TaxTMI 
TaxTMI 
2026 (8) TMI 338
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....t of CP (IB) No. 368/MB/C-II/2023. The impugned order was passed on an application instituted by Ssarvi Resolution Services LLP, acting through its Partner and Authorised Signatory Mr. Prashant Jain, in its capacity as the Resolution Professional of the Corporate Debtor, under Sections 66, 74 and 60(5) of the Insolvency and Bankruptcy Code, 2016 read with Section 213 of the Companies Act, 2013. 2. By the aforesaid order, the Adjudicating Authority directed the Appellant and other respondents therein to jointly and severally contribute a sum of Rs. 8,05,11,748/- to the account of the Corporate Debtor within thirty days and further directed the Insolvency and Bankruptcy Board of India (IBBI) and the Ministry of Corporate Affairs (MCA) to initiate prosecution against the Appellant under Section 74 of the Code. Aggrieved by the findings and directions contained in the impugned order, the Appellant has preferred the present appeal. FACTS OF THE CASE 3. Brief facts of the case necessary to decide this Appeal are as under: i. The Corporate Debtor had availed credit facilities from Axis Bank Ltd. and over a period of time had defaulted in repayment to the financial credit....
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....s of the asset sold by corporate debtor to M/s Golden Gate Developers during the moratorium was received in the bank account of corporate debtor maintained with Bank of Baroda. Thereafter, the appellant made a fixed deposit of Rs. 7,59,26,262/- in the name of Registrar, NCLAT and by a new application sought additional time to deposit the remaining sum of Rs. 2.90 crores by December 3, 2023. vii. Since the condition relating to the Fixed Deposit was ultimately not fulfilled, this Appellate Tribunal, by its order dated 06.12.2023, vacated the interim protection granted on 15.09.2023, thereby permitting the CIRP to proceed in accordance with law. In a subsequent order on 09.04.2024 this Tribunal further directed the Resolution Professional to maintain the sale proceeds received from the Panvel Property in an interest-bearing account with a nationalised bank. viii. The Appellant claims to have fully cooperated with the Resolution Professional by furnishing all relevant records, documents and information concerning the Corporate Debtor. The Appellant relies upon various email communications exchanged between 11.11.2023 and 18.12.2023 to demonstrate that pos....
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....T proceeded to pass directions on the basis of an alleged breach of the moratorium under Section 14 of the Code, without adjudicating whether the statutory ingredients of Section 66 were satisfied. It is submitted that the Impugned Order is contrary to the provisions of the Code and is therefore liable to be set aside. 5. He submits that during August and September 2023, while functioning as a Director of the Corporate Debtor, the Appellant issued several cheques towards payment of outstanding dues of creditors and salaries of employees in the ordinary course of business. Subsequently, on 08.09.2023, the Corporate Debtor was admitted into Corporate Insolvency Resolution Process under Section 7 of the Code and the moratorium under Section 14 came into effect. Thereafter, on 10.05.2024, the Respondent-Resolution Professional filed an application under Sections 66, 74 and 60(5) of the Code alleging that an amount of Rs. 8,05,11,748 had been withdrawn from the bank account of the Corporate Debtor during the CIRP period. 6. It is submitted that the Appellant filed a detailed reply on 08.10.2024 specifically denying the allegations and clearly stated that the transactions referred ....
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....d transactions were fraudulent within the meaning of Section 66, it proceeded to hold the Appellant liable under Section 14. Such a finding travels beyond the scope of the pleadings, changes the very nature of the proceedings and deprives the Appellant of the opportunity to defend the case on the statutory ingredients actually pleaded. Consequently, the Impugned Order suffers from a fundamental jurisdictional error and deserves to be set aside. 11. The Ld. Counsel respectfully submits that the entire case of the Resolution Professional proceeds on an erroneous assumption that the transactions in question were carried out during the CIRP period. In fact, the payments referred to in Paragraph 5.21 of the application were made through cheques that had been issued by the Appellant prior to the commencement of the Corporate Insolvency Resolution Process. These cheques were issued towards discharge of legitimate liabilities of the Corporate Debtor, including payment of salaries to employees and outstanding dues of creditors, in the ordinary course of business. The Appellant had specifically raised this defence in the reply filed before the Ld. Adjudicating Authority, yet the same was ....
