Directors spared Section 74(1) punishment; ordered to refund diesel withdrawal and pay fine for Section 14(1)(b) breach

NCLT (Mumbai Bench) considered an application under Sections 19(2), 74(1) and 235A of the IBC alleging violation of the moratorium under Section 14(1)(b) by suspended directors of the corporate debtor in respect of three debits during CIRP. The Tribunal observed that the directors had generally cooperated with the IRP/RP and that fund infusion during CIRP was on record. However, one self-withdrawal of Rs. 1,60,000/- claimed towards diesel expenses was unsupported by evidence. Declining to impose punitive sanctions under Section 74, NCLT instead directed the directors to deposit Rs. 1,60,000/- plus Rs. 1,00,000/- as fine into the corporate debtor's account.

---

---

Issues: (i) Whether the suspended directors violated Section 14(1)(b) of the IBC by effecting debits during the moratorium and whether any monetary recovery/penalty ought to be directed against them.

Analysis: The facts show multiple debits from the corporate debtor's bank account after the admission date; however, certain transactions were supported by evidence of infusion of personal funds and by explanations accepted and ratified by the Insolvency Professional. The admission order was not communicated to the directors until a later date and a 25-day period was excluded from the CIRP period. No proof was furnished for one debit of Rs. 1,60,000 claimed as diesel expense. Relevant considerations include whether the transactions occurred after communication of the admission order, whether they were bona fide operational payments or self-withdrawals, prior ratification by the IRP, and the record of contempt proceedings initiated by higher fora.

Conclusion: The directors are not held liable for all impugned debits; they are directed to deposit Rs. 1,60,000 (self-withdrawn amount not substantiated) and to pay an additional Rs. 1,00,000 as fine into the corporate debtor's account. No further punishment is imposed.

Ratio Decidendi: Where the admission order was not communicated and the relevant period is excluded from CIRP, transactions effected before such communication may not constitute breach of moratorium; however, unproved self-withdrawals during the relevant timeframe warrant deposit and imposition of a monetary penalty in favour of the corporate debtor.

---