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The words ‘to secure the ends of justice’ in S.482 IBC, cannot mean to overlook the undermining of a statutory dictate: Supreme Court

While addressing a dispute regarding the order of the High Court under IBC and the order of NCLAT, NCLT the Supreme Court held that as per section 482 of the IBC, the High Courts cannot support the breach of a statutory provision and undermine the dictate of a provision. This judgment was in the case of Sandeep Khaitan, Resolution Professional For National Plywood Industries Ltd. vs. JSVM Plywood Industries Ltd. & Anr. [Cr.A.No.447/2021] by a Double Bench consisting of Hon’ble Justice Uday Umesh Lalit and Hon’ble Justice K.M. Joseph.

The present appeal was against an order of the Guwhati High Court which allowed an interlocutory application filed by respondent no.1. the application allowed it to operate its bank account maintained with ICICI Bank, unfreeze the bank account of its creditor over which the lien was created, and the accounts which were frozen pursuant to the FIR. The facts of the case were that an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) was admitted against the National Plywood Industries Ltd. (NPIL).  The appellant was the Interim Resolution Professional (IRP) and a moratorium was passed under section 14 of IBC. While the appellant was appointed as Resolution Professional (RP), Respondent no.1 claimed to be an operational creditor and claimed for amounts due to them from the Corporate Debtor before the appellant. The application filed by the former Managing director (MD) of the Corporate Debtor under section 7 IBC seeking an injunction on the activities of the respondent was disposed of. The appellant alleges that the former MD of the corporate debtor and Respondent no.1 engaged in an illegal transaction of RS. 32.50 Lakhs w/o the authority of appellant, thus violating section 14 IBC. The appellant alleged that the MD made a transaction of rs. 500 initially to Respondent no. 1 and then made a payment of the said amount from 4 transactions. Out of them, one was for Rs.3.29 lakhs from another account.

Based on this the appellant filed a cyber complaint, an FIR, and an application under section 19 r/w section 23(2) of IBC alleging noncorporation. Later the ICICI bank also created a lien on the account of Respondent no.1. The NCLT order asked for the suspension of the board of the Corporate Debtor and the board was asked to return the amount withdrawn less the amount paid to the supplier. The learned Judge in the Impugned order reversed the above decisions on the condition that the respondent would refund the Rs.32.50 if required.

After hearing the parties in the present appeal the Supreme Court observed that, apart from Rs. 32.50 lakhs which the respondent contend was the price of raw materials there was more than Rs.39 Lakhs still due. Further setting aside of the appellate order of NCLAT did not mean setting aside the order admitting the application. thus the essential grievance of the appellant is regarding the Rs.32.50 lakhs transaction which took place after the appellant was order to act according to the law.

The Supreme on an analysis of the IBC observed, IBC had provisions that contemplated the resolution of insolvency and if impossible to wind up the corporate debtor. When an IRP has appointed the roles of the Board of Directors or partners stands suspended and as per section 17, their powers are also exercised by the professional. Further, the impact of the moratorium includes the prohibition of transferring, encumbering, alienation or disposing of by the corporate debtor of any of its assets. As per section 14(2) IBC and the IBC regulations, the goods and services are those which are essential for the functioning and are not a direct input to the output. It is on the IRP/RP to decide if the same is crucial for the functioning of the Corporate Debtor and therefore Raw Materials also could fall within the provision. The role of RP is however restricted to the extent of taking permission from the committee of creditors for matters under section  28.

The supreme court held that the High Court overlooked the limits on the powers under section 482 of IBC. The section will not be available to countenance the breach of a statutory provision. Thus after the tribunal’s order regarding moratorium and application under section 7 IBC, the order of the high court to allow operation without remittance of 32.50 lakhs cannot be sustained. The Supreme Court held, “In such circumstances, Appeal is allowed.”

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