2021 (11) TMI 481 - Tri - Companies Law

Tribunal Orders Banks to De-Freeze Accounts for Essential Payments

The tribunal directed respondent banks to de-freeze specific company accounts to enable essential payments, with the applicant to provide payment ... Freeze of bank accounts / debit freeze - interim de-freezing of accounts subject to conditions - principles of natural justice and impleadment - interest of justice - limited withdrawal for payment of wages, salaries and day-to-day operations - monthly submissions of acquittance slips / expenditure statements to the TribunalFreeze of bank accounts / debit freeze - interim de-freezing of accounts subject to conditions - limited withdrawal for payment of wages, salaries and day-to-day operations - principles of natural justice and impleadment - Interim relief to de-freeze specified bank accounts of the applicant company on conditions pending disposal of the impleadment application and the main petition. - HELD THAT: - The Tribunal found that although it had not earlier directed de-freezing, the existing freeze on the applicant's bank accounts is preventing the company from meeting payroll and day-to-day expenses. The Tribunal also accepted the proposed respondents' contention that deciding the IA in their absence might violate principles of natural justice and cause them prejudice. Balancing these competing considerations and in the interest of justice, the Tribunal exercised its discretion to grant a limited interim arrangement: the respondent banks are directed to de-freeze the named accounts but the applicant is permitted to draw only amounts actually necessary to pay duly employed workers' wages and salaries and to manage routine operations. The Tribunal required oversight by mandating monthly submission of acquittance slips/statements of payments and expenditure to the Tribunal until further orders. The order is an interim, protective measure while preserving the rights of the proposed respondents and pending resolution of impleadment and the main issues. [Paras 13]Specified accounts of the applicant are de-frozen for limited withdrawals to meet wages, salaries and day-to-day operations, subject to monthly submission of acquittance slips/statements to the Tribunal.Principles of natural justice and impleadment - interest of justice - Further reliefs and the question of impleading the ex-directors are to be considered at a subsequent hearing; the application is listed along with IA No. 9/2021. - HELD THAT: - The Tribunal recognised the proposed respondents' application for impleadment and that adjudicating the IA without them might cause grave injustice. Consequently, the Tribunal reserved consideration of the remaining reliefs sought in the IA and directed that the present application be listed along with the impleadment application for further hearing on the specified date. This leaves the substantive claims and the impleadment question to be finally adjudicated after hearing both parties. [Paras 13]The balance of the reliefs is reserved for consideration after hearing the parties; the IA is listed with IA No. 9/2021 on the next date.Final Conclusion: The Tribunal granted a conditional interim de-freeze of specified bank accounts to enable limited withdrawals for payment of wages, salaries and routine operations subject to monthly accounting to the Tribunal, and reserved all other reliefs and the impleadment issue for further consideration at the next hearing. Issues:1. Freeze on company accounts by respondent banks2. Alleged financial irregularities and diversion of funds3. Non-compliance by respondent banks with tribunal orders4. Dispute regarding removal of debit freeze on accounts5. Impleadment of ex-directors as respondentsAnalysis:Issue 1: Freeze on company accounts by respondent banksThe applicant filed an application seeking directions to the respondent banks to remove the freeze on the accounts of the company. The freeze on the accounts was preventing the company from making statutory payments, salaries, and managing day-to-day operations. Despite the tribunal's order directing the de-freezing of the accounts, the respondent banks had not complied. The tribunal acknowledged the financial impact of the freeze on the company's ability to pay its workers and staff.Issue 2: Alleged financial irregularities and diversion of fundsThe applicant alleged financial irregularities and diversion of funds by the ex-director of the company, leading to the decision to change signatories for operating the accounts. The applicant sought various reliefs in the main petition, including deposit/refund of siphoned funds, removal of debit freeze, investigation against certain respondents for fraud, and setting aside the appointment of the first auditor.Issue 3: Non-compliance by respondent banks with tribunal ordersThe respondent banks had not complied with the tribunal's order for removal of the debit freeze on the accounts, despite the applicant's memo highlighting the non-compliance. The tribunal noted the email correspondence between the applicant and one of the banks where the bank denied any relationship with the company, raising further issues of non-cooperation.Issue 4: Dispute regarding removal of debit freeze on accountsThe tribunal considered the arguments of both parties, with the counsel for the proposed respondents opposing the application, citing unresolved issues raised in their counter. The tribunal emphasized the need for a fair process, balancing the interests of the applicant and the proposed respondents, and decided to make an interim arrangement pending the impleadment of the proposed respondents.Issue 5: Impleadment of ex-directors as respondentsThe ex-directors, who were not initially impleaded as respondents in the application, filed a separate application to be included. Their counsel argued that passing an order in the absence of the proposed respondents would violate natural justice and cause hardship to them. The tribunal acknowledged the importance of their inclusion and deferred further consideration of the reliefs sought until the impleadment issue was resolved.In conclusion, the tribunal directed the respondent banks to de-freeze specific accounts of the company to facilitate essential payments, while requiring the applicant to submit payment statements periodically. The tribunal deferred the consideration of other reliefs sought pending the resolution of the impleadment application, emphasizing the need for a fair process and interim relief to address the company's immediate financial challenges.