NCLAT (12.03.2020) in Manoj K. Daga Vs. ISGEC Heavy Engineering Limited [Company Appeal (AT) (Insolvency) No. 1113 of 2019] while dismissing the Appeal in default, permitted the IRP to move the Adjudicating Authority or any other authorities including Police authorities to pursue the matter with regard to money illegally withdrawn from the accounts of the Corporate Debtor so as to trace the money and get it back in the Company accounts. Prima facie, it appears to us that the illegal withdrawals can, inter alia, be treated as criminal misappropriation and criminal breach of trust.
Excerpts of the order;
12.03.2020 Heard learned Senior Advocate – Shri Sanjay Hegde for the Appellant. Respondent No.1 – Operational Creditor filed Application under Section 9 of Insolvency and Bankruptcy Code, 2016 (IBC – in short) before the Adjudicating Authority (National Company Law Tribunal, Cuttack Bench, Cuttack) having number TP No.105/CTB/2019 in CP (IB) No.646/MB/2019 against M/s. Shree Vishnu Power & Energy Pvt. Ltd. – Corporate Debtor which Application came to be admitted by Impugned Order dated 27th September, 2019 and moratorium under Section 14 of IBC was declared by the Adjudicating Authority, and Corporate Insolvency Resolution Process (CIRP) was initiated.
# 2. Against the Order of admission of Application under Section 9, present Appeal came to be filed by the Appellant - Manoj K. Daga as Director of the Company. When the Appeal came up before this Tribunal on 23rd October, 2019, Notice was issued to the Respondent No.1 – Operational Creditor and the Respondent No.2 – Resolution Professional of the Corporate Debtor. At that time, this Tribunal had passed the following interim Order:-
“In the meantime, the ‘Interim Resolution Professional’ will not constitute the ‘Committee of Creditors’, if not yet constituted. However, the ‘Interim Resolution Professional’ will ensure that the company remains a going concern and will take assistance of the (suspended) Board of Directors and the officers/ Directors/employees. The person who is authorised to sign the bank cheques may issue cheques but only after approval of the ‘Interim Resolution Professional’. The Bank Account of the ‘Corporate Debtor’ be allowed to be operated for day- to- day functioning of the company such as for payment of Current Bills of the suppliers, salaries and wages of the Employees’/workmen, Electricity Bills etc.”
# 3. When the matter came up on 18th November, 2019, Shri Ashwini Kumar Singh, Advocate appearing on behalf of State Bank of India – Financial Creditor, submitted that the Committee of
Creditors was constituted prior to 23rd October, 2019. The Counsel for Resolution Professional also took the same plea adding, however, that no meeting had been called for.
# 4. Subsequently, the matter came up before this Tribunal on 5th December, 2019 when the Counsel for IRP (Interim Resolution Professional) referred to I.A. No.3878/2019 which he had filed. The Application claimed that after Order of Adjudicating Authority admitting Application under Section 9 of IBC on 27.09.2019, he had sent letter (Annexure – IV) to Directors with copy of Impugned Order regarding commencement of CIRP. Counsel pointed out that on enquiry conducted by the IRP, he came to know on 21st November, 2019 that Directors of Corporate Debtor had made huge withdrawals including cash withdrawals started within two days of taking Interim Orders dated 23.10.2019 from this Tribunal which were in violation of the same. The Counsel for IRP complained of Violation of Sections 14, 17 and 19 of IBC. The IRP gave list of these transactions in the I.A. No.3878 of 2019.
# 18. The learned Counsel for IRP submits that these Directors had withdrawn most of the amount of the Corporate Debtor after the CIRP had been initiated which is clearly not permissible when the moratorium had been applied. The learned Counsel for IRP states that COC meeting has been held on 6th March, 2020 but if the IRP is unable to give effect, the CIRP itself would get stranded or stayed and given the fact that the amounts withdrawn were withdrawn in an illegal manner after moratorium had been imposed, no further time needs to be given. Learned Counsel states that the IRP is under the responsibility under the provisions of IBC to keep the Corporate Debtor a going concern and if almost the whole money which was in the bank account, has been withdrawn, the IRP has been rendered helpless in the situation.
# 19. The learned Senior Counsel for the Appellant states that although the money was withdrawn, it was for the purpose of keeping the business a going concern.
# 20. The learned Counsel for IRP in Reply states that the IRP has verified each and every entry of the amounts which were withdrawn and according to the IRP, except for an amount of Rs.8,95,412.22 paise which could be considered as CIRP costs, the rest of the amount withdrawn and spent cannot be treated as CIRP costs or expenses and which would be serious violation of provisions of IBC as to how past debts are to be treated and CIRP conducted. The learned Counsel for IRP has handed over to us a statement at Bar which is taken on record and marked ‘X’ for identification. It is stated that this Chart was given to the Appellant on the last date itself. It is stated that even IRP could have utilized only Rs.8,95,412.22 as shown in Table 3 as CIRP costs. Rest of the amount withdrawn/transferred is illegal and against provisions of IBC, and whole process has been illegally interfered with.
# 23. At the same time, considering record which shows that Appellant violated Orders of Adjudicating Authority and this Tribunal and looking to the apparent default on record where undertakings were given and not honoured, we find that the Appeal deserves to be dismissed in default. We dismiss the Appeal in default while permitting the IRP to move the Adjudicating Authority or any other authorities including Police authorities to pursue the matter with regard to money illegally withdrawn from the accounts of the Corporate Debtor so as to trace the money and get it back in the Company accounts. Prima facie, it appears to us that the illegal withdrawals can, inter alia, be treated as criminal misappropriation and criminal breach of trust.
# 25. Copy of this Judgement and record of Appeal will be treated as Contempt Case to be registered as “State vs. Manoj K. Daga and Deepak Daga” as these Directors who will face the contempt case. The Registry will give it a Contempt Case number and the same be listed on 7th April, 2020. Counsel for the Appellant states that on that date, Manoj K. Daga and Deepak Daga would both attend this Tribunal.
# 26. The CIRP proceedings will continue in terms of provisions of IBC. The IRP would be at liberty to examine the accounts and evidence and may place before the Adjudicating Authority all particulars and facts including evidence showing violation of Sections 14, 17 and 19 of IBC, after Impugned Order dated 27.09.2019 was passed and during pendency of the Appeal, for Adjudicating Authority to consider and take actions under Sections 70 and 74 of IBC, or other provisions as may be.
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