When the orders passed by the NCLT admitting the application, under Section 7, and also the ordering of moratorium under Section 14 of the IBC and the orders which have been passed by the tribunal otherwise, the impugned order of the High Court resulting in the Respondent No. 1 being allowed to operate the account without making good the amount of Rs 32.50 lakhs to be placed in the account of the Corporate Debtor cannot be sustained.
1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO.447 OF 2021
(Arising out of SLP (CRL.) No. 1549 of 2021)
SANDEEP KHAITAN, RESOLUTION PROFESSIONAL
FOR NATIONAL PLYWOOD INDUSTRIES LTD. … APPELLANT(S)
VERSUS
JSVM PLYWOOD INDUSTRIES LTD. & Anr. … RESPONDENT(S)
J U D G M E N T
K.M. JOSEPH, J.
Leave granted.
1. The appeal is directed against order dated
04.02.2021 passed by the Hon’ble High Court of
Guwahati. In the impugned order, the High Court
has allowed an interlocutory application filed by
the Respondent No. 1 to allow it to operate its
bank account maintained with the ICICI Bank
2
Bhubaneswar and to unfreeze the bank account of
its creditors over which the lien has been created
and the accounts frozen pursuant to the lodging of
an FIR by the appellant before us. It was made
subject to conditions.
2. An application under Section 7 of the Insolvency
and Bankruptcy Code, 2016, hereinafter referred to
as the IBC was admitted on 26.08.2019 against one
National Plywood Industries Limited (NPIL). The
Appellant was appointed as the Interim Resolution
Professional. A moratorium also came to be passed
by the very same order within the meaning of
Section 14 of the IBC. The Appellant came to be
appointed as the Resolution Professional by an
order dated 08.11.2019. In the meantime, the
Respondent No.1 claiming to be an operational
creditor lay the claim for the amounts due to it
from the Corporate Debtor before the Appellant vide
communication dated 22.11.2019. It would appear
that the former Managing Director of the Corporate
Debtor challenged the order of the NCLT, Guwahati,
3
admitting the application under Section 7. The
NCLAT by order dated 24.11.2019 dismissed the
appeal interalia holding that the application
under Section 7 was not barred by limitation. Civil
Appeal No. 9142 of 2019 filed by the former
Managing Director of the Corporate Debtor came to
be however allowed by this Court by an order dated
20.01.2020. The NCLT was directed to consider the
matter in accordance with law. It would appear that
on 28.01.2020 interlocutory application 7 of 2020
filed by the former Managing Director of the
Corporate Debtor seeking an injunction restraining
the Respondents therein from interfering in the
operation of the Corporate Debtor and to disperse
the cost of the CIRP was disposed of interalia as
follows: -
i. “Today the Respondents submitted across the
Bar that except ratifying the expenses of the
IRP, no major decisions have been taken by the
COC in the yesterday’s COC meeting. Both the
respondents informed that they are conscious
4
about the order passes by the Hon’ble Supreme
Court and the legal consequences thereof.
ii. In view of the above submissions of the
respondents, this Tribunal expects that the
respondents would maintain status-quo in
respect of the IRP proceedings. As the main
company petition was remanded back to the
Hon’ble NCLAT for fresh disposal in accordance
with law, this Tribunal is of the considered
opinion that the petitioner has to approach
the Hon’ble NCLAT for any further directions
in the above matter and accordingly above
application stands disposed of with the above
observations. Even otherwise, the order of
admission of the company petition has not
attained finality and, therefore, no interim
orders as prayed for needs to be passed today.
iii. In the result, IA No. 07 of 2020 is disposed
of with the above observations.”
Thereafter there is order dated 20.03.2020
passed which we will advert to.
