NCLAT rejects appeal for segregating investor refund amounts from corporate debtor's insolvency proceedings

NCLAT dismissed appeal seeking segregation of investor refund amounts from corporate debtor's CIRP. The corporate debtor served as asset management company for a trust, with all assets transferred to Resolution Professional. Forensic audit found no evidence that Rs.30,86,62,832 belonging to trust was reflected in corporate debtor's books. Adjudicating Authority correctly determined no direct investment/deposit from trust appeared in corporate debtor's accounts. Resolution Plan addressed SEBI liability discharge and refund obligations. During moratorium period, no recovery could be effected from Resolution Professional per SEBI order. Appeal rejected as appellant failed to demonstrate claimed amount existed in corporate debtor's books.

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Issues Involved:
1. Whether the amount of Rs. 30,86,62,832/- belonging to Osian Art Fund (OAF) should be kept separate from the Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor.
2. Whether the Resolution Professional (RP) is obliged to comply with the SEBI order dated 28.05.2021 during the CIRP.
3. Whether the assets of OAF form part of the assets of the Corporate Debtor.

Summary:

Issue 1: Separation of OAF Amount from CIRP
The Appellant, SEBI, contended that the amount of Rs. 30,86,62,832/- collected from investors by the Corporate Debtor, acting as an asset management company for OAF, should be kept separate from the CIRP of the Corporate Debtor. The Adjudicating Authority held that the Resolution Plan deals only with the assets and liabilities of the Corporate Debtor and no direct investment/deposit from OAF reflects in the books of the Corporate Debtor. The Corporate Debtor and OAF are distinct entities with segregated assets, and the funds of OAF do not form part of the assets of the Corporate Debtor. The Tribunal found no material to indicate that the said amount is reflected in the books of the Corporate Debtor. Hence, the application to keep the amount separate was rightly rejected.

Issue 2: Compliance with SEBI Order During CIRP
SEBI argued that the RP must comply with the SEBI order dated 28.05.2021, which directed the Corporate Debtor to refund the amount to investors. The Adjudicating Authority noted that the SEBI order came into force on 01.07.2021, after the commencement of CIRP on 19.12.2021. The RP included the SEBI order in the information memorandum and the Resolution Plan, which contains a clause for the manner of compliance with the SEBI order. The Tribunal held that during the moratorium period under Section 14 of the IBC, no recovery can be affected from the RP as per the SEBI order. Therefore, the RP was not obliged to comply with the SEBI order during the CIRP.

Issue 3: Inclusion of OAF Assets in Corporate Debtor's Assets
The Appellant claimed that the assets of OAF should be considered part of the Corporate Debtor's assets. The RP and forensic audit confirmed that the monies under OAF do not form part of the assets of the Corporate Debtor and have not been recorded in the information memorandum. The Adjudicating Authority found that the Corporate Debtor was merely an asset manager for OAF and did not possess the trust property of OAF. The Tribunal upheld this view, stating that the assets of OAF are not part of the Corporate Debtor's assets.

Conclusion:
The Tribunal dismissed the appeal, affirming the Adjudicating Authority's decision to reject SEBI's application. The Tribunal found no error in the Adjudicating Authority's reasoning that the amount belonging to OAF does not form part of the Corporate Debtor's assets and that the RP is not required to comply with the SEBI order during the CIRP.

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