Payments From Corporate Debtor's Account Post-CIRP Commencement Without IRP Approval Is Breach Of Moratorium: NCLT Mumbai Directs Refund

The National Company Law Tribunal, Mumbai bench comprising Prabhat Kumar (Technical Member) and Justice V. G. Bisht (Judicial Member) have held that any payments made from the Corporate Debtor's account after the commencement of the Corporate Insolvency Resolution Process (CIRP) without the Interim Resolution Professional's (IRP) approval are in contravention of the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (the Code). The Tribunal directed Respondents to refund amounts totaling Rs. 10,01,80,000 and directed the Liquidator to notify IBBI for proceedings under Section 74(1) of the Code. Brief Facts: Mr. Ashish Arjunkumar Rathi (Resolution Professional/Applicant) filed the application seeking directions for the refund of certain amounts by the Respondents to the Corporate Debtor and punishment for breaching the moratorium and fraudulently transferring its property. The Applicant's prayers were: to direct Respondents No. 1 and 2, under Section 60(5) of the Code, to immediately refund Rs. 11,01,80,000 to the Corporate Debtor along with interest as deemed fit; to pass orders under Section 74(1) of the Code against Respondents No. 1 and 2 for making payments in breach of the moratorium under Section 14; to direct Respondents No. 3 to 6 to immediately refund the Vendors' Unauthorised Payments to the Corporate Debtor along with interest; and to pass orders under Section 74(2) of the Code against Respondents No. 3 and 6 for receiving unauthorised payments in breach of the moratorium. American Express Banking Corporation (Financial Creditor) initiated the CIRP against Sunil Hitech Engineers Limited (Corporate Debtor) under Section 7 of the Code. NCLT Mumbai Bench admitted the CIRP application on 07.09.2018 (pronounced that day, delivered on 10.09.2018). The Tribunal appointed Mr. Harshad Shamkant Deshpande as the IRP through the CIRP Order. Submissions The Applicant submitted that once the CIRP of a corporate debtor commences, all powers of management of affairs of the corporate debtor get vested in the IRP, and it is the IRP who is responsible for carrying out its business as a going concern. It was submitted that Respondents No. 1 and 2 made payments from the Corporate Debtor's account after the commencement of CIRP without the IRP's approval. In the first phase, unauthorized payments amounting to Rs. 9,54,50,084 were made from 10.09.2018 to 14.09.2018. In the second phase, unauthorized payments amounting to Rs. 6,80,92,628 were made through cheques from 27.09.2018 to 10.10.2018. In total, unauthorized payments of Rs. 16,35,42,712 were made after the initiation of CIRP and the appointment of the IRP. Respondent No. 1, in its Reply, admitted that as on the date of initiation of the CIRP for the Corporate Debtor, the Corporate Debtor had approximately 800 employees, 1500 contract labourers, 150 active vendors, 25 running projects. The average expenditure for running these sites was approximately Rs. 200 Crores quarterly. Respondent No. 1 stated that the payments were made in the interests of the Corporate Debtor. The payments made in the First Phase were approved prior to initiation of CIRP by the erstwhile management and both of these parties i.e. the Respondent No. 5 & 6 were long-term service providers. Respondent No. 6 submitted that the Corporate Debtor was obligated to pay Rs. 1,96,07,395.20, out of which Rs. 1.92 Cr. was paid. It was further contended that it is for the Corporate Debtor and their director to clarify as to why the payments were made after the initiation of the CIRP of the Company and the appointment of the IRP by this Tribunal. Observations: The Tribunal observed that the contention of Respondent Nos. 1 and 2 that the payments were necessary to keep the Corporate Debtor as a going concern in the absence of IRP taking charge on 14.09.2018, had no merit. The Tribunal referred to the judgment in Vikas Jeph v. Anoop Bhatia RP (2023) wherein the NCLAT rejected the contention of the Suspended Directors that the payments had been made to discharge statutory liabilities that too within a short period from the date of admission and upheld the order passed by this Tribunal directing the Suspended Board of Directors to deposit the amount withdrawn from the bank account of the Corporate Debtor after the commencement of CIRP, holding that: “Once the order of admission was passed and moratorium is imposed under Section 14 of the Code, the powers of the Board got suspended and management and the affairs of the CD vests with the IRP.” The Tribunal observed that the cheques were only handed over to Respondent Nos. 3 & 4 after the commencement of CIRP and were ante-dated to make it a payment made prior to commencement of CIRP. The Tribunal held that the payment made on 10.09.2018 and 11.09.2018 to Respondent No. 5 was in fact through NEFT and RTGS and not through cheques. ...

Payments From Corporate Debtor's Account Post-CIRP Commencement Without IRP Approval Is Breach Of Moratorium: NCLT Mumbai Directs Refund

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Payments From Corporate Debtor's Account Post-CIRP Commencement Without IRP Approval Is Breach Of Moratorium: NCLT Mumbai Directs Refund

Tazeen Ahmed

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Tazeen Ahmed

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