Raj Kumar Aggarwal & Anr. Vs. Kotak Mahindra Bank & Ors - Hon'ble SCI stayed criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881 and the Payment and Settlement Systems Act, 2007. Against the applicant of section 94 applicant.

 SCI (2025.08.11) in Raj Kumar Aggarwal & Anr. Vs. Kotak Mahindra Bank & Ors. [Writ Petition(s)(Criminal)  No(s).  311/2025] stayed criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881 and the Payment and Settlement Systems Act, 2007. Against the applicant of section 94 applicant.

Blogger’s Comments;

However  Hon’ble Supreme Court (225.04.01) Rakesh Bhanot Vs. Gurdas Agro Pvt. Ltd.[CRIMINAL APPEAL NO. 1607 OF 2025   (Arising out of SLP (Crl.) No. 6087 OF 2023)] held that;

• # 17. For the foregoing discussion, we are of the opinion that the object of moratorium or for that purpose, the provision enabling the debtor to approach the Tribunal under Section 94 is not to stall the criminal prosecution, but to only postpone any civil actions to recover any debt. The deterrent effect of Section 138 is critical to maintain the trust in the use of negotiable instruments like cheques in business dealings. Criminal liability for dishonoring cheques ensures that individuals who engage in commercial transactions are held accountable for their actions, however subject to satisfaction of other conditions in the N.I. Act, 1881. Therefore, allowing the respective appellants / petitioners to evade prosecution under Section 138 by invoking the moratorium would undermine the very purpose of the N.I. Act, 1881, which is to preserve the integrity and credibility of commercial transactions and the personal responsibility persists, regardless of the insolvency proceedings and its outcome.

• # 18. In view thereof, the contention of the appellants that the decisions relied on by the High Court dealt with the proceedings under section 14 IBC and not the proceedings under section 96 IBC, cannot be countenanced by us. Furthermore, the decision in Dilip B. Jiwrajka (supra) is not relevant to the facts of the present case, as the issue therein was relating to the constitutional validity of certain provisions of the IBC and the applicability of moratorium to a proceedings under Section 138 of the N.I. Act, 1881 was not the subject matter.

• # 19. For the foregoing discussion, the prayer of the appellants / petitioners to stay the prosecution under Section 138 of the N.I. Act, 1881, relying on the interim moratorium under Section 96 IBC, cannot be entertained. Therefore, the judgments / orders passed by the different High Courts affirming the orders of the trial court, which had rightly refused to stay the section 138 proceedings, need not be interfered with by us.

Excerpts of the Order;

UPON hearing the counsel the Court made the following                             

O R D E R 

Issue notice to the respondents. No coercive steps shall be taken as against the petitioners herein in the proceedings pending as against them before the respective courts under Section 138 of the Negotiable Instruments Act, 1881 and the Payment and Settlement Systems Act, 2007.

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Hon'ble Supreme Court has in an order dated 11.08.2025, stayed criminal proceedings against Raj Kumar Agarwal and Tamanna Agarwal, Personal Guarantors of GC Fabrics Pvt. Ltd, on account of insolvency resolution process initiated under Section 94 of the Code.

Hon'ble Supreme Court ordered that no coercive actions shall be taken against the aforementioned petitioners in as many as 11 pending criminal proceedings under NI Act, 1881 and Payment & Settlement Systems Act, 2007.

The Petitioners argued that they are not able to submit a repayment plan, due to unnecessary pressure from these legal proceedings. Petitioners argued that the essence of the Code is being swayed away, and being turned into "a tool of harassment".

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