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by Admin
07 May 2024 2:49 AM
Court affirms prima facie case under Section 420 IPC, rejects plea of insolvency moratorium to shield directors from criminal liability. In a recent judgment, the Allahabad High Court dismissed an application seeking to quash criminal proceedings initiated under Sections 406 and 420 of the Indian Penal Code (IPC) against India Mega Agro Anaj Ltd and its directors. The case involves allegations of non-payment for wheat supplied by the complainant. The court, emphasizing the distinction between civil disputes and criminal liability, rejected the plea for moratorium protection under the Insolvency and Bankruptcy Code (IBC) for the directors.
The complainant alleged that India Mega Agro Anaj Ltd purchased wheat but failed to make the payment, leading to the initiation of criminal proceedings under Sections 406 and 420 IPC. The applicants argued that the dispute was civil in nature and invoked the moratorium under the IBC, claiming that the proceedings should be stayed. They also cited ongoing insolvency proceedings to avoid liability.
Credibility of Prima Facie Case: The court underscored that the allegations against the applicants constituted a prima facie case under Section 420 IPC. "The intention of the applicant was not clear and they wanted to cheat the opposite party," the court noted, highlighting the gravity of the accusations.
IBC Moratorium and Criminal Liability: Rejecting the argument that the IBC moratorium shields directors from criminal proceedings, the court stated, "The moratorium under the IBC applies only to the corporate debtor and not to the directors for their individual criminal liabilities." Citing the legislative intent and relevant Supreme Court judgments, the court affirmed that directors could not escape prosecution for fraud committed during their tenure.
Application of PMLA: The court also acknowledged the applicability of the Prevention of Money Laundering Act (PMLA) in this case, noting that offenses under Section 420 IPC are considered scheduled offenses under the PMLA. "The entire business transaction falls within the ambit of the PMLA Act, and hence the appropriate agency is competent to investigate," the court observed.
IBC and Criminal Proceedings: The judgment extensively referred to Supreme Court decisions, including Manish Kumar v. Union of India and Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd., to clarify the non-applicability of the IBC moratorium to criminal liabilities of directors. "The intention of the legislature was clear that the criminal liability and prosecution of directors for the fraud committed by them would continue," the court emphasized.
Scheduled Offenses under PMLA: Highlighting the amendments in the PMLA, the court stated that offenses under Section 420 IPC are included under the Act's schedule, thereby bringing the transaction under scrutiny for money laundering. "The appropriate agency is empowered to investigate the transaction," the court noted, reinforcing the legal framework for addressing financial crimes.
Justice Prashant Kumar remarked, "The moratorium under the IBC applies only to corporate debtors, not to directors for criminal liabilities. The legislative intent is clear, and the wrong-doers remain liable."
The Allahabad High Court's dismissal of the application underscores the judiciary's stance on differentiating civil disputes from criminal liabilities. By affirming the prima facie case under Section 420 IPC and rejecting the moratorium protection for directors under the IBC, the judgment reinforces the accountability of corporate directors for fraudulent actions. This decision is likely to impact future cases, highlighting the stringent approach towards financial misconduct and the applicability of the PMLA in business transactions.
Date of Decision: 30th May 2024
India Mega Agro Anaj Ltd and 3 Others vs. State of U.P. and Another
