P. MOHANRAJ & ORS. versus M/S. SHAH BROTHERS ISPAT PVT. LTD.

Citation: [2021] 14 S.C.R. 204 · Decided: 01-03-2021 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Disposed off

Cited by 3 judgment(s) · cites 32 · see the full citation network in Lexace

Judgment (excerpt)

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SUPREME COURT REPORTS
[2021] 14 S.C.R.
[2021] 14 S.C.R. 204
204
P. MOHANRAJ & ORS.
v.
M/S. SHAH BROTHERS ISPAT PVT. LTD.
(Civil Appeal No. 10355 of 2018)
MARCH 01, 2021
[ROHINTON FALI NARIMAN, NAVIN SINHA AND
K. M. JOSEPH, JJ.]
Insolvency and Bankruptcy Code, 2016 – s.14 – Negotiable
Instrument Act, 1881 – Chapter XVII – ss.138, 141 – Institution/
continuation of proceeding u/s.138/141, NI Act, if covered by the
moratorium provision i.e. s.14, IBC – Natural persons if covered by
s.14 – Held: A s.138/141 proceeding against a corporate debtor is
covered by s.14(1)(a), IBC – A quasi-criminal proceeding contained
in Chapter XVII of the NI Act would amount to a “proceeding”
within the meaning of s.14(1)(a), the moratorium therefore attaching
to such proceeding – As far as the Directors/persons in management
or control of the corporate debtor are concerned, a s.138/141
proceeding against them cannot be initiated or continued without
the corporate debtor – This is because s.141 speaks of persons in
charge of, and responsible to the company for the conduct of the
business of the company, as well as the company – For the period
of moratorium, since no s.138/141 proceeding can continue or be
initiated against the corporate debtor because of a statutory bar,
such proceedings can be initiated or continued against the persons
mentioned in s.141(1) and (2) of the NI Act – Thus, moratorium
provision contained in s.14, IBC would apply only to the corporate
debtor, the natural persons mentioned in s.141 continuing to be
statutorily liable under Chapter XVII of the NI Act – Interpretation
of Statutes.
Insolvency and Bankruptcy Code, 2016 – s.14, ss.3(33), 96(3),
101(3) – “Transaction” in s.3(33) – Scope of s.14 – Held: s.14(1)
makes it clear that subject to the exceptions contained in sub-sections
(2) and (3), on the insolvency commencement date, the Adjudicating
Authority shall mandatorily, by order, declare a moratorium to
prohibit what follows in clauses (a) to (d) – s.14(1)(a) does not
indicate as to what the proceedings contained therein apply to –
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Sub-section 3(a) provides the answer that such “proceedings” relate
to “transactions” entered into by the corporate debtor pre imposition
of the moratorium – s.3(33) defines “ transaction” – This definition
being an inclusive one is extremely wide in nature and would include
a transaction evidencing a debt or liability – This is made clear by
s.96(3) and s.101(3) which contain the same language as s.14(3)(a),
these Sections speaking of ‘debts’ of the individual or firm.
Insolvency and Bankruptcy Code, 2016 – s.14(3)(b) – Held:
By s.14(3)(b), a surety in a contract of guarantee of a debt owed by
a corporate debtor cannot avail of the benefit of a moratorium as a
result of which a creditor can enforce a guarantee, though not being
able to enforce the principal debt during the period of moratorium.
Insolvency and Banckruptcy Code, 2016 – s.14 – Object of
– Discussed.
Doctrines/Principles – noscitur a sociis or ejusdem generis –
Insolvency and Bankruptcy Code, 2016 – s.14 – “proceedings” –
Negotiable Instrument Act, 1881 – ss.138, 141 – Held: Ejusdem
generis and noscitur a sociis cannot be exalted to nullify the plain
meaning of words used in a statute if they are designedly used in a
wide sense – Where a residuary phrase is used as a catch-all
expression to take within its scope what may reasonably be
comprehended by a provision, regard being had to its object and
setting, noscitur a sociis cannot be used to colour an otherwise wide
expression so as to whittle it down and stultify the object of a
statutory provision – noscitur a sociis or ejusdem generis should not
be used to cut down the width of the expression “proceedings” so
as to make such proceedings analogous to civil suits – Interpretation
of Statutes – Rules of construction.
Insolvency and Bankruptcy Code, 2016 – s.14 vis-à-vis ss.
81, 85, 96, 101 – Scope of proceedings – Held: When the language
of these Sections is juxtaposed against the language of s.14, it is
clear that the width of s.14 is even greater, given that s.14 declares
a moratorium prohibiting what is mentioned in clauses (a) to (d)
thereof in respect of transactions entered into by the corporate
debtor, inclusive of transactions relating to debts, as contained in
ss.81, 85, 96, and 101 – Also, s.14(1)(d) is conspicuous by its
absence in any of these Sections – Thus, where individuals or firms
are concerned, the recovery of any

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