Criminal Liability of Co. Gets Wiped Off Once it’s Taken Over by New Management Pursuant to Resolution Plan | HC

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  • Last Updated on 8 February, 2024

Criminal Liability

Case Details: Vasan Healthcare (P.) Ltd. v. DDIT (Investigation) - [2024] 159 135 (Madras)

Judiciary and Counsel Details

    • N. Anand Venkatesh, J.
    • G. Gautham Ram Vittal for the Petitioner.
    • Ms Sheela for the Respondent.

Facts of the Case

The Income Tax Department prosecuted company A1 and its erstwhile Directors for offences under the Income-tax Act committed during various assessment years from 2010-2011 to 2015 – 2016.

Later, a resolution plan was approved in its favour by the National Company Law Tribunal (NCLT), and a new management took over the company.

The new management filed the present petition on the ground that, as per 32A of IBC, the liability of Company-AI completely gets wiped off after the NCLT approves the resolution plan. Therefore, the prosecution as against company-A1 cannot be continued.

High Court Held

The Madras High Court held that the moment the Corporate Insolvency Resolution Process is initiated against the corporate debtor and the application is accepted by the NCLT, the moratorium comes into operation.

Once the resolution plan is accepted by the NCLT and orders are passed and the Corporate debtor gets into hands of the new management, all the past liabilities including the criminal liability of the Corporate debtor gets wiped off and the new management takes over the company with clean slate.

In the instant case, company A1 has now gone into the hands of the new management, pursuant to the order passed by the NCLT. In view of this, the new management takes over company A1 as a clean slate, and the criminal liability can no longer be mulcted as against company A1. Therefore, the continuation of criminal proceedings against company A1 can no longer subsist.

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