Directors who Invested ₹5.5 Cr in Corporate Debtor Cannot Claim to be Unaware of CIRP: NCLAT Upholds Denial of Exclusion/Extension [Read Order]

The National Company Law Appellate Tribunal (NCLAT) recently dismissed an appeal filed by the suspended directors of a corporate debtor, holding that directors who had invested a sum of ₹5,49,99,950 into the corporate debtor company cannot possibly and credibly claim to have been unaware of the initiation of corporate insolvency resolution process (CIRP) against their company.

-The present appeal before the NCLAT arose from an order passed by the Adjudicating Authorities in an order dated December 7, 2023, ascribing certain observations recorded against the appellants, affecting the CIRP process and subsequent decision in the same regard.

Also Read: Application under section 7(5) of IBC cannot be Rejected due to non furnishing of NeSL when existence of debt and default by CD is established: NCLT

The appellants, Bimal Kumar Jejani, Sachin Sehgal and Ravindra Banthia are suspended directors of the corporate debtor - Star Mineral Resources Pvt. Ltd. The corporate debtor’s liquidation was ordered after the resolution professional reported lack of books, records and effective cooperation from the directors. Liquidation proceedings commenced on February 10, 2020 following admission of a Section 9 petition on December 17, 2018.

Sakshi Tikmany and Akshat Gupta appearing for the appellants submitted before NCLAT that the directors were non-executive, had been nominated by financers, were not involved in day-to-day management, had not received communications about the CIRP and were themselves victims of fraud for which they filed a police complaint.

Meanwhile, Naresh Kumar Bansal and Kritika Bansal appearing for the respondent/liquidator countered that processes and notices were sent to the addresses and email IDs on record in the Ministry of Corporate Affairs’ (MCA) database, that the appellants failed to provide statutory books despite repeated communications and that the resolution professional had initiated prosecution under Section 70 of the IBC and referred matters to IBBI.

A three-member NCLAT bench comprising Justice Rakesh Kumar Jain (Member Judicial), Justice Mohd. Faiz Alam Khan (Member Judicial) and Naresh Salecha (Member Technical) reviewed the record and communications, including multiple emails and postal processes and observed that some notices were returned but others were received and acted upon by promoter directors.

The NCLAT found it not plausible that directors who had invested about ₹5.5 crore and who were recorded in MCA data would be unaware of the CIRP or of repeated processes seeking the books and records of the corporate debtor.

The appellate tribunal further noted that coercive steps were taken and that prosecution proceedings had been initiated upon the complaint of the resolution professional.

Concluding that the Adjudicating Authority’s impugned observations were supported by the record and did not breach principles of natural justice, the NCLAT upheld the denial of exclusion/extension and dismissed the appeal without any costs.

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