Resigning From Management Does Not End Director's Duty To Assist Liquidator: NCLT Kochi

The National Company Law Tribunal (NCLT) at Kochi has held that persons associated with a company's management cannot avoid their statutory obligation to assist its Liquidator merely because they have resigned or ceased to hold office.

A bench of Judicial Member Vinay Goel and Technical Member Ravichandran Ramasamy observed, “The obligation to cooperate with the Liquidator extends to persons who have been associated with the management of the Corporate Debtor and does not cease merely upon their resignation or cessation from office.”

The ruling came in the liquidation of Seguro Foundations and Structures Pvt Ltd. The Liquidator approached the tribunal after failing to obtain the company's financial statements and other records. Audited financial statements were available only up to FY 2017-18. The missing records hampered the identification of assets and liabilities, completion of pending audits and examination of avoidance transactions.

The company's former Managing Director argued that he had tendered his resignation in January 2019 and was suspended from the post in February that year. He contended that Inkel Limited, which held a 65% stake in Seguro, had subsequently taken over its management and administrative affairs. He also claimed that he no longer possessed the company's books of accounts and statutory records. Inkel denied having operational control or custody of the records, claiming it was only a shareholder. Another former director submitted that he had provided whatever information he could gather.

The tribunal held that Sections 19 and 34(3) of the Insolvency and Bankruptcy Code require persons who are or have been associated with a corporate debtor's management, including its personnel and promoters, to assist the Liquidator.

It observed, “Section 19(2) of the Code empowers this Adjudicating Authority to issue necessary directions where any person required to assist or cooperate with the insolvency professional fails to do so. Section 34(3) extends this requirement of assistance and cooperation to the Liquidator and makes the provisions of Section 19 applicable to the liquidation process, with the necessary substitutions.”

The tribunal relied on Inkel's annual report for 2018-19 and minutes of its board meeting, which recorded that Inkel executives were managing Seguro's operations and projects. It held that these documents showed Inkel's role went beyond that of a shareholder. It could not avoid its obligation to cooperate merely by claiming that the records were no longer in its possession.

The tribunal also clarified that the Supreme Court order staying Inkel's impleadment as an additional corporate debtor did not prevent it from directing Inkel to cooperate with the Liquidator. The application sought cooperation during liquidation, not a declaration that Inkel was an additional corporate debtor.

The tribunal directed all three respondents to furnish relevant records and information available with them or under their control, and assist the Liquidator in tracing the remaining records.