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of <h1>Suspended directors must deposit withdrawn funds plus fine for unauthorized debits during moratorium under Section 14(1)(b)</h1> <h3>Rajendra Bhuta and Ors. Versus Suri Rahul, Erstwhile Director of the Corporate Debtor and Ors.</h3> Rajendra Bhuta and Ors. Versus Suri Rahul, Erstwhile Director of the Corporate Debtor and Ors. - TMI ISSUES PRESENTED and CONSIDEREDThe core issues considered in this judgment include:1. Whether the suspended directors of the Corporate Debtor violated Section 14(1)(b) of the Insolvency and Bankruptcy Code (IBC) by making unauthorized debits during the moratorium period.2. Whether the directors should be penalized under Section 74(1) read with Section 235(A) of the IBC for the alleged violations.3. Whether the actions of the directors were justified as necessary for the running of the business.4. Whether the application filed by the Resolution Professional (RP) is time-barred and whether the RP has the locus to pursue the application after the liquidation order.5. Whether the directors' defense of infusing personal funds into the Corporate Debtor justifies the transactions.6. The applicability of the exclusion of 25 days from the Corporate Insolvency Resolution Process (CIRP) period and its impact on the alleged transactions.ISSUE-WISE DETAILED ANALYSISViolation of Section 14(1)(b) of IBC:- Relevant Legal Framework: Section 14(1)(b) of the IBC imposes a moratorium on the transfer, encumbrance, alienation, or disposal of any assets of the Corporate Debtor during the insolvency resolution process.- Court's Interpretation and Reasoning: The Tribunal noted that unauthorized transactions were conducted by the directors during the moratorium, which prima facie violated the IBC provisions.- Key Evidence and Findings: The bank statements reflected unauthorized debits totaling Rs. 21,33,405. The directors admitted to making withdrawals without the Interim Resolution Professional's (IRP) approval.- Application of Law to Facts: The Tribunal found that the directors acted illegally by withdrawing funds without involving the IRP, thereby breaching the moratorium under Section 14(1)(b).- Treatment of Competing Arguments: The directors argued that the withdrawals were for operational expenses and that they infused personal funds into the Corporate Debtor. However, the Tribunal was not convinced by these justifications.- Conclusions: The Tribunal concluded that the directors violated Section 14(1)(b) by making unauthorized withdrawals.Penalization under Section 74(1) and Section 235(A) of IBC:- Relevant Legal Framework: Section 74(1) provides penalties for contravention of the moratorium, while Section 235(A) prescribes penalties for contraventions of orders passed by the Adjudicating Authority.- Conclusions: The Tribunal directed the directors to deposit Rs. 1,60,000 (self-withdrawn money) plus Rs. 1,00,000 as a fine in the account of the Corporate Debtor but refrained from imposing further punishment.Justification for Transactions:- Key Evidence and Findings: The directors claimed the transactions were necessary for operational expenses and were funded by their personal contributions.- Application of Law to Facts: The Tribunal acknowledged the infusion of funds but found no proof for the utilization of Rs. 1,60,000 towards diesel consumption.- Conclusions: The Tribunal did not accept the justification for the unauthorized transactions.Time-Barred Application and Locus of RP:- Relevant Legal Framework: Regulation 35-A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016 outlines the timeline for the RP to form an opinion and file applications regarding transactions.- Court's Interpretation and Reasoning: The Tribunal noted the delay in questioning the transactions but did not dismiss the application on these grounds.- Treatment of Competing Arguments: The directors argued that the RP lacked authority to continue the application post-liquidation. The Tribunal did not find this argument persuasive enough to dismiss the application.Exclusion of 25 Days from CIRP:- Relevant Legal Framework: The Tribunal had previously excluded 25 days from the CIRP period due to the delay in the communication of the admission order.- Application of Law to Facts: The Tribunal found that the directors were in charge of the Corporate Debtor during the excluded period, which justified their actions to some extent.- Conclusions: The Tribunal took into account the exclusion but still found the directors' actions unjustified.SIGNIFICANT HOLDINGS- The Tribunal held that the directors violated Section 14(1)(b) of the IBC by making unauthorized withdrawals during the moratorium period.- The Tribunal directed the directors to deposit Rs. 1,60,000 plus a Rs. 1,00,000 fine in the account of the Corporate Debtor.- The Tribunal acknowledged the directors' infusion of personal funds but did not find it a sufficient defense for unauthorized transactions.- The Tribunal did not impose additional penalties, considering the directors' cooperation and the circumstances surrounding the transactions.
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