If a case was filed under IBC, can penalty be imposed under Companies Act? NCLAT addresses

National Company Law Appellate Tribunal, New Delhi (NCLAT): The Coram of Justice Ashok Bhushan (Chairperson) and Dr Alok Srivastava (Technical Member) held that if the Intervention Application was filed under the IBC, then, any penalty to be imposed should have been under the provisions of IBC and not Companies Act.

Appellant filed the present appeal under Section 61 of the Insolvency and Bankruptcy Code 2016, assailing the order passed by the Adjudicating Authority.

Factual Matrix

An application under Section 9 of the IBC was admitted vide the order of the Adjudicating Authority and CIRP was initiated against the Corporate Debtor along with the appointment of Interim Resolution Professional.

During the pendency of the Corporate Insolvency Resolution Process, the IRP moved two applications under Section 19(2) and Section 60(5) of the IBC alleging that the appellant had withdrawn a sum of Rs 32 lakhs during the moratorium period during the CIRP though the appellants claimed that they had given a post-dated cheque to Kewal Kishan as repayment of the loan and the said cheque was not given by them during the ongoing CIRP.

Adjudicating Authority had imposed a penalty of Rs 5 lakhs on each of the two ex-directors to be deposited in the account of the Government of India, Ministry of Corporate Affairs.

Since the ex-directors of the corporate debtor did not provide the records and other financial information to the Resolution Professional under Section 19(2), the Adjudicating Authority invoked Section 128(6) of the Companies Act and levied a penalty of Rs 5 lakhs each on the appellants 1 and 2, therefore the present appeal was filed seeking to set aside the impugned order.

Analysis and Decision

Tribunal on noting that the appellants not only did not provide the records and financial documents relating to the corporate debtor to the erstwhile resolution professional and the liquidator despite multiple requests, they also did not comply with the Adjudicating Authority’s orders.

Hence such acts of carelessness in complying with the requirements of law, amounting to defiance and disrespect of the legal process, could not eb condoned and needed to be dealt with strictly in accordance with the provisions of Chapter VII: “OFFENCES AND PENALTIES” of the IBC.

“…we are of the view that since the IA No. 1253/2020 was filed under the provisions of IBC, it would have served the requirement of law if any order regarding the penalty was imposed under the provisions of IBC. Moreover, it would have served the cause of natural justice if the Appellants were given an opportunity to be heard before imposition of any penalty. Chapter VII of the IBC which lays down “Offences and Penalties” under which officers of the Corporate Debtor can be penalized and/or punished with imprisonment is relevant in this regard.”

Therefore, Tribunal directed that the case be remanded to the Adjudicating Authority for taking a decision under the provisions of IBC after giving an opportunity to the appellants to present their case.

In view of the above discussion, the impugned order was set aside. [Ashish Chaturvedi v. Sanjay Kapoor, Company Appeal (AT) (Insolvency) No. 1103 of 2020, decided on 14-2-2022]


Advocates before the Tribunal:

For Appellants:

Mr. Manoj Kumar Garg, Advocate.

For Respondents:

Mr. K.D. Sharma and Mr. Anuj Kumar Pandey, Advocates for R-3.

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