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3. It is the case of the Appellant that the former
Managing Director of the Corporate Debtor in
conspiracy with the Respondent No.1 engaged in an
illegal transaction to the tune of Rs. 32.50 lakhs
without authority from the Appellant and in
violation of Section 14 of the IBC. It is his
complaint that initially, the Managing Director
made a transaction of Rs. 500. Thereafter, he
proceeded by virtue of 4 consecutive transactions
to transfer a sum of Rs. 32.50 lakhs to the
Respondent No. 1. It is also complaint of the
Appellant that the former Managing Director
proceeded to transfer another sum of Rs. 3.29 lakhs
from another account and the amount was transferred
to his close associate.
4. On 23.04.2020, the Appellant filed a cyber
complaint. This was followed on the same date by
filing an application under Section 19 read with
Section 23 (2) of the IBC alleging non corporation
by the previous management of the Corporate Debtor.
On 27.04.2020, the Appellant got lodged an FIR. On
6
04.05.2020 the ICICI Bank created a lien upon the
bank account of the Respondent No. 1 based on the
allegedly illegal transaction. The next
development to be noticed is the order dated
20.05.2020 passed by the NCLT, Guwahati. The order
is passed in I.A. No. 37 of 2020. The relief sought
therein was for direction to the Directors of the
Corporate Debtor to hand over the management of
the company. The order reflects the controversy
relating to the payment of Rs. 32.50 lakhs
violating the moratorium. Tribunal finds that the
directors of the Corporate Debtor were not giving
maximum assistance. On the basis of its findings
the tribunal issued directions to the suspended
Board of the Corporate Debtor to cooperate with
the Appellant. The Auditors were to complete the
audit expeditiously interalia. More importantly
the Directors were directed to refund the amount
withdrawn less the amount if any paid to the
alleged supplier as the cost of raw materials. The
interlocutory application was posted before the
7
regular bench for hearing after lifting the
lockdown.
5. A perusal of the order reveals that the Directors
of the company sought to defend the withdrawal of
Rs.32.50 lakhs as one intended to pay for the raw
materials. It is further noticed that the Tribunal
noticed that there was no proof for the same. More
importantly it was found that even if done to
discharge debt due to supplies during the CIRP,
without permission and knowledge of the Resolution
Professional, it was in violation of Section 14 of
the Code.
6. The Appellant moved an application for review of
the order dated 20.05.2020. The Tribunal in its
order dated 05.06.2020 noticed the limitations
flowing from Rules 154 and 155 of the NCLT, Rules,
2016 in the matter of review. It is observed that
for the reasons highlighted in the 20.05.2020 the
former Directors of the Corporate Debtor are found
prima facie liable to refund the amount
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unauthorisedly withdrawn from the account of the
Corporate Debtor. It is also noticed that the
Directors of the suspended board were not made
respondents. The application for review came to be
dismissed.
7. The genesis of the impugned order is the FIR
lodged against the Appellant and arose from the
payment effected into the account of Respondent
No.1 in a sum of Rs. 32.50 lakhs. The said FIR
came to be challenged in a petition under Section
482 of the Cr.P.C. by the Respondent No.1 by filing
Criminal Petition No. 454 of 2020. In the same the
Appellant also filed I.A. No. 453 of 2020.
8. On 19.01.2021 the NCLT, Guwahati passed an order
in I.A No. 37 of 2020. By the said order the
Appellant was directed to discharge his duties as
per the provisions of the IBC. Thereafter, it also
passed the following directions: -
i. “The Learned Counsel for the Respondents has
confirmed that the Suspended Management has
been co-operating and providing assistance to
9
RP to complete the CIRP in time. The Corporate
Debtor is directed to submit its reply
Affidavit to the allegations made relating to
the transactions of Rs. 35.795 lakhs serving
a copy upon the RP.
ii. Any amount of the Corporate Debtor lying in
any Bank is to be transferred to the account
being operated by the RP. Banks having account
of the Corporate Debtor are directed to lift
the lien, if any, on any amount of the
Corporate Debtor and allow the operation of
the account by the RP only.
iii. The RP is directed to utilize the funds of the
Corporate Debtor under CIRP judiciously
keeping the Unit in its full operation.”
