In IBC Proceedings, Penalty Can Be Imposed Only Under The Code And Not Under The Companies Act: NCLAT

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21 Feb 2022 4:23 PM IST

  • In IBC Proceedings, Penalty Can Be Imposed Only Under The Code And Not Under The Companies Act: NCLAT

    The NCLAT in Bench comprising of Justice Ashok Bhushan, Chairperson and Dr. Alok Srivastava, Technical Member in Mr. Ashish Chaturvedi v. Inox Leisure Limited held that when proceedings before the Adjudicating Authority are being carried out under the Insolvency and Bankruptcy Code, 2016, penalty can only be imposed under the Code and not under the Companies Act, 2013. The Appeal...

    The NCLAT in Bench comprising of Justice Ashok Bhushan, Chairperson and Dr. Alok Srivastava, Technical Member in Mr. Ashish Chaturvedi v. Inox Leisure Limited held that when proceedings before the Adjudicating Authority are being carried out under the Insolvency and Bankruptcy Code, 2016, penalty can only be imposed under the Code and not under the Companies Act, 2013.

    The Appeal was filed before the Principal Bench of the NCLAT by two ex-Directors of the Corporate Debtor, E-Z Barter Private Limited, who challenged the order passed by the Adjudicating Authority imposing a penalty of Rs. 5 Lakhs each on the Appellants when the Interim Resolution Professional (IRP) moved two applications under Section 19(2) and Section 60(5) of the IBC alleging that the Appellant had withdrawn a sum of Rs. 32 Lakhs during moratorium period during CIRP.

    The Appellants claimed that they had given a post-dated cheque to one Mr. Kewal Kishan as repayment of a loan and that the cheque was not given during CIRP.

    The IRP filed an application u/s 19(2), which is to secure cooperation of ex-directors of the Corporate Debtor for providing records and other financial information relating to the Corporate Debtor to the Resolution Professional. The Corporate Debtor failed to file a reply to this application.

    Due to non-filing of reply by the Corporate Debtor, the Adjudicating Authority invoked Section 128(6) of the Companies Act and imposed a penalty of Rs. 5 Lakhs each on the Appellants.

    The NCLAT held that despite multiple opportunities being provided to the Corporate Debtor, it failed to file a reply to the application before the Adjudicating Authority. Under these circumstances, the Adjudicating Authority inferred that the suspended Board of Directors did not maintain the records of the Corporate Debtor as mandated u/s 128(5) of the Companies Act 2013, and thus it imposed a penalty u/s 128(6) of the Act.

    The Tribunal held that since the erstwhile Directors of the Corporate Debtors have neither deposited the said amount of Rs. 32 Lakhs along with interest, nor have they provided the records and financial documents to the erstwhile RP and liquidator, they should have been proceeded with under Chapter VII of the IBC titled "Offences and Penalties".

    Since the application was filed under the provisions of the IBC, it would have served the requirement of law if any order regarding the penalty was imposed under the IBC, and not under the Companies Act.

    The Appellate Tribunal remanded the matter back to the Adjudicating Authority, directing them to take a decision under the provisions of the IBC and set aside the order imposing a penalty of Rs. 5 Lakhs each on the Appellants.

    Counsel for the Appellants: Mr. Manoj Kumar Garg, Advocate

    Counsel for the Respondents: Mr. K.D. Sharma and Mr. Anuj Kumar Pandey, Advocates for R-3.

    Click Here To Read/Download Order

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