2022 (2) TMI 626 - AT - Insolvency and Bankruptcy

Levy of penalty u/s 128 (6) of the Companies Act 2013 - the Adjudicating Authority inferred that the suspended board of directors of corporate debtor did not maintain the records of the Corporate Debtor as mandated under the provisions of Section 128(5) of the Companies Act 2013 - HELD THAT - It is evident from the Impugned Order that the ex-Directors of the Corporate Debtor viz. Mr. Ashish Chaturvedi and Mr. Sanjay Kapoor were provided multiple opportunities to submit their reply when the matter was listed before the Adjudicating Authority on 25.2.2020 30.9.2020 19.10.2020 and 2.11.2020. But they neither filed any reply nor provided any record of the Corporate Debtor. In such a situation the Adjudicating Authority inferred that the suspended board of directors of corporate debtor did not maintain the records of the Corporate Debtor as mandated under the provisions of Section 128(5) of the Companies Act 2013 and after invoking the provision under Section 128 (6) of the Companies Act 2013 a penalty of Rs. 5 lakhs each was imposed on both the Appellants. The resolution professional could not carry out his duties as required under the IBC for insolvency resolution of the corporate debtor and when the corporate debtor was sent into liquidation the liquidator was unable to carry out the liquidation process in accordance with the provisions of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations 2016. Moreover when the Adjudicating Authority provided multiple opportunities to the Appellants to clarify their position by filing their replies in IA 1253/2020 the Appellants were totally remiss in doing so. With regard to the argument of the Learned Counsel of the Appellants that the Adjudicating Authority has imposed the penalty on the two ex-directors by invoking provisions of the Companies Act 2013 and thus passed the Impugned Order by travelling beyond their jurisdiction we are of the view that since the IA No. 1253/2020 was filed under the provisions of IBC it would have served the requirement of law if any order regarding the penalty was imposed under the provisions of IBC - it would have served the cause of natural justice if the Appellants were given an opportunity to be heard before imposition of any penalty. Chapter VII of the IBC which lays down Offences and Penalties under which officers of the Corporate Debtor can be penalized and/or punished with imprisonment is relevant in this regard. It is directed that the case be remanded to the Adjudicating Authority for taking a decision under the provisions of IBC after giving an opportunity to the Appellants to present their case - petition allowed by way of remand.

Summary

Issues:
1. Imposition of penalty on ex-directors under the Insolvency and Bankruptcy Code 2016.
2. Jurisdiction of the Adjudicating Authority to impose penalties under the Companies Act, 2013.
3. Non-cooperation of ex-directors in providing financial records and documents.
4. Compliance with orders of the Adjudicating Authority.

Analysis:
1. The appeal was filed under section 61 of the Insolvency and Bankruptcy Code 2016 against the Impugned Order passed by the Adjudicating Authority. The ex-directors of the corporate debtor were alleged to have withdrawn funds during the moratorium period, leading to the imposition of a penalty of Rs. Five lakhs each on them. The Adjudicating Authority invoked relevant provisions to penalize the ex-directors for non-compliance during the Corporate Insolvency Resolution Process (CIRP).

2. The Adjudicating Authority imposed penalties under the Companies Act, 2013, which raised concerns about jurisdiction. The Tribunal noted that penalties under the IBC would have been more appropriate. The Appellants were not given an opportunity to be heard before the penalties were imposed, highlighting a procedural flaw in the decision-making process.

3. The ex-directors were repeatedly directed to provide financial information and records but failed to comply, leading to penalties being imposed. The Liquidator's affidavit detailed the non-cooperation of the ex-directors in providing essential documents for insolvency resolution and liquidation processes. The lack of cooperation hindered the resolution professional and the liquidator in carrying out their duties effectively.

4. Despite directions from the Adjudicating Authority to deposit a specified amount within a set timeframe, the ex-directors did not comply. This non-compliance with the orders of the Adjudicating Authority showcased a disregard for legal processes and obligations. The Tribunal emphasized the importance of adhering to legal requirements and directed the case to be remanded for a fresh decision under the provisions of the IBC, ensuring the Appellants are given a fair opportunity to present their case.

Overall, the judgment highlighted the significance of cooperation, compliance with legal orders, and the proper application of penalties within the framework of the Insolvency and Bankruptcy laws.