Bankrupt Personal Guarantor Cannot Withdraw Funds After Estate Vests In Trustee: NCLAT New Delhi

On 7 October, the National Company Law Appellate Tribunal (NCLAT) at New Delhi held that a bankrupt personal guarantor cannot withdraw or otherwise deal with funds in a bank account once the bankruptcy estate has vested in the Bankruptcy Trustee.

A Bench comprising Judicial Member Justice Mohd Faiz Alam Khan and Technical Member Naresh Salecha dismissed appeals filed by Manju Sirohi, personal guarantor of Saha Infratech Pvt. Ltd., against orders directing her to return Rs. 19,17,500 withdrawn from her bank account after she was declared bankrupt. It observed:

“We observe that Section 128(1)(c) of the code restrains creditors from acting against the bankrupt's property; it does not regulate the bankrupt. We need to appreciate that the estate, comprising all property belonging to the bankrupt at the commencement date, vests in the Trustee by operation of law, without any conveyance, assignment or transfer.”

The insolvency process against Sirohi was initiated under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC), following a default by Saha Infratech. On 21 May 2025, the National Company Law Tribunal (NCLT), Delhi, declared her bankrupt under Section 126 and appointed Anup Kumar as Bankruptcy Trustee. Her Union Bank of India savings account had a credit balance of Rs. 19.07 lakh on the commencement date.

Between 16 June and 24 July 2025, Sirohi withdrew the entire balance through two self-withdrawals of Rs. 9.95 lakh and Rs. 9 lakh and six ATM transactions totalling Rs. 23,500, leaving Rs. 114.32 in the account.

The Bankruptcy Trustee filed an application before the NCLT seeking recovery of the withdrawn amount, contending that the funds formed part of the bankruptcy estate. On 3 August 2026, the NCLT passed an ex-parte order directing Sirohi to repay the amount. The NCLT dismissed her application seeking recall of the order on 20 August 2026.

Sirohi argued that the funds comprised proceeds from the sale of her personal jewellery and a transfer from her mother-in-law's account, which she claimed were excluded assets under Sections 79(14) and 155(2) of the IBC. She also contended that the NCLT passed the ex-parte order without giving her a proper opportunity to be heard, as her counsel was present but could not make submissions because of poor internet connectivity.

She further claimed that, as a senior citizen with no income, she had sold the jewellery to support herself and was unaware of the moratorium.

The Bankruptcy Trustee argued that Section 154 vests all property of the bankrupt in the Trustee from the commencement date, including bank balances, without any conveyance, assignment or transfer. He submitted that the funds in Sirohi's account had to be distributed among the creditors.

He also argued that proceeds from the sale of jewellery do not qualify as excluded assets, as Section 79(14)(c) protects only unencumbered ornaments up to Rs. 1 lakh. He further submitted that Sirohi withdrew the funds despite receiving intimation from the Trustee.

The Appellate Tribunal held that the relevant test was vesting of the bankruptcy estate and not the moratorium. Since Sirohi's bank balance vested in the Trustee on 21 May 2025, her subsequent withdrawals amounted to unauthorised dealings with property that no longer belonged to her.

It rejected her plea that she was unaware of the restriction, noting that the Trustee's intimation was delivered on 5 June 2025, before her first withdrawal. It also noted that she participated in the creditors' meeting on 1 July 2025.

Further, the Bench rejected her claim that the jewellery proceeds of Rs. 13.25 lakh constituted excluded assets, holding that Section 79(14) provides a closed list and protects only unencumbered ornaments up to Rs. 1 lakh. also noted that Sirohi had been served notice but failed to respond for months. It observed:

“We are not in position to accept the pleadings of the appellant because the proceeds are more than thirteen times the cap prescribed in the regulations. Further the exclusion attaches to described assets, not to money”

Accordingly the NCLAT dismissed the appeals.