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2020 (7) TMI 30 - Tri - Insolvency and BankruptcyMaintainability of application - Restoration of currency of CIRP without the knowledge and/or consent of the Applicant - HELD THAT - The contention that this application is not maintainable is found devoid of any merit. As per section 66(1) of the Code, if the AA is satisfied that during the corporate insolvency process the directors of the CD withdrawn money from the bank account of the CD with an intent to defraud creditors or for any fraudulent purposes, pass an order against the person liable to make such contributions to the assets of the CD. As per section 74 (1) if the AA is satisfied that the CD or any of its officer violates the provisions of section 14, any such officer who knowingly or willfully committed such contravention shall be punishable with fine not exceeding 3 lack or with imprisonment not exceeding 3 years or with both. The allegations leveled by the RP as against the directors are perfectly falls under these provisions. Therefore, contentions of the directors that this application is not at all maintainable is devoid of any merit. A prudent law obedient man never expected to do this kind of disobedience and breach of their own undertaking. What is attempted on the side of the directors is that they are willing to pay back the amount less ₹ 2 crore allegedly paid to the suppliers of raw materials as stated above and that for payment they need some more time due to disruption of bank transactions due to lock down. Neither the proposals discussed above seems to have genuine nor it would be workable. The conduct and approach of the directors indicates that they were willfully evading repayment on lame excuse under the guise of the lock down due to COVID-19. The directors were guilty of willful disobedience of the orders of the appellate Tribunal. The ingredients to be satisfied under section 74(1) of the Code stand proved - Being found guilty of violating the moratorium under section 14 of the code, the directors are punishable with imprisonment for a term which shall not be less than three years, but may extend to five years or with fine which shall not be less than one Lakh rupees, but may extend to three lakh rupees, or with both. However, this Adjudicating Authority has no power to impose sentence/imprisonment. So it is left to the RP to move application before the IBBI or to file criminal complaint before the police for trial of complaint cases by the designated special court under section 435 of the Companies Act, 2013. The directors/ Mr. Manoj Daga and Mr. Deepak Daga are directed to refund an amount of ₹ 5,50,12,170.22 to the account of the CD with in two weeks from the date of receipt of an email copy of this order - Application disposed off.
Issues Involved:
1. Unauthorized withdrawal of funds during the Corporate Insolvency Resolution Process (CIRP). 2. Violation of moratorium order under Section 14 of the Insolvency and Bankruptcy Code (IBC), 2016. 3. Maintainability of the application under Sections 66(1) and 74(1) of IBC. 4. Contempt of Tribunal’s orders and breach of undertakings by the directors. 5. Non-joinder of necessary parties. 6. Imposition of penalties and further legal actions. Issue-wise Detailed Analysis: 1. Unauthorized Withdrawal of Funds During CIRP: The resolution professional filed an application under Sections 67, 68, 69, 70, 72, and 74 of the IBC, 2016, seeking directions against the suspended board of directors for withdrawing ?6,72,12,170.22 from the corporate debtor’s bank account without consent. The directors deposited back ?1,22,00,000, leaving a balance of ?5,50,12,170.22. The unauthorized withdrawal was in violation of the moratorium order dated 27.09.2019 and the NCLAT order dated 23.10.2019. 2. Violation of Moratorium Order Under Section 14 of IBC: The directors’ actions contravened the moratorium order under Section 14 of IBC. The NCLAT had directed that bank cheques could only be issued with the approval of the Interim Resolution Professional (IRP). Despite this, the directors withdrew funds, leading to a violation of the moratorium and the orders of the NCLAT. 3. Maintainability of the Application Under Sections 66(1) and 74(1) of IBC: The directors challenged the maintainability of the application, arguing that the sections cited did not apply to the allegations. However, the Tribunal found the application maintainable under Sections 66(1) and 74(1) of IBC, which deal with fraudulent trading and contravention of moratorium orders, respectively. The Tribunal noted that the directors’ actions fell within these provisions. 4. Contempt of Tribunal’s Orders and Breach of Undertakings: The directors had given undertakings to return the withdrawn amount but failed to comply. The NCLAT observed that the directors acted illegally by withdrawing funds post-moratorium and not honoring their undertakings. This led to the dismissal of their appeal and initiation of contempt proceedings. The Tribunal emphasized that the directors’ deliberate disobedience of orders and breach of undertakings justified contempt action. 5. Non-joinder of Necessary Parties: The directors contended that the application was bad for non-joinder of Pack Power and Pooja Trading, to whom they claimed to have paid ?2 crore. The Tribunal dismissed this contention, noting that there was no supporting evidence for the payment, and the suppliers were neither necessary nor formal parties to the application. 6. Imposition of Penalties and Further Legal Actions: The Tribunal found the directors guilty of violating the moratorium under Section 14 of IBC. As per Section 74(1), the directors were liable for punishment, including imprisonment and fines. However, the Tribunal could only impose fines and directed the resolution professional to approach the IBBI or file a criminal complaint for further legal actions. The Tribunal ordered the directors to refund ?5,50,12,170.22 within two weeks, failing which they would be liable to pay a fine of ?1 lakh each. Conclusion: The Tribunal concluded that the directors’ unauthorized withdrawal of funds during the CIRP violated the moratorium order and constituted fraudulent trading under Sections 66(1) and 74(1) of IBC. The application was found maintainable, and the directors were directed to refund the withdrawn amount or face penalties. The Tribunal also highlighted the directors’ contempt of the NCLAT’s orders and breach of undertakings, warranting further legal actions.
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