Transfer Of Asset After Commencement Of CIRP, Even With NOC From Lender, Illegal: NCLT Allahabad

The National Company Law Tribunal (NCLT) at Allahabad has recently held that any transfer of assets after the commencement of an insolvency process is illegal, even if supported by a No Objection Certificate from a secured creditor. The tribunal said such transfers cannot be considered procedural outcomes and amount to a breach of the moratorium.

The tribunal was deciding an application filed by the resolution professional of Hind Agro Industries Limited seeking restoration of vehicles (Porsche Cayenne) transferred to a related entity after insolvency proceedings began.

A coram of Judicial Member Praveen Gupta and Technical Member Ashish Verma observed,

"Hence, the transfer of the vehicle in favour of M/s Eatcco Foods Pvt. Ltd. occurred after the commencement of the CRIP, when the powers of the Board of Directors stood suspended under Section 17 of the Code. Any act of transferring or facilitating the change in registration in the name of a third party, even if subsequent to the issuance of a No Objection Certificate by the secured creditor, cannot be treated as a “procedural” consequence but constitutes an act of alienation in violation of Section 14 (Moratorium) of the Code."

The Corporate Insolvency Resolution Process was admitted in March 2023, and a moratorium came into effect immediately. It was not disputed that the registration of a Porsche Cayenne was transferred on 27 April 2023 in favour of Eatcco Foods Private Limited, a related entity. The suspended directors relied on an agreement dated February 1, 2023 to claim that the sale took place before insolvency began.

The tribunal however said that the agreement was invalid and legally unenforceable, “a careful examination of the said document reveals multiple irregularities which cast serious doubt upon its authenticity and legal efficacy. The document is neither stamped nor notarised, and not registered. It was also never furnished to the Resolution Professional at any stage even after initiation of CIRP, and seems to have been produced for the first time as an annexure with reply to the present Application, thereby suggesting that it is a fabricated and afterthought document created to falsely portray the post-moratorium transfer as lawful”

The tribunal noted that the Porsche was still under hypothecation to Tata Capital Financial Services Limited at the time of the alleged sale agreement and that the One-Time Settlement amount of Rs 1,50,000 was paid only on 31 March 2023, after the insolvency process had begun.

The secured creditor issued its No Objection Certificate and released the charge only after that date, which meant the company was not in a position to legally transfer the vehicle in February.

On this basis, the tribunal held that the company was not the absolute owner of the vehicle when it claimed to have entered into a sale agreement and therefore had no lawful authority to sell or transfer it to a related entity.

The tribunal concluded that the transfer took place after the commencement of the insolvency process, during which the powers of the board stood suspended, and that facilitating a change in registration amounted to an illegal disposal of assets during the moratorium.

The tribunal directed that ownership of the Porsche be restored to the corporate debtor and ordered the suspended directors to hand over possession of that vehicle, along with another vehicle, a Toyota Corolla Altis, within seven days, warning that failing to do so could attract consequences.

The tribunal noted that such actions may attract penal consequences.

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