Appellate Tribunal reverses prosecution order for ex-directors in IBC case

The Appellate Tribunal overturned the Order passed by the National Company Law Tribunal directing prosecution under Section 70 of the Insolvency and Bankruptcy Code, 2016. The Appellants, ex-directors of the Corporate Debtor, were found to have cooperated fully with the Resolution Professional, except for the non-production of a specific document. The Tribunal ruled that the direction for prosecution was unwarranted as there was no evidence of possession of the document in question. Both Appeals were allowed in favor of the Appellants, setting aside the Order for prosecution under Section 70 of IBC, 2016.

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Issues:
Appeal against Order directing prosecution under Section 70 of IBC, 2016.

Analysis:
The Appellate Tribunal heard two Appeals against the Order passed by the National Company Law Tribunal directing the institution of a prosecution under Section 70 of the Insolvency and Bankruptcy Code, 2016. The Appellants were ex-directors of the Corporate Debtor, and the dispute arose from an Application filed by the Resolution Professional under Section 19(2) of the Code. The impugned Order directed the RP to proceed under Chapter VII of IBC, 2016 for prosecution. The crux of the matter revolved around the non-production of a specific document, referred to as Sr. No. 27, which the Appellants claimed they did not possess. The Appellants contended that they had cooperated fully with the RP, providing all requested documents except for the one in question.

The Appellants argued that the Application by the RP was solely under Section 19(2) and that they had been fully cooperative, except for the document at Sr. No. 27. The RP acknowledged in their Reply that certain documents were not provided, leading to the direction for prosecution. However, the Tribunal noted that there was no request made by any party to initiate prosecution, and Section 70 of IBC, 2016 outlines specific misconduct punishable by law during the insolvency resolution process. Notably, Section 70(1)(c) pertains to the non-delivery of books and papers belonging to the corporate debtor, which could lead to imprisonment.

The Tribunal emphasized the importance of establishing control or custody over the requested documents before directing prosecution. In this case, out of thirty-seven documents requested, only Sr. No. 27 was not provided, with no evidence indicating its possession by the Appellants. The Tribunal referred to a previous judgment to support its decision. Ultimately, the Tribunal found the direction for prosecution to be unwarranted and set it aside. Both Appeals were allowed in favor of the Appellants, overturning the Order for prosecution under Section 70 of IBC, 2016.

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