NCLT Bengaluru Rules, Liquidator Must Recover Assets Even If Attached By Third Parties, Attachment Cannot Override IBC
Pranav B Prem
The National Company Law Tribunal (NCLT) Bengaluru has held that a liquidator is duty-bound to take custody and control of all assets of a corporate debtor, even if such assets were seized or attached by third parties including investigating agencies. The Tribunal emphasized that seizure or attachment cannot override the Insolvency and Bankruptcy Code, 2016 or prevent assets belonging to the corporate debtor from forming part of the liquidation estate.
A Bench comprising Judicial Member Sunil Kumar Aggarwal and Technical Member Radhakrishna Sreepada was dealing with an application filed by the liquidator of Welworth Software Pvt. Ltd. seeking directions for deposit of ₹47.98 lakh that had been seized during a CBI corruption probe in October 2020 involving Congress leader DK Shivkumar. The money had thereafter been released in January 2021 pursuant to a Karnataka High Court order, on the basis that the amount belonged to the corporate debtor.
The company entered liquidation in November 2022 and the liquidator issued a notice in September 2023 requiring deposit of the seized amount into the liquidation estate. No response was received, prompting the instant application. The respondent, an erstwhile director of the corporate debtor, submitted that he had acted only as custodian of the money pursuant to the High Court’s directions and expressed willingness to deposit the amount, subject to discharge of the indemnity bond and release of property documents furnished as surety before the Special Court.
After reviewing the record, the Tribunal held that once liquidation is triggered, all assets “belonging to or vested in” the corporate debtor as on the insolvency commencement date form part of the liquidation estate under Sections 33, 35 and 36 of the IBC, irrespective of whose physical possession they are in. It observed that any monies judicially recognised as belonging to the corporate debtor — even if seized, attached or lying under directions of a criminal court — must necessarily come under the control of the liquidator for equitable treatment of stakeholders under the IBC. The Bench noted that “the liquidator is duty-bound to take into custody and control all assets and properties of the corporate debtor, including assets which are seized, attached or otherwise held by third parties, and such seizure or attachment cannot defeat the overriding scheme of the Code.”
The Tribunal further recorded that interim custody orders under criminal law do not confer proprietary rights on the custodian and are intended only to preserve property. It noted that the Karnataka High Court’s directions amounted to a judicial determination, at least prima facie, that the beneficial owner of the seized amount was the corporate debtor. In support of this reasoning, the Tribunal referred to Sunderbhai Ambalal Desai v. State of Gujarat (2002) 10 SCC 283, noting that interim release of seized property to a person on bond does not alter ownership.
The Tribunal also relied on National Spot Exchange Ltd. v. Namdhari Food International Pvt. Ltd. (NCLAT, 24.09.2021), reiterating that attachment of property by investigating agencies does not take such assets outside the liquidation estate and the liquidator must assume control subject to coordination with the concerned authority.
Concluding that seizure could not prevent the money from being brought into the liquidation estate, the Tribunal directed the erstwhile director to deposit ₹47.98 lakh along with accrued interest into the liquidator’s bank account. It further permitted both parties to jointly approach the Karnataka High Court within 15 days for discharge of the indemnity bond and release of the surety furnished before the criminal court so that the respondent would not face double liability. The application was accordingly allowed.
Appearance
For Liquidator: Advocate Narayana Kamma
Cause Title: Welworth Software Private Limited v. Akshaya Kumar Karunam
Case No: IA No. 693 of 2024 in CB(IB) No. 32/BB/2021
Coram: Judicial Member Sunil Kumar Aggarwal, Technical Member Radhakrishna Sreepada
