2022 (12) TMI 147 - AT - Insolvency and Bankruptcy

Tribunal Overturns Decision on Fine & Deposit, Emphasizes Corporate Debtor's Cooperation

The Tribunal overturned the Adjudicating Authority's decision to impose a fine and direct a deposit of Rs.1,60,000/-, emphasizing the Corporate Debtor's ... Jurisdiction - Whether Corporate Debtor had no authority to make any expenditure after initiation of the CIRP? - Section 19(2) of IBC - HELD THAT:- The Adjudicating Authority erred in rejecting the said transaction by observing that there is no proof that expenditure was for towards the diesel consumption. When explanation was given in the reply, for running two DG sets the expenditure of Rs.1,60,000/- towards diesel ought to have been accepted by the Adjudicating Authority. Further the Adjudicating Authority did not even advert to the explanation - there is no occasion for imposing any fine in the facts of the present case. The Adjudicating Authority has itself observed that the Corporate Debtor has cooperated with the IRP and RP, in para 23. We, thus, are satisfied that the direction to deposit Rs.1,60,000/- and fine of Rs.1,00,000/- deserved to be deleted and is hereby deleted. The law that after initiation of the CIRP the Directors are not entitled to operate any account and use any assets of the Corporate Debtor is well settled and present is a case where no appeal has been filed by the Resolution Professional challenging the order in which other two transactions have been accepted. Issues:1. Application filed under Section 19(2) of the I&B Code regarding transactions made by the Corporate Debtor.2. Acceptance of two transactions and rejection of one transaction by the Adjudicating Authority.3. Dispute over the expenditure of Rs.1,60,000/- for diesel consumption by the Corporate Debtor.4. Consideration of explanations provided by the Corporate Debtor regarding the transactions.5. Imposition of fine and direction to deposit Rs.1,60,000/- by the Adjudicating Authority.Analysis:1. The appeal was filed against an order passed by the Adjudicating Authority under Section 19(2) of the I&B Code regarding transactions made by the Corporate Debtor. The Adjudicating Authority accepted two transactions but issued a direction to deposit Rs.1,60,000/- with a fine of Rs.1,00,000/- for the third transaction. 2. The Appellant argued that since the Corporate Debtor was a going concern until the IRP took charge on 16.08.2019, all transactions during that period should be excluded. The Respondent contended that post-initiation of CIRP, the Corporate Debtor had no authority to make any expenditure. The Adjudicating Authority accepted two transactions but rejected the third one due to lack of proof.3. The dispute centered around the expenditure of Rs.1,60,000/- for diesel consumption by the Corporate Debtor. The Corporate Debtor explained that the amount was utilized for running two DG sets during power failures in the region. The Adjudicating Authority did not accept this explanation initially.4. The Adjudicating Authority erred in rejecting the transaction without considering the detailed explanation provided by the Corporate Debtor. The Corporate Debtor's explanation regarding the necessity of the expenditure for diesel consumption was found to be reasonable and justifiable. The Adjudicating Authority failed to adequately address the explanations provided.5. The Tribunal concluded that the direction to deposit Rs.1,60,000/- and the fine of Rs.1,00,000/- were unwarranted. It was noted that the Corporate Debtor had cooperated with the IRP and RP. The Tribunal emphasized that the Adjudicating Authority should have accepted the expenditure towards diesel consumption based on the explanation provided. Additionally, it was clarified that post-initiation of CIRP, Directors are not allowed to operate any account or use assets of the Corporate Debtor, which was a settled legal principle in this case.