NCLAT: Post-Order Criminal Complaint Cannot Be Used To Stall Liquidation Or Defeat Creditor Rights Under IBC

NCLAT: Post-Order Criminal Complaint Cannot Be Used To Stall Liquidation Or Defeat Creditor Rights Under IBC

Introduction

The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that criminal complaints filed after adverse insolvency orders cannot be used to undermine liquidation proceedings or defeat creditor protections under the Insolvency and Bankruptcy Code, 2016 (IBC).

A Bench comprising Judicial Member Justice N. Seshasayee and Technical Members Arun Baroka and Indevar Pandey dismissed an appeal filed by SSMP Agro Export Private Limited and its directors challenging an order directing deposit of ₹1 crore with 15% interest into the liquidation estate of SSMP Industries Limited.

Factual Background

SSMP Industries Limited was admitted into Corporate Insolvency Resolution Process (CIRP) on August 27, 2018, and was ordered into liquidation on July 31, 2019. Among its assets was 9.56 acres of land in Chittoor, Andhra Pradesh. During liquidation, an Agreement to Sell dated December 13, 2019 was executed in respect of the land for ₹6,59,52,000. A sum of ₹1 crore, described as part of the sale consideration, was transferred through RTGS into the bank account of SSMP Agro Export Private Limited. The liquidator contended that this amounted to an unauthorised dealing with liquidation estate property.

Procedural Background

The liquidator approached the National Company Law Tribunal (NCLT) under Sections 33(1), 33(5), 66 and 60(5) of the IBC. The NCLT declared the agreement void and directed restoration of ₹1 crore with 15% interest per annum to the liquidation estate. Aggrieved, SSMP Agro Export Private Limited and its directors filed an appeal before the NCLAT.

Issues

1. Whether the transfer of ₹1 crore constituted an unauthorised transaction involving liquidation estate property.

2. Whether a criminal complaint filed after the NCLT’s order could undermine the liquidation process.

3. Whether SSMP Agro Export Private Limited qualified as a related party in the context of insolvency proceedings.

Contentions

The appellants argued that the ₹1 crore was an independent unsecured investment and not part of any unauthorised transaction.

They also raised allegations of forgery in relation to the agreement and relied upon a police complaint alleging coercion and extortion against the purchasers to question the legitimacy of the transaction.

Tribunal’s Observations and Analysis

The NCLAT rejected the appellants’ reliance on the criminal complaint. It observed that even if such a complaint leads to an independent inquiry or prosecution, it does not dilute the statutory consequences under the IBC.

The bench comprising Judicial Member Justice N. Seshasayee and Technical Members Arun Baroka and Indevar Pandey cautioned that permitting parties to file criminal complaints after adverse insolvency orders to frustrate liquidation proceedings would defeat the object of the Code and undermine creditor protection. The Bench further held that SSMP Agro Export Private Limited was a related party despite the absence of formal cross-shareholding. It noted common family control, continuity of business, and shared economic interests. The Tribunal clarified that in insolvency proceedings, substance prevails over form. Importantly, the Tribunal emphasised that the NCLT had not determined criminal guilt but had merely directed restitution of money received in connection with an unauthorised transaction involving liquidation estate property.

Decision

The NCLAT dismissed the appeal and upheld the NCLT’s direction to deposit ₹1 crore along with 15% interest per annum into the liquidation estate. The Tribunal reaffirmed that post-order criminal proceedings cannot be invoked to derail or undermine liquidation under the IBC.

In this case the appellant is represented by Mr. Rohit Sinha, Advocate. Meanwhile the respondent is represented by Mr. Yogesh Jagia, Ms. Nitya Ahuja, and Ms. Udita Dubey, Advocates.