Criminal Complaint Filed After Adverse Insolvency Order Cannot Undermine Liquidation: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi has recently observed that criminal complaints filed after adverse insolvency orders cannot be used to undermine liquidation proceedings or defeat creditor protections under the Insolvency and Bankruptcy Code, 2016.

A bench comprising Judicial Member Justice N. Seshasayee and Technical Members Arun Baroka and Indevar Pandey dismissed an appeal filed by SSMP Agro Export Private Limited and its directors against the National Company Law Tribunal's direction to deposit Rs.1 crore along with 15 percent interest per annum into the liquidation estate of SSMP Industries Limited on account of an avoidance transaction.

SSMP Industries Limited entered the corporate insolvency resolution process on August 27, 2018 and was ordered into liquidation on 31 July 2019. Its assets included 9.56 acres of land in Chittoor, Andhra Pradesh.

During liquidation, an Agreement to Sell dated December 13, 2019 was executed in respect of the land for Rs. 6,59,52,000. A sum of Rs. 1 crore, described as part of the sale consideration, was transferred through RTGS into the bank account of SSMP Agro Export Private Limited.

The liquidator moved the NCLT under Sections 33(1), 33(5), 66 and 60(5) of the Code. He contended that the transaction amounted to an unauthorised dealing with liquidation estate property. The NCLT declared the agreement void and directed restoration of Rs. 1 crore with 15 percent interest to the liquidation estate.

Before the Appellate Tribunal, the appellants argued that the Rs 1 crore was an independent unsecured investment. They also raised allegations of forgery in relation to the agreement executed between SSMP Industries Limited and the purchasers. A police complaint alleging coercion and extortion was filed against the purchasers and was relied upon to question the transaction.

Rejecting that contention, the tribunal observed that “even if the criminal complaint ultimately results in an independent inquiry or prosecution, it does not dilute the statutory consequence under the Insolvency and Bankruptcy Code.”

It further cautioned that “post-order filing of a criminal complaint cannot be permitted to undermine the liquidation process or to defeat the protection afforded to creditors. Accepting such a course would allow parties to frustrate insolvency proceedings by raising criminal allegations only after adverse orders are passed.”

The tribunal held that SSMP Agro Export Private Limited was a related party despite the absence of formal cross shareholding. It noted common family control and shared economic interest. It observed that the absence of formal cross-shareholding “does not dilute the reality of common family control, continuity of business, and shared economic interest, particularly in the context of insolvency and liquidation proceedings.”

Clarifying that the Adjudicating Authority had not determined criminal guilt but had confined itself to directing restitution of money received in connection with an unauthorised transaction involving liquidation estate property, the NCLAT dismissed the appeal.

For Appellant: Advocate Rohit Sinha

For Respondents: Advocates Yogesh Jagia, Nitya Ahuja, and Udita Dubey