Company's criminal proceedings cannot continue after Corporate Insolvency Resolution Process under IBC creates clean slate

The Madras HC held that criminal proceedings against a company cannot continue after it undergoes Corporate Insolvency Resolution Process under IBC. Once NCLT accepts a resolution plan and new management takes over, all past liabilities including criminal liability are wiped off, creating a clean slate. The court quashed proceedings against the company, noting that criminal liability cannot be transferred to new management. However, the complainant may identify and prosecute individual officers who were responsible for the company's affairs during the relevant period when alleged offences occurred.

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Issues involved:
The judgment addresses the issue of criminal liability of a company under the Income Tax Act during the Corporate Insolvency Resolution Process (CIRP) and the impact on prosecution against the company and its new management.

Details of the Judgment:

Issue 1: Criminal Prosecution against A1 Company and Managing Director
The Income Tax Department prosecuted the company and its Managing Director for undisclosed income during assessment years 2010-2011 to 2015-2016. The company was admitted into CIRP, and the resolution plan was approved by the NCLT. The new management filed quash petitions stating that under Section 32A of IBC, the liability of the A1 company is extinguished after the resolution plan approval.

Issue 2: Application of Section 32A of IBC
The Apex Court clarified that under Section 32A, the criminal liability of the corporate debtor is wiped off when new management takes over. However, individuals responsible for the company's conduct remain liable for offenses committed before CIRP. The Calcutta High Court emphasized that offenses committed during or before CIRP fall under Section 32A and require a change in management for liability extinguishment.

Judgment and Conclusion
The court ruled that once the new management took over the company, the criminal liability of the A1 company was extinguished. The new management cannot be held liable for past offenses. The criminal proceedings against the company were quashed, but the respondent can pursue prosecution against individuals responsible for the company's affairs during the relevant period. The judgment aligns with previous legal interpretations and safeguards the new management from inheriting the company's criminal liability.

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