9. Thereafter, in the petition filed by the
Respondent No.1 under Section 482, the High Court
admitted the petition. The case was directed to be
listed for regular hearing in usual course.
(According to the Appellant the High Court had
directed investigation to be continued. This is
10
not seen reflected in the order which is produced).
In the I.A No. 453 of 2020 filed in the Section
482 resulting in the impugned order, the prayers
sought has already been noted. It is to allow the
Respondent No.1 and its creditors to operate their
bank account over which lien has been created and
those accounts which have been frozen based on the
FIR dated 27.04.2020.
THE IMPUGNED ORDER
10. After noticing the contentions of the parties,
the Learned Single Judge in the impugned order
proceeds to hold as follows:-
i. “From the material on record, it is apparent
that there was business relation between the
petitioner company and the NPIL, which is
evident from the various documents annexed to
the petition. Only question raised in this FIR
is that the money was transferred by the
suspended CMD without any authority, inasmuch
as, the entire state of affairs of NPIL was
11
vested with the Respondent No. 2, who has been
appointed as resolution professional. Only
incriminating allegation against the
petitioner is that the suspended CMD has
personal interest in the petitioner company
being an associate company, which is however,
a disputed fact required to be investigated by
police.
ii. Be that as it may, having considered the entire
gamut of the matter and the nature of
accusation brought against the present
petitioner, I am of the view that freezing of
all the bank account as indicated above would
certainly cause unnecessary hardship, which
may not be necessary for the investigation of
the present FIR in view of the nature of the
accusation made therein as well as in view of
the offer made by the petitioner to furnish a
bond. Therefore, in my consider view, the
petitioner is entitled to the interim relief
as sought for. Accordingly, it is provided
that the lien created upon the bank account
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no. 149905001306 maintained with the ICICI
Bank Limited, Chandrasekarpur Branch,
Bhubaneswar be lifted, the petitioner and its
creditors shall be allowed to operate the bank
account over which lien has been created and
the accounts have been frozen pursuant to the
instruction of the Respondent No. 2 in
connection with Margherita P.S. Case No.
0112/2020, until further order of the Court.
iii. It is however, made clear that the interim
relief granted to the petitioner as above with
regard to unfreezing the bank account and
lifting of lien shall be subject to the
condition that the petitioner shall withdraw
the WP (C) No. 118/2020 filed before the
Itanagar Permanent Bench of this Court and
furnishing an indemnity bond undertaking to
refund the amount of Rs. 32.50 Lakhs if
required, subject to final outcome of the
criminal case.”
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11. We heard the Learned Counsel for the Appellant
Shri Anand Varma and the Learned Counsel for the
Respondent No. 1, Shri Harish Pandey. The State is
represented by Shri Shuvodeep Roy.
SUBMISSIONS
12. The Learned Counsel for the Appellant
contended that the impugned order proceeds on an
erroneous basis namely that the allegations about
the co-accused (former Managing Director of the
Corporate Debtor) having an interest in the
Respondent No.1 Company was a disputed fact which
had to be investigated. It is the case of the
Appellant that there is a report of the auditing
firm. Also, the said finding of the High Court is
contrary to the documents of the Respondent No. 1
itself. It is also urged that the High Court itself
has permitted the investigation to go on in the
petition under section 482. Secondly, he pointed
out that the impugned order was contrary to Section
14 of the IBC. He drew support from the judgment
14
of this Court in P Mohanraj vs. M/S. Shah Brothers
Ispat Pvt. Ltd. in Civil Appeal No. 10355 of 2018.
According to him, the whole purpose of the
moratorium would be defeated if members of the
previous management of the Corporate Debtor are
left free to transfer the funds of the Corporate
Debtor. The Respondent No. 1 was a related party
of the Corporate Debtor. He reiterates that with
the appointment of Appellant as the Resolution
Professional under Section 25 (2)a of the IBC he
is to take custody and control of all the assets
of the Corporate Debtor. Finally, he also
emphasized the nature of the jurisdiction under
Section 482 of the Cr.P.C. The High Court has
overlooked the limits of its power in passing the
impugned order, he complains. He points out that
the order admitting the application under section
(7) has not been stricken by the remand by this
Court of the appeal against the order admitting
the application.
