Supreme Court: Powers Under Section 482 Code Of Criminal Procedure Cannot Be Exercised To Defeat The Statutory Mandate Of The Insolvency And Bankruptcy Code

Published date09 June 2021
Subject MatterLitigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Trials & Appeals & Compensation
Law FirmPhoenix Legal
AuthorMr Vasanth Rajasekaran, Saurabh Babulkar and Anand Chichra

In its recent decision of Sandeep Khaitan, Resolution Professional for National Plywood Industries Ltd. v. JVSM Plywood Industries Ltd.1, the Supreme Court ruled that the inherent powers of a court under Section 482 of the Code of Criminal Procedure ("CRPC") cannot be exercised to defeat or undermine the statutory dictate of Sections 14 & 17 of the Insolvency and Bankruptcy Code, 2016 ("IBC").

Background

The dispute before the Supreme Court traces its origins to proceedings under the IBC, before the National Company Law Tribunal, Guwahati ("NCLT"). By an order dated 26 August 2019, the NCLT admitted an application under Section 7 of the IBC against one National Plywood Industries Limited ("Corporate Debtor") and passed a moratorium within the meaning of Section 14. Subsequently, by order dated 8 November 2019, Sandeep Khaitan ("Appellant") was appointed as the interim resolution professional.

During pendency of the proceedings, the Appellant found that the former managing director of the Corporate Debtor had diverted a sum of INR 32,50,000/- (Rupees Thirty-Two Lakhs Fifty Thousand) from the accounts of the Corporate Debtor to JSVM Plywood Industries Ltd. ("Respondent No. 1") in violation of the moratorium.

An FIR was lodged by the Appellant on 27 April 2020 in this regard, pursuant to which the bank accounts of Respondent No. 1 and its creditors were frozen along with a lien being created on one such frozen account.

The FIR was challenged by Respondent No. 1 in a petition under Section 482 of the CRPC before the Guwahati High Court ("High Court"). By way of its order dated 04 February 2021 ("Impugned Order") passed in an interlocutory application filed by Respondent No. 1, the High Court allowed Respondent No. 1 to operate its bank account maintained with ICICI Bank and to unfreeze the bank accounts of its creditors over which lien had been created and the accounts frozen pursuant to the FIR. This Impugned Order was subsequently challenged by the Appellant before the Supreme Court.

Contentions of the parties

The Appellant contended that the Impugned Order was contrary to the mandate of Section 14 of the IBC, drawing support from the judgment of the Supreme Court in P. Mohanraj v. M/s Shah Brothers Ispat Pvt. Ltd.2. As per the Appellant, the purpose of the moratorium would be defeated if members of the previous management were permitted to transfer funds of the Corporate Debtor. Further, the Appellant contended that the High Court had overlooked the limits...

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