Unauthorized Registered Office Change During CIRP Does Not Automatically Attract Penal Action: NCLT Ahmedabad

The Ahmedabad Bench of the National Company Law Tribunal (NCLT) has held that an unauthorised change of a corporate debtor's registered office during insolvency proceedings does not, by itself, attract penal action.

The tribunal observed that the specific fraudulent or wilful acts contemplated under the law must be established before penal liability can arise.

The bench comprising Judicial Member Shammi Khan and Technical Member Sanjeev Sharma also held that it lacked jurisdiction to convict or impose punishment for offences under the Insolvency and Bankruptcy Code, 2016 (IBC), which are triable by a Special Court.

The tribunal observed, “Section 68 of the Code being penal in character, its ingredients must be established strictly in accordance with the statutory provision. The mere unauthorised change of registered office, without proof of the specific fraudulent or wilful act contemplated by Section 68, cannot by itself attract penal liability thereunder. The statutory proviso further protects a person who establishes absence of intent to defraud or conceal the state of affairs of the Corporate Debtor.”

The application was filed by liquidator Rajendra Sanghi of Nagaur Water Supply Company Pvt. Ltd. He alleged that the company's suspended management had changed its registered office after the commencement of the Corporate Insolvency Resolution Process (CIRP).

The liquidator submitted that the company was admitted into CIRP on August 17, 2021. However, the director filed Form INC-22 with the Registrar of Companies on August 27, 2021, seeking to change the registered office with effect from August 19, 2021. The form was certified by a chartered accountant.

The liquidator argued that once CIRP commenced, the board's powers stood suspended and management vested in the Interim Resolution Professional (IRP). He alleged that the unauthorised change was intended to disrupt the insolvency process and attracted penal provisions under the IBC.

The director maintained that the shift was necessary because the earlier premises lacked sufficient space for the company's records and the owner had asked the company to vacate. He also submitted that neither the old nor the new premises belonged to the corporate debtor and that the change had been disclosed to the Resolution Professional and the Committee of Creditors (CoC) by email on September 21, 2021. He expressed no objection to restoring the earlier address, subject to the owner's permission.

The tribunal held that management vested in the IRP after the company entered CIRP and the board's powers stood suspended. The change of registered office without the IRP's authority was therefore impermissible. The subsequent disclosure and explanation for shifting premises could not revive powers suspended by law.

However, the tribunal found no evidence that the director or the chartered accountant had concealed, removed or dealt with the company's property or fraudulently altered documents relating to its property or affairs. Neither set of premises belonged to the corporate debtor.

The tribunal also found insufficient material to establish an intention to defraud or conceal the company's state of affairs. Relying on the National Company Law Appellate Tribunal's decision in Ajay Vij & Anr. v. Abhishek Dutta & Anr., it held that offences under Section 68 of the IBC are triable by a Special Court and that the NCLT lacked jurisdiction to impose punishment for them.

The tribunal partly allowed the application, held that the change of registered office was contrary to the IBC, rejected the plea for penal action and directed the Registrar of Companies to take consequential action.