NCLAT: Suspended Management Cannot Disburse Corporate Debtor’s Funds Post-CIRP Without IRP’s Approval
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has held that once the Corporate Insolvency Resolution Process (CIRP) commences and the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) comes into effect, the suspended management of the Corporate Debtor is strictly barred from deploying its funds without the Interim Resolution Professional's (IRP) authorisation. The Tribunal observed that even payments purportedly made in the ordinary course of business cannot override the statutory embargo imposed by the moratorium.
The Bench, comprising Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member), and Arun Baroka (Technical Member), was hearing an appeal filed by Mr. Sunil Gutte, the promoter and suspended director of M/s. Sunil Hitech Engineering Limited, against an order passed by the NCLT Mumbai, which had directed the reversal of certain transactions made post-CIRP commencement and held the appellant and others jointly and severally liable to refund Rs. 11.01 crore to the Corporate Debtor's account.
Background
M/s. Sunil Hitech Engineering Limited was admitted into CIRP on 07.09.2018 under Section 7 of the IBC, with the order uploaded on 10.09.2018. An IRP was appointed on the same date, who formally issued a takeover notice to the suspended management on 14.09.2018. Subsequently, a Resolution Professional (RP) was appointed on 27.11.2018.
Upon taking charge, the RP found that payments amounting to Rs. 11.01 crore had been made by the appellant and the then CFO (Respondent No. 6) to Respondent Nos. 2 to 5 between 10.09.2018 and 10.10.2018. These payments were made from an HDFC Bank account, not authorised by the IRP, and outside the formal resolution process. The RP sought an explanation, but not being satisfied with the justifications offered, filed an application before the NCLT seeking reversal of the payments.
Appellant’s Submissions
The appellant contended that the payments were part of routine business transactions with long-term vendors of the Corporate Debtor and were necessary to maintain operations. It was submitted that the cheques were dated prior to CIRP commencement and the payments were in line with standard operating procedures followed before the IRP took over. The appellant argued that these actions were taken to preserve the Corporate Debtor as a going concern, in the absence of any objection from the IRP at the relevant time.
Respondent’s Stand
Counsel for the RP contended that the impugned transactions breached Section 14(1)(b) of the IBC, which explicitly prohibits any transfer or alienation of the Corporate Debtor’s assets during moratorium. He emphasised that the effective date of moratorium was clearly specified as 10.09.2018 in the NCLT order. Since all twelve disputed transactions occurred after this date, and without the IRP’s sanction, the payments were illegal and recoverable.
Tribunal’s Observations
The NCLAT observed that under the IBC framework, the insolvency commencement date is the date of admission of the CIRP application under Sections 7, 9 or 10. Once admitted, Section 14 requires an order declaring moratorium, during which the suspended management cannot make any payments or deploy funds of the Corporate Debtor without authorisation.
The Tribunal examined the disputed transactions, noting that nine out of the twelve were RTGS payments made between 10.09.2018 and 14.09.2018—after the moratorium had become effective. The remaining three were cheque transactions dated prior to 10.09.2018 but encashed after the moratorium began. The Tribunal rejected the appellant's argument that the responsibility for these transactions lay with the banks or vendors, observing instead that "once moratorium is declared, the suspended management of the Corporate Debtor has to willy-nilly and mandatorily abide by this clear and express provision contained in the IBC statute."
The Bench relied on its earlier ruling in SREI Equipment Finance Ltd. v. Amit Gupta [CA(AT)(Ins.) No. 298 of 2019], where it had held that cheques, even if dated before the commencement of CIRP, cannot be lawfully encashed once the moratorium starts. Further, the Tribunal found that the payments were not routed through the UCO Bank account (used by the RP with Committee of Creditors' approval) but through an HDFC Bank account, which established that the transactions were not authorised by the IRP.
Rejecting the appellant's plea for equitable treatment on the ground that similar payments to other vendors had not been reversed, the Tribunal held that "equality cannot be claimed in wrong or illegal actions."
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Verdict
Holding the appellant and Respondent Nos. 2 to 6 jointly and severally liable, the NCLAT upheld the NCLT’s direction to refund the sum of Rs. 11.01 crore to the assets of the Corporate Debtor. The Tribunal found no error in referring the matter to the Insolvency and Bankruptcy Board of India (IBBI) for consideration of proceedings under Section 74(1) of the IBC. The appeal was dismissed with liberty to Respondent Nos. 2 to 5 to file their claims with the RP or Liquidator for consideration under the IBC process.
Appearance
For Appellant: Ms. Honey Satpal, Mr. Akash Agarwalla, Ms. Pooja Singh and Mr. Kanishk Khollar, Advocates.
For Respondent: Mr. J. Rajesh, Mr. Dhrupad Vaghani, Md. Arsalam Ahmad ad Mr. Yashwardhan Aggarwal, Advocates.
Cause Title: Mr. Sunil Gutte vs. Mr. Avil Menezes & Ors.
Case No: Company Appeal (AT) (Insolvency) No. 515 of 2025
Coram: Justice Ashok Bhushan [Chairperson], Barun Mitra [Technical Member], Arun Baroka [Technical Member]
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