NCLAT Dismisses Appeal by Suspended Directors; Says ₹5.5 Crore Investment Makes Claim of Ignorance of CIRP Unbelievable
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi, has dismissed an appeal seeking to expunge adverse observations made by the National Company Law Tribunal (NCLT) against the suspended directors of M/s Star Mineral Resources Pvt. Ltd. for non-cooperation during the Corporate Insolvency Resolution Process (CIRP) and liquidation proceedings. The three-member Bench comprising Justice Rakesh Kumar Jain (Judicial Member), Justice Mohd. Faiz Alam Khan (Judicial Member), and Mr. Naresh Salecha (Technical Member) upheld the findings of the NCLT, which included remarks concerning the appellants’ failure to provide statutory records and their continued absence despite due service of notices.
The appeal was filed under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging the NCLT's order dated 07.12.2023, particularly paragraph 7(ii), where the Tribunal had recorded adverse findings against the appellants while passing the order of dissolution of the corporate debtor. According to the NCLT, the suspended directors did not cooperate with the IRP/RP or the Liquidator by withholding statutory books of accounts, ignoring notices, and failing to respond to summons and warrants issued by the Tribunal. The Tribunal further noted that the Resolution Professional had filed a complaint under Section 70 of the IBC, leading to criminal prosecution initiated against the directors.
In their defense, the appellants contended that they were not involved in the day-to-day operations of the corporate debtor and had never received any communication regarding the CIRP. They asserted that their role was limited to that of non-executive directors, having been nominated after investing approximately ₹5.5 crores in the company in July 2014 through an agreement that promised 51% equity and representation on the board. They argued that the promoter director, Mr. Gagan Shukla, continued to manage the affairs of the company, and all correspondence regarding CIRP was sent only to him.
The appellants further claimed that they never received notice of the CoC meetings or any application under Section 19(2) or Section 70 of the IBC. They maintained that the addresses used for service were outdated and that one of the appellants had been residing abroad for over a decade. It was also stated that they became aware of the CIRP only after receiving summons from the criminal court in Delhi, and they thereafter began participating in meetings of the stakeholders.
However, the NCLAT rejected these contentions, observing that multiple notices, emails, and postal communications had been sent to the appellants using the addresses and email IDs listed in the MCA database. The Tribunal held that since it was the appellants' responsibility to update the MCA in case of a change in address, they could not now claim non-receipt of notices. It also noted that other directors, to whom similar communications were sent, had responded and appeared before the Tribunal.
Referring to the substantial financial investment made by the appellants, the NCLAT found it implausible that they remained unaware of the CIRP or the liquidation proceedings. The Tribunal noted: “It is hard to believe that despite investing about ₹5.5 crores in the Corporate Debtor, the Appellant Directors would not be having any information with regard to the commencement of the CIRP… and also of its liquidation.”
The appellate tribunal concluded that the observations made by the Adjudicating Authority were factual in nature and formed part of the reasoning behind the decision to pass the dissolution order. It held that there was no violation of natural justice, as ample opportunities had been provided to the appellants to participate in the process, including through coercive measures. Therefore, it refused to interfere with the remarks made in the original order. Accordingly, the appeal was dismissed.
Appearance
For Appellant: Ms. Sakshi Tikmany & Mr. Akshat Gupta Advocates.
For Respondent: Mr. Naresh Kumar Bansal & Ms. Kritika Bansal, Advocates.
Cause Title: Bimal Kumar Jejani and Ors. V. M/s Star Mineral Resources Pvt. Ltd. and Ors.
Case No: Company Appeal (AT) (Insolvency) No. 224 of 2024
Coram: Justice Rakesh Kumar Jain [Judicial Member], Justice Mohd. Faiz Alam Khan [Judicial Member], Mr. Naresh Salecha [Technical Member]
