2018 (10) TMI 1086 - AT - Insolvency and Bankruptcy

Investigations against Ex-Directors of the Company - pending liquidation proceedings one of the operational creditors filed application under Section 60(5)(c) r/w Section 67 of I&B Code with prayer to seek directions on the 2nd respondent including appellants to deposit their passports with the Registry of the Tribunal during the pendency of the said application - Held that - After the investigation if any report is filed against the Ex-Director it will always open to the Adjudicating Authority to pass appropriate order under Section 66 read with Section 67 of the I&B Code. In view of provisions aforesaid, it cannot be stated that the Adjudicating Authority is not empowered to direct the ex-Directors not to leave the country without prior permission of the Adjudicating Authority. Further any order is passed under the law it cannot be held to be violative of Article 21 of Constitution of India. Further, we find that the Adjudicating Authority has not stayed the movement of the appellants, but has only observed that if they intend to leave the country should take the permission of the Adjudicating Authority. Therefore, the order can not be held to be an order of permanent injunction on the appellants.

Summary

Issues:
1. Application under Section 60(5)(c) r/w Section 67 of I&B Code for directions to deposit passports during liquidation proceedings.
2. Jurisdiction of Adjudicating Authority to pass interim orders under I&B Code.
3. Compliance with Article 21 of the Constitution regarding freedom of movement.
4. Interpretation of Section 66 of the Insolvency and Bankruptcy Code regarding fraudulent trading.

Analysis:
1. The appellants, ex-Directors of a Corporate Debtor undergoing liquidation, were asked to deposit their passports during the pending liquidation proceedings. The Adjudicating Authority considered ongoing investigations by the CBI against the ex-Directors and the risk of them leaving the country, potentially hindering fraud investigations.

2. The appellants argued that only the Supreme Court has jurisdiction under Article 142 to restrict individuals from leaving the country, not the Adjudicating Authority under the I&B Code. They contended that the impugned order violated Article 21 of the Constitution.

3. The Tribunal clarified that preventing the ex-Directors from leaving the country was to safeguard the interests of stakeholders and facilitate the liquidation process, not a permanent injunction. The order was deemed necessary to ensure the investigation's integrity and potential outcomes.

4. Referring to Section 66 of the I&B Code on fraudulent trading, the Tribunal highlighted the authority of the Adjudicating Authority to pass orders under Section 66 and 67 based on investigations. Any report filed against the ex-Directors could lead to appropriate actions under the Code.

In conclusion, the Tribunal found no merit in the appeal and dismissed it, emphasizing the Adjudicating Authority's power to issue directions regarding the movement of ex-Directors during ongoing investigations and liquidation proceedings.