Tribunal Restrains Corporate Debtor & Directors from Asset Alienation Pending Order

The tribunal restrained the Corporate Debtor and its directors from alienating assets until further orders under Rule 11 of the NCLT Rules, 2016, despite the pre-admission stage of the Section 9 IBC application. The directive aimed to preserve company assets and accounts, permitting only essential expenses. The restrictions on asset alienation would continue until the Section 9 IBC application was either accepted or denied, with the tribunal acknowledging the petitioner's concerns but emphasizing that Section 60(5)(c) authority arises during CIRP or liquidation, not at the pre-admission stage.

---

---

Issues:
1. Outstanding amount towards the Corporate Debtor
2. Existence of dispute between the parties
3. Application under Section 9 of IBC
4. Misc. Application under Section 60(5)(c) of IBC, 2016
5. Maintainability of the application under Section 60(5)(c) before admission of the petition
6. Authority to restrain the Corporate Debtor from alienating assets

Analysis:

1. The petitioner claimed an outstanding amount of Rs. 7,64,54,285.20 towards the Corporate Debtor as of a specific date. The petitioner initiated the application under Section 9 of the Insolvency and Bankruptcy Code (IBC) after fulfilling the requirements of Section 8 by serving notice on the Corporate Debtor. The respondent's counsel argued the existence of a dispute between the parties and requested time to file a reply. The tribunal granted an extension for the reply and directed the petitioner's counsel to file a rejoinder within a week.

2. The petitioner filed a Miscellaneous Application under Section 60(5)(c) of the IBC, seeking relief to prevent the respondent/director from selling the company's assets to defeat the purpose of the I&B Code and cause losses to creditors. The application aimed to restrain the respondent from alienating assets with a malicious intent to harm legitimate creditor claims, including that of the petitioner.

3. In response to the Miscellaneous Application, the respondent's counsel contended that Section 60(5)(c) is only applicable when Corporate Insolvency Resolution Process (CIRP) is initiated or during liquidation. The respondent argued that since the application under Section 9 of the I&B Code was at a pre-admission stage, the tribunal could not entertain the Section 60(5)(c) application. The tribunal acknowledged the petitioner's concerns but noted that the authority to act under Section 60(5)(c) arises only during CIRP or liquidation.

4. Despite the limitations mentioned, the tribunal recognized the petitioner's apprehensions and decided to exercise its authority under Rule 11 of the NCLT Rules, 2016. The tribunal restrained the Corporate Debtor and its directors from alienating, encumbering, or creating any third-party interest in the company's assets until further orders. The directive aimed to ensure the preservation of assets and accounts of the company, allowing only legitimate expenses for day-to-day operations.

5. The tribunal adjourned the matter for further proceedings, indicating that the restrictions on asset alienation would remain in place until the application under Section 9 of the I&B Code was either admitted or rejected.

---