Corporate insolvency resolution plan shields new management from cheque dishonour liability; proceedings may continue against erstwhile directors.

On approval of a resolution plan under corporate insolvency resolution process and replacement of management, liability for dishonour of cheques issued before the takeover could not be fastened on the company under the new management. The approved resolution plan had to be given full effect, so the company could not be treated as responsible for acts committed before the change in control. Proceedings could, however, continue against the erstwhile directors-in-charge and cheque-signatories who were in charge and responsible at the relevant time. The company's later impleadment was therefore set aside to the extent it exposed the new management.

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Issues: (i) whether, after approval of a resolution plan and change of management in corporate insolvency resolution process, the company could still be proceeded against for dishonour of cheques issued before the takeover; (ii) whether the complainant could continue proceedings only against the erstwhile directors-in-charge and cheque-signatories.

Issue (i): whether, after approval of a resolution plan and change of management in corporate insolvency resolution process, the company could still be proceeded against for dishonour of cheques issued before the takeover;

Analysis: Once the corporate insolvency resolution process culminated in approval of the resolution plan, the erstwhile management stood replaced by the successful resolution applicant. The liability for dishonour of cheques issued prior to the change in management could not be fastened on the company under the new management, as the legal effect of the approved resolution plan and the consequent takeover had to be given full effect. The company, therefore, could not be treated as responsible for the alleged offence in relation to acts committed before the new management assumed charge.

Conclusion: The company could not be held liable for the dishonour of the cheques after the resolution process and change of management.

Issue (ii): whether the complainant could continue proceedings only against the erstwhile directors-in-charge and cheque-signatories.

Analysis: The complaint could survive against those persons who were in charge of the company and were responsible for the issuance and dishonour of the cheques at the relevant time. The later impleadment of the company, after the change in management, could not affect the position of the new management, and the prosecution could proceed against the persons allegedly responsible in the erstwhile regime.

Conclusion: The complainant could proceed only against the erstwhile directors-in-charge and cheque-signatories.

Final Conclusion: The impugned remand and subsequent impleadment of the company were set aside to the extent they exposed the company under the new management, while the prosecution was left to continue against the persons responsible at the time of the cheque transactions.

Ratio Decidendi: On approval of a resolution plan and substitution of management in corporate insolvency resolution process, the company under the new management cannot be made liable for dishonour of cheques issued before the takeover; proceedings may continue only against those who were in charge at the relevant time.

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