Insolvency Does Not Bar Liquidator From Recovering Chit Company Dues: Madras High Court

The Madras High Court on 10 August held that the pendency of insolvency proceedings against a chit company does not prevent its Liquidator from taking steps under the Chit Funds Act, 1982 to recover amounts due to the company.

Justice D. Bharatha Chakravarthy directed the Economic Offences Wing (EOW) to furnish the Liquidator of Thiripura Chits Private Limited with a complete set of investigation materials so that he could initiate recovery proceedings under the Chit Funds Act. The Bench observed:

“There is nothing illegal in the Liquidator taking expeditious steps to collect the receivables. In fact, it is the duty of the Liquidator, when appointed under the relevant provisions of the IBC, to take appropriate steps to recover of the amounts due to the company.”

The case arose from a criminal case registered against Thiripura Chits and its directors under the Indian Penal Code and the Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997, after the company allegedly failed to repay amounts collected from depositors. The investigation found that the company had collected around Rs. 220.15 crore from 9,927 depositors, of which Rs. 220.14 crore remained outstanding.

The EOW attached properties belonging to the company while insolvency proceedings were pending before the National Company Law Tribunal (NCLT). The NCLT initially held that the Insolvency and Bankruptcy Code, 2016 prevailed over the TNPID Act. However, a Division Bench of the High Court subsequently held that the TNPID Act would prevail and set aside the NCLT's order.

A director of Thiripura Chits thereafter sought a direction to the EOW to hand over its investigation materials to the Liquidator. He submitted that the Liquidator could use the materials to initiate proceedings under the Chit Funds Act to recover the company's receivables. Further that the properties already attached were minimal and that substantial amounts could be recovered from chit subscribers who had failed to pay their instalments and from other receivables.

The EOW submitted that it had already collected the relevant documents during its investigation and was acting in accordance with the Division Bench's directions. The Liquidator, meanwhile, stated that he would take steps to recover the receivables in accordance with law without interfering with the EOW's statutory functions.

The Court noted that the earlier Division Bench judgment had already upheld the EOW's action under the TNPID Act and permitted it to proceed in accordance with law. It further held that the Chit Funds Act provided the Liquidator with an appropriate forum to recover amounts due to the company.

However, the Bench clarified that if any amount recovered by the Liquidator constituted proceeds of crime or belonged to the accused company or its directors, the EOW could take appropriate action in accordance with law.

Accordingly, the High Court directed the EOW to furnish one complete set of the materials relating to Thiripura Chits to the Liquidator within three weeks. It also directed the EOW to take expeditious steps to realise the amounts and disburse them to the depositors in accordance with law.

For Petitioner: Advocates Vikram S and G Gokul

For Respondents: Advocate M Mohamed Riyaz, GP and MadhanRamu, Liquidator