2025 (4) TMI 1409 - AT - IBC

Withdrawal of amount from the Corporate Debtor s bank account during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code 2016 (IBC) - continuing non-cooperation of the Appellants as well as the brazen disobedience of the Appellants - only plea that has been taken by the Appellants to rebut the allegation of abject non-cooperation is illness of the Appellants - HELD THAT - The Appellant is hit very hard by res judicata with respect to raising the appeal to deposit of Rs.32, 00, 000. The matter has been well settled by the Adjudicating Authority and there are no infirmity in the order. CA 1253/2020 was preferred during the CIRP stage. Through the filing of IA 2021/2022 by the liquidator the fact of continuing non-cooperation of the Appellants as well as the brazen disobedience of the Appellants vis-a -vis Orders passed by the AA and this Appellate Authority qua wrongful utilisation of Rs. 32 lakhs during the CIRP moratorium are once again reinforced. The IA 2021/2022 was heard and was decided by the Impugned Order dated 16.01.2025 - the Appellants had shown continued non-cooperation during the CIRP and during the liquidation process and the same is continuing as on date. The order dated 9th November 2021 has not been challenged before the Appellate Authority and has thus attained finality - there are no infirmity in the orders of the Adjudicating Authority in allowing IA No 2021 of 2022 which prays to direct the suspended Directors to deposit to the account of the Corporate Debtor an amount of Rs. 32 lakhs along with interest at the rate of 12% per annum from the date of withdrawal in compliance of orders dated 9 th November 2020. Conclusion - The withdrawal of Rs. 32 lakhs during the moratorium declared under Section 14 of the IBC was in violation of the provisions of the Code and the amount along with interest @12% per annum from the date of withdrawal is liable to be deposited into the liquidation estate. The appeal of the suspended directors dismissed as it is devoid of any merits.

Summary

The core legal questions considered by the Tribunal in this appeal are:

1. Whether the withdrawal of Rs. 32,00,000/- from the Corporate Debtor's bank account during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) was unlawful and liable to be deposited into the liquidation estate.

2. Whether the Appellants, as suspended directors, had shown non-cooperation and disobedience of orders passed by the Adjudicating Authority (AA) and the Appellate Tribunal, thereby justifying directions for deposit of the withdrawn amount with interest.

3. Whether the contention of the Appellants that the withdrawal was due to encashment of post-dated cheques issued before initiation of the Corporate Insolvency Resolution Process (CIRP) absolves them of liability under the moratorium provisions.

4. Whether the principle of res judicata applies to bar the Appellants from re-agitating the issue of deposit of Rs. 32 lakhs and interest, given prior orders and appeals.

5. Whether the penalty imposed on the Appellants for non-cooperation under the Companies Act, 2013, was valid or required reconsideration under the IBC framework.

6. Whether the Appellants' conduct amounts to frivolous and vexatious litigation warranting imposition of costs.

Issue-wise Detailed Analysis:

1. Legality of Withdrawal of Rs. 32 Lakhs During Moratorium Period

Legal Framework and Precedents: Section 14 of the IBC imposes a moratorium on the institution of suits or continuation of pending suits or proceedings against the corporate debtor, and prohibits transferring, encumbering, alienating or disposing of any assets or legal rights or beneficial interest therein of the corporate debtor during the CIRP. Withdrawal of funds during the moratorium without authorization is prohibited and liable to be reversed.

Court's Interpretation and Reasoning: The AA had directed the suspended directors to deposit Rs. 32 lakhs withdrawn during the moratorium along with 12% interest. The Appellate Tribunal upheld this direction, noting that the withdrawal was unauthorized and violated Section 14. The Tribunal observed that the Appellants failed to file any reply or affidavit contesting the withdrawal despite repeated opportunities.

Key Evidence and Findings: Bank statements annexed with the IA showed withdrawals of Rs. 16.5 lakhs and Rs. 10 lakhs on 20.12.2019 and Rs. 5.5 lakhs on 13.02.2019, which fell within the moratorium period. The Appellants did not dispute the fact of withdrawal but contended that these were encashments of post-dated cheques issued before CIRP.

