Cheque Bounce During IBC Moratorium: Can Case Continue?

You signed the cheque, it came back unpaid, and before the payee could push the complaint forward the company was admitted into insolvency. Now you are hearing two contradictory things: that the moratorium protects you, and that the cheque case will roll on regardless. The second is closer to the truth. A cheque bounce during IBC moratorium is not an automatic acquittal, and the complainant is not automatically shut out either. What changes is who you deal with, which forum decides what, and how the payee's money claim is handled inside the insolvency.

How an IBC Moratorium Overlaps With a Cheque Case

When the National Company Law Tribunal admits a company into corporate insolvency resolution process (CIRP), Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016 stops the institution of suits and the continuation of pending suits or proceedings against the corporate debtor, including execution of any judgment, decree or order in any court, tribunal, arbitration panel or other authority. The same provision halts action to foreclose, recover or enforce a security interest, and any attempt by an owner or lessor to recover property in the corporate debtor's possession. Under Section 14(4), the moratorium runs until the resolution plan is approved or a liquidation order is passed.

A Section 138 prosecution is built differently. The cheque must be presented within its validity period and returned unpaid. The payee must then send a written demand within thirty days of receiving the return memo. The drawer gets fifteen days from receipt of that demand to pay. If payment does not come, the cause of action arises and the complaint must be filed within one month, as Section 142 requires. The offence is the dishonour of a negotiable instrument, not the failure to clear a debt as such.

That distinction decides almost everything that follows. The moratorium is aimed at the corporate debtor's estate, so that assets are not nibbled away while a rescue is attempted. A cheque prosecution is aimed at conduct. The two overlap on facts, not on legal terrain.

Complaints Filed Before and After Moratorium

Timing changes the paperwork, not the principle. If the payee had already filed the complaint before the NCLT admitted the company, the case is pending when the moratorium begins. If the dishonour, the demand notice or the complaint comes after admission, you have a fresh prosecution against a company already in CIRP. In both situations the criminal court keeps the file.

Two practical points follow. First, the magistrate will usually want to know the CIRP status, and adjournments on that ground are common even where there is no legal bar. An adjournment is not an acquittal, and treating it as one is how directors end up surprised eighteen months later. Second, the payee's money claim does not vanish. It becomes a claim in the CIRP and must be filed with the resolution professional in the prescribed form before the cut-off date. A payee who chases only the criminal case and ignores the claims process can end up with a conviction and no recovery.

One caution about cheques issued after the CIRP began, typically by the resolution professional running the business as a going concern. That is a different situation from a cheque signed by the old management, and it should be examined separately with your advocate rather than assumed to follow the same path.

Cheque Bounce During IBC Moratorium: What Section 14 Actually Stops

The Supreme Court addressed the core question in P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd., (2021) 6 SCC 258. Complaints under Sections 138 and 141 of the Negotiable Instruments Act are criminal proceedings. They are not proceedings for recovery against the corporate debtor's assets, and the moratorium does not freeze them. A pending complaint can continue, and a fresh one can be filed, while the company is in CIRP.

So the popular defence, that the company is in insolvency and the case must therefore be stayed, does not work at the threshold. A moratorium is not a discharge. Nor can the NCLT rescue you here. Section 60(5) gives the NCLT jurisdiction over claims by and against the corporate debtor, but it is not a quashing authority sitting over a magistrate hearing a cheque complaint. Any attempt to stop the prosecution has to be made in the criminal court, or before the High Court in its inherent jurisdiction.

Where insolvency genuinely matters is in sentencing and enforcement. A company cannot be sent to prison; the punishment is fine, which under Section 138 can extend to twice the cheque amount. Directors and signatories in charge of the company's affairs when the offence was committed face Section 141 liability in their own right, and that exposure does not disappear because the company entered CIRP. Once a resolution plan is approved and control changes hands, Section 32A of the IBC may give the corporate debtor some protection from prosecution for pre-CIRP offences, but that is a separate argument tied to the plan and the facts. The moratorium does not deliver it.

Interim compensation deserves a word. Section 143A permits the magistrate to direct the drawer to pay up to twenty per cent of the cheque amount during trial. Where the drawer is a company under CIRP, such a direction runs straight into the moratorium's protection of the estate, and courts have to weigh the two. Assume nothing; raise the point at the first hearing with a copy of the admission order.

