Legal Analysis: Dineshchand Surana vs. UCO Bank

Citation: 2026 INSC 579
Court: Supreme Court of India
Bench: Division Bench comprising Justice J.B. Pardiwala & Justice K.V. Viswanathan 
Judgment Author: Justice J.B. Pardiwala
Date of Decision: May 27, 2026
Nature of Judgment: Criminal Appeals arising out of Special Leave Petitions (Crl.) against the judgment of the Madras High Court, which had held that moratorium provisions under Part‑III of the Insolvency and Bankruptcy Code, 2016 (IBC) do not apply to proceedings under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). The Supreme Court expressed disagreement with certain aspects of P. Mohanraj and referred the matter to a larger Bench.

Synopsis of the Judgment
The appellant, a former Managing Director of a company, was undergoing personal insolvency proceedings under Part‑III of the IBC. He sought quashing of a Section 138 complaint (cheque dishonour) pending against him, arguing that the interim moratorium under Section 96 IBC stayed all legal proceedings “in respect of any debt”, which should include Section 138 proceedings. The High Court dismissed his application, holding that Section 138 proceedings are criminal in nature and not mere recovery proceedings. The Supreme Court undertook a detailed analysis of the nature of Section 138 of the NI Act, its quasi‑criminal character, the distinction between fine and compensation, and the scope of moratorium provisions under Part‑III IBC. The Court held that Section 138 proceedings are predominantly criminal, not merely a “civil sheep in a criminal wolf’s clothing” as described in P. Mohanraj. However, the Court recognized that the compensatory aspect of Section 138 (Tier II) is civil in nature and should be subject to moratorium, while the criminal aspect (Tier I – imprisonment/fine) should not be stayed. The Court further held that directors vicariously liable under Section 141 of the NI Act are also entitled to the benefit of moratorium in respect of the compensatory liability when undergoing personal insolvency. Expressing disagreement with the three‑Judge Bench decision in P. Mohanraj on the characterization of Section 138, the Court referred the following questions to a larger Bench: (i) whether Section 138 is quasi‑criminal with a tilt towards the criminal side; and (ii) whether moratorium should apply to the entire proceedings or only to the compensatory aspect.

1. Basic Information of the Judgment

• Case Title: Dineshchand Surana vs. UCO Bank (with connected appeal)

• Criminal Appeal Nos.: Arising out of SLP (Crl.) No. 12135 of 2024 and SLP (Crl.) No. 12136 of 2024 (Leave granted)

• Bench: Justice J.B. Pardiwala &  Justice K.V. Viswanathan (Division Bench)

• Judgment Author: Justice J.B. Pardiwala

• Date of Decision: May 27, 2026

• Citation: 2026 INSC 579

• Appeal From: Judgment and order dated 18.10.2023 passed by the High Court of Judicature at Madras, dismissing the appellant’s application for quashing of a complaint under Section 138 of the NI Act on the ground that the moratorium under Section 96 IBC was not applicable.

2. Legal Framework

Laws and Provisions Involved:

• Negotiable Instruments Act, 1881 (NI Act): Section 138 (dishonour of cheque – offence, punishment of imprisonment up to two years, or fine up to twice the cheque amount, or both), Section 141 (offences by companies – vicarious liability of directors), Section 142 (cognizance of offences), Section 143‑A (interim compensation), Section 144 (service of summons), Section 145 (evidence by affidavit), Section 147 (compounding of offences), Section 148 (deposit pending appeal).

• Insolvency and Bankruptcy Code, 2016 (IBC): Part III (insolvency resolution and bankruptcy for individuals and partnership firms), Section 3(11) (definition of “debt”), Section 3(6) (definition of “claim”), Section 79(5) (definition of “bankruptcy debt”), Section 79(15) (definition of “excluded debt” – includes liability to pay fine, damages, etc.), Section 94 (application by debtor for insolvency), Section 95 (application by creditor), Section 96 (interim moratorium – stay of legal proceedings in respect of any debt), Section 100 (admission of application), Section 101 (moratorium after admission), Section 122 (bankruptcy application by debtor), Section 123 (bankruptcy application by creditor), Section 124 (interim moratorium in bankruptcy), Section 128 (effect of bankruptcy order – moratorium on actions against property).

• Code of Criminal Procedure, 1973 (CrPC) / Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS): Section 357 CrPC / Section 395 BNSS (order to pay compens

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