Sandeep Khaitan vs Jsvm Plywood Industries Ltd. on 22 April, 2021


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Supreme Court of India

Sandeep Khaitan vs Jsvm Plywood Industries Ltd. on 22 April, 2021

Author: Uday Umesh Lalit

Bench: Uday Umesh Lalit, Hon’Ble Ms. Banerjee, K.M. Joseph

                                                    1


                                                                          REPORTABLE


                                    IN THE SUPREME COURT OF INDIA
                                   CRIMINAL APPELLATE JURISDICTION

                                   CRIMINAL APPEAL NO.447 OF 2021

                           (Arising out of SLP (CRL.) No. 1549 of 2021)



          SANDEEP KHAITAN, RESOLUTION PROFESSIONAL
          FOR NATIONAL PLYWOOD INDUSTRIES LTD.                      … APPELLANT(S)

                                                 VERSUS


          JSVM PLYWOOD INDUSTRIES LTD. & Anr.                       … RESPONDENT(S)


                                            J U D G M E N T

K.M. JOSEPH, J.

Leave granted.

1. The appeal is directed against order dated

04.02.2021 passed by the Hon’ble High Court of

Guwahati. In the impugned order, the High Court

has allowed an interlocutory application filed by
Signature Not Verified

Digitally signed by
Indu Marwah
Date: 2021.04.22
the Respondent No. 1 to allow it to operate its
15:30:43 IST
Reason:

bank account maintained with the ICICI Bank
2

Bhubaneswar and to unfreeze the bank account of

its creditors over which the lien has been created

and the accounts frozen pursuant to the lodging of

an FIR by the appellant before us. It was made

subject to conditions.

2. An application under Section 7 of the Insolvency

and Bankruptcy Code, 2016, hereinafter referred to

as the IBC was admitted on 26.08.2019 against one

National Plywood Industries Limited (NPIL). The

Appellant was appointed as the Interim Resolution

Professional. A moratorium also came to be passed

by the very same order within the meaning of

Section 14 of the IBC. The Appellant came to be

appointed as the Resolution Professional by an

order dated 08.11.2019. In the meantime, the

Respondent No.1 claiming to be an operational

creditor lay the claim for the amounts due to it

from the Corporate Debtor before the Appellant vide

communication dated 22.11.2019. It would appear

that the former Managing Director of the Corporate

Debtor challenged the order of the NCLT, Guwahati,
3

admitting the application under Section 7. The

NCLAT by order dated 24.11.2019 dismissed the

appeal interalia holding that the application

under Section 7 was not barred by limitation. Civil

Appeal No. 9142 of 2019 filed by the former

Managing Director of the Corporate Debtor came to

be however allowed by this Court by an order dated

20.01.2020. The NCLT was directed to consider the

matter in accordance with law. It would appear that

on 28.01.2020 interlocutory application 7 of 2020

filed by the former Managing Director of the

Corporate Debtor seeking an injunction restraining

the Respondents therein from interfering in the

operation of the Corporate Debtor and to disperse

the cost of the CIRP was disposed of interalia as

follows: –

i. “Today the Respondents submitted across the

Bar that except ratifying the expenses of the

IRP, no major decisions have been taken by the

COC in the yesterday’s COC meeting. Both the

respondents informed that they are conscious
4

about the order passes by the Hon’ble Supreme

Court and the legal consequences thereof.

ii. In view of the above submissions of the

respondents, this Tribunal expects that the

respondents would maintain status-quo in

respect of the IRP proceedings. As the main

company petition was remanded back to the

Hon’ble NCLAT for fresh disposal in accordance

with law, this Tribunal is of the considered

opinion that the petitioner has to approach

the Hon’ble NCLAT for any further directions

in the above matter and accordingly above

application stands disposed of with the above

observations. Even otherwise, the order of

admission of the company petition has not

attained finality and, therefore, no interim

orders as prayed for needs to be passed today.

iii. In the result, IA No. 07 of 2020 is disposed

of with the above observations.”

Thereafter there is order dated 20.03.2020

passed which we will advert to.

5

3. It is the case of the Appellant that the former

Managing Director of the Corporate Debtor in

conspiracy with the Respondent No.1 engaged in an

illegal transaction to the tune of Rs. 32.50 lakhs

without authority from the Appellant and in

violation of Section 14 of the IBC. It is his

complaint that initially, the Managing Director

made a transaction of Rs. 500. Thereafter, he

proceeded by virtue of 4 consecutive transactions

to transfer a sum of Rs. 32.50 lakhs to the

Respondent No. 1. It is also complaint of the

Appellant that the former Managing Director

proceeded to transfer another sum of Rs. 3.29 lakhs

from another account and the amount was transferred

to his close associate.

