IBC Court Can't Assume Criminal Court Role For Offences Arising Out Of Insolvency: NCLT Guwahati

The National Company Law Tribunal (NCLT) at Guwahati has recently reiterated that insolvency proceedings are not the proper forum to determine criminal liability for alleged fraudulent removal of a corporate debtor's assets, ruling that such allegations must be pursued before the designated special court.

A bench of Judicial Member Rammurti Kushawaha and Technical Member Yogendra Kumar Singh was dealing with an application originally filed by the Resolution Professional of Shree Sai Rolling Mills India Limited, later pursued by the liquidator, alleging fraudulent removal of the company's assets by the suspended management and others.

“This Tribunal, in exercise of its insolvency jurisdiction, is not the proper forum to conduct such trial or to record findings of criminal culpability under Sections 68 or 235A of the Code,” It held.

The applicant stated that after the corporate insolvency resolution process against the company was reinstated by the Guwahati bench, multiple inspections at the company's plant in Meghalaya revealed that substantial assets, including machinery, electric motors, vehicles, and share investments worth crores of rupees, had been removed.

According to the applicant, the company had continued operations till August 13, 2022, generating revenue exceeding ₹8.79 crore between April and September 2022, but removal of the assets rendered it incapable of continuing operations.

The applicant further alleged that despite repeated communications seeking return of the assets, no satisfactory response was received, with respondents claiming that the machinery had been sent for repairs.

It also alleged involvement of other individuals in removal of the assets, following which an FIR was lodged before the Byrnihat Police Station in April 2023.

Relying on a 2019 joint venture agreement and other material placed on record, the applicant contended that Anirudh Jalan had been managing the affairs of the corporate debtor and was allegedly involved in dismantling and removal of the assets.

The suspended directors, however, contended that due to health issues, they had entrusted the day-to-day affairs of the company to Jalan in 2018. They claimed Jalan informed them certain machinery required repairs, but later stopped responding to calls and stopped visiting the factory, following which a police complaint was lodged in June 2023.

Jalan, on the other hand, argued that the application was not maintainable before the tribunal and denied any involvement in removal of the company's assets. He contended that he was neither a director, shareholder nor officer of the corporate debtor and therefore no liability could be fastened upon him.

Examining the provisions, the tribunal observed: “14. From a plain reading of the aforesaid provisions, it is evident that they are punitive in nature. Before any liability can be fastened thereunder, the adjudicating forum must determine foundational facts such as involvement of the person concerned, nature of the act complained of, wilfulness, fraudulent intent, knowledge and culpability.”

The tribunal said such allegations require appreciation of evidence, examination of witnesses, opportunity of defence and adherence to criminal trial procedure, and therefore cannot ordinarily be conclusively determined in summary insolvency proceedings.

“This Tribunal derives jurisdiction under Section 60(5) of the Code to decide questions arising out of or in relation to CIRP or liquidation proceedings. However, the said jurisdiction cannot be stretched to assume the role of a criminal court or Special Court for trial of offences under the Code,” it held.

Referring to NCLAT rulings in Writer Business Services and Ajay Vij, as well as a Madhya Pradesh High Court decision in Vinay Bhadauria, the tribunal held “In view of the law laid down in the aforesaid judgments, it is clear that offences under Sections 68 and 235A of the Code are required to be prosecuted before the competent Special Court in the manner prescribed under Section 236 of the Code and this Tribunal, while exercising summary jurisdiction under Section 60(5) of the Code, cannot undertake trial of such offences or impose penal consequences."

Accordingly, the tribunal dismissed the application as not maintainable.

For Petitioner: A Prasad

For Respondents: Advocates Nishant Das and M Sharma