signed the cheque.
• Conclusion. DE Ltd is immune under section 32A and the complaint against it ends. The prosecution of Mr H and the other directors continues, though the court may take into account amounts paid under the plan when deciding compensation.

5. Is a Director Liable for a Cheque Dishonoured after Admission?

• Issue. Whether a suspended director is liable under section 138 where the cause of action arose after the interim resolution professional took control.
• Law. The offence under section 138 is complete only when the drawer fails to pay within fifteen days of the notice. On admission, the powers of the board are suspended and vest in the interim resolution professional (section 17). In Vishnoo Mittal v Shakti Trading (2025), the Supreme Court quashed summons against a director where the notice period expired after the interim resolution professional took control, since the director could not have made payment from the company's accounts.
• Application. The dishonour, notice and expiry of fifteen days all occurred after 1 March 2026, when Mr J had lost control of KL Ltd's accounts. P. Mohanraj does not apply, because there the offence was complete before the moratorium.
• Conclusion. The complaint against Mr J should be quashed. MN Ltd's remedy is to file its claim in the CIRP.

6. Frequently Asked Questions

Does section 32A protect the company if control passes back to its old promoters?

No. The immunity applies only where control passes to persons who were not promoters or in management of the corporate debtor, or their related parties, and who were not involved in the offence.

Can a decree obtained before the CIRP be executed during it?

No. Execution of any judgment or decree against the corporate debtor is barred by section 14(1)(a); the decree holder files a claim.

Is a dishonoured cheque useful evidence in a section 9 application?

Yes, it is strong evidence of a debt and default, though the debtor may still show a pre-existing dispute.

7. Related Topics

• Topic 78: IBC and Section 138 NI Act. Cheque dishonour in insolvency.
• Topic 46: Section 32A. Immunity for the corporate debtor.
• Topic 109: CoC Constitution under IBC. Constituting the CoC.