Offences & Penalties in IBC
Query; Whether IRP/RP/Liquidator can file FIR (Complaint under the provisions of Cr.P.C) against the suspended / Ex-Director of CD.
Part-A - Provisions of the Code
Following are the provisions of the Code in respect of Offences & Penalties.
# Section 3(27) “property” includes money, goods, actionable claims, land and every description of property situated in India or outside India and every description of interest including present or future or vested or contingent interest arising out of, or incidental to, property;
# Section 19. Personnel to extend co-operation to interim resolution professional. -
(1) The personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor shall extend all assistance and cooperation to the interim resolution professional as may be required by him in managing the affairs of the corporate debtor.
(2) Where any personnel of the corporate debtor, its promoter or any other person required to assist or cooperate with the interim resolution professional does not assist or cooperate, the interim resolution professional may make an application to the Adjudicating Authority for necessary directions.
(3) The Adjudicating Authority, on receiving an application under sub-section (2), shall by an order, direct such personnel or other person to comply with the instructions of the resolution professional and to cooperate with him in collection of information and management of the corporate debtor.
# Section 63. Civil court not to have jurisdiction. - No civil court or authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which National Company Law Tribunal or the National Company Law Appellate Tribunal has jurisdiction under this Code. Civil court not to have jurisdiction.
# Section 180. Civil court not to have jurisdiction. –
(1) No civil court or authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal has jurisdiction under this Code.
(2) No injunction shall be granted by any court, tribunal or authority in respect of any action taken, or to be taken, in pursuance of any power conferred on the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal by or under this Code.
# Section 235A. Punishment where no specific penalty or punishment is provided. -
If any person contravenes any of the provisions of this Code or the rules or regulations made thereunder for which no penalty or punishment is provided in this Code, such person shall be punishable with fine which shall not be less than one lakh rupees but which may extend to two crore rupees.]
# Section 236. Trial of offences by Special Court. -
(1) Notwithstanding anything in the Code of Criminal Procedure, 1973(2 of 1974), offences under of this Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013 (18 of 2013).
(2) No Court shall take cognizance of any offence punishable under this Act, save on a complaint made by the Board or the Central Government or any person authorised by the Central Government in this behalf.
(3) The provisions of the Code of Criminal Procedure, 1973 shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be deemed to be a Court of Session and the person conducting a prosecution before a Special Court shall be deemed to be a Public Prosecutor.
(4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, in case of a complaint under sub-section (2), the presence of the person authorised by the Central Government or the Board before the Court trying the offences shall not be necessary unless the Court requires his personal attendance at the trial.
# Section 237. Appeal and revision. -
The High Court may exercise, so far as may be applicable, all the powers conferred by Chapters XXIX and XXX of the Code of Criminal Procedure, 1973 (2 of 1974) on a High Court, as if a Special Court within the local limits of the jurisdiction of the High Court were a Court of Session trying cases within the local limits of the jurisdiction of the High Court.
# Section 238. Provisions of this Code to override other laws. -
The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.
Part-B - Summary of offences & Penalties mentioned under various sections of the Code.
Part-C - Case Law
i). NCLT Mumbai (2019.01.16) Asset Reconstruction Company (India) Pvt. Ltd. Vs. Shivam Water Treaters Pvt. Ltd.[ CP (IB)-1882/MB/2018] held that;
“The documents attached with the application is only the photocopy of the prescription and medical receipt regarding the sale of some medicines from Pharmacy, which can be easily made available. The applicant has not filed any medical certificate. Photocopy of prescription of any doctor or any cash receipt from the medical store is not authenticated document, which can be relied upon. It appears that Mr Gaurav Dave intentionally avoided to appear in the court and he does not want to hand over the documents required by the RP. Counsel for the RP has stated that their entry in the office is also restricted and the Ex- Director of the Corporate Debtor is creating hindrance in the CIRP. Grounds for exemption from appearance in Court are sham excuses.
In the circumstances, we pass an order for police assistance so that the Resolution Professional can take full control of the company without any interference from ex Director’s or his officials. The Police Commissioner, Ahmedabad is directed to provide police assistance to RP and his team, so that the Resolution Professional can take control of the entire unit. All the powers of the Corporate Debtor and its Directors relating to the operation of the Bank Account anywhere in India are frozen. The RP is directed to serve a copy of this order to the concerned Bank so that the Corporate Debtor and its directors cannot operate the bank account.
Ex-Director of the Corporate Debtor Mr Gaurav Dave and all other Directors are directed to appear in person before this Bench on 31.1.2019, failing which order shall be passed under the Contempt of Court Act.”
ii). NCLAT New Delhi (2020.09.23) in Shailesh Chawla Vs. Vinod Kumar Mahajan [Company Appeal (AT)(Insolvency) No. 571 of 2020] held that;
# 46. A mere running of the eye of the ingredients of Section 19 of the Code latently and patently imposes an obligation on the personnel and promoters of the ‘Corporate Debtor’ to extend all assistance and cooperation which the ‘Interim Resolution Professional’ will require in running / managing the affairs of the CD. In fact, the term ‘personnel’ is defined to mean the employees, directors, mangers, key managerial personnel etc., if any of the ‘Corporate Debtor’ and this is meant to render assistance to the ‘Interim Resolution Professional’ in carrying out his duties in an effective and efficacious manner.
