Resolution Professional Entitled to Recover Share Certificates of Corporate Debtor's Subsidiaries Despite Appellant's Loss Claim: NCLAT [Read Order]

The Principal Bench of National Company Law Appellate Tribunal (NCLAT) at New Delhi upheld the Resolution Professional’s right under Sections 18 and 25 of the IBC to reclaim share certificates and documents of subsidiary companies from the appellant. The appellant’s plea of loss of documents was rejected as lacking credibility. Accordingly, the appeal was dismissed and directions to return all documents within seven days were affirmed.

The Appeal was filed by the Appellant underSection 61 of the Insolvency and Bankruptcy Code, 2016 against the order dated 07.08.2020 passed by NCLT Delhi Bench-II in I.A. No. 2102/2020 and I.A. 2276/2020.

Read More: Unregistered ‘Agreement to Sell’ Does Not Bar Asset Transfer inCIRP: NCLAT

Section 25 of the Insolvency and Bankruptcy Code, 2016, explained that: Duties of resolution professional.

“(1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor.

(2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:-

(a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor;”

The Appellant, Rupinder Singh Gill, director of Challengerz Web Solutions Pvt. Ltd. and Hacienda Infosoftech Pvt. Ltd. (both subsidiaries of Corporate Debtor Three C Universal Developers Pvt. Ltd.), entered into Agreements to Sell dated 08.10.2018 for acquiring 100% equity shares of both companies for Rs. 10 crores (Challengerz) and Rs. 30.93 crores (Hacienda).

The Appellant claimed to have deposited 2% consideration (Rs. 20 lakhs and Rs. 61.81 lakhs respectively) in Bank of India, Mohali in September 2018, received physical possession on 08.10.2018, deployed security on 09.10.2018, and appointed three Additional Directors.

The Appellant alleged the Corporate Debtor breached obligations by failing to obtain NOIDA approvals within 11 months and engaged in fraudulent acts including freezing bank accounts (17.10.2018) and wrongful property attachment (27.10.2018) to satisfy an NCDRC decree of Rs. 34.75 crores. The Corporate Debtor issued Notice of Frustration on 28.01.2019.

The Resolution Professional filed I.A. No. 2102/2020 and 2276/2020 seeking return of share certificates and documents. The Appellant claimed documents were lost at City Centre, Khanna in August 2019 (police complaint filed 26.10.2019). NCLT Delhi ordered the return of documents on 07.08.2020, leading to this appeal.

The Counsel for the Appellant, Prachi Johri and Sharad Agnihotri, Appellant requested the Appellate Tribunal to set aside the Impugned Order and to allow the appeal.

On the other hand, the Counsel for the Respondent, Abhishek Anand, Meghna Rao, Aadhar Nautiyal and Harshit Goel, for the Resolution Professional, appointed on 17.12.2019, submitted that under Sections 18 and 25 of the IBC, he is statutorily obligated to take custody and control of all Corporate Debtor assets, including share certificates of subsidiary companies Challengerz and Hacienda. The shares constitute valuable assets as per the Companies Act, 2013.

The Counsel stated that Upon CIRP commencement on 17.12.2019, the moratorium under Section 14 barred transfer or disposal of Corporate Debtor assets, rendering the Agreements unenforceable. The Appellant illegally retained share certificates and documents intended for temporary possession only. The status quo order dated 05.04.2019 supports the Respondent's claim as shareholding vests exclusively with the Corporate Debtor.

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Further, the Counsel observed that the Appellant's statement regarding lost documents raised for the first time in the appeal was never disclosed earlier and constitutes fraud, as police complaints don't mention share certificates. The Respondent requested dismissal of the appeal with exemplary costs.

The Tribunal consisted of Judicial Member, Justice Rakesh Kumar Jain and Technical Member, Naresh Salecha, heard and reviewed the matter.

The Tribunal, after considering the submissions made, upheld the impugned order directing return of share certificates and documents of subsidiaries Hacienda and Challengerz. The Tribunal held that under Sections 18(1)(f)(v) and 25(2)(a) of the IBC, the Resolution Professional is statutorily obligated to take custody of all Corporate Debtor assets, including shares held in subsidiary companies.

The Tribunal found the Appellant's possession of shares without following due process under the Companies Act, 2013 and without paying consideration as fallacious and illegal. The claim of lost documents was rejected as the Appellant could not satisfactorily explain why important documents were taken there or why no proper FIR was filed.

Accordingly, the Tribunal found no error in the Impugned Order and the appeal was dismissed as devoid of merit.

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