4. On 23.04.2020, the Appellant filed a cyber

complaint. This was followed on the same date by

filing an application under Section 19 read with

Section 23 (2) of the IBC alleging non corporation

by the previous management of the Corporate Debtor.

On 27.04.2020, the Appellant got lodged an FIR. On
6

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 next

development to be noticed is the order dated

20.05.2020 passed by the NCLT, Guwahati. The order

is passed in I.A. No. 37 of 2020. The relief sought

therein was for direction to the Directors of the

Corporate Debtor to hand over the management of

the company. The order reflects the controversy

relating to the payment of Rs. 32.50 lakhs

violating the moratorium. Tribunal finds that the

directors of the Corporate Debtor were not giving

maximum assistance. On the basis of its findings

the tribunal issued directions to the suspended

Board of the Corporate Debtor to cooperate with

the Appellant. The Auditors were to complete the

audit expeditiously interalia. More importantly

the Directors were directed to refund the amount

withdrawn less the amount if any paid to the

alleged supplier as the cost of raw materials. The

interlocutory application was posted before the
7

regular bench for hearing after lifting the

lockdown.

5. A perusal of the order reveals that the Directors

of the company sought to defend the withdrawal of

Rs.32.50 lakhs as one intended to pay for the raw

materials. It is further noticed that the Tribunal

noticed that there was no proof for the same. More

importantly it was found that even if done to

discharge debt due to supplies during the CIRP,

without permission and knowledge of the Resolution

Professional, it was in violation of Section 14 of

the Code.

6. The Appellant moved an application for review of

the order dated 20.05.2020. The Tribunal in its

order dated 05.06.2020 noticed the limitations

flowing from Rules 154 and 155 of the NCLT, Rules,

2016 in the matter of review. It is observed that

for the reasons highlighted in the 20.05.2020 the

former Directors of the Corporate Debtor are found

prima facie liable to refund the amount
8

unauthorisedly withdrawn from the account of the

Corporate Debtor. It is also noticed that the

Directors of the suspended board were not made

respondents. The application for review came to be

dismissed.

7. The genesis of the impugned order is the FIR

lodged against the Appellant and arose from the

payment effected into the account of Respondent

No.1 in a sum of Rs. 32.50 lakhs. The said FIR

came to be challenged in a petition under Section

482 of the Cr.P.C. by the Respondent No.1 by filing

Criminal Petition No. 454 of 2020. In the same the

Appellant also filed I.A. No. 453 of 2020.

8. On 19.01.2021 the NCLT, Guwahati passed an order

in I.A No. 37 of 2020. By the said order the

Appellant was directed to discharge his duties as

per the provisions of the IBC. Thereafter, it also

passed the following directions: –

i. “The Learned Counsel for the Respondents has

confirmed that the Suspended Management has

been co-operating and providing assistance to
9

RP to complete the CIRP in time. The Corporate

Debtor is directed to submit its reply

Affidavit to the allegations made relating to

the transactions of Rs. 35.795 lakhs serving

a copy upon the RP.

ii. Any amount of the Corporate Debtor lying in

any Bank is to be transferred to the account

being operated by the RP. Banks having account

of the Corporate Debtor are directed to lift

the lien, if any, on any amount of the

Corporate Debtor and allow the operation of

the account by the RP only.

iii. The RP is directed to utilize the funds of the

Corporate Debtor under CIRP judiciously

keeping the Unit in its full operation.”

9. Thereafter, in the petition filed by the

Respondent No.1 under Section 482, the High Court

admitted the petition. The case was directed to be

listed for regular hearing in usual course.

(According to the Appellant the High Court had

directed investigation to be continued. This is
10

not seen reflected in the order which is produced).

In the I.A No. 453 of 2020 filed in the Section

482 resulting in the impugned order, the prayers

sought has already been noted. It is to allow the

Respondent No.1 and its creditors to operate their

bank account over which lien has been created and

those accounts which have been frozen based on the

FIR dated 27.04.2020.

