Chandra Prakash (Liquidator) vs Naveen Chaudhri

S/o Late Balram Prasad Resolution Professional M/s Noida Medicare Centre Ltd. Registered Office At E-485, 2nd Floor, Near Old Police Station, Opposite Punit Apartment, New Ashok Nagar, Delhi 110096 ...Appellant

Versus NAVEEN CHAUDHRI (Suspended Director) S/o Late Brig. R.S. Chaudhri D-6, Sector - 31, Noida - 201301 Uttar Pradesh ...Respondent

Present: For Appellant: Mr. Sumant Batra, Adv. For Respondent: Mr. GP Madaan, Mrs. Harimohana N Kannan, for the Respondent.

ORDER

[Per: Justice Rakesh Kumar Jain] 11.10.2022: This appeal is directed against the order dated

21.02.2022 passed by the Adjudicating Authority (National Company Law

Tribunal, New Delhi) by which an application bearing I.A. No. 1257 of 2021

filed in (IB) 2039(ND)/2019 by the Resolution Professional (in short 'RP')

under Section 60(5)(B) r/w 68, 70 & 74 of the Insolvency and Bankruptcy

Code, 2016 (in short 'Code') and Rule 11 of the NCLT Rules, 2016 (in short

'Rules') for a direction to the Respondent to restore an amount of Rs.

67,02,532/- to the Corporate Debtor has been dismissed. 2

2. In brief, Corporate Insolvency Resolution Process (in short 'CIRP') of

the Corporate Debtor was initiated by the Adjudicating Authority vide order

dated 27.05.2020. The Appellant was appointed as Interim Resolution

Professional (IRP) and subsequently the RP to conduct the CIRP of the

Corporate Debtor. At the time of order dated 27.05.2020 moratorium was

declared in terms of Section 14 of the Code and it was specifically ordered

that no party can transfer, encumber, eliminate or dispose of any asset of

the Corporate Debtor. The Appellant came to know about his appointment

on 28.05.2020 as IRP from one of the Financial Creditor when the copy of

the order dated 27.05.2020, passed by the Adjudicating Authority, was

given to him. The Appellant sent WhatsApp messages to the Respondent on

29.05.2020, requesting them to share the email ID to send the check list for

handing over the complete documents. The Respondent replied to the

WhatsApp communication dated 29.05.2020 on 30.05.2020 through

WhatsApp stating that one of the employees, namely, Mr. Anil, responsible

for hospital IT system and also interdepartmental co-ordination has been

tested Covid positive due to which the staff of the hospital both

administrative and otherwise would not be in a position to function for a

couple of days and requested for a period of 4-5 days for providing the

information. The Appellant sent the communication to the company

secretary of the Corporate Debtor regarding validation, if any, on 31.05.2020

of the Govt. Authority regarding the employees of the hospital who are

detected Covid positive. It was also stated that since CIRP has been started,

therefore, the Appellant sent a separate email for handing over formalities.

On 01.06.2020, the Appellant sent the email communication referring to

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Sections 17, 18 and 20 of the Code to all the directors of the Corporate

Debtor alongwith a copy of the order dated 27.05.2020 and also made a

public announcement on 01.06.2020. It also informed the Respondent to

stop all banking transactions without taking IRP concurrence and providing

documents as per the previously shared check list but on 03.06.2020, the

suspended directors again cited multiple Covid cases as a reason for not

providing the documents.

3. The Appellant came to know that an amount of Rs. 41,70,000/- was

transferred to Rancan Impex Pvt. Ltd. by the Respondent from 30.05.2020

to 02.06.2020 and subsequently a sum of Rs. 25,32,534/- was spent

regularly till 11.06.2020 and thus a total amount of Rs. 67,02,532/- was

transferred illegally after initiation of the CIRP.

4. The Appellant filed the application i.e. I.A. No. 1257 of 2021 for

restoration of the aforesaid amount which was dismissed by the

Adjudicating Authority.

