Directors Must Deposit Passports During Liquidation to Prevent Fraud

The Tribunal upheld the Adjudicating Authority's decision to require ex-Directors of a Corporate Debtor to deposit their passports during liquidation proceedings. It was deemed necessary to prevent hindrance to fraud investigations and safeguard stakeholder interests. The Tribunal clarified that this measure was temporary and aimed at ensuring the integrity of investigations and the liquidation process. The appeal challenging the Authority's jurisdiction and the order's compliance with constitutional rights was dismissed, affirming the Authority's power to issue such directions under the Insolvency and Bankruptcy Code.

---

---

Issues:
1. Application under Section 60(5)(c) r/w Section 67 of I&B Code for directions to deposit passports during liquidation proceedings.
2. Jurisdiction of Adjudicating Authority to pass interim orders under I&B Code.
3. Compliance with Article 21 of the Constitution regarding freedom of movement.
4. Interpretation of Section 66 of the Insolvency and Bankruptcy Code regarding fraudulent trading.

Analysis:
1. The appellants, ex-Directors of a Corporate Debtor undergoing liquidation, were asked to deposit their passports during the pending liquidation proceedings. The Adjudicating Authority considered ongoing investigations by the CBI against the ex-Directors and the risk of them leaving the country, potentially hindering fraud investigations.

2. The appellants argued that only the Supreme Court has jurisdiction under Article 142 to restrict individuals from leaving the country, not the Adjudicating Authority under the I&B Code. They contended that the impugned order violated Article 21 of the Constitution.

3. The Tribunal clarified that preventing the ex-Directors from leaving the country was to safeguard the interests of stakeholders and facilitate the liquidation process, not a permanent injunction. The order was deemed necessary to ensure the investigation's integrity and potential outcomes.

4. Referring to Section 66 of the I&B Code on fraudulent trading, the Tribunal highlighted the authority of the Adjudicating Authority to pass orders under Section 66 and 67 based on investigations. Any report filed against the ex-Directors could lead to appropriate actions under the Code.

In conclusion, the Tribunal found no merit in the appeal and dismissed it, emphasizing the Adjudicating Authority's power to issue directions regarding the movement of ex-Directors during ongoing investigations and liquidation proceedings.

---