NCLAT Upholds Order Directing Satra Properties' Suspended Directors To Refund ₹91 Lakh For Clearing Cheques During Moratorium

The National Company Law Appellate Tribunal at Delhi on Thursday held that the suspended directors of Satra Properties (India) Ltd violated the Insolvency and Bankruptcy Code by allowing two cheques worth Rs 91 lakh to be cleared after the commencement of moratorium, and upheld the National Company Law Tribunal's order directing them to jointly and severally refund the amount with interest under Section 66(2).

A Bench of Judicial Member Justice N Seshasayee and Technical Member Arun Baroka observed that the directors issued the cheques knowing that insolvency admission was imminent and permitted their encashment using fresh credits that came after CIRP began.

It said, “the Corporate Debtor's issuance of cheques cannot be considered as in ordinary course of business and in the backdrop that Section 7 proceedings were going on and judgment was reserved invites suspicion. Section 14(1) of the Code prohibits any recovery or enforcement of payment from the assets of the Corporate Debtor once moratorium commences."

It added, "Thus, the encashment of both cheques on 06.08.2020, during moratorium, clearly falls foul of Section 14."

The case concerned a CIRP petition filed in 2019 against Satra Properties that was reserved for orders on February 19, 2020. Despite this, the suspended directors issued two cheques dated July 31, 2020 to Darshan Developers while the company's bank accounts carried barely Rs 8,398 and Rs 9,151. CIRP was admitted on August 3, 2020, and the next day fresh credits of Rs 50 lakh and Rs 41 lakh entered the company's accounts.

These amounts were used to clear the cheques on August 6. The tribunal noted that the cheques did not relate to an existing liability and were instead issued to a contractor whose partner was a close relative of one of the directors. It also recorded that the cheques were handed over on July 31, as admitted by the beneficiary.

The directors argued that the payment flowed from a bona fide December 2019 memorandum of understanding with joint venture partner Shreeniwas Developers for completing a slum rehabilitation project, that no personal benefit accrued to them, and that the interim resolution professional had earlier accepted the transaction as legitimate.

They submitted that Section 66(2) required intent to defraud, which was absent, and that the application was barred by an interim moratorium under Section 96 arising from a separate proceeding against one director.

The tribunal rejected these arguments, finding that the directors knew insolvency was unavoidable and failed to exercise due diligence to minimise creditor loss. It held that the MOU did not justify payment to Darshan Developers and that the transaction was made in anticipation of future credits rather than against any legitimate liability.

Addressing the objection that recovery was barred due to a moratorium triggered by a personal insolvency plea against one director, the bench noted that such an objection was misconceived.

It said, “Section 96(1)(b) IBC does not bar the Adjudicating Authority to pass appropriate orders in the pending proceedings against the suspended directors and related parties, before the Adjudicating Authority, during the insolvency resolution process or liquidation process.”

It also upheld the award of interest, holding that Section 66 empowered the Adjudicating Authority to order contributions as it considered fit. Accordingly, the Appellate Tribunal dismissed the appeal and affirmed the direction requiring the suspended directors to refund Rs 91 lakh with 12% interest to the corporate debtor.