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13. Per contra Shri Harish Pandey, Learned
Counsel, contended that the order may not be
interfered by this Court. The Respondent No.1 was
a related party and it was always known to be such
related party. He referred to the fact that the
Respondent No.1 was supplier of raw material to
the Corporate Debtor. He pointed out goods worth
more than Rs.2 crores have been supplied by it to
the Corporate Debtor. Payments were being made. In
fact, a sum of more than Rs.39 lakhs is further
due from the Corporate Debtor to the Respondent
No. 1. It is emphasized as a MSME it would cause
grave prejudice to it if the impugned order is set
aside.
14. It is the case of the Respondent No. 1 further
that the business relationship between the
Respondent No. 1 and Corporate Debtor has existed
for more than 15 years. The Corporate Debtor has
been declared a sick industry on 18.04.2006. It
was nursed back by the Respondent No. 1. Our
attention is drawn to the minutes of the first
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meeting of the Committee of Creditors dated
23.09.2019. The minutes reveal that committee of
creditors observes that a substantial part of the
raw materials is purchased from Respondent No.1
and that the relatives of the Corporate Debtor
directors or shareholders hold more than 51 percent
shareholding of the first respondent. It is further
noted that the processes to assess the veracity
and reasonableness of the transaction in such
situation were let known and the purchases/sales
must be benchmarked against arm’s length
transactions and open market transactions. (We may
also notice that the meeting resolved that all the
banks were to act on the instructions of the
appellant interalia.) It is the case of the
Respondent No. 1 that right from the beginning, it
was known that the Respondent No. 1 was a related
party. It is the further case of the Respondent
No. 1 that its claim for over 6 crores of rupees
was vetted, verified and admitted by the Appellant.
After the commencement of CIRP Respondent No. 1
had made regular substantial supplies to the
17
Corporate Debtor for which the payment were being
made (they relate to the period from 26.08.2019 to
31.03.2020). This is shown as amounting to Rs.
2,70,84,982. The Respondent No. 1 lays store by
the order of the NCLT, Guwahati dated 28.01.2020
which we have already referred to. E-mails
addressed to the Appellant to clarify did not evoke
any response. In March 2020, orders were placed by
the Corporate Debtor for approximately Rs. 30
lakhs. The lockdown intervened. On 18.04.2020 it
is not disputed that the Corporate Debtor made a
payment of Rs 32.50 lakhs through online net
banking transfer against material supplied during
the period that the corporate debtor was under
CIRP. The Learned Counsel for the Respondent No.1
would point out that the order of the NCLT dated
20.05.2020 passed by the NCLT directed the
directors of the Corporate Debtor to refund the
amount withdrawn less any amount supplied to the
alleged supplier. It is therefore, pointed out
creating a lien on the accounts of the Respondent
no. 1 was not justified. The Learned Counsel also
18
drew our attention to the order dated 24.03.2021
passed by the NCLT Guwahati Bench. This is in an
effort at showing the manner in which the appellant
has been functioning. The Tribunal in the said
order refers to the Impugned Order and the Interim
order passed by this Court in this matter. The
Tribunal noted that the production has been
suspended and layoff notice is also issued in
regard to the Corporate Debtor. The objectives of
the IBC are being defeated on the basis of the
claims and the FIR interalia. The Appellant was
directed to file the copy of the FIR in this case
among other documents. The Learned counsel for the
Respondent no. 1 would submit that the having
regard to the orders passed by the tribunal the
Impugned Order passed by the High Court may not be
interfered with. Having regard to the dismissal of
the review petition filed against the 20.05.2020
there is no merit in the present appeal.
