Directors Liable Under Section 138 NI Act Despite IBC Resolution: Supreme Court Upholds Bombay HC Ruling

April 27, 2026 : The Supreme Court of India has upheld a decision of the Bombay High Court affirming that company directors can still be prosecuted under Section 138 of the Negotiable Instruments Act, 1881 even after the company’s debt has been resolved under the Insolvency and Bankruptcy Code, 2016.

A Bench comprising Justice B.V. Nagarathna and Justice Ujjal Bhuyan declined to interfere with the High Court’s ruling, dismissing the Special Leave Petition while leaving all other legal contentions open for adjudication before the trial court.

The case arose from a loan of ₹15 lakh advanced by the complainant to the accused. A post-dated cheque issued by one of the directors, acting as an authorized signatory of the company, was dishonoured, leading to proceedings under Section 138 of the NI Act. Subsequently, the company entered liquidation in April 2019.

The trial court had discharged the directors on the ground that they ceased to hold their positions after liquidation and therefore could not be held liable. However, the High Court overturned this finding, holding that insolvency proceedings do not absolve directors of criminal liability under Section 138.

The High Court clarified several key legal principles:

• Proceedings under Section 138 are penal in nature and not merely recovery mechanisms.
• Directors and signatories remain liable even if the company’s debt is resolved under the IBC.
• Approval of a resolution plan under Section 31 of the IBC does not extinguish criminal liability.
• Section 32A of the IBC grants protection to the corporate debtor, not to individuals responsible for its conduct.
• The NI Act and the IBC operate in distinct domains and do not conflict.

Endorsing these findings, the Supreme Court reinforced that insolvency resolution does not shield individuals from prosecution for cheque dishonour.

Case Reference : Abhaykumar Anandkumar Bhambore & Anr. v. Ortho Relief Hospital and Research Centre & Anr.