5. During the course of hearing, Counsel for the Appellant has confined

his argument/relief in respect of the amount of Rs. 41,70,000/- which has

been transferred to a related party, namely, Rancan Impex Pvt. Ltd., inter

alia, on the ground that once the moratorium was declared under Section 14

of the Code, no amount could have been transferred by the Corporate

Debtor without the approval of the IRP. The Ld. Adjudicating Authority

dismissed the application on the ground that though the CIRP was initiated

on 27.05.2020 but till 01.07.2020 the Appellant had not taken the control of

the Corporate Debtor. It has also been observed that during that period the

Company Appeal (AT) (Insolvency) No. 440 of 2022 4

lock down was there because of pandemic of Covid, therefore, in order to

run the hospital as a going concern, during the pandemic, financial

assistance was required for the purpose of payment of salary and incurring

other expenses and in the absence of the IRP, the then administration of the

hospital though suspended had no other option but to run the hospital.

6. It is also observed that similar application i.e. I.A No. 1255 of 2021

was dismissed on 14.10.2021, wherein the present Appellant had made a

request for restoration of sum of Rs. 55,29,506/- which was allegedly

withdrawn by the Corporate Debtor between 27.05.2020 to 07.09.2020 from

the account maintained by the IDBI Bank and Overseas Bank.

7. Counsel for the Appellant has argued that as per scheme of the Code,

once the moratorium was declared under Section 13, transferring of assets

by the Corporate Debtor is prohibited in terms of Section 14(1)(B) of the

Code. It is also submitted that with the appointment of the IRP the

management and affairs of the Corporate Debtor was vested in him and as

per Section 18, it is the duty of the RP to preserve the assets of the

Corporate Debtor. It is submitted that, in so far as, the amount of Rs.

25,32,534/- which is alleged to have been spent, the Appellant has no

grievance but the amount of Rs. 41,70,000/- which has been illegally

transferred by the Respondent to Rancan Impex Pvt. Ltd. (related party)

during the period of moratorium is patently illegal and the said amount

deserves to be restored.

8. On the other hand, Counsel appearing on behalf of the Respondent

has submitted that it was a normal business practice to take money from

Company Appeal (AT) (Insolvency) No. 440 of 2022 5

Rancan Impex Pvt. Ltd. whenever required to meet the necessary expenses

for running the hospital. He has referred to the past transactions between

the Rancan Impex Pvt. Ltd. and the Corporate Debtor of the amount

received and paid and has thus submitted that the transfer was made in

routine. It is also submitted that there is no error in the impugned order

which requires any interference by this Tribunal because the control of the

affairs of the Corporate Debtor was taken by the Appellant on 01.07.2020

and Corporate Debtor being a superspecialty hospital was required to

operate during this period for which some expenses were to be incurred.

9. We have heard Counsel for the parties and perused the record with

their able assistance.

10. The question involved in this appeal is as to whether the Respondent

had the competence and jurisdiction to transfer a sum of Rs. 41,70,000/- to

Rancan Impex Pvt. Ltd. between the period 30.05.2020 to 02.06.2020 after

the appointment of the IRP and declaration of moratorium on 27.05.2020?

11. In order to answer the question, it would be relevant to refer to

Sections 14, 17 and 18 of the Code, which are reproduced as under:-

"Section 14: Moratorium.

*14. (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:--

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

Company Appeal (AT) (Insolvency) No. 440 of 2022 6

(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

1[Explanation.--For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period;] (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.

1[(2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.] 2[(3) The provisions of sub-section (1) shall not apply to -- 3[(a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;]

(b) a surety in a contract of guarantee to a corporate debtor.]

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(4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process:

Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. Section 17: Management of affairs of corporate debtor by interim resolution professional.

*17. (1) From the date of appointment of the interim resolution professional,--

(a) the management of the affairs of the corporate debtor shall vest in the interim resolution professional;

(b) the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional;

(c) the officers and managers of the corporate debtor shall report to the interim resolution professional and provide access to such documents and records of the corporate debtor as may be required by the interim resolution professional;

(d) the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional. (2) The interim resolution professional vested with the management of the corporate debtor shall--

(a) act and execute in the name and on behalf of the corporate debtor all deeds, receipts, and other documents, if any;

(b) take such actions, in the manner and subject to such restrictions, as may be specified by the Board;

(c) have the authority to access the electronic records of corporate debtor from information utility having financial information of the corporate debtor;

(d) have the authority to access the books of account, records and other relevant documents of corporate debtor available with government authorities, statutory auditors, accountants and such other persons as 1[may be specified; and]

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2[(e) be responsible for complying with the requirements under any law for the time being in force on behalf of the corporate debtor.] Section 18: Duties of interim resolution professional.

