The Punjab & Haryana High Court ruled that insolvency proceedings do not provide immunity to directors from prosecution under Section 138 of the Negotiable Instruments Act for cheque bounce cases.
Insolvency Proceedings Do Not Shield Directors from Cheque Bounce Liability
The Punjab and Haryana High Court has ruled that directors of a company cannot seek protection from prosecution under Section 138 of the Negotiable Instruments Act during insolvency proceedings. The court dismissed a petition aiming to prevent such prosecution despite ongoing insolvency cases.
In its decision, the court clarified that the legal provisions governing cheque dishonor and liability remain applicable irrespective of the company’s insolvency status. This reinforces the judiciary's stance on holding individual directors accountable for financial instruments' dishonor.
This ruling is significant for practitioners as it delineates the boundaries of statutory protections available during insolvency. Directors must remain vigilant regarding personal liability in cheque bounce cases, irrespective of the company's financial condition.
Citations
- Punjab & Haryana HC (2026) 1 CTC 123
