Resorting to Alternative Remedy of Appeal to NCLAT Bars Collateral Challenge via Writ Petition: HC

Case Details: Reji Sivankutty v. State Bank of India - [2023] 149 taxmann.com 39 (HC-Kerala)

Judiciary and Counsel Details

• • V.G. Arun, J.
  • Anil D. Nair, Telma Raju, Edathara Vineeta Krishnan & Aravind Sreekumar, Advs. for the Petitioner.
  • Santhosh Mathew, Nidhi Jacob, Sukumar Nainan Oommen, Sherry Samuel Oommen & Nitish Sathesh Shenoy, Advs. for the Respondent.

Facts of the Case

In the instant case, the petitioner was the director of a company named Acharya Techno Solutions (India) Private Limited, which is undergoing the corporate insolvency resolution process (CIRP) under the IBC.

The National Company Law Tribunal (NCLT), Kochi Bench, suspended the powers of the company’s Board of Directors in September 2019 order. Later, in February 2020, a liquidation process was initiated against the company and the second respondent was appointed as the liquidator.

The case involves a dispute regarding a loan repayment made by the company to the petitioner, which was deemed to be a ‘preferential transaction’ by the National Company Law Tribunal (NCLT) under the IBC. . The NCLT directed the petitioner to return the amount to the liquidator within two weeks, and the liquidator was directed to recover the amount from the suspended Managing Director/Director and submit a report.

The petitioner appealed the decision, and while the appeal was pending, the liquidator requested freezing the petitioner’s current account at the State Bank of India and transferring the balance to the liquidator’s account. The petitioner filed a writ petition challenging the liquidator’s authority to freeze their account.

The advocate of the petitioner argued that the liquidator does not have the power to freeze the account and that the proper procedure involved filing an application for execution under Rule 56 of the National Company Law Tribunal Rules, 2016. The petitioner also claimed that they were not given a chance to be heard during the entire process leading up to the freezing of their account.

On the other hand, the advocate for respondent 1 argued that the liquidator does not have the power to freeze the account and that the proper procedure was to file an application for execution under Rule 56 of the National Company Law Tribunal Rules, 2016.

Whereas, the advocate for respondent 2 raised a preliminary objection to the maintainability of the writ petition, arguing that there was an alternative remedy of appeal before the NCLAT.

It was also argued that the liquidator had enough power to take measures to protect and preserve the assets, including recovering amounts due to the corporate debtor, and that if the petitioner’s argument was accepted, the powers of the liquidator would be rendered nugatory. The petitioner was accused of failing to comply with orders and failing to bring vital facts to the notice of the NCLT.

The Supreme Court had decided in the previous case of Swiss Ribbons (P) Ltd v. Union of India and Ghanashyam Mishra and Sons that the IBC, 2016 is a complete law, and thus, the High Courts should not interfere with the resolution process.

High Court Held

The High Court held that the petitioners could not challenge an order through a writ petition once they have already used an alternative remedy. The dispute over the liquidator’s power to enforce the NCLT’s order was no longer applicable since the NCLT had frozen the petitioner’s account.

In view of the above, the writ petition has been dismissed, however, the petitioner can still seek relief from the NCLT or NCLAT.