Application of Law to Facts: The Tribunal rejected the Appellants' argument that the withdrawal was innocent because the cheques were post-dated and issued prior to CIRP. It held that the Appellants could have instructed the payee not to present the cheques during the moratorium, and thus the withdrawal was attributable to their failure to comply with moratorium provisions.

Treatment of Competing Arguments: The Appellants argued that the transaction was cheque-based, not NEFT or cash withdrawal, and hence not a violation. The Tribunal found this distinction immaterial, emphasizing the moratorium's blanket prohibition on any unauthorized withdrawals, regardless of mode.

Conclusion: The withdrawal of Rs. 32 lakhs during the moratorium was unlawful and liable to be deposited into the liquidation estate with interest.

2. Non-cooperation and Contemptuous Conduct of Appellants

Legal Framework and Precedents: Under the IBC, officers of the corporate debtor are duty-bound to cooperate with the resolution professional and liquidator by providing records and documents. Non-cooperation can attract penalties and contempt proceedings. The Companies Act, 2013 also imposes duties on directors to maintain records under Section 128, with penalties under Section 128(6).

Court's Interpretation and Reasoning: The Tribunal noted repeated findings by the AA and itself that the Appellants had shown "abject non-cooperation" during CIRP and liquidation. They failed to provide requisite documents despite multiple opportunities. The Tribunal also observed that the Appellants disobeyed orders to deposit withdrawn amounts and ignored service of orders, leading to contempt proceedings.

Key Evidence and Findings: The AA's order dated 09.11.2021 and the Tribunal's judgment dated 14.02.2022 recorded the Appellants' failure to comply with directions and provide documents. The Appellants offered illness as a defense, but the Tribunal rejected it as untenable in law.

Application of Law to Facts: The Tribunal emphasized that the Appellants' conduct amounted to defiance and disrespect of legal process, justifying strict measures including penalties and costs.

Treatment of Competing Arguments: The Appellants' plea of illness and assertion of procedural irregularities were found insufficient to excuse their non-compliance and non-cooperation.

Conclusion: The Appellants' non-cooperation and disobedience justified directions for deposit of amounts and imposition of costs.

3. Effect of Post-dated Cheque Argument on Liability

Legal Framework and Precedents: Moratorium under Section 14 prohibits any unauthorized transactions affecting the corporate debtor's assets. The mode of transaction or timing of cheque issuance does not exempt parties from compliance.

Court's Interpretation and Reasoning: The Tribunal held that issuing post-dated cheques prior to CIRP does not authorize their presentation and encashment during moratorium. The Appellants had the ability and duty to prevent presentation during moratorium but failed to do so.

Key Evidence and Findings: Bank statements showed cheque encashments during moratorium. No evidence was produced that the Appellants took steps to prevent presentation.

Application of Law to Facts: The Tribunal applied the moratorium provisions strictly, rejecting the Appellants' attempt to circumvent liability by relying on timing of cheque issuance.

Treatment of Competing Arguments: The argument that the transaction was not electronic and not a cash withdrawal was rejected as irrelevant to moratorium compliance.

Conclusion: The post-dated cheque argument does not absolve the Appellants of liability for unauthorized withdrawal during moratorium.

4. Application of Res Judicata Doctrine

Legal Framework and Precedents: The doctrine of res judicata bars re-litigation of issues that have been finally adjudicated between the same parties. Finality is achieved when appeals are withdrawn or dismissed and no further challenge is pending.

Court's Interpretation and Reasoning: The Tribunal found that the issue of deposit of Rs. 32 lakhs with interest had been conclusively decided by the AA's order dated 09.11.2021 and the Tribunal's order dated 29.01.2021 (appeal dismissed as withdrawn). The Appellants' repeated attempts to reopen the issue were barred by res judicata.

Key Evidence and Findings: The prior orders and appeals records showed finality of the deposit direction. The Tribunal noted that the Appellants had no cogent legal grounds to assail the orders but continued to file repetitive appeals.

