The author is a 3rd year student of Nirma University.
The Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as“Act”) augmented by its 2018 Amendment Act(hereinafter referred to as“Amended Act”) has received wide-spread positive response from different sides of corporate sector.The bringing in of the Act resulted in immediate shifting form a debtor-in-control regime to a creditor-in-control regime and is buttressed by a stipulated time period of 180/270 days for the completion process which is adhered to strictly by the National Company Law Tribunals (hereinafter referred to as“NCLTs”) all across the country.
The moratorium period stipulated under Sec. 14 is one of the prominent feature of this act which restricts the continuation of the mentioned proceedings against the corporate debtor in case of an admission and subsequently, commencement of the Corporate Insolvency Resolution Process (hereinafter referred to as“CIRP”). Moreover, it has already been established that the moratorium does not apply to all proceedings in light of the NCLAT judgement in the case of Canara Bankv. Decan Chronicle Holding,which noted the absence of the word “all” in Section 14 of the Act.
The moratorium as prescribed for by Sec. 14, inter-alia, provides for prohibiting:
“…(1)(c). any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its propertyincluding any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002”
It would be pertinent to note that by virtue of Section 3(31) of the Act, a “security interest” would include a claim to property. Moreover, the term “property” as defined under Sec. 3(27) would include money. Therefore, the question that arises for consideration in this article is whether a cheque, more specifically, a post-dated cheque, the date of beginning of which falls within the stipulated moratorium period could be deposited during the moratorium period or would it be against the moratorium? In terms of an Example – Consider that A (Operational Creditor) contracted with B (Corporate Debtor) on 01.01.2019 for the supply of goods/services. For the same, cheques were issued by B to A dated 02.07.19 (first cheque), 02.07.20, 02.07.21 and 02.07.22. All these cheques were delivered on 01.01.2019 to the Operational Creditor. Subsequently, CIRP was initiated against the Corporate Debtor and moratorium was granted between 01.07.19 to 01.10.19. Therefore, the question that arises is whether A can encash the first cheque in the instant case?
The answer to the aforementioned question could be related to the proposition of law which governs the date of payment of a cheque i.e. if the date of payment by cheque is the date on which the cheque is delivered then the payment has already happened and therefore, there is no bar to encashment via cheque and vice-versa.
Supreme Court On Delivery Of Cheque
The First Casethat comes for consideration is CIT, Bombayv. Ogale Glass Works Ltd., wherein the Supreme Court while dealing with a cheque which was not subsequently dishonoured held that the cheque would be considered to be payed on the date of its delivery. However, had the cheque been dishonoured, the same would not be the case. In the words of Supreme Court:
“…The position, therefore, is that in one view of the matter there was, in the circumstances of this case, an implied agreement under which the cheques were accepted unconditionally as payment and on another view, even if the cheques were taken conditionally, the cheques not having been dishonoured but having been cashed, the payment related back to the dates of the receipt of the cheques and in law the dates of payments were the dates of the delivery of the cheques.”
The Second Casethat comes for consideration is the case of Jiwanlal Achariyav. Rameshwarlal Agarwalla,wherein themajority of the three-judge bench of the Supreme Court distinguished between a conditional and an unconditional payment while dealing with Section 20 of the Limitation Act, 1908. It was held that an ordinary cheque amounted to an unconditional payment if the cheque was subsequently honoured.However, the court also considered a post-dated cheque to be a conditional payment for which the date of payment would not be the date of delivery but the date on which it was dated to begin. The case also distinguished from Ogale’sCase,by stating that the issue before that court was not specifically in relation to a post-dated cheque and as such the court was not bound by that case.
However, it is pertinent to note that the minority opinion by Justice R. S. Bachawat did not distinguish Ogale’scase from the instant case and as such held that Ogale’scase applied even to a post-dated cheque.Thus, according to the minority opinion, even payment by a post-dated cheque related back to the date of delivery of the cheque in terms of payment. One would expect that the courts would rely on the aforementioned two cases for the payment in terms of delivery all types of cheque i.e. ante-dated, date of the delivery and post-dated. However, the Supreme Court has deviated from its established position of law. The Third Casethat arises for our consideration is the recent case of Director of Income Tax, New Delhiv. Raunaq Education Foundation,wherein the Supreme Court dealt with an issue pertaining to a cheque which was delivered on 31.03.2002 and dated 22.04.2002. The court herein again relied on Ogale’s Case.However, in doing so it did not distinguish between an ordinary cheque and a post-dated cheque and the payment of a post-dated cheque was also considered to be completed on the date of the delivery of the cheque.
Thus, on perusal of the aforementioned judgements it can be distinctly observed that the position of law in terms of the ordinary cheques is clear i.e. the date of delivery of cheque is the date of payment via cheque if the cheque is subsequently honoured. However, as far as post-dated cheques are concerned, the position is in a clear conflict and should be cleared upon re-consideration by a Constitutional Bench of the Supreme Court, consisting of atleast five-judges as this question does indeed fall under the category of a substantial question of law of the general importance.
As far as the moratorium is considered, it is my opinion that only the post-dated cheque is of a real concern as the Corporate Insolvency Resolution Process is in its due course, and the uncertainty of this proposition by the Supreme Court itself would serve to bring in further uncertainty as the NCLTs and NCLAT delve into the matter as soon as it appears before them.
Before concluding, another intriguing point to consider is to the question as to what happens when the date of the post-dated cheque coincides with the beginning of the moratorium itself. Does the cheque expire after the stipulated three-months along with the moratorium or is there an altogether different answer to this problem. In my opinion, the Parliament would be the appropriate forum to resolve this issue. However, prima-facieit does appear to be an undue burden on this particular cheque-holder with no clear-cut intelligible differentiain place to support this difference.
SeeKumar Saurabh & Ashwij Ramaiah, Heralding a New Era in Insolvency Resolution – The Insolvency and Bankruptcy Code, 2016, 12 The Chamber’s Journal 32, 32-39 (2017); Ashwin Bishnoi, The Insolvency and Bankruptcy Code; The Journey So Far, LiveMint,(Jan 26, 2018, 08:00 AM), https://www.khaitanco.com/PublicationsDocs/Livemint-KCOCoverage26Jan18AshwinB.pdf.