High Courts cannot exercise Section 482 powers to undermine statutory dictate under Sections 14, 17 of IBC: Supreme Court [READ JUDGMENT]

The inherent power of High Court under Section 482 of the Code of Criminal Procedure should not be used to undermine statutory dictate under Sections 14 and 17 of the Insolvency and Bankruptcy Code (IBC), the Supreme Court ruled on Thursday (Sandeep Khaitan, Resolution Professional v. JSVM Plywood Industries)..It cannot pass interim orders which overlook the salutary limits on its power under Section 482, a Bench of Justices UU Lalit and KM Joseph held.“The power under Section 482 may not be available to the Court to countenance the breach of a statuary provision. The words ‘to secure the ends of justice’ in Section 482 cannot mean to overlook the undermining of a statutory dictate, which in this case is the provisions of Section 14, and Section 17 of the IBC,” the Court said..The Court further held that the impact of the moratorium under IBC includes prohibition of transferring, encumbering, alienating or disposing of by the Corporate Debtor of any of its asset. From the date of admission of insolvency application and the appointment of Interim Resolution Professional (IRP), the management of the affairs of the Corporate Debtor is to vest in the IRP. With such appointment, the powers of the Board of Directors or the partners of the Corporate Debtor will stand suspended, the Court ruled. Section 17 further declares that the powers of the Board of Directors or partners are to be exercised by the IRP and financial institutions are to act on the instructions of the IRP, the Court underscored..The Court was hearing an appeal filed by an IRP (appellant) against a judgment of the Gauhati High Court which had allowed the respondent (JSVM Plywood), who claimed to be an operation creditor, to allow it to operate its bank account maintained with the ICICI Bank Bhubaneswar and to unfreeze the bank account of its creditors over which the lien has been created and the accounts frozen pursuant to the lodging of an FIR by the appellant.An application under Section 7 of the the IBC was admitted on August 26, 2019 against one National Plywood Industries Limited (NPIL). The appellant was appointed as the IRP and a moratorium also came to be passed under Section 14 of the IBC..Meanwhile, the respondent claiming to be an operational creditor lay the claim for the amounts due to it from the Corporate Debtor before the appellant.It was the case of the appellant that the former Managing Director of the Corporate Debtor in conspiracy with the respondent engaged in an illegal transaction to the tune of Rs. 32.50 lakh without authority from the appellant and in violation of Section 14 of the IBC..The appellant filed a cyber complaint and an FIR was lodged against the respondent. This was followed by filing an application under Section 19 read with Section 23 (2) of the IBC alleging non corporation by the previous management of the Corporate Debtor.Consequently, the ICICI Bank created a lien upon the bank account of the respondent based on the allegedly illegal transaction.The respondent challenged the FIR by way of a criminal petition under Section 482 of CrPC. An application was also filed to allow the respondent and its creditors to operate their bank account over which lien had been created and those accounts which had been frozen based on the FIR..The High Court on February 4, 2021 allowed this application leading to the present appeal by the IRP.The Supreme Court noted that the provisions of the IBC contemplate resolution of the insolvency if possible, in the first instance and should it not be possible, the winding up of the Corporate Debtor. The role of the IRP, the Court said, is neatly carved out.From the date of admission of application and the appointment of IRP, the management of the affairs of the Corporate Debtor is to vest in the IRP, it observed. Consequently, the Board of Directors or Partners of Corporate Debtor would stand suspended and would be exercised by IRP..The Court, therefore, concluded that the exercise of powers under Section 482 CrPC was in violation of the limits on its power under Section 482.“Having regard to the orders passed by the NCLT admitting the application, under Section 7, and also the ordering of moratorium under Section 14 of the IBC and the orders which have been passed by the tribunal otherwise, the impugned order of the High Court resulting in the Respondent No. 1 being allowed to operate the account without making good the amount of Rs 32.50 lakh to be placed in the account of the Corporate Debtor cannot be sustained,” the Court ruled..Hence, the Court proceeded to modify the order passed by the High Court and allowed the respondent to operate its account subject to it first remitting into the account of the Corporate Debtor, the amount of Rs 32.50 lakh which stood paid to it by the management of the Corporate Debtor.The assets of the Corporate Debtor shall be managed strictly in terms of the provisions of the IBC, the Court added..Advocate Anand Varma appeared for the IRP-appellant while advocate Harish Pandey represented the respondent. .[Read Judgment]