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IN THE HIGH COURT OF JUDICATURE AT MADRAS
THE HON'BLE MR. JUSTICE N. ANAND VENKATESH, J.
M/s.Vasan Healthcare Pvt. Ltd. - Petitioner
Versus
The Deputy Director of Income Tax (Investigation) Unit 3(2), Chennai - Respondent
Crl.O.P.Nos.134, 137, 151, 152, 264 & 269 of 2024 and Crl. MP Nos.119, 121, 135, 136, 162 & 165 of 2024
Decided On : 09-01-2024
INCOME TAX - CRIMINAL PROSECUTION - Income Tax Act, 1961, Section 277; Insolvency and Bankruptcy Code, 2016, Sections 9, 30, 32A - The court discussed the extinguishment of criminal liability of a corporate debtor under Section 32A of the IBC upon approval of a resolution plan, emphasizing that while the corporate debtor's liability is wiped clean, individuals involved in the company's management may still face prosecution for prior offenses. The court's decision was influenced by interpretations of these sections, particularly the distinction between the corporate entity and its management.
Fact of the Case:
The Income Tax Department prosecuted a company and its Managing Director for undisclosed income across several assessment years. Following the admission of the company into the Corporate Insolvency Resolution Process (CIRP) and the approval of a resolution plan, the new management sought to quash the criminal proceedings against the company, arguing that the company's liability was extinguished under Section 32A of the IBC.
Finding of the Court:
The court found that the criminal liability of the corporate debtor was extinguished upon the approval of the resolution plan, allowing the new management to take over the company without inheriting past liabilities. However, it clarified that individuals responsible for the company's operations during the relevant period could still be prosecuted.
Issues: 1. Whether the criminal liability of the corporate debtor is extinguished after the approval of a resolution plan under Section 32A of the IBC. 2. Whether the new management can be held liable for offenses committed by the previous management.
Ratio Decidendi: The court held that under Section 32A of the IBC, the criminal liability of a corporate debtor is wiped clean upon the approval of a resolution plan, but individuals involved in the management during the time of the offenses remain liable for prosecution.
Final Decision: The court allowed the quash petitions, thereby dismissing the criminal proceedings against the company, while leaving open the possibility of prosecuting individuals who were in charge of the company during the relevant time.
ORDER :
N. Anand Venkatesh, J.
The issue that is involved in all these Criminal Original Petitions are common and therefore, on consent given by either side, the main petitions are taken up for hearing and disposed of through this common order.
2. The particulars of the proceedings that have been put to challenge in these petitions are tabulated hereunder :-
| Sl.No. | Quash petition before the Hon'ble High Court of Madras | Complaint pending before Hon'ble learned Additional Chief Metropolitan Magistrate (E.O.II) at Egmore | Complaint filed under Section 277 of the Income Tax Act, 1961 for undisclosed Income and Assessment year |
| 1. | Crl OP No.264 of 2023 | E.O.CC No.179 of 2016 | Assessment year 2010-2011 and undisclosed Income Rs.1,60,07,054/- |
| 2. | Crl OP No.151 of 2023 | E.O.CC No.180 of 2016 | Assessment year 2011-2012 and undisclosed Income Rs.4,61,09,828/- |
| 3. | Crl OP No.137 of 2023 | E.O.CC No.181 of 2016 | Assessment year 2012-2013 and undisclosed Income Rs.11,85,47,810/- |
| 4. | Crl OP No.134 of 2023 | E.O.CC No.182 of 2016 | Assessment year 2013-2014 and undisclosed Income Rs.19,91,43,972.29/- |
| 5. | Crl OP No.269 of 2023 | E.O.CC No.183 of 2016 | Assessment year 2014-2015 and undisclosed Income Rs.28,48,39,948.70/- |
| 6. | Crl OP No.152 of 2024 | E.O.CC No.184 of 2016 | Assessment year 2015-2016 and undisclosed Income Rs.28,51,51,885.90/- |
3. The Company and its erstwhile Directors were prosecuted by the Income Tax Department for offence under the Income Tax Act committed during various assessment years 2010-2011 till 2015-2016. The undisclosed income for these assessment years were also separately worked out and mentioned in the complaint. The company was arrayed as A1 and the Managing Director one Mr. A.M. Arun was arrayed as A2.
4. The case of the petitioner is that an application was filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for Brevity herein after called as IBC) by M/s.Alcon Laboratories, before the NCLT, Chennai Bench. This application was admitted and by an order dated 21.04.2017, the company was admitted into the Corporate Insolvency Resolution Process (CIRP) and Interim Resolution Professional (IRP) was appointed. The IRP who took charge of the company proceeded further and ultimately, filed an application under Section 30 of the IBC on 03.03.2022 seeking for the approval of the resolution plan. The NCLT, Chennai, approved the resolution plan and IRP was appointed as the Chairman of the Monetary committee. He submitted the list of creditors including the name of the Income Tax Department, which was also shown as one of the Creditor. The Successful Resolution Applicant took over the Management of the A1 company on 01.04.2023.
5. Pursuant to the above, the NCLT passed an order on 03.02.2023 and the relevant portion in the order is extracted hereunder :-
| 33. | All the Civil and criminal litigations, investigations, enquiries, proceedings, causes of action, claims, disputes or other judicial, regulatory proceedings as against the Corporate Debtor or the affairs of the Corporate Debtor, pending or threatened, present or future, in relation to any period on or before the closing date or an account of the Resolution Applicant being in control of the Corporate Debtor pursuant to this Resolution Plan shall stand extinguished. |
Granted |
6. The present quash petitions have been filed by the new Management on the ground that as per 32A of IBC, the liability of A1 company completely gets wiped off after the resolution plan is approved by the NCLT and therefore, the prosecution as against A1 company cannot be continued. A further stand has been taken to the effect that the criminal prosecution cannot be proceeded as against the new management which has taken over A1 company. Since the present petitions confine itself only to these two legal issues
The approval of a resolution plan under Section 32A of the IBC extinguishes the criminal liability of the corporate debtor, but does not absolve individuals responsible for the company's conduct from....
Section 32A of the IBC extinguishes criminal liability for the corporate debtor post-resolution but not for directors under Section 138 of the NI Act.
Section 32A of the IB Code, 2016 provides immunity to corporate debtors from prosecution for prior offences upon approval of a resolution plan, ensuring a clean slate for new management.
The main legal point established in the judgment is that the conditions under Section 32A of the Insolvency and Bankruptcy Code, 2016 must be satisfied for the discharge of the Corporate Debtor from ....
The court ruled that under Section 32-A of the Insolvency Code, 2016, a corporate debtor cannot be prosecuted for offences committed prior to the commencement of Corporate Insolvency Resolution Proce....
The approval of a resolution plan under the Insolvency and Bankruptcy Code requires strict adherence to statutory procedures and protections for financial creditors.
The approved Resolution Plan under the IBC extinguishes non-included claims, ensuring new management operates on a clean slate while meeting legal compliance.
Court ruled that prior findings negate certain fraud allegations in insolvency cases, allowing only non-cooperation charges to proceed.
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