High Court Cannot Use Its Powers Under S. 482 CrPC To Overlook The Undermining Of A Statutory Dictate Under Section 14 & 17 of IBC : Supreme Court [READ JUDGEMENT]

The Supreme Court Bench of Justice UU Lalit & Justice KM Joseph has recently observed that High Court cannot use its powers u/s 482 CrPC to overlook the undermining of a statutory dictate u/s 14 & 17 of IBC.

“The power under Section 482 may not be available to the Court to countenance the breach of a statutory provision. The words ?to secure the ends of justice? in Section 482 cannot mean to overlook the undermining of a statutory dictate, which in this case is the provisions of Section 14, and Section 17 of the IBC.”, the Bench remarked.

The Bench in the present matter was hearing an appeal against an order dated 04.02.2021 passed by the High Court of Guwahati vide which the High Court allowed the interlocutory application filed by Respondent No. 1 subject to conditions. The Court allowed the Respondent to operate its bank account maintained with the ICICI Bank Bhubaneswar and further permitted unfreezing the bank account of its creditors which was subject to lien and also the accounts frozen pursuant to the lodging of an FIR by the appellant.

Factual Background

An application u/s 7 of IBC was admitted against National Plywood Industries Limited (NPIL) on 26.08.2019 & the appellant was appointed as the Interim Resolution Professional. A moratorium was also passed within the meaning of Section 14 IBC & thereafter the appellant vide order dated 8.11.2019 was appointed as the Resolution Professional. In the meantime, Respondent No 1 claiming to be an operational creditor laid the claim for the amounts due to it from the Corporate Debtor before the Appellant vide communication dated 22.11.2019.

Appellant’s Case

The appellant in the present case alleged that the former Managing Director (“MD”) of the Corporate Debtor after conspiring with Respondent No 1 engaged in an illegal transaction to the tune of Rs 32.50 lakhs without Appellant's authority & in violation to Section 14 of IBC. Initially, the MD made a transaction of Rs 500 & thereafter by virtue of 4 consecutive transactions proceeded to transfer a sum of Rs 32.50 lakhs to the Respondent No 1. The former MD also transferred another sum of Rs 3.29 lakhs from another account to the account of his close associate. The appellant thereafter filed a cyber complaint on 23.04.2020 & an application u/s 19 r/w Section 23(2) of IBC alleging non corporation by the previous management of the Corporate Debtor. On 27.04.2020, the Appellant also lodged an FIR.

On 04.05.2020 the ICICI Bank created a lien upon the bank account of the Respondent No. 1 based on the allegedly illegal transaction. The NCLT, Guwahati vide order dated issued directions suspension of Board of the Corporate Debtor to cooperate with the Appellants & also directed the auditors to complete the audit expeditiously in an application by which the applicant prayed for directing the Directors of the Corporate Debtor to hand over the management of the company. The Tribunal also directed the Directors to refund the amount withdrawn less the amount if any paid to the alleged supplier as the cost of raw materials.

Thereafter the appellant moved an application for review of the order dated 20.05.2020 was dismissed by the Tribunal vide order dated 05.06.2020 by observing that for the reasons highlighted in the 20.05.2020 the former Directors of the Corporate Debtor were found prima facie liable to refund the amount unauthorisedly withdrawn from the account of the Corporate Debtor. It further took note of the fact that the Directors of the suspended board were not made respondents.

Further , the Respondent No 1 challenged the FIR lodged against him in a petition under Section 482 of the Cr.P.C in Guwahati High Court. The Court vide order dated 04.02.2021 allowed the application & thereafter this order was challenged by the Appellant before this court.

The Bench observed that,

“The provisions of the IBC contemplate resolution of the insolvency if possible, in the first instance and should it not be possible, the winding up of the Corporate Debtor. The role of the insolvency professional is neatly carved out. From the date of admission of application and the appointment of Interim Resolution Professional, the management of the affairs of the Corporate Debtor is to vest in the Interim Resolution Professional. With such an appointment, the powers of the Board of Directors or the partners of the Corporate Debtor as the case may be are to stand suspended. The impact of the moratorium includes prohibition of transferring, encumbering, alienating or disposing of by the Corporate Debtor of any of its assets.”

Thereafter, the Bench took regards of the orders passed by the NCLT admitting the application, u/s 7, and also the ordering of moratorium under Section 14 of the IBC and observed that the orders passed by the tribunal & the impugned order of the High Court that resulted in Respondent No. 1 being allowed to operate the account without making good the amount of Rs 32.50 lakhs to be placed in the account of the Corporate Debtor could not be sustained.

It also modified the impugned order by passing the following directions:

1. The Respondent No.1 is allowed to operate its account subject to it first remitting into the account of the Corporate Debtor, the amount of Rs 32.50 lakhs which stood paid to it by the management of the Corporate Debtor. The assets of the Corporate Debtor shall be managed strictly in terms of the provisions of the IBC. The Appellant as RP will bear in mind the provision of Section 14 (2A) and the object of IBC. We however make it clear that our order shall not be taken as our pronouncement on the issues arising from the FIR including the petition pending under Section 482 of the Cr.P.C.
2. We also make it clear that the judgment will not stand in the way of the Respondent No.1 pursuing its claim with regard to its entitlement to a sum of Rs.32.50 lakhs and any other sum from the Corporate Debtor or any other person in the appropriate forum and in accordance with law. There will be no order as to costs.

Case Title: Sandeep Khaitan V. Jsvm Plywood Industries Ltd.| Crl.A. No.-000447-000447 / 2021

Law Point/ Statute Involved: Section 7, Section 14 & Section 17 of IBC & Section 482 CrPC, 1973