Cheque-dishonour prosecution survives insolvency resolution; directors and signatories may still face personal penal liability.

Approval of a resolution plan under the Insolvency and Bankruptcy Code does not by itself terminate pending cheque-dishonour proceedings under Section 138 of the Negotiable Instruments Act. The moratorium applies only during the CIRP, and the binding effect of a resolution plan under Section 31 does not amount to compounding or extinguishment of the penal case against natural persons. Section 32A was treated as protecting the corporate debtor after resolution, but not as wiping out the separate personal penal liability of a director or signatory who was in charge of the company. The proceedings may continue against such persons under Sections 138 and 141 notwithstanding resolution of the corporate debtor.

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Issues: (i) Whether pending proceedings under Section 138 of the Negotiable Instruments Act, 1881 against the company and its signatory/director abate or stand terminated upon approval of a resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016. (ii) Whether the resolution plan or the extinguishment of the corporate debtor's liability under the Insolvency and Bankruptcy Code, 2016 discharges the personal penal liability of the signatory/director under Sections 138 and 141 of the Negotiable Instruments Act, 1881.

Issue (i): Whether pending proceedings under Section 138 of the Negotiable Instruments Act, 1881 against the company and its signatory/director abate or stand terminated upon approval of a resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016.

Analysis: Proceedings under Section 138 are criminal in character and are not recovery proceedings. The moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 operates only during the CIRP and, after approval of a resolution plan, Section 31 gives the plan binding effect, but it does not convert or extinguish the penal proceedings. Section 32A was understood as protecting the corporate debtor after a change in management and a clean break with the past, not as wiping out the prosecution under Section 138 against natural persons who were in charge of the company. The legislative scheme, read harmoniously, permits the criminal prosecution to continue against those persons notwithstanding the resolution of the corporate debtor.

Conclusion: The Section 138 proceedings do not abate merely because a resolution plan has been approved under the Insolvency and Bankruptcy Code, 2016.

Issue (ii): Whether the resolution plan or the extinguishment of the corporate debtor's liability under the Insolvency and Bankruptcy Code, 2016 discharges the personal penal liability of the signatory/director under Sections 138 and 141 of the Negotiable Instruments Act, 1881.

Analysis: The liability of persons in charge of the company under Section 141 is co-extensive with the company's offence, but it is a distinct personal penal liability. The Court held that the resolution plan may bind the corporate debtor and may affect the amount recoverable from the claim, yet it cannot operate as a statutory compounding or as a discharge of the natural persons. The second proviso to Section 32A preserves the liability of persons who were in charge of, responsible to, or associated with the corporate debtor and involved in the offence. A director or signatory cannot take advantage of the corporate debtor's discharge by operation of law to avoid criminal prosecution.

Conclusion: The signatory/director remains liable to be prosecuted and punished under Sections 138 and 141 of the Negotiable Instruments Act, 1881.

Final Conclusion: Approval of the resolution plan may extinguish the corporate debtor's criminal exposure in the manner contemplated by the Insolvency and Bankruptcy Code, 2016, but it does not terminate the pending cheque-dishonour prosecution against the natural persons responsible for the offence.

Ratio Decidendi: A resolution plan under the Insolvency and Bankruptcy Code, 2016 does not amount to compounding or discharge of Section 138 liability for the company's signatory or other persons vicariously liable under Section 141 of the Negotiable Instruments Act, 1881, even though the corporate debtor may obtain statutory protection upon resolution.

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