2020 (3) TMI 763 - HC - Insolvency and Bankruptcy

Continuation of prosecution proceedings after approval of resolution plan against the company - Corporate Insolvency Resolution Process (CIRP) - Section 32A of the IBC - HELD THAT - A Corporate Debtor would not be liable for any offence committed prior to commencement of the CIRP and the corporate debtor would not be prosecuted if a resolution plan has been approved by the Adjudicating Authority - In the present case there is no dispute that a resolution plan has been approved by the Adjudicating Authority (NCLT) and in the circumstances there is much merit in the contention that the petitioner cannot be prosecuted and is liable to be discharged. The impugned order dated 16.08.2019 and the impugned summons dated 21.08.2019 are set aside - Petition allowed.

Summary

Issues:
1. Impugning an order and summons related to offences under Companies Act, 2013, Companies Act, 1956, and Indian Penal Code, 1860.
2. Discharge from proceedings under Insolvency and Bankruptcy Code, 2016.
3. Interpretation of Section 32A of the IBC regarding the liability of a corporate debtor post-approval of a resolution plan.

Analysis:

Issue 1: The petitioners challenged an order and summons related to offences under various laws. The Trial Court had taken cognizance of the offences punishable under the Companies Act, 2013, Companies Act, 1956, and certain offences under the Indian Penal Code, 1860. The petitioners sought to quash the compliant filed by the Serious Fraud Investigation Office. The High Court considered these challenges.

Issue 2: The petitioners relied on the Insolvency and Bankruptcy Code, 2016 (IBC) for seeking discharge from the proceedings. It was noted that a financial creditor initiated the Corporate Insolvency Resolution Process (CIRP) for the petitioner company. A Resolution Plan was submitted and approved by the Adjudicating Authority, resulting in a change in management. The petitioners argued for their discharge under Section 32A of the IBC.

Issue 3: The High Court analyzed Section 32A of the IBC, inserted by an amendment, which deals with the liability of a corporate debtor post-approval of a resolution plan. The provision states that the liability of a corporate debtor for an insolvency resolution process shall cease if the resolution plan results in a change in management to a person not connected with the previous management. The Court emphasized that a corporate debtor would not be liable for any offence committed prior to the CIRP commencement post-approval of a resolution plan.

The Court found merit in the petitioners' contention that they cannot be prosecuted post-approval of the resolution plan. As a result, the impugned order, summons, and compliant against the petitioners were set aside. However, the Court clarified that the order does not affect the prosecution of the former promoters or officers directly responsible for the offences related to the petitioner company. The pending application was also disposed of by the Court.