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.... NCLT erroneously proceeded to hold the Appellant responsible for breach of the moratorium under Section 14 instead of adjudicating the application on the touchstone of Section 66. The Impugned Order, therefore, cannot be sustained in law. 15. Ld. Counsel submits that the Impugned Order has caused serious prejudice to the Appellant. The proceedings were initiated under Section 66 of the Code alleging fraudulent trading, whereas the Ld. NCLT ultimately imposed liability under Section 14 of the Code without first determining whether the ingredients of Section 66 were satisfied. The Appellant was thus denied an opportunity to defend the case on the basis on which liability has eventually been fastened. 16. The Ld. Counsel places reliance upon the judgment of the Hon'ble Delhi High Court in Sh. Rajeev Shukla v. Sh. Gopal Krishna Shukla, CM (M) No. 2342 of 2024, wherein; it was held that mentioning an incorrect provision of law is not fatal unless it causes prejudice to the opposite party or the Court. In the present case, the prejudice is manifest, as the Respondent invoked Section 66 but the Ld. NCLT granted relief under Section 14 without adjudicating the case under Section....
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....of the Code seeking reimbursement of the amount withdrawn from the Corporate Debtor's bank account during the subsistence of the moratorium. Thus, both the application and the impugned order clearly establish the statutory basis on which the proceedings were instituted. 22. It was further submitted that the Appellant's own Memorandum of Appeal completely demolishes the argument now sought to be advanced. In the List of Dates, the Appellant himself has specifically pleaded that the Respondent filed I.A. No. 3653 of 2024 under Sections 66, 74 and 60(5) of the Code read with Section 213 of the Companies Act, 2013. The Synopsis accompanying the Appeal reiterates the very same position. Having made such categorical averments on affidavit, the Appellant cannot now be permitted to contend that the application was confined only to Section 66 of the Code. 23. The Ld. counsel submitted that it is a settled principle of law that a litigant is bound by his own pleadings and cannot be allowed to take a stand contrary thereto during oral submissions. Since the Appellant's own Appeal acknowledges that the Respondent's application was filed under Sections 66, 74 and 60(5) of ....
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.... Section 66. 28. He submitted that the Ld. Adjudicating Authority specifically confined its findings to the admitted violation of the moratorium under Section 14 of the Code and, on that basis, directed the Appellant and the other suspended directors to contribute the withdrawn amount to the account of the Corporate Debtor by exercising its jurisdiction under Section 14 read with Section 60(5) of the Code. The direction for contribution, therefore, is founded entirely on the breach of the statutory moratorium and not on any finding of fraudulent trading under Section 66. 29. It is submitted that since the impugned direction is based upon the violation of Section 14 and the residuary jurisdiction vested in the Adjudicating Authority under Section 60(5) of the Code, the Appellant's challenge premised on the applicability of Section 66 is wholly misplaced and deserves to be rejected. 30. Ld. Counsel submitted that the violation of the moratorium under Section 14 of the Code stands conclusively established on admitted and undisputed facts. It is not disputed that the Appellant sold the Panvel Property, which was mortgaged to Axis Bank, on 2 November 2023, i.e., after the c....
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....tion as may be considered appropriate under Section 74 of the Code. 35. The challenge of the Appellant proceeds on the basis that the Resolution Professional had invoked Sections 66, 74 and 60(5) of the Code before the Adjudicating Authority, but the ultimate direction requiring contribution of the aforesaid amount was founded upon violation of the moratorium under Section 14 of the Code without recording any finding on the ingredients of Section 66. It has been contended that once the Adjudicating Authority observed that it was not necessary to determine, whether the transactions constituted fraudulent or wrongful trading within the meaning of Section 66, it could not thereafter grant substantive relief by invoking Section 14 of the Code. The Appellant has also questioned the direction forwarding the matter to the IBBI and the MCA by contending that such a direction travels beyond the jurisdiction vested in the Adjudicating Authority. 36. The Respondent has contradicted the above submissions by contending that the application before the Adjudicating Authority was never confined to Section 66 of the Code but was expressly instituted under Sections 66, 74 and 60(5) of the Code....
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.... the moratorium.'' 39. It is seen from the records that I.A. No. 3653 of 2024 was instituted under Sections 66, 74 and 60(5) of the Code read with Rule 11 of the National Company Law Tribunal Rules, 2016, and not exclusively under Section 66 of the Code. In the initial title portion of the IA, the sections 66,74 and 60(5) of the Code are clearly mentioned along with Rule 11 of the NCLT Rules. Paragraph 1 of the IA also records the main prayer of the RP seeking reimbursement of the amount withdrawn from the bank account of the Corporate Debtor during the subsistence of the moratorium. Impugned order has also duly noted the same statutory provisions under which the application was preferred. 40. The pleadings before this Appellate Tribunal also proceed on the same basis. In the Memorandum of Appeal, the Appellant himself has described the Impugned Order as one arising out of an application filed under Sections 66, 74 and 60(5) of the Code. The record, therefore, leaves little room for doubt that the proceedings before the Adjudicating Authority were not confined to Section 66 alone. The mere fact that Section 66 formed one of the statutory provisions invoked in the application ....
