NCLAT Upholds Order Directing Suspended Directors To Repay ₹32 Lakh Which Was Withdrawn During CIRP, Imposes ₹5 Lakh Cost

It also upheld the findings of the Adjudicating Authority that no amount during the CIRP can be withdrawn from the account of the Corporate Debtor by the Suspended Directors in view of section 14 of the Insolvency and Bankruptcy Code, 2016 (Code).

Brief Facts:

The suspended directors of A to Z Barter Pvt. Ltd.(Corporate Debtor) have challenged the order dated 16th January 2025 passed by the National Company Law Tribunal (NCLT), New Delhi, in I.A. No. 2021/2022 in CP (IB) No. 643(ND)/2018.

The impugned order directed the appellants to deposit ₹37,64,953 (including interest on ₹32,00,000) into the liquidation estate of the corporate debtor. The amount was allegedly withdrawn during the moratorium period under Section 14 of the Code.

The appellants argue that the withdrawal was the result of encashing post-dated cheques issued to Kewal Kisan prior to the initiation of the CIRP. They contend that the transaction was cheque-based, not through electronic transfer (NEFT/IMPS), and that the presentation of the cheques after the CIRP was not their fault.

Against the above order, the present appeal has been filed.

Contentions:

The Appellant submitted that the cheque was given earlier as a post-dated cheque to repay the due loan amount. The Appellant never used that money for his personal purpose. The Adjudicating Authority has overlooked the legal issues that the money was neither an NEFT transaction nor a cash withdrawal but it was repaid through post-dated cheques to repay an old loan amount on behalf of the Company.

Per contra, the Respondent submitted that as the Corporate Debtor had no money to its credit as on the liquidation commencement date because of the malicious acts of the Respondents, the Respondent-Liquidator was unable to pay fees either to himself or to the service providers appointed by him.

It was further submitted that the Appellants-Suspended Directors have not been cooperating with the Liquidator and not paid the penalty also and the Corporate Debtor has been recommended for dissolution.

Observations:

The Tribunal noted that In Application No. I.A. 2025/2020 of the Resolution Professional under Section 60(5) read with Section 66 of the Code, the Adjudicating Authority, on 9th November 2021, noted that several opportunities were given to the respondents to file a reply regarding whether ₹32 lakh had been withdrawn from the account of the corporate debtor.

It further added that however, no reply was submitted by the appellants. Consequently, the Adjudicating Authority directed the suspended directors of the corporate debtor (respondents) to deposit ₹32 lakh, along with interest at 12% per annum from the date of withdrawal.

The Tribunal also noted that the suspended board of directors filed an appeal against the above order before this Appellate Authority. On 29th January 2021, the Appellate Tribunal heard the matter and noted that, as per the order dated 9th November 2020, the appellant (the erstwhile director of the corporate debtor) was directed to deposit ₹32,00,000 along with interest at the rate of 12% per annum from the date of withdrawal, which was in violation of the provisions of Section 14 of the Code.

It further added that the Appellate Tribunal observed that no valid legal grounds were presented to justify the retention of the amount withdrawn in violation of the order passed under Section 14 during the CIRP. Faced with this, the learned counsel for the appellant offered to withdraw the appeal, and accordingly, the appeal was dismissed as withdrawn by the Appellate Tribunal in its order dated 29th January 2021.

Based on the above, it observed that while deciding Company Appeal (AT) (Insolvency) No. 1103 of 2020, this Appellate Authority, through its judgment dated 14.02.2022, had adverted to all the contentions of both the parties and recorded specific findings therein. The contents of these Appeals have already been adjudicated upon by this Appellate Authority.

The Tribunal further said that the orders dated 09.11.2021, regarding the deposit of ₹32 lakhs, have been repeatedly challenged by the appellant, thereby wasting the time of both the Adjudicating Authority and the Appellate Authority. The appellant is barred by the principle of res judicata from raising the issue of the Rs.32,00,000 deposit again. The matter has been conclusively settled by the Adjudicating Authority therefore no infirmity was found in the order.

It further opined that CA 1253/2020 was filed during the CIRP stage. Through the filing of IA 2021/2022 by the liquidator, the continued non-cooperation of the appellants and their blatant disobedience of orders passed by both the Adjudicating Authority and this Appellate Authority regarding the wrongful utilization of Rs.32 lakhs during the CIRP moratorium have been reinforced.

The Tribunal observed that the IA 2021/2022 was heard and decided by the impugned order dated 16.01.2025. It was held that the appellants have consistently shown non-cooperation throughout the CIRP and liquidation process, and this continues to date.

Based on the above, no infirmity was found by the Tribunal in the orders of the Adjudicating Authority allowing IA No. 2021 of 2022, which directed the suspended directors to deposit ₹32 lakhs, along with interest at the rate of 12% per annum from the date of withdrawal, into the account of the corporate debtor. This is in compliance with the orders dated 9th November 2020 of the AA in IA No. 2025 of 2020 and 29th January 2021 of this Appellate Tribunal in CA (AT) (Ins.) No. 47 of 2021.

Accordingly, the present appeal was dismissed and each suspended director was directed to deposit Rs.5 lakh as costs into the PM's Relief Fund, in addition to remitting the amount already ordered by the Adjudicating Authority.

Case Title:Sh. Ashish Chaturvedi and Ors. Versus Sh. Sanjay Garg and Ors.

Case Number: Company Appeal (AT) (Insolvency) No. 432 of 2025

Judgment Date: 23/04/2025

For Appellant : Mr. Pulkit Atal, Advocate.

For Respondent : Mr. K.D. Sharma, Liquidator.

Click Here To Read/Download The Order