THE IMPUGNED ORDER

10. After noticing the contentions of the parties,

the Learned Single Judge in the impugned order

proceeds to hold as follows:-

i. “From the material on record, it is apparent

that there was business relation between the

petitioner company and the NPIL, which is

evident from the various documents annexed to

the petition. Only question raised in this FIR

is that the money was transferred by the

suspended CMD without any authority, inasmuch

as, the entire state of affairs of NPIL was
11

vested with the Respondent No. 2, who has been

appointed as resolution professional. Only

incriminating allegation against the

petitioner is that the suspended CMD has

personal interest in the petitioner company

being an associate company, which is however,

a disputed fact required to be investigated by

police.

ii. Be that as it may, having considered the entire

gamut of the matter and the nature of

accusation brought against the present

petitioner, I am of the view that freezing of

all the bank account as indicated above would

certainly cause unnecessary hardship, which

may not be necessary for the investigation of

the present FIR in view of the nature of the

accusation made therein as well as in view of

the offer made by the petitioner to furnish a

bond. Therefore, in my consider view, the

petitioner is entitled to the interim relief

as sought for. Accordingly, it is provided

that the lien created upon the bank account
12

no. 149905001306 maintained with the ICICI

Bank Limited, Chandrasekarpur Branch,

Bhubaneswar be lifted, the petitioner and its

creditors shall be allowed to operate the bank

account over which lien has been created and

the accounts have been frozen pursuant to the

instruction of the Respondent No. 2 in

connection with Margherita P.S. Case No.

0112/2020, until further order of the Court.

iii. It is however, made clear that the interim

relief granted to the petitioner as above with

regard to unfreezing the bank account and

lifting of lien shall be subject to the

condition that the petitioner shall withdraw

the WP (C) No. 118/2020 filed before the

Itanagar Permanent Bench of this Court and

furnishing an indemnity bond undertaking to

refund the amount of Rs. 32.50 Lakhs if

required, subject to final outcome of the

criminal case.”
13

11. We heard the Learned Counsel for the Appellant

Shri Anand Varma and the Learned Counsel for the

Respondent No. 1, Shri Harish Pandey. The State is

represented by Shri Shuvodeep Roy.

SUBMISSIONS

12. The Learned Counsel for the Appellant

contended that the impugned order proceeds on an

erroneous basis namely that the allegations about

the co-accused (former Managing Director of the

Corporate Debtor) having an interest in the

Respondent No.1 Company was a disputed fact which

had to be investigated. It is the case of the

Appellant that there is a report of the auditing

firm. Also, the said finding of the High Court is

contrary to the documents of the Respondent No. 1

itself. It is also urged that the High Court itself

has permitted the investigation to go on in the

petition under section 482. Secondly, he pointed

out that the impugned order was contrary to Section

14 of the IBC. He drew support from the judgment
14

of this Court in P Mohanraj vs. M/S. Shah Brothers

Ispat Pvt. Ltd. in Civil Appeal No. 10355 of 2018.

According to him, the whole purpose of the

moratorium would be defeated if members of the

previous management of the Corporate Debtor are

left free to transfer the funds of the Corporate

Debtor. The Respondent No. 1 was a related party

of the Corporate Debtor. He reiterates that with

the appointment of Appellant as the Resolution

Professional under Section 25 (2)a of the IBC he

is to take custody and control of all the assets

of the Corporate Debtor. Finally, he also

emphasized the nature of the jurisdiction under

Section 482 of the Cr.P.C. The High Court has

overlooked the limits of its power in passing the

impugned order, he complains. He points out that

the order admitting the application under section

(7) has not been stricken by the remand by this

Court of the appeal against the order admitting

the application.

15

13. Per contra Shri Harish Pandey, Learned

Counsel, contended that the order may not be

interfered by this Court. The Respondent No.1 was

a related party and it was always known to be such

related party. He referred to the fact that the

Respondent No.1 was supplier of raw material to

the Corporate Debtor. He pointed out goods worth

more than Rs.2 crores have been supplied by it to

the Corporate Debtor. Payments were being made. In

fact, a sum of more than Rs.39 lakhs is further

due from the Corporate Debtor to the Respondent

No. 1. It is emphasized as a MSME it would cause

grave prejudice to it if the impugned order is set

aside.