15. The Learned Counsel for the Appellant would
point out that the Appellant is prevented from
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disbursing the salary of the workers. Nearly four
months’ salary would be disbursed with the amount
which was paid by the former management without
any authority as noticed. It is the case of
Appellant that the transactions between the
Respondent No.1 and the Corporate Debtor was not
authorised by the Appellant during the period from
21.02.2020 to 27.04.2020.
FINDINGS
16. The contours of the jurisdiction under 482 of
the Cr.P.C. are far too well settled to require
articulation or reiteration. Undoubtedly, in this
case by 26.08.2019 an application filed under
section 7 of the IBC was admitted, the appellant
appointed as the interim resolution professional
and what is more a moratorium declared. With the
declaration of the moratorium the prohibitions as
enacted in section 14 came into force. It is clear
that the assets of the company would include the
amounts lying to the credit in the bank accounts.
20
There cannot be any dispute that well after the
order under section 14 was passed, a sum of Rs.
32.50 lakhs has been remitted into the account of
Respondent No.1 company. No doubt it is the
definite case of the Respondent No.1 that it has
had business relations with the Corporate Debtor
since more than 15 years and that the amount
remitted in its account represented the price of
the materials supplied to the Corporate Debtor.
Apart from this amount a sum of rupees more than
Rs.39 lakhs is still due. It is to be noticed that
though an appeal was filed against the order
admitting the petition under Section 7 the same
was dismissed by the NCLAT. The appellate order
was undoubtedly set aside by this court and the
appeal remanded to the NCLT for its consideration.
We would think that setting aside the appellate
order of the NCLAT by this court and remanding the
appeal would not have the effect of setting aside
the order admitting the application. Initially, as
was noticed by us an order was passed on
28.02.2020. The ambiguity created by the said order
21
was removed by the subsequent order of the Tribunal
dated 20.03.2020. In other words, by the order
dated 20.03.2020 the NCLT, Guwahati ordered that
the appellant was at liberty to act as per law and
the words used in the earlier order dated
28.02.2020 relied upon by the Respondent No.1 were
found to be a mere casual observation which did
not culminate into any direction. We need not say
anything further particularly in view of the fact
that there is an FIR and which is pending
consideration in the High Court also. It is
significant only for us to notice that the
Appellant is essentially aggrieved by the
transactions representing a sum of Rs. 32.50 lakhs
all of which took place after order dated
20.03.2020.
17. It may be true that in the interim order passed
by the NCLT Guwahati, the Tribunal had directed
the Directors to refund the amount of the Corporate
Debtor less any amount paid for supplies. It is
also true that the review petition filed by the
22
Appellant is dismissed, essentially based on the
limitations on the power of review.
18. The provisions of the IBC contemplate
resolution of the insolvency if possible, in the
first instance and should it not be possible, the
winding up of the Corporate Debtor. The role of
the insolvency professional is neatly carved out.
From the date of admission of application and the
appointment of Interim Resolution Professional,
the management of the affairs of the Corporate
Debtor is to vest in the Interim Resolution
Professional. With such appointment, the powers of
the Board of Directors or the partners of the
Corporate Debtor as the case may be are to stand
suspended. Section 17 further declares that the
powers of the Board of Directors or partners are
to be exercised by the Interim Resolution
Professional. The financial institutions are to
act on the instructions of the Interim Resolution
Professional. Section 14 is emphatic, subject to
the provisions of sub section (2) and (3). The
23
impact of the moratorium includes prohibition of
transferring, encumbering, alienating or disposing
of by the Corporate Debtor of any of its assets.
19. Sub section 2 reads as follows:-
“The supply of essential goods or services to the
corporate debtor as may be specified shall not be
terminated or suspended or interrupted during
moratorium period.”
20. Essential goods and services referred to in
Section 14(2) has been defined by Regulations.
