Sick-Company Restraint Order Does Not Automatically Bar NI Act Prosecution; SC Restored Cheque-Dishonour Trials

A bench of Justices Manoj Misra and Ujjal Bhuyan heard appeals challenging a Bombay High Court order that had upheld a revisional court’s discharge of accused directors and a company in multiple complaints under Section 138 read with Section 141 of the Negotiable Instruments Act. The appeals arose from seven connected matters in which the complainant alleged dishonour of cheques issued by a company declared “sick” and subject to a BIFR restraint order.

The Court allowed the appeals, set aside the High Court and revisional court orders and restored the criminal proceedings to the magistrate’s file, directing the trial court to proceed in accordance with law. The bench held that declaration of a company as “sick” under SICA did not create an absolute bar to prosecution under Section 138 NI Act, and that a restraint order under Section 22A required factual examination before it could defeat a criminal complaint. The Court emphasised that recall of processes issued on a complaints’ notice was not permissible in view of Adalat Prasad and subsequent Constitution Bench rulings, and that summary discharge at the revisional stage was inappropriate where factual disputes remained. The Court, in its reasoning, observed: The Court also noted that the BIFR order in the present matters expressly permitted drawing on current assets “to the extent required for day-to-day operations.”

Background The disputes arose from separate complaints filed by Shree Nagani Silk Mills Pvt. Ltd. against L.D. Industries Ltd. and others for dishonour of post-dated cheques dated April 2001, each for substantial sums. The accused contended that the company had been declared “sick” by the Board for Industrial and Financial Reconstruction (BIFR) and a restraint order precluded disposal of assets, which, they argued, rendered the Section 138 proceedings unsustainable. The magistrate had rejected applications to recall summons; the revisional court allowed revision and discharged the accused; the High Court dismissed the complainant’s writ petitions, prompting these appeals.

The Supreme Court analysed the statutory scheme under SICA (Sections 22 and 22A) and relevant precedents including Kusum Ingots & Alloys Ltd. v. Pennar Peterson and Southern Steel v. Jindal Vijayanagar, and reiterated that Section 22 did not bar institution of criminal proceedings for cheque-dishonour and that a Section 22A restraint may be relevant only after fact-sensitive inquiry. The Court observed the presumption under Section 118(b) of the NI Act that a negotiable instrument bearing a date was made on that date, and held that a plea of post-dating required evidence; it therefore found the revisional court erred in pre-judging the issue and discharging the accused at the threshold. The bench consequently set aside the impugned orders and directed the learned Magistrate to proceed with trial; no further interim directions were issued.

Case Details: Case No.: Criminal Appeal Nos. 3821–3827 of 2025 (@ SLP (Crl.) Nos.1550–1555/2024 and SLP (Crl.) No.530/2024) Case Title: Shree Nagani Silk Mills Pvt. Ltd. … Appellant(s) v. L.D. Industries Ltd. & Ors. … Respondent(s) Appearances: For the Petitioner(s): Sri Ninad Laud, Advocate For the Respondent(s): Sri Rishi Bhuta, Advocate