Cheque Dishonour Liability Survives IBC Proceedings: Directors Remain Accountable for Dishonoured Cheques

The Supreme Court of India has upheld a ruling of the Bombay High Court in Abhaykumar Anandkumar Bhambore & Anr. v. Ortho Relief Hospital and Research Centre & Anr. affirming that company directors remain criminally liable for cheque dishonour under Negotiable Instruments Act, 1881, even after the company undergoes insolvency resolution under the Insolvency and Bankruptcy Code, 2016.

A Bench comprising Justice B. V. Nagarathna and Justice Ujjal Bhuyan dismissed a Special Leave Petition challenging the High Court’s decision, observing that no interference was warranted and leaving all other contentions open for trial.

The case arose from a loan of ₹15 lakh advanced by the complainant, which was allegedly repaid through a post-dated cheque signed by a director of the company. Upon dishonour of the cheque, proceedings under Section 138 were initiated. Meanwhile, the company entered liquidation under the IBC. The Trial Court discharged the directors on the ground that they had ceased to hold office post-liquidation.

However, the High Court reversed this finding, holding that liability under Section 138 is personal and continues irrespective of corporate insolvency. It clarified that cheque dishonour proceedings are penal in nature and not merely recovery mechanisms. Importantly, approval of a resolution plan or liquidation does not extinguish the criminal liability of directors or authorized signatories.

The Supreme Court’s refusal to interfere reinforces the distinction between corporate debt resolution and individual criminal accountability, emphasizing that statutory offences aimed at maintaining commercial integrity cannot be diluted by insolvency proceedings.