Application of Law to Facts: The Tribunal applied res judicata to dismiss the present appeals as devoid of merit and an abuse of process.

Treatment of Competing Arguments: The Appellants' contention that fresh hearings were warranted was rejected, as the Tribunal had remanded only the penalty imposition issue, not the deposit of withdrawn funds.

Conclusion: The appeals on deposit of Rs. 32 lakhs are barred by res judicata and liable to be dismissed.

5. Validity of Penalty Imposed Under Companies Act vs IBC

Legal Framework and Precedents: Penalties on officers of corporate debtor for non-cooperation during CIRP/liquidation are governed by Chapter VII of the IBC. The Companies Act, 2013 provides for penalties under Section 128 for failure to maintain records, but the IBC framework is the primary code during insolvency proceedings.

Court's Interpretation and Reasoning: The Tribunal in its earlier judgment dated 14.02.2022 remanded the penalty issue for fresh hearing under IBC provisions after giving the Appellants an opportunity to be heard. It set aside the prior penalty order under Companies Act as beyond jurisdiction without hearing.

Key Evidence and Findings: The remand order emphasized natural justice and proper legal basis for penalty imposition.

Application of Law to Facts: The Tribunal directed the AA to decide penalty afresh under IBC, ensuring compliance with due process.

Treatment of Competing Arguments: The Appellants' challenge to penalty on jurisdictional grounds was accepted to the extent of remanding for fresh consideration.

Conclusion: Penalty imposition required reconsideration under IBC with opportunity to be heard; this issue was not finally decided in the present appeals.

6. Frivolous Litigation and Costs

Legal Framework and Precedents: Courts have the inherent power to impose costs for frivolous and vexatious litigation that wastes judicial time and resources.

Court's Interpretation and Reasoning: The Tribunal found the repeated appeals by the Appellants on settled issues to be frivolous and vexatious, causing avoidable delay and burden on the judicial process.

Key Evidence and Findings: Multiple orders directing deposit of Rs. 32 lakhs with interest had attained finality, yet the Appellants persisted in challenging the same.

Application of Law to Facts: The Tribunal imposed costs of Rs. 5 lakh on each Appellant to be deposited in the Prime Minister's Relief Fund, as a deterrent against further abuse of process.

Treatment of Competing Arguments: No mitigating circumstances were found to excuse the conduct of the Appellants.

Conclusion: Costs were rightly imposed for frivolous litigation and non-cooperation.

Significant Holdings:

"The withdrawal of Rs. 32 lakhs during the moratorium declared under Section 14 of the IBC was in violation of the provisions of the Code and the amount along with interest @12% per annum from the date of withdrawal is liable to be deposited into the liquidation estate."

"The Appellants have shown abject non-cooperation during the CIRP and liquidation process and have disobeyed orders of the Adjudicating Authority and this Appellate Tribunal, which cannot be condoned and warrants strict action including imposition of costs."

"The argument that the withdrawal was due to presentation of post-dated cheques issued prior to CIRP initiation does not absolve the Appellants of liability under the moratorium provisions, as they could have prevented encashment."

"The principle of res judicata applies to bar the Appellants from re-agitating the issue of deposit of Rs. 32 lakhs and interest, as the matter has been finally adjudicated by the Adjudicating Authority and this Tribunal."

"Penalty imposed under the Companies Act, 2013, without giving the Appellants an opportunity of hearing and without invoking the IBC provisions, was set aside and remanded for fresh hearing under the IBC."

"Repeated and baseless appeals on settled issues constitute frivolous and vexatious litigation, justifying imposition of costs to safeguard the judicial process."

In conclusion, the Tribunal dismissed the appeals as devoid of merit, upheld the directions for deposit of Rs. 32 lakhs with interest into the liquidation estate, confirmed the applicability of res judicata, remanded the penalty issue for fresh hearing under IBC provisions, and imposed costs on the Appellants for abuse of process and non-cooperation.