NCLT Mumbai Rules, Pending Cheque-Bounce Case Not A Bar To Admitting Insolvency Plea
Pranav B Prem
The National Company Law Tribunal (NCLT) Mumbai Bench has held that the pendency of cheque-bounce proceedings under the Negotiable Instruments Act, 1881, cannot come in the way of initiation of corporate insolvency resolution proceedings under the Insolvency and Bankruptcy Code (IBC). The Bench comprising Judicial Member Nilesh Sharma and Technical Member Sameer Kakar admitted an application filed by Rexel India Private Limited seeking to commence insolvency proceedings against Proto D Industries Private Limited for unpaid operational dues amounting to ₹5.82 crore. The Tribunal stated that proceedings under the NI Act are quasi-criminal in nature and their pendency neither overrides the IBC nor bars adjudication of an insolvency plea.
Rexel had supplied goods to Proto D during April and May 2023 under invoices carrying a 45-day credit period. The invoices were acknowledged by Proto D, but payments were not made despite repeated reminders. Proto D issued multiple cheques to clear the liability; however, all of them were dishonoured with the endorsement “payment stopped by drawer.” The Tribunal also relied on an undertaking dated 24 July 2023 executed by the directors of Proto D admitting liability of ₹6.31 crore and agreeing to pay interest at 12% per annum. Despite the written acknowledgement, no amount was discharged. Rexel thereafter issued a demand notice on 12 April 2024, to which no reply was furnished and no contemporaneous material disputing the debt was produced.
Before the Tribunal, Proto D attempted to resist the insolvency plea by contending that cheque-bounce prosecutions arising from the same transactions were pending before the Judicial Magistrate First Class, Pune. It argued that the insolvency petition was hit by res judicata and that the claims were inflated due to alleged defects in supplied goods. The Bench rejected these defences, noting that Proto D never raised any dispute prior to receipt of the demand notice and had not placed a single document on record to substantiate its claims. The Tribunal described the allegations as “bald averments” and held that they were “moonshine in nature,” intended only to resist the admission of the petition without showing a genuine dispute.
On the plea of res judicata, the Tribunal examined Section 11 of the Civil Procedure Code and concluded that the ingredients necessary to attract the bar were entirely absent. The NI Act proceedings were criminal in nature and their scope was limited to whether the offence of dishonour of cheque had been committed. By contrast, a Section 9 petition under the IBC concerns civil consequences relating to debt, default, and the financial health of the corporate debtor. The Tribunal noted that the NI Act prosecution had not culminated in a decision, and even if it had, its findings could not prevent adjudication of the insolvency plea because the two legal regimes operate in completely different spheres with distinct objectives and standards of proof.
Stating that “the prior criminal proceedings neither bar nor restrict the jurisdiction of this Tribunal to adjudicate the present application on its own merits,” the Bench held that default was clearly established and that the application was complete in terms of Section 9 of the IBC. It therefore admitted Rexel’s petition, declared a moratorium under Section 14 of the Code, and appointed insolvency professional Rishabh Sethi as the Interim Resolution Professional. Rexel was directed to deposit ₹3 lakh towards initial CIRP expenses, to be treated as interim finance for the conduct of the insolvency proceedings.
Appearance
For Operational Creditor: Siddha Pamecha, Garima Mehrotra, Advocates
For Corporate Debtor: Advocate Anita Patil
Cause Title: Rexel India Private Limited vs Proto D Industries Private Limited
Case No: CP(IB) No. 417/MB/2025
Coram: Judicial Member Nilesh Sharma, Technical Member Sameer Kakar