*18. The interim resolution professional shall perform the following duties, namely:--

(a) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to--

(i) business operations for the previous two years;

(ii) financial and operational payments for the previous two years;

(iii) list of assets and liabilities as on the initiation date; and

(iv) such other matters as may be specified;

(b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under sections 13 and 15;

(c) constitute a committee of creditors;

(d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors;

(e) file information collected with the information utility, if necessary; and

(f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including--

(i) assets over which the corporate debtor has ownership rights which may be located in a foreign country;

(ii) assets that may or may not be in possession of the corporate debtor;

(iii) tangible assets, whether movable or immovable;

(iv) intangible assets including intellectual property;

(v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies;

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(vi) assets subject to the determination of ownership by a court or authority;

(g) to perform such other duties as may be specified by the Board. Explanation.--For the purposes of this 1[section], the term "assets" shall not include the following, namely:--

(a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment;

(b) assets of any Indian or foreign subsidiary of the corporate debtor; and

(c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator."

12. As per the scheme of the Code, the Adjudicating Authority, after

admission of the application, filed under Section 7, 9 or 10, by an order

declare moratorium for the purpose which is referred to in Section 14.

Section 14 lays down certain prohibitions which includes the transferring of

the assets of the Corporate Debtor. Section 17 says that the management of

affairs of Corporate Debtor shall vest immediately with the IRP on his

appointment and the powers of board of directors are suspended. Section 18

provides for the duties of IRP which includes taking of control and custody

of the assets of the Corporate Debtor. Thus, from the aforesaid provisions, it

is apparent that with the passing of the order of admission, initiation of

CIRP of the Corporate Debtor, appointment of IRP and declaration of

moratorium, the powers of the board of directors of the Corporate Debtor are

suspended and are vested with the IRP. Hence, the suspended board of

directors of the Corporate Debtor looses their competence and jurisdiction to

deal with the assets of the Corporate Debtor in any manner much less for

Company Appeal (AT) (Insolvency) No. 440 of 2022 10

the purpose of transferring its assets which is clearly prohibited under

Section 17(1)(b) of the Code.

13. In the present case, the RP has not raised any issue with regard to

incurring of expenses of Rs. 25,32,534/- by the Corporate Debtor for the

purpose of running of the hospital but has raised the dispute about the

transfer of Rs. 41,70,000/- by the Corporate Debtor to Rancan Impex Pvt.

Ltd. which is otherwise allegedly a related party. The view taken by the

Adjudicating Authority in this regard is totally erroneous that the CIRP was

initiated on 27.05.2020 but control of the Corporate Debtor was taken by

the IRP in the first week of July, 2020. In this regard, various

communications have been mentioned and are there on record between the

IRP and the Respondent in which they have been asked to desist from doing

any such thing which is against the interest of the Corporate Debtor.

Moreover, the decision in the earlier I.A. No. 1125 of 2021 has no bearing on

the decision of the present application because of the reasons recorded

herein before by us that the initiation of CIRP and appointment of IRP

coupled with the declaration of moratorium would be enough to prohibit the

transfer of all assets at the instance of the erstwhile board of directors of the

Corporate Debtor as the entire control and management of the affairs of the

Corporate Debtor vested with the IRP and there is a clear prohibition

provided under Section 17 of the Code. The argument of the Respondent

that the transfer of Rs. 41,70,000/- by it to Rancan Impex Pvt. Ltd. was

routinely done cannot be accepted because of the moratorium and

prohibition provided therein.

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14. Thus, looking from any angle, the impugned order suffers from the

patent illegality and hence, the same cannot be sustained. The appeal is

allowed and the impugned order dated 21.02.2022 is set aside.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Kanthi Narahari] Member (Technical)

Sheetal

Company Appeal (AT) (Insolvency) No. 440 of 2022