2022 (6) TMI 922 - HC - Insolvency and Bankruptcy

Court clarifies no vicarious liability under Section 74(3) of Insolvency Code; petitioners excused pending next hearing.

The Court found that Section 74(3) of the Insolvency and Bankruptcy Code does not impose vicarious liability, suggesting that the individual petitioners ... Summon of petitioners - vicarious liability - offences punishable under Sections 31(1), 74(3) and 235A of the Insolvency and Bankruptcy Code, 2016 - HELD THAT:- Against the decision of the NCLAT in the case of Committee of Creditors of Amtek Auto Ltd. [2019 (8) TMI 877 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI], the Insolvency and Bankruptcy Board of India filed Civil Appeal Diary No. 32731/2019 wherein, vide order dated 23rd September 2019, [2019 (9) TMI 1652 - SC ORDER] the Hon’ble Supreme Court stayed the impugned judgment and held that the order dated 23rd September 2019 will not affect the progress of the other criminal cases and they shall proceed uninfluenced by the impugned order. As regards the second issue taken up by the learned Senior Counsel for the petitioners that the petitioner Nos. 2, 3 and 4 could not have been summoned in their individual capacity by the learned Special Judge when the complaint was filed only against the company through petitioner Nos. 2, 3 and 4, prima facie, there appears to be merit as Section 74(3) of the I.B.C. does not impose a vicarious liability. List on 13th April 2022. Issues Involved:Petition seeking quashing of a complaint and order under the Insolvency and Bankruptcy Code, 2016.Analysis:In the present case, the petitioners sought the quashing of a complaint filed by respondent No. 2 and an order summoning the petitioners for offenses under Sections 31(1), 74(3), and 235A of the Insolvency and Bankruptcy Code, 2016. The petitioners argued that despite efforts to comply with the Resolution Plan approved by the NCLT, they could not deposit the required amount within the prescribed time. Various orders were passed in favor of the petitioners by NCLT, NCLAT, and the Supreme Court, but the respondent filed a complaint under Section 74(3) of the I.B.C. The petitioners contended that the NCLAT had laid down a procedure requiring a hearing before launching a prosecution, which was not followed in this case. They also argued against vicarious liability under Section 74 of the I.B.C., pointing out that the complaint was filed only against the company, not the individual petitioners.The learned Senior Counsel for the petitioners relied on the decision in the matter of 'Committee of Creditors of Amtek Auto Ltd. Vs. Dinkar T. Venkatasubramanian & Ors.' where the NCLAT emphasized the importance of providing an opportunity to the successful corporate resolution applicant to explain any failure to comply with the Resolution Plan before prosecution. The Senior Counsel further argued that Section 74 of the I.B.C. does not impose vicarious liability, and the individual petitioners should not have been summoned in their individual capacity when the complaint was against the company alone. The respondent acknowledged the NCLAT decision but highlighted that the Supreme Court had stayed the judgment and that the issue was pending before the court.The Court found merit in the argument that Section 74(3) of the I.B.C. does not impose vicarious liability, indicating that the individual petitioners may not have been correctly summoned in their individual capacity. The Court directed the respondent to file a reply affidavit, followed by a rejoinder affidavit from the petitioners. The case was listed for further hearing, and the individual petitioners were exempted from appearing before the Trial Court until the next hearing date. The Court ordered the upload of the order on the court's website for public access.