Case Name: Rajendra Sanghi Liquidator for Nagaur Water Supply Company Pvt. Ltd vs. Rakshit Dhirajlal Doshi & Ors
Case Number: I.A. No. 1068 of 2022 in CP (IB) No. 5 of 2018
Date: Friday, Eleventh of September, Two Thousand and Twenty-Six
Court: National Company Law Tribunal, Division Bench, Ahmedabad
Coram: Mr. Shammi Khan, Hon’ble Member (Judicial) and Mr. Sanjeev Sharma, Hon’ble Member (Technical)
FACTS
A CP(IB) was filed by Phoenix ARC Pvt. Ltd. u/s 7 of the IBC, 2016 against Nagaur Water Supply Company Pvt. Ltd. The said petition was dismissed by NCLT Ahmedabad vide order dated 27.05.2020. An appeal against the order was filed before the Hon’ble NCLAT, New Delhi. The NCLAT vide order dated 01.04.2021 passed in Company Appeal (AT) (Ins.) No. 690 of 2020 set aside the said order and directed the NCLT to admit the application.
Thereafter, NCLT vide order dated 17.08.2021 passed in CP(IB) No. 5 of 2018, admitted CD into CIRP. As per S.17(1)(a) and (b) of the code, powers of BoD shall be suspended and the management of the affairs of CD will be done by the IRP from the date of his appointment.
During CIRP period the Applicant was shocked to learn that R1 had filed a form with the RoC (R3) on 27.08.2021 for changing the registered office address of the CD wef 19.08.2021, certified by R2. A CoC was constituted by the Applicant and report on constitution was submitted before the NCLT dated 18.09.2021. The first meeting was held by the Applicant on 22.09.2021. It was decided that the address of the registered office will be changed to its old address.
Meanwhile, an appeal was filed before the SC by Doshion Pvt. Ltd. (the holding company of the CD) challenging the judgement and final order passed by NCLAT. The said appeal was dismissed by the SC vide order dated 12.10.2022 passed in Civil Appeal No. 6555 of 2021.After the dismissal order the applicant held the 2nd CoC meeting on 02.11.2022. Further vide an order dated 15.10.2024, the applicant stated that there is no need to file any rejoinder. Hence, both sides were directed to file brief submissions w/in 10 days.
LEGAL ISSUES
- Whether the change of address of registered office of CD during the CIRP, without approval of IRP, was in violation of S.17 of the IBC, 2016?
- Whether the acts of R1 and R2 in changing of the registered office attract penal provisions of S.68 of the IBC, 2016?
LEGAL PROVISIONS
- Section 17(1)(a) and (b) of IBC, 2016 – vests the management of the affairs of the CD in the IRP and suspends the powers of the BoD.
- Section 68 IBC, 2016 – Prescribes punishment for an officer of the CD who wilfully or fraudulently conceals, removes, or disposes of the property of the CD, subject to statutory requirements of the provision.
ARGUMENTS
APPLICANT – the Applicant in its written submission dated 20.02.2025 vide inward diary No. D-1000 alleged that R1 and R2 have wilfully change the registered office of the CD with an attempt to delay, frustrate and disrupt the CRIP and such act falls under Section 68(1)(a) r/w Section 68(2) of the code and are liable to be punished. That the clarifications given by R1 with regard to proper management of the CD are baseless u/s 17 and such ex post facto clarifications does not validate the illegal actions undertaken. The applicant alleges that S.68(1)(b) and (e) of the code also covers the fraudulent parting with or alteration of any document affecting the affairs of the CD. Further the unauthorized shifting constitutes an “alteration” of records relating to CD.
RESPONDENT – In response to the averments made by the applicant, R1 has filed an Affidavit-in-Reply on 04.09.2023 vide inward No. D-2873, submitting that the change of registered office was not intended to conceal any property of the CD and neither of the office premises is owned by the CD. R1 submitted that the earlier office did not have sufficient space for keeping the bulky documents of the CD and shift was for the smooth functioning of its operations. Further, the CD received communications from the owner of the premises where the old registered office was situated, requiring it to vacate the office due to space constraints.
The suspended directors did not conceal any facts or property of the CD. The suspended directors, suo motu, vide email dated 21.09.2021 (prior to the 1st CoC meeting) provided info and clarification to the IRP and the CoC members regarding the change of the registered office. The new office is situated w/in 3 km of the old office and the suspended directors have no objection if the office is shifted back to the old address. The applicant also fails to prove the malicious intent or any concealment by R1, as R1 himself, suo motu, informed the applicant and sought his consent for shifting the records of the CD vide email dated 21.09.2021. Hence, the penalty u/s 68 of the IBC is not violated by the suspended directors.
ANALYSIS
According to S.17 once the CIRP commences, the power to manage the affairs of the CD is vested in the IRP. The change in registered office was made during the CIRP and hence it was considered unauthorised and impermissible by the Tribunal. However, an unauthorised act does not automatically mean that the act is punishable u/s 68. There are two statutory ingredients that need to be established (i) an intent to defraud; or (ii) concealment of the state of affairs of the CD. The evidence before the Tribunal was insufficient to establish the said ingredients. The tribunal accepted the unauthorised act of the Respondents but rejected the prayer concerning punishment u/s 68.
JUDGEMENT
I.A. No. 1068 of 2022 is partly allowed to the extent that the change of registered office is held impermissible u/s 17 of the code, but the prayer for punishment u/s 68 is rejected. R3 is directed to take consequential action in accordance with law in respect of Form INC-22.
CONCLUSION
The Court reaffirmed that S.17 safeguard the IRP’s authority over the CD during CIRP. The acts undertaken by suspended management without the IRP’s authority may be held impermissible. However, an unauthorised act does not automatically justify punishment u/s 68, the statutory requirements must be established.
“PRIME LEGAL is a National Award-winning law firm with over two decades of experience across diverse legal sectors. We are dedicated to setting the standard for legal excellence in civil, criminal, and family law.”
WRITTEN BY- PRIYANSHI CHOUDHARY