14. It is the case of the Respondent No. 1 further

that the business relationship between the

Respondent No. 1 and Corporate Debtor has existed

for more than 15 years. The Corporate Debtor has

been declared a sick industry on 18.04.2006. It

was nursed back by the Respondent No. 1. Our

attention is drawn to the minutes of the first
16

meeting of the Committee of Creditors dated

23.09.2019. The minutes reveal that committee of

creditors observes that a substantial part of the

raw materials is purchased from Respondent No.1

and that the relatives of the Corporate Debtor

directors or shareholders hold more than 51 percent

shareholding of the first respondent. It is further

noted that the processes to assess the veracity

and reasonableness of the transaction in such

situation were let known and the purchases/sales

must be benchmarked against arm’s length

transactions and open market transactions. (We may

also notice that the meeting resolved that all the

banks were to act on the instructions of the

appellant interalia.) It is the case of the

Respondent No. 1 that right from the beginning, it

was known that the Respondent No. 1 was a related

party. It is the further case of the Respondent

No. 1 that its claim for over 6 crores of rupees

was vetted, verified and admitted by the Appellant.

After the commencement of CIRP Respondent No. 1

had made regular substantial supplies to the
17

Corporate Debtor for which the payment were being

made (they relate to the period from 26.08.2019 to

31.03.2020). This is shown as amounting to Rs.

2,70,84,982. The Respondent No. 1 lays store by

the order of the NCLT, Guwahati dated 28.01.2020

which we have already referred to. E-mails

addressed to the Appellant to clarify did not evoke

any response. In March 2020, orders were placed by

the Corporate Debtor for approximately Rs. 30

lakhs. The lockdown intervened. On 18.04.2020 it

is not disputed that the Corporate Debtor made a

payment of Rs 32.50 lakhs through online net

banking transfer against material supplied during

the period that the corporate debtor was under

CIRP. The Learned Counsel for the Respondent No.1

would point out that the order of the NCLT dated

20.05.2020 passed by the NCLT directed the

directors of the Corporate Debtor to refund the

amount withdrawn less any amount supplied to the

alleged supplier. It is therefore, pointed out

creating a lien on the accounts of the Respondent

no. 1 was not justified. The Learned Counsel also
18

drew our attention to the order dated 24.03.2021

passed by the NCLT Guwahati Bench. This is in an

effort at showing the manner in which the appellant

has been functioning. The Tribunal in the said

order refers to the Impugned Order and the Interim

order passed by this Court in this matter. The

Tribunal noted that the production has been

suspended and layoff notice is also issued in

regard to the Corporate Debtor. The objectives of

the IBC are being defeated on the basis of the

claims and the FIR interalia. The Appellant was

directed to file the copy of the FIR in this case

among other documents. The Learned counsel for the

Respondent no. 1 would submit that the having

regard to the orders passed by the tribunal the

Impugned Order passed by the High Court may not be

interfered with. Having regard to the dismissal of

the review petition filed against the 20.05.2020

there is no merit in the present appeal.

15. The Learned Counsel for the Appellant would

point out that the Appellant is prevented from
19

disbursing the salary of the workers. Nearly four

months’ salary would be disbursed with the amount

which was paid by the former management without

any authority as noticed. It is the case of

Appellant that the transactions between the

Respondent No.1 and the Corporate Debtor was not

authorised by the Appellant during the period from

21.02.2020 to 27.04.2020.

FINDINGS

16. The contours of the jurisdiction under 482 of

the Cr.P.C. are far too well settled to require

articulation or reiteration. Undoubtedly, in this

case by 26.08.2019 an application filed under

section 7 of the IBC was admitted, the appellant

appointed as the interim resolution professional

and what is more a moratorium declared. With the

declaration of the moratorium the prohibitions as

enacted in section 14 came into force. It is clear

that the assets of the company would include the

amounts lying to the credit in the bank accounts.
20

There cannot be any dispute that well after the

order under section 14 was passed, a sum of Rs.

32.50 lakhs has been remitted into the account of

Respondent No.1 company. No doubt it is the

definite case of the Respondent No.1 that it has

had business relations with the Corporate Debtor

since more than 15 years and that the amount

remitted in its account represented the price of

the materials supplied to the Corporate Debtor.

Apart from this amount a sum of rupees more than

Rs.39 lakhs is still due. It is to be noticed that

though an appeal was filed against the order

admitting the petition under Section 7 the same

was dismissed by the NCLAT. The appellate order

was undoubtedly set aside by this court and the

appeal remanded to the NCLT for its consideration.

We would think that setting aside the appellate

order of the NCLAT by this court and remanding the

appeal would not have the effect of setting aside

the order admitting the application. Initially, as

was noticed by us an order was passed on

28.02.2020. The ambiguity created by the said order
21

was removed by the subsequent order of the Tribunal

dated 20.03.2020. In other words, by the order

dated 20.03.2020 the NCLT, Guwahati ordered that

the appellant was at liberty to act as per law and

the words used in the earlier order dated

28.02.2020 relied upon by the Respondent No.1 were

found to be a mere casual observation which did

not culminate into any direction. We need not say

anything further particularly in view of the fact

that there is an FIR and which is pending

consideration in the High Court also. It is

significant only for us to notice that the

Appellant is essentially aggrieved by the

transactions representing a sum of Rs. 32.50 lakhs

all of which took place after order dated

20.03.2020.

