Bombay High Court Sentences Insolvent To Jail For Concealing Bank Accounts, Rejects Limitation Defence

The Bombay High Court on 7 August held insolvent Pallav Sheth guilty of contempt under Section 33(4) of the Insolvency Act, 1909 for wilfully failing to disclose his assets and bank accounts to the Official Assignee, and sentenced him to one month's simple imprisonment with a fine of Rs. 2,000, with one week's further imprisonment in default.

Justice N.J. Jamadar observed that an insolvent who makes positive statements on oath concealing assets and bank accounts cannot later invoke limitation to defeat contempt proceedings arising from such concealment. He stated:

“Having made positive statements on oath that the Insolvent had no other assets and accounts and made the Official Assignee to conclude the public examination on the strength of those statements on oath, the Insolvent cannot be now permitted to turn around and urge that since the offending transactions took place one year prior to the filing of the report by the Official Assignee, the action is barred by law of limitation. Taking such a view would give a long leash to a litigant who flouts the pristine stream of justice with impunity by resorting to all sorts of devious designs to conceal the assets from being realized by the Official Assignee and distributed amongst the creditors.”

Sheth was declared insolvent on 5 November 2003 and was directed on 15 January 2004 to disclose his assets and bank accounts. In his statement on oath dated 7 February 2005, he claimed that he had no other bank account apart from his ICICI and HDFC accounts. However, the accounts with ICICI and HDFC were not disclosed to the Official Assignee. He then contended that there was no wilful disobedience and that the contempt action was barred by limitation.

The Court rejected the submission, holding that he could not rely on limitation after making positive statements on oath which had led the Official Assignee to conclude his public examination. It noted that the ICICI and HDFC accounts had been opened much before the relevant directions and his statement on oath. It found that there was no explanation for their non-disclosure.

Further, the Bench examined Sheth's subsequent affidavits, finding that they contained deliberate false statements and attempts to justify the transactions rather than a complete disclosure of his assets. It held:

“At this juncture, the nature of the affidavits filed by the Insolvent significantly bears upon the claim of the Insolvent that the offending transactions were bonafide. Instead of making a clean breast of the transaction, the Insolvent made an attempt to modulate the defence, disguised as clarification, by making deliberate false statements that the accounts were opened after the conclusion of the public examination and transfer of monies to and from those accounts, also took place after the conclusion of his public examination.”

It also noted that Sheth had previously been punished for similar contempt. It held that this prior conduct undermined his claim of bona fide conduct and apology.

Accordingly, the High Court sentenced Sheth to one month's simple imprisonment and imposed a fine of Rs. 2,000, with one week's further imprisonment in default. It also reopened his public examination and permitted the Official Assignee to recover the undisclosed assets.

Considering Sheth's right of appeal, it stayed the sentence for eight weeks.

For Creditor: Pradeep Sancheti, Senior Advocate, with Aarti Shah, Vatsala Toprani, i/b Mulla & Mulla And Craigie Blunt & Caroe

For Reespondent: Vikramaditya Deshmukh with Priya Chaubey, i/b Sapna Rachure

For Custodian: Gandhar Raikar, with Shilpa Bhate, Aditi Pandey

C.J. Bhatt, Official Assignee with Mrs. Rekha Rane, Insolvency Registrar with Mr. Subodh Patil, Dy. Official Assignee