Moratorium Bar on Post-CIRP Transfer of Corporate Debtor’s Vehicle: Registration Change Based on Pre-CIRP Agreement Held Void Under IBC
- REEDLAW
- Jan 5
- 4 min read
REEDLAW Legal News Network reports: In a significant ruling reinforcing the sanctity of the moratorium under the Insolvency and Bankruptcy Code, 2016, the Adjudicating Authority held that any transfer or facilitation of transfer of a Corporate Debtor’s asset after commencement of the Corporate Insolvency Resolution Process, including post-moratorium changes in vehicle registration based on alleged pre-CIRP agreements, is impermissible in law and void ab initio. The Tribunal further underscored that such actions by the suspended management constitute a clear breach of statutory duties during CIRP and attract penal consequences under the Code.
The National Company Law Tribunal, Allahabad Bench, comprising Mr. Praveen Gupta (Judicial Member) and Mr. Ashish Verma (Technical Member), while adjudicating an interlocutory application filed by the Resolution Professional in a pending company petition, examined the legality of a vehicle transfer effected after admission of CIRP. The Tribunal found that the registration of the vehicle had been altered during the subsistence of the moratorium on the basis of an alleged pre-CIRP agreement, which was neither stamped nor registered and had never been disclosed to the Resolution Professional. It was held that the Corporate Debtor lacked absolute ownership over the vehicle on the date of the alleged agreement due to subsisting hypothecation, and that the post-CIRP transfer amounted to unlawful alienation of assets in violation of Section 14(1)(b) of the Code.
The Adjudicating Authority had considered an application filed by the Resolution Professional seeking restoration of ownership and possession of vehicles of the Corporate Debtor, which had been transferred after commencement of the Corporate Insolvency Resolution Process. The CIRP of the Corporate Debtor had commenced upon admission of a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, and the moratorium under Section 14 had come into force with immediate effect. During the CIRP, the Resolution Professional discovered that one of the vehicles of the Corporate Debtor had been transferred in favour of a related entity after commencement of the moratorium, and that another vehicle continued to be withheld from his possession by the suspended management.
The Tribunal noted that the registration of the vehicle had been transferred only after the initiation of CIRP, which was an admitted fact. The suspended management sought to justify the transfer by relying upon an alleged agreement executed prior to the commencement of CIRP. However, the Tribunal found that the said document was neither stamped nor registered, had not been disclosed to the Resolution Professional at any earlier stage, and appeared to have been produced only to justify a post-moratorium transaction. The Tribunal further held that on the date of the alleged agreement, the vehicle remained under hypothecation with a Financial Creditor, and the Corporate Debtor did not have absolute ownership or authority to transfer the same. The settlement of the vehicle loan and release of charge had occurred only after commencement of CIRP, rendering any subsequent transfer during the moratorium impermissible and void ab initio.
The Adjudicating Authority rejected the defence that the transfer was a mere procedural consequence of the settlement of dues or was necessitated due to regulatory restrictions on the use of the vehicle. It was held that any alienation of assets after admission of CIRP could only have been undertaken by the Resolution Professional in accordance with the Code. The Tribunal further observed that no evidence of payment of the alleged sale consideration had been produced and that the conduct of the suspended management reflected concealment, diversion, and misappropriation of the assets of the Corporate Debtor. The continued withholding of another vehicle registered in the name of the Corporate Debtor was also held to be indicative of non-cooperation and obstruction of the CIRP.
In view of these findings, the Tribunal held that the post-CIRP transfer of the vehicle was in clear violation of Section 14(1)(b) of the Code and that the purported agreement relied upon by the suspended management was invalid and unenforceable. The Adjudicating Authority directed restoration of ownership of the transferred vehicle to the Corporate Debtor and ordered the suspended directors to hand over possession of both vehicles to the Resolution Professional within the stipulated time. The conduct of the suspended management was held to attract the penal consequences contemplated under Sections 68 and 74 of the Code, and the application filed by the Resolution Professional was accordingly allowed.
Mr. Shubham Agarwal, Advocate, represented the Applicant, and Mr. Paramjeet Singh Bhatia, Resolution Professional, was present in person.
Mr. Sameer Kumar and Mr. Vaibhav Pachauri, Advocates, appