Suspended Management Cannot Disburse Funds Of Corporate Debtor Post-CIRP Commencement Without Authorisation Of IRP: NCLAT New Delhi

Brief Facts

M/s. Sunil Hitech Engineering Limited (Corporate Debtor) entered into Corporate Insolvency Resolution Process (CIRP) on 07.09.2018. The NCLT passed the order on 07.09.2018, which was uploaded on 10.09.2018. The Tribunal also appointed an IRP on the same date. On 14.09.2018, the IRP issued a notice to the Suspended Management informing them of the takeover of the Corporate Debtor's management. The Adjudicating Authority appointed a Resolution Professional (RP) on 27.11.2018.

The RP discovered that the Appellant and Respondent No. 6, the CFO of the Corporate Debtor, had made unauthorised payments amounting to Rs. 11.01 crore to Respondent Nos. 2 to 5 from 10.09.2018. The RP issued a letter seeking an explanation for the payments. On 09.04.2019, the Appellant and Respondent No. 6 responded that the transactions aimed to keep the Corporate Debtor as a going concern and were made in accordance with the existing Standard Operating Procedures.

Dissatisfied with the explanation, the RP filed an Application in the Company Petition seeking directions for the Appellant and Respondent Nos. 2 to 6 to refund the full amount. The Adjudicating Authority allowed the application. Aggrieved by the order, the Appellant filed the appeal.

Submissions

Counsel for the Appellant submitted that although the impugned transactions took place after the pronouncement of the CIRP commencement order, they were undertaken in the ordinary course of business. She pointed out that Respondent Nos. 2 to 5 were long-term vendors of the Corporate Debtor and clearing their dues was necessary to keep the Corporate Debtor functioning as a going concern. She submitted that the management had approved the payments prior to the initiation of CIRP. It was further submitted that although the cheques were encashed after 10.09.2018, they were dated prior to it.

Per contra, Counsel for Respondent No.1 (the RP) submitted that the Appellant and Respondent No.6 violated Section 14(1)(b) of the IBC by making payments from the Corporate Debtor's account after commencement of CIRP. He contended that the CIRP commencement date is the date of pronouncement of the order, i.e., 07.09.2018, and not the date of its upload (10.09.2018). Accordingly, he argued that all post-07.09.2018 transactions stood in breach of the moratorium. He submitted that the impugned payments were made post-commencement of CIRP without the authorization of the IRP.

Observations

The issue before the Tribunal was whether the payments made by the Appellant after commencement of CIRP constituted a breach of the provisions of moratorium and whether there was any infirmity in the impugned order directing the reversal of the impugned transactions by the Appellant and Respondent No. 2 to 6 to the assets of the Corporate Debtor.

The Tribunal observed that as soon as an application of CIRP is admitted under Section 7, 9 or 10 of the IBC, it marks the commencement of insolvency. The moratorium becomes enforceable from the date the CIRP application is admitted or as indicated in the order. Once the moratorium is in effect, it is not open for any Financial or Operational creditor to recover any amount from the account of the Corporate Debtor except by filing claims through the resolution framework. The Tribunal observed that the suspended management of the Corporate Debtor is also strictly prohibited from directly or indirectly deploying the funds of the Corporate Debtor unilaterally, without the authorisation of IRP.

The Tribunal noted that the order dated 07.09.2018 stipulated that “the order of moratorium shall have effect from 10.09.2018”. Nine out of twelve impugned payments were made post-moratorium. As for the three cheque transactions dated prior to moratorium, they were encashed by the Respondents after the CIRP commencement date and post the declaration of moratorium.

The Tribunal noted that the RP had clarified that all payments made by him had been duly approved by the CoC and were disbursed through the UCO Bank account. However, the impugned payments were made from an HDFC Bank account, indicating they were not authorised by the IRP. The Tribunal held that the impugned payments were statutorily impermissible and in violation of the moratorium.

The Tribunal reiterated that Section 14(1)(b) of the IBC puts a clear and unambiguous embargo on releasing any payments from the account of the Corporate Debtor once moratorium commences. It observed that:

“Once moratorium is declared, the suspended management of the Corporate Debtor has to willy-nilly and mandatorily abide by this clear and express provision contained in the IBC statute…. The question of intent and motive behind allowing the impugned transactions is irrelevant and immaterial in view of the clear language of the statutory provision of Section 14 prohibiting such a payment after commencement of CIRP and declaration of moratorium.”

In relation to the three cheques dated before the commencement of CIRP but encashed thereafter, the Tribunal stated that cheque cannot be encashed after the moratorium start. Accordingly, the Tribunal held that since the cheques were encashed after 10.09.2018 by which date the moratorium had become effective, it amounted to breach of moratorium. The Tribunal referred to SREI Equipment Finance Ltd. Vs Amit Gupta wherein the Tribunal held that even if the cheque dates back to the date of handover it cannot be encashed after moratorium kicking in.

Accordingly, the Tribunal dismissed the Appeal.

Case Title: Mr. Sunil Gutte vs. Mr. Avil Menezes & Ors.

Case Number: Company Appeal (AT) (Insolvency) No. 515 of 2025

For Appellant : Ms. Honey Satpal, Mr. Akash Agarwalla, Ms. Pooja Singh and Mr. Kanishk Khollar, Advocates.

For Respondent : Mr. J. Rajesh, Md. Arsalan Ahmad, Mr. Dhrupad Vaghani and Mr. Yashwardhan Aggarwal, Advocates.

Date of Judgment: 30.05.2025

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