Suspended Directors Can Move Tribunal Over Asset Preservation Failures During CIRP: NCLT Kolkata

The National Company Law Tribunal (NCLT) at Kolkata has recently reiterated that members of a suspended board of directors are not completely remediless during the corporate insolvency resolution process.

It held that they may approach the adjudicating authority in appropriate cases concerning conduct of the process, preservation of assets, or alleged violation of statutory duties by the resolution professional or committee of creditors.

A bench of Judicial Member Bidisha Banerjee and Technical Member Siddharth Mishra observed, “It is also well settled that a suspended Board of Directors is not rendered completely remediless and may invoke the jurisdiction of this Hon'ble Adjudicating Authority under Section 60(5) in appropriate cases, especially where the case is related to conduct of the CIRP, preservation of assets, or violation of statutory duties by the RP or CoC."

The ruling came on applications filed by Chandra Kant Khemka, a member of the suspended board of Nandini Impex Pvt Ltd. He alleged depletion of the company's assets during insolvency proceedings due to inaction by the resolution professional and the committee of creditors.

Khemka alleged that employees' wages had remained unpaid for months. He said rents for storage locations housing machinery were outstanding. He also claimed assets at sites including Najafgarh and Panchkula had deteriorated due to lack of maintenance, while some assets had allegedly been stolen. He further claimed the corporate debtor had suffered losses of nearly ₹500 crore during the insolvency process.

The committee of creditors and the resolution professional opposed the plea. They argued that the suspended board lacked locus to maintain such proceedings after the commencement of insolvency proceedings since the board's powers stood suspended.

They also contended that many employees were non-functional. Salaries had been rationalised to reduce costs. They further said access to certain asset sites had been obstructed by landlords.

Rejecting the maintainability objection, the tribunal held that while the powers of the board stand suspended during insolvency proceedings, that does not bar its members from approaching the adjudicating authority in appropriate cases involving preservation of assets or conduct of the insolvency process.

The tribunal relied on the Supreme Court's ruling in Vijay Kumar Jain v Standard Chartered Bank and the NCLT's earlier decision in Anand Kariwala v Partha Pratim Ghosh.

On merits, the bench observed that the resolution professional is under a statutory duty to preserve and protect the assets of the corporate debtor and maintain it as a going concern. While it found no conclusive proof of wilful negligence or mala fide conduct by the resolution professional or committee of creditors, it noted that key asset locations had remained beyond the effective control of the resolution professional.

The bench said prompt legal steps, including seeking police assistance, ought to have been taken.

The tribunal directed the resolution professional to secure access to all sites where the company's assets are located within two weeks, including by taking police assistance if necessary.

It also directed the resolution professional to conduct a physical inspection of all accessible assets and submit a report before the tribunal within four weeks.

For Applicant (Chandrakant Khemka): Advocate Shaunak Mitra; Advocate Aditya Kanodia; Advocate Dripto Majumdar; Advocate Suparna Sardar; Advocate Pratik Dutta

For UCO Bank: Advocate Rahul Auddy; Advocate Aditya Gooptu

For Resolution Professional: Advocate Rishav Banerjee; Advocate Sourav Jain; Resolution Professional Pratim Bayal (in person)

For Workers: Advocate Meenakshi Manot; Advocate S. Ahmed

For IOLL: Advocate Meenakshi Manot; Advocate Sharmishtha Ghosh; Advocate Ranit Roy