Moratorium and resolution-plan immunity under insolvency law do not protect erstwhile directors from cheque dishonour proceedings.

Section 14 of the Insolvency and Bankruptcy Code, 2016 bars proceedings only against the corporate debtor during moratorium and does not extend that protection to erstwhile directors or persons responsible for its business, so cheque dishonour proceedings under Sections 138 and 141 of the Negotiable Instruments Act, 1881 may continue against them. Section 32-A grants post-resolution immunity to the corporate debtor only where the approved resolution plan brings a qualifying change in management or control to an unconnected person; where control remains with the earlier management, that protection does not arise. The liability of persons in charge remains preserved.

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Issues: (i) Whether, despite moratorium, proceedings under Sections 138 and 141 of the Negotiable Instruments Act, 1881 could continue against the erstwhile directors or persons in charge of a corporate debtor. (ii) Whether, after approval of a resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016, the criminal proceedings would terminate against the corporate debtor in the light of Section 32-A of the Insolvency and Bankruptcy Code, 2016.

Issue (i): Whether, despite moratorium, proceedings under Sections 138 and 141 of the Negotiable Instruments Act, 1881 could continue against the erstwhile directors or persons in charge of a corporate debtor.

Analysis: Section 14 of the Insolvency and Bankruptcy Code, 2016 bars institution or continuation of proceedings against the corporate debtor during the moratorium period. However, the moratorium is directed to the corporate debtor and does not wipe out the statutory liability of natural persons covered by Section 141 of the Negotiable Instruments Act, 1881. The protection under moratorium does not extend to directors or persons responsible for the conduct of business of the company.

Conclusion: Proceedings under Sections 138 and 141 of the Negotiable Instruments Act, 1881 can continue against the erstwhile directors or persons in charge, and not against the corporate debtor alone during moratorium.

Issue (ii): Whether, after approval of a resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016, the criminal proceedings would terminate against the corporate debtor in the light of Section 32-A of the Insolvency and Bankruptcy Code, 2016.

Analysis: Section 32-A of the Insolvency and Bankruptcy Code, 2016 grants immunity to the corporate debtor only when the resolution plan results in a change in management or control to a person unconnected with the earlier management and not otherwise disqualified. Where the resolution plan does not bring about such a change and control continues with a promoter or earlier management, the corporate debtor does not obtain the statutory protection. The proviso also preserves the liability of persons who were in charge of, or responsible for, the conduct of business.

Conclusion: The criminal proceedings do not stand terminated for the corporate debtor on these facts, and the directors remain liable.

Final Conclusion: The request to quash the cheque dishonour proceedings was rejected, and the prosecution was permitted to continue against the company and its directors.

Ratio Decidendi: Moratorium under Section 14 protects only the corporate debtor during the insolvency period, while Section 32-A grants post-resolution immunity to the corporate debtor only on a qualifying change in management or control, without extinguishing the liability of persons in charge.

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