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....s of the Corporate Debtor is prohibited after the commencement of the moratorium. The rationale behind implementing such prohibitions as laid down in Section 14 during the moratorium is to maintain the sanctity of the CIRP and to ensure the avoidance of frivolous and fraudulent transactions that will leave the Corporate Debtor in a devastated state by further sabotaging the CIRP process. It is submitted that the whole purpose of the moratorium would be defeated if members of the previous management of the Corporate Debtor are left free to transfer the funds of the Corporate Debtor. 6.2 Further in Sandeep Khaiwn v. JSVM Plywood Industries Ltd, it was stated that the impact of the moratorium includes prohibition of transferring, encumbering, alienating or disposing of by the Corporate Debtor of any of its assets. 6.3 - - - 6.4 - - - 6.5 As previously mentioned, the transaction involving the sale of the encumbered assets of the Corporate Debtor, was consciously done despite having full knowledge of the Admission Order, and the intentional usage of monies in the bank account of the Corporate Debtor's assets, displays the mala fide intention of Re....
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....n violation of Moratorium under section 14 of the Code; (b) Pass an order reversing the appropriation of the amount of INR 8,05,11,748/- (Eight Crores Five Lakhs Eleven Thousand Seven Hundred Forty-Eight only) by the Respondents and further direct the Respondents to contribute the above sum to the Corporate Debtor's bank account; (c) Pass an order directing the Respondents to provide details regarding the disbursal of INR 8,05,11,748/ - (Eight Crores Five Lakhs Eleven Thousand Seven Hundred Forty-Eight only) amount that was withdrawn from the bank account; (d) Pass an order for costs; and (e) Pass such further order(s) and/ or direction(s) as this Hon'ble Adjudicating Authority may deem fit and proper." 48. We note from the prayer 8(b) above that the RP had specifically prayed for reversal of the transaction of Rs. 8,05,11,748/- and payment of the same by the respondents in the account of CD. 49. It comes out very clearly from the grounds of appeal as well as the prayers in the application that this relief has been sought on the ground of violation of moratorium under section 14 read with section 60(5) of the Code and Rule 11 of NCL....
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....he statutory framework governing the CIRP, it is not powerless to issue consequential directions for protecting or restoring the insolvency estate. 53. The Appellant's interpretation would lead to the consequence that merely because an application refers to Section 66, every other relief claimed therein would automatically become dependent upon the satisfaction of the ingredients of that provision. Such an interpretation neither flows from the language of the Code nor advances the object sought to be achieved by it. The scope of the jurisdiction exercised by the Adjudicating Authority has to be determined with reference to the nature of the relief granted and not merely by reference to the provisions cited in the application. 54. The next contention advanced by the Appellant is that the direction requiring the Appellant and the other suspended directors to contribute a sum of Rs. 8,05,11,748/- to the account of the Corporate Debtor is, in substance, an order under Section 66 of the Code and, therefore, could not have been passed in the absence of a finding satisfying the requirements of that provision. The submission requires an examination of the true nature of the relie....
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....s, no relevant record was produced to establish that the withdrawals were authorised or otherwise permissible despite the operation of the moratorium. The finding recorded by the Adjudicating Authority is essentially one based on appreciation of the material placed before it, and no perversity in such appreciation has been demonstrated before us warranting interference in the exercise of appellate jurisdiction. 59. The Appellant has also not pointed out any specific error in the quantification of the amount directed to be restored. The challenge is principally founded on the jurisdiction of the Adjudicating Authority to pass such a direction and not on the computation itself. Once the jurisdictional challenge is considered in the light of the statutory scheme discussed above, the validity of the consequential direction has to be examined on the basis of the findings actually recorded by the Adjudicating Authority and the material available on record. 60. The appellant has placed reliance on the judgment of this Appellate Tribunal in Sudhir Dinanath Chaturvedi v. True IPE LLP, Liquidator of Adya Oils & Chemicals Ltd. & Ors., Company Appeal (AT) (Ins.) No. 540 of 2025. In the s....
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....l (AT) (CH) (Ins.) No. 349 of 2022. The observations relied upon therein relate to the degree of proof required for establishing fraudulent or wrongful trading under Section 66 of the Code and the obligation of the Resolution Professional to plead and prove such allegations by placing cogent and tangible material on record. There can be no disagreement with the said proposition. However, the Adjudicating Authority in the present case has consciously refrained from returning any finding under Section 66 and has not imposed liability upon the Appellant on the basis of fraudulent or wrongful trading. The impugned direction is founded upon the consequences of the alleged violation of the moratorium and the restoration of the assets of the Corporate Debtor during the CIRP. Since the present Appeal does not involve adjudication of the ingredients of Section 66, the principles governing the standard of proof under that provision, as explained in Regen Powertech, are not determinative of the issues arising for consideration herein. 63. The Appellant has also assailed paragraph 12(ii) of the Impugned Order whereby the Adjudicating Authority directed that a copy of the order be forwarded ....