2023 (4) TMI 667 - HC - Insolvency and Bankruptcy

Challenge to Liquidator s authority to direct freezing of petitioner s account (director of company) that is facing insolvency proceedings - HELD THAT - The legal position as to the limited scope of interference in matters pending before the NCLT is no longer res integra in view of the decisions of the Supreme Court in Swiss Ribbons (P) Ltd v. Union of India 2019 (1) TMI 1508 - SUPREME COURT and Ghanashyam Mishra and Sons. Pvt. Ltd. v. Union of India 2021 (4) TMI 613 - SUPREME COURT - In those decisions the Apex Court declared that IBC 2016 being a self contained Code the High Courts should refrain from interfering with the resolution process. Moreover having resorted to the alternative remedy the petitioner cannot collaterally challenge the same order through a writ petition. In any case the dispute as to the authority of the Liquidator to enforce the order of NCLT has lost its relevance as per Ext.R2(e) the NCLT itself has passed the order freezing the petitioner s account. The writ petition is hence dismissed without prejudice to the petitioner s right to pursue his remedy before the NCLT or NCLAT as the case may be.

Summary

Issues Involved:
- Preferential transaction under the Insolvency and Bankruptcy Code, 2016
- Authority of the Liquidator to freeze the petitioner's account

Summary:

Issue 1: Preferential transaction under the Insolvency and Bankruptcy Code, 2016

The petitioner, as the Director of a Company undergoing corporate insolvency resolution process, faced a challenge regarding a preferential transaction where the Company repaid a loan to the petitioner instead of other obligations. The National Company Law Tribunal (NCLT) deemed this repayment as a preferential transaction under the Insolvency and Bankruptcy Code (IBC). The NCLT directed the petitioner to return the amount to the Liquidator within two weeks and instructed the Liquidator to initiate legal proceedings for recovery. The petitioner appealed this decision to the National Company Law Appellate Tribunal (NCLAT) while the Liquidator was directed by the NCLT to take further steps for recovery.

Issue 2: Authority of the Liquidator to freeze the petitioner's account

A writ petition was filed challenging the Liquidator's authority to freeze the petitioner's account without a prior hearing. The petitioner argued that the Liquidator lacked the power to freeze the account without following the prescribed procedure under the IBC. The petitioner contended that the freezing of the account was done without providing an opportunity for the petitioner to be heard.

The respondent Bank justified the freezing of the account based on a subsequent order of the NCLT. The Bank maintained that the action was taken in accordance with the Standard Operating Procedure.

The Court dismissed the writ petition, citing the limited scope of interference in matters pending before the NCLT as established by Supreme Court decisions. The Court emphasized that the IBC is a self-contained Code, and High Courts should refrain from intervening in the resolution process. The petitioner was advised to pursue remedies before the NCLT or NCLAT, acknowledging the authority of the NCLT to freeze the petitioner's account as per its order.