The Guwahati Bench of the National Company Law Tribunal (NCLT) has held that Section 68 of the Insolvency and Bankruptcy Code, 2016 is a penal provision, and offences under Sections 68 and 235A of the Code can be prosecuted only before the competent Special Court in the manner prescribed under Section 236 of the Code; therefore, the NCLT, while exercising summary jurisdiction under Section 60(5), has no jurisdiction to try such offences, record findings of criminal culpability, or impose penal consequences.
The Division Bench comprising Rammurti Kushawaha (Judicial Member) and Yogendra Kumar Singh (Technical Member) reproduced Section 68 of the Code and observed that it is a penal provision dealing with punishment where an officer of the corporate debtor has wilfully concealed, removed, transferred, or otherwise dealt with the property of the corporate debtor with intent to defraud creditors during the relevant period.
The Tribunal also considered Section 235A and Section 236 of the Code, to observe that Sections 68 and 235A are punitive in nature, and before liability can be fastened under those provisions, the adjudicating forum must determine foundational facts such as involvement, nature of the act, wilfulness, fraudulent intent, knowledge and culpability. Such determination requires appreciation of evidence, examination of witnesses, opportunity of defence and adherence to the procedure prescribed for trial of offences, and therefore cannot ordinarily be undertaken in summary proceedings under the insolvency framework.
The Tribunal further observed that though it derives jurisdiction under Section 60(5) of the Code to decide questions arising out of or in relation to CIRP or liquidation proceedings, such jurisdiction cannot be extended to assume the role of a criminal court or Special Court for trial of offences under the Code.
The Tribunal also reiterated that Section 235A is a provision for punishment of an offence and does not empower the Adjudicating Authority to impose penalty, and the NCLT has no jurisdiction to convict a person for an offence under Section 68 in view of the express provision in Section 236(1) and Section 236(2) of the IBC.
Accordingly, the Tribunal observed 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, and that the Tribunal, while exercising summary jurisdiction under Section 60(5), cannot undertake trial of such offences or impose penal consequences.
Briefly, the Punjab National Bank had filed a Section 7 application against Shree Sai Rolling Mills India Limited, which was originally admitted on August 23, 2019 and later reinstated by the NCLT, Guwahati Bench by order dated September 30, 2022, with exclusion of the period from August 23, 2019 to September 29, 2022. Thereafter, Amit Pareek was appointed as IRP with 100% voting share. The present interlocutory application was filed under Section 68 read with Section 60(5) of the Insolvency and Bankruptcy Code, 2016 and Rule 11 of the NCLT Rules, 2016 by the RP, later substituted by the Liquidator, seeking directions under Section 68 against the respondents for removal of part property of the corporate debtor.
The applicant stated that during multiple visits to the registered office and plant of the corporate debtor in Meghalaya on October 05, 2022, October 07, 2022, October 17, 2022, November 07, 2022 and other occasions for physical verification and custody of assets, it was found that substantial assets had been removed, including plant machineries, electric motors, 14 vehicles and investments in shares of Shree Sanyeeji Steels & Power Ltd., Shree Sai Prakash Alloys Pvt Ltd., and Shristi Reverine Private Limited. The applicant further asserted that the corporate debtor had continued business operations till August 13, 2022 and had revenue from operations of Rs. 8.79 crores for the period April 2022 to September 2022, but operations ceased after disconnection of electricity supply on August 13, 2022. According to the applicant, the removal of the assets rendered the corporate debtor incapable of continuing its operations.
It was also the case of the applicant that despite repeated calls, personal requests and emails to the suspended board, the assets were not restored, and the respondents only claimed that the machinery had been sent for repair and would be reinstalled, without furnishing credible evidence. On that basis, and with CoC approval, the RP filed the present application on April 13, 2023 under Section 68 of the Code.
The applicant further alleged that after filing of the application, investigation revealed involvement of Deepak Kumar Choudhary, Anirudh Jalan and Chotu Khan in removal of the assets, leading to an FIR. It was also alleged that Sandeep Kumar Bhagat later submitted a letter along with a Joint Venture Agreement stating that Anirudh Jalan had been running the affairs of the corporate debtor since 2019 and had indulged in removal of assets.
Appearances:
None, for the Petitioner
Advocate Mukesh Sharma, for the Respondent