Role of the Resolution Professional

The resolution professional takes over management of the corporate debtor under Section 17 and collates claims under Section 18. On the cheque matter the role is narrower than most people assume. The RP is not a party to the criminal complaint, cannot withdraw it, and does not defend it on the company's behalf. What the RP does is verify the payee's claim and disclose the litigation in the information memorandum circulated to prospective resolution applicants.

A claim should be filed in Form B with the supporting record: the dishonoured cheque, the bank return memo, the demand notice with postal proof, the invoices and ledgers, and an interest computation up to the insolvency commencement date. Late claims are dealt with under the CIRP Regulations and may be admitted with the adjudicating authority's permission, but filing before the cut-off date is always the stronger position. A supplier is an operational creditor, which in most cases also means no vote in the committee of creditors.

Worked Scenario: A ₹18.5 Lakh Supply Bill Meets CIRP

Kavita runs a machining unit in Chakan, near Pune, supplying precision parts to an auto components company. Invoices raised between April and August 2025 came to ₹18,50,000. In September the company's finance head handed over a cheque for ₹6,40,000 as part payment, drawn on its current account at a Pune branch and dated 12 September 2025.

She deposited it on 15 September. It returned on 17 September marked insufficient funds. Her accountant sent a demand notice on 22 September by registered post and email; the company received it on 25 September. No payment came within fifteen days, so the cause of action arose on 10 October. A complaint under Section 138 was filed before the Judicial Magistrate First Class, Pune, on 6 November 2025, inside the one-month window.

Three weeks later, on 28 November 2025, the NCLT admitted the same company into CIRP and appointed a resolution professional. Kavita assumed her complaint would die. It did not. The magistrate continued the case, and the directors stayed accused under Section 141. Separately, the RP published a public announcement with a cut-off date, and she filed a claim in Form B for ₹18,50,000 plus interest of ₹64,000, backed by invoices, ledgers, the return memo and the notice. The criminal case is now leverage in settlement talks; the admitted claim decides what she actually recovers under the resolution plan.

Practical Options, Common Mistakes and Documents to Keep

For the payee

Keep the complaint alive and appear on every date. Do not withdraw it on a verbal promise of payment from a resolution applicant who has not yet been approved. File the claim with the RP within time and keep the acknowledgement. Compounding under Section 147 remains available if a settlement is reached, and the settlement amount should be routed through the RP so that it is recorded in the CIRP. If you win and the company is convicted, the fine goes into the insolvency pool rather than your pocket, which is why the claim filing matters more than the victory.

For the corporate debtor and its directors

Do not assume the case is over. Appear, and if you plan to appeal a conviction, remember Section 148 requires a deposit of at least twenty per cent of the fine or compensation as a condition for hearing the appeal. Personal liability under Section 141 continues even though the company is in CIRP, so your defence on the merits, typically the Section 139 presumption and the reply to the demand notice, still has to be built. If a resolution plan is approved, examine whether Section 32A helps you, but treat that as a separate legal question.

Common mistakes

The first is treating the moratorium as a stay order and skipping hearings until a warrant is issued. The second is filing only the criminal complaint or only the claim, never both. The third is ignoring the demand notice timeline, because a defective or delayed notice is often the cleanest defence a drawer has and the easiest point a payee loses.

Documents to keep

Assemble these in one file whether you are the payee or the drawer: the original cheque and bank return memo; the demand notice with postal receipt and acknowledgement; the invoices, ledgers and bank statements for the relevant period; and the NCLT admission order, public announcement and claim acknowledgement, where applicable.

Action checklist

• Confirm the exact date the NCLT admitted the company into CIRP and keep a certified copy of the order.

• Check whether the Section 138 complaint was filed within one month of the cause of action under Section 142.

• File or verify the operational creditor claim in Form B before the RP's cut-off date.

• Place the admission order and moratorium details before the magistrate at the next hearing.

• Track whether any Section 143A interim compensation application has been moved and respond in writing.

• Keep the settlement route open through the RP, and record any compounding under Section 147 in writing.

If you are dealing with this today, the single most useful step is to sit with your advocate and the RP's public announcement together, and confirm two dates on paper: the date the complaint was filed and the cut-off date for claims. Those two dates decide which of your remedies is still alive and which has quietly lapsed.

This article is for general information only and is not legal advice. Consult a qualified professional for your specific facts.