Regulation 32 of the INSOLVENCY AND BANKRUPTCY
BOARD OF INDIA (INSOLVENCY RESOLUTION PROCESS FOR
CORPORATE PERSONS) REGULATIONS, 2016, reads as
follows:-
"Essential Supplies.
The essential goods and services referred to in
section 14(2) shall meani. Electricity;
24
ii. water;
iii. telecommunication services; and
iv. information technology services,
to the extent these are not a direct input to the
output produced or supplied by the corporate
debtor.
Illustration- Water supplied to a corporate debtor
will be essential supplies for drinking and
sanitation purposes, and not for generation of
hydro-electricity.”
21. Also, undoubtedly Section (2A) of Section 14
of the THE INSOLVENCY AND BANKRUPTCY CODE, 2016
provides as follows:
“Where the interim resolution professional or
resolution professional, as the case may be,
considers the supply of goods or services critical
to protect and preserve the value of the corporate
debtor and manage the operations of such corporate
debtor as a going concern, then the supply of such
goods or services shall not be terminated,
suspended or interrupted during the period of
25
moratorium, except where such corporate debtor has
not paid dues arising from such supply during the
moratorium period or in such circumstances as may
be specified.”
22. This provision was inserted with effect from
28.12.2019. No doubt under this provision goods or
services not covered by Section 14(2) are also
covered. The call however is to be taken by the
IRP/RP. Raw material supply could fall within
the provision. The IRP/RP must take a decision
guided purely by the object of the IBC and the
provisions and the factual matrix.
23. With the appointment of Committee of
Creditors, a Resolution Professional is to be
appointed. The Resolution Professional is
thereafter to conduct the resolution process and
manage the operations. Section 23 (2) makes it
clear that his power is the same as the powers of
the Interim Resolution Professional. Undoubtedly,
the Resolution Professional is bound to seek prior
26
approval of the Committee of Creditors in maters
covered by Section 28.
24. We have to also in this context bear in mind
that the High Court appears to have, in passing
the impugned order, which is an interim order for
that matter, overlooked the salutary limits on its
power under Section 482. The power under Section
482 may not be available to the Court to
countenance the breach of a statuary provision.
The words ‘to secure the ends of justice’ in
Section 482 cannot mean to overlook the undermining
of a statutory dictate, which in this case is the
provisions of Section 14, and Section 17 of the
IBC.
25. It would appear to us that having regard to
the orders passed by the NCLT admitting the
application, under Section 7, and also the ordering
of moratorium under Section 14 of the IBC and the
orders which have been passed by the tribunal
otherwise, the impugned order of the High Court
27
resulting in the Respondent No. 1 being allowed to
operate the account without making good the amount
of Rs 32.50 lakhs to be placed in the account of
the Corporate Debtor cannot be sustained. The
Learned Counsel for the Appellant has also no
objection in the Respondent No. 1 being allowed to
operate its account subject to it remitting an
amount of Rs. 32.50 lakhs into the account of the
Corporate Debtor. In such circumstances, Appeal is
allowed. The Impugned order is modified as follows:
i. The Respondent No.1 is allowed to operate its
account subject to it to first remitting into
the account of the Corporate Debtor, the
amount of Rs 32.50 lakhs which stood paid to
it by the management of the Corporate Debtor.
The assets of the Corporate Debtor shall be
managed strictly in terms of the provisions of
the IBC. The Appellant as RP will bear in mind
the provision of Section 14 (2A) and the object
of IBC. We however make it clear that our order
shall not be taken as our pronouncement on the
28
issues arising from the FIR including the
petition pending under Section 482 of the
Cr.P.C.
ii. We also make it clear that the judgment will
not stand in the way of the Respondent No.1
pursuing its claim with regard to its
entitlement to a sum of Rs.32.50 lakhs and any
other sum from the Corporate Debtor or any
other person in the appropriate forum and in
accordance with law. There will be no order as
to costs.
......................J.
(UDAY UMESH LALIT)
......................J.
(K.M. JOSEPH)
New Delhi,
April 22, 2021.
