'Directors Cannot Use Personal Insolvency To Stop Company Cheque-Bounce Trials': Bombay HC

Mumbai, August 20, 2026: The Bombay High Court has ruled that company directors cannot use personal insolvency proceedings to stop criminal trials over cheques issued by their companies, holding that their personal liability under the Negotiable Instruments Act is separate from the company’s debt.

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Justice NJ Jamadar, on August 18, rejected petitions filed by several directors seeking a stay on cheque-bounce cases involving companies including Mohan India Private Limited, Lotus Refineries, Metkore Alloys and White Water Foods. The complaints were filed by National Spot Exchange Limited (NSEL) over unpaid dues running into hundreds of crores.

Directors’ Insolvency Plea

The directors argued that they had initiated personal insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) and that the interim moratorium under Section 96 should protect them from prosecution. They argued that the cheques had been issued towards discharge of the debt and that the moratorium covered the prosecution.

NSEL opposed the pleas, contending that the debt belonged to the respective companies and was not the directors’ personal debt. It argued that the directors were being prosecuted as natural persons under Section 141 of the Negotiable Instruments Act because of their role in the companies and responsibility for their affairs.

Court Rejects Stay Plea

Justice Jamadar, in a detailed 64-page judgment, rejected the argument. “The debt in question is that of the corporate entity,” the court said, holding that the liability of directors under the Negotiable Instruments Act is personal and can continue even when a moratorium applies to the company.

In one of the cases, NSEL had filed a cheque-bounce complaint against Mohan India Private Limited and its directors, including Jagmohan Garg. Under a Settlement Award, Rs 771 crore became payable by Mohan India in 13 instalments. After the company defaulted, it issued a Rs 30 crore cheque towards the liability. The cheque was returned unpaid with the remarks “funds insufficient” and “account freezed”.

Garg later approached the NCLT, Delhi, under Section 94 of the IBC for initiation of his insolvency resolution process and sought a stay of the complaint under Section 96.

Criminal Trial Can Continue

The High Court also considered a pending Supreme Court reference concerning the effect of insolvency proceedings on the compensation-related aspect of cheque-bounce cases. It held that the reference did not require the trials to be stayed. While the moratorium could apply to recovery of compensation ordered against an individual director, it did not halt the criminal trial.

“Therefore, the principal submission on behalf of the Applicants / Petitioners that the trial itself is required to be stayed during the currency of the interim moratorium under Section 96 of IBC does not find support,” the court ruled.

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The court also said existing Supreme Court rulings continued to hold the field unless modified or altered. It noted that some of the cheque-bounce cases had been pending for more than 10 years and allowed the trial courts to proceed with witness examination and final arguments.

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