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Sandeep Khaitan, Resolution Professional for National Plywood Industries Ltd. v. JSVM Plywood Industries Ltd. & Anr.

Criminal Appeal · 2021 INSC 268Decided 22 Apr 2021
Criminal Appeal No. 447 of 2021
Justice Uday Umesh Lalit · Justice K.M. Joseph

Background

After insolvency proceedings began against National Plywood Industries Ltd. and a Resolution Professional (the appellant) was appointed, the company's former management allegedly transferred Rs. 32.50 lakhs out of the corporate debtor's account to JSVM Plywood Industries (an operational creditor) in violation of the moratorium that freezes a company's assets during insolvency resolution. The Resolution Professional got an FIR registered over this transaction, following which the bank froze JSVM's account. JSVM challenged the FIR under Section 482 of the CrPC before the Guwahati High Court, which used its inherent powers to let JSVM operate its frozen bank account, subject to conditions, without requiring the disputed money to first be returned to the corporate debtor.

Decision Breakdown

The Supreme Court held that the High Court, in granting interim relief under Section 482 CrPC, had overlooked the limits on its own inherent powers and had effectively allowed a breach of the statutory moratorium under Sections 14 and 17 of the IBC, which exists specifically to preserve a corporate debtor's assets intact during resolution. Inherent power to secure "the ends of justice" cannot be used to sanction undermining a clear statutory mandate. The Court modified the High Court's order to allow JSVM to operate its account only after first remitting the Rs. 32.50 lakhs back into the corporate debtor's account, while clarifying that this did not decide the merits of the pending FIR/Section 482 petition or JSVM's right to separately pursue its own claim to that money through proper insolvency channels.

Lesson Learnt

Once a company enters formal insolvency resolution, the moratorium freezing its assets is a strict statutory protection that courts, even using their inherent "ends of justice" powers, cannot casually bypass; anyone who received disputed funds from a company under moratorium may be required to return them first before being allowed to use them, leaving their underlying claim to be resolved separately through the proper process.

Official source (sci.gov.in)View Judgment (PDF)

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