17. It may be true that in the interim order passed

by the NCLT Guwahati, the Tribunal had directed

the Directors to refund the amount of the Corporate

Debtor less any amount paid for supplies. It is

also true that the review petition filed by the
22

Appellant is dismissed, essentially based on the

limitations on the power of review.

18. 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 appointment, the powers of

the Board of Directors or the partners of the

Corporate Debtor as the case may be are to stand

suspended. Section 17 further declares that the

powers of the Board of Directors or partners are

to be exercised by the Interim Resolution

Professional. The financial institutions are to

act on the instructions of the Interim Resolution

Professional. Section 14 is emphatic, subject to

the provisions of sub section (2) and (3). The
23

impact of the moratorium includes prohibition of

transferring, encumbering, alienating or disposing

of by the Corporate Debtor of any of its assets.

19. Sub section 2 reads as follows:-

“The supply of essential goods or services to the

corporate debtor as may be specified shall not be

terminated or suspended or interrupted during

moratorium period.”

20. Essential goods and services referred to in

Section 14(2) has been defined by Regulations.

Regulation 32 of the INSOLVENCY AND BANKRUPTCY

BOARD OF INDIA (INSOLVENCY RESOLUTION PROCESS FOR

CORPORATE PERSONS) REGULATIONS, 2016, reads as

follows:-

“Essential Supplies.

The essential goods and services referred to in

section 14(2) shall mean-

i. Electricity;

24

 ii.     water;

iii.     telecommunication services; and

 iv.     information technology services,

to the extent these are not a direct input to the

output produced or supplied by the corporate

debtor.

Illustration- Water supplied to a corporate debtor

will be essential supplies for drinking and

sanitation purposes, and not for generation of

hydro-electricity.”

21. Also, undoubtedly Section (2A) of Section 14

of the THE INSOLVENCY AND BANKRUPTCY CODE, 2016

provides as follows:

“Where the interim resolution professional or

resolution professional, as the case may be,

considers the supply of goods or services critical

to protect and preserve the value of the corporate

debtor and manage the operations of such corporate

debtor as a going concern, then the supply of such

goods or services shall not be terminated,

suspended or interrupted during the period of
25

moratorium, except where such corporate debtor has

not paid dues arising from such supply during the

moratorium period or in such circumstances as may

be specified.”

22. This provision was inserted with effect from

28.12.2019. No doubt under this provision goods or

services not covered by Section 14(2) are also

covered. The call however is to be taken by the

IRP/RP. Raw material supply could fall within

the provision. The IRP/RP must take a decision

guided purely by the object of the IBC and the

provisions and the factual matrix.

23. With the appointment of Committee of

Creditors, a Resolution Professional is to be

appointed. The Resolution Professional is

thereafter to conduct the resolution process and

manage the operations. Section 23 (2) makes it

clear that his power is the same as the powers of

the Interim Resolution Professional. Undoubtedly,

the Resolution Professional is bound to seek prior
26

approval of the Committee of Creditors in maters

covered by Section 28.

24. We have to also in this context bear in mind

that the High Court appears to have, in passing

the impugned order, which is an interim order for

that matter, overlooked the salutary limits on its

power under Section 482. The power under Section

482 may not be available to the Court to

countenance the breach of a statuary 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.

25. It would appear to us that having regard to

the orders passed by the NCLT admitting the

application, under Section 7, and also the ordering

of moratorium under Section 14 of the IBC and the

orders which have been passed by the tribunal

otherwise, the impugned order of the High Court
27

resulting in the 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 cannot be sustained. The

Learned Counsel for the Appellant has also no

objection in the Respondent No. 1 being allowed to

operate its account subject to it remitting an

amount of Rs. 32.50 lakhs into the account of the

Corporate Debtor. In such circumstances, Appeal is

allowed. The Impugned order is modified as follows:

i. The Respondent No.1 is allowed to operate its

account subject to it to 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
28

issues arising from the FIR including the

petition pending under Section 482 of the

Cr.P.C.

ii. 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.

………………….J.

(UDAY UMESH LALIT)

………………….J.

(K.M. JOSEPH)

New Delhi,
April 22, 2021.



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