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# 49. Be that as it may, in the light of qualitative and quantitative aforesaid discussions, this Tribunal,on going through the Impugned Order dated 23.03.2020 passed by the ‘Adjudicating Authority’ in CA No. 3/2019 in CP (IB) No. 70/Chd/Hry/2018 comes to a resultant conclusion that the ‘Adjudicating Authority’ in Law, is well within its ambit to make a recommendation for considering the aspect of commencement of proceedings and not a recommendation for initiation of criminal proceedings and in this regard it is for the ‘Insolvency Bankruptcy Board of India’ to take a final call, of course, after applying its independent overall assessment in an objective and dispassionate manner and to act accordingly, in the subject matter in issue . To put it differently, the ‘AdjudicatingAuthority’ while passing the impugned order had not exceeded its jurisdiction. Viewed from anyangle, the impugned order passed by the ‘Adjudicating Authority’ does not suffer from any patent illegality in the eye of Law. Resultantly, the present Appeals fail
iii). NCLAT (2022.02.14) in Mr. Ashish Chaturvedi & Anr. Vs. Mr. Sanjay Garg, Liquidator, & Ors.[Company Appeal (AT) (Insolvency) No. 1103 of 2020[ held that;
# 12. 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. Moreover, 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.
# 13. In the light of the above, we direct 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 and giving due consideration of the facts of the case in IA 1253/2020. With these directions, we set aside the Impugned Order whereby penalty of Rs. 5 lakhs each on the Appellants has been imposed and remand the matter to the Adjudicating Authority for passing necessary orders under the provisions of IBC.
iv). NCLAT New Delhi (2022.02.28) in Vikram Puri (Suspended Director) & Anr. Vs. Atul Kansal, Resolution Professional & Anr. [Company Appeal (AT) (Insolvency) No. 1018 of 2021] held that;
# 16. The orders which have been issued by the Adjudicating Authority including the impugned order dated 30.09.2021 has been issued in exercise of powers under Section 19. The powers under Section 19 has been given to authority for purpose and object and the Suspended Directors cannot escape their liability to submit necessary documents and to explain before the Court, their contention by saying that ex parte order ought to have been passed and their personal appearance should not have been asked for, cannot be accepted.
# 17. Insofar as submission of the Learned Counsel for the Appellants that the Tribunal is bound to follow the principles of natural justice, there can be no two opinions about the said principle. Section 424(1) of the Companies Act, 2013 specifically provides that the Tribunal while disposing of any proceeding before it shall be guided by the principles of natural justice. Present is a case where principles of natural justice have not been violated. The Appellants were issued notice on 02.08.2018 in response to which they failed to appear. Thereafter, Bailable Warrants were issued on 29.08.2018 and 17.10.2018 but the presence of the Appellants could not be secured and it was thereafter on 19.10.2018, Non-Bailable Warrants were issued. Issuance of Non-Bailable Warrants were repeated thereafter as noticed above. When the Appellants in spite of notices and Bailable Warrants chose not to appear before the Tribunal, the Tribunal was left with no option except to issue Non-Bailable Warrants.
# 18. The Submission of the Learned Counsel for the Appellants is that Tribunal is not bound by procedures laid down under the CPC, we have already noticed that Rule 77 of the NCLT Rules, 2016 applies various provisions of Civil Procedures Code. We in the present case are only concerned with the procedure where a person fails to comply with summons which we have already dealt above. The procedure adopted by the Tribunal is in conformity with the NCLT Rules, 2016 as well as order XVI Rule 10 of the Code of Civil Procedure, 1908. Further submission of the Counsel for the Appellants is that due to non-compliance with Section 19 of the Code, the Appellant could have been prosecuted under Section 70 of the Code. The prosecution under Section 70 is separate and independent proceedings which in no manner fetter the power of the Tribunal under the Code. The submission of the Counsel for the Appellants is that there is no provision which requires that a person against whom enforcement is sought must be physically present. The present is a case where Tribunal to effectively discharge function by the Resolution Professional under the Code has to issue appropriate direction in the interest of Insolvency Resolution Process. For ensuring personal appearance of the parties, the Tribunal was fully competent to issue Non-Bailable Warrant and other mode for enforcing order of Tribunal were not necessary to be adopted. The submission of the Counsel for the Appellant that the conditions for issue of Non-Bailable Warrant are not satisfied is not correct. We have already noted the provision of Order XVI Rule 10 of the Code of Civil Procedure which empowers the Tribunal to issue warrant either with or without bail for arrest of such person. The condition that such person has without lawful excuse, failed to attend or to produce the document in compliance with such summons were fully met and it cannot be said that conditions for issuance of Non-Bailable Warrant were not satisfied.
# 19. We, thus, do not find any error in the impugned judgment of the Adjudicating Authority rejecting the Application for recall of cancellation of Non-Bailable Warrants. The Appeal is dismissed.
# 20. We may further observe that in addition to enforcement of Non-Bailable Warrants, it shall be also open for the Adjudicating Authority to recommend for initiation of prosecution against the Suspended Directors of the Corporate Debtor in event of commission of an offence within meaning of Code.
Part-D - Conclusion;
For application under section 19, the Adjudicating Authority can issue directions to the suspended directors etc. & in the situation of non compliance of the directions of AA, the person at fault can be punished under section 235A, on an application/complaint filed by IBBI or GOI under the provisions of section 236.
Only IBBI or GOI can file an application/complaint (FIR) for offences under the provisions of the Code (section 236), which shall be tried by special courts only. No court, (including NCLT) other than specified under section 236, can take cognizance of any offence punishable under the provisions of the Code.
# Section 236. Trial of offences by Special Court. -
(1) Notwithstanding anything in the Code of Criminal Procedure, 1973(2 of 1974), offences under of this Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013 (18 of 2013).
(2) No Court shall take cognizance of any offence punishable under this Act, save on a complaint made by the Board or the Central Government or any person authorised by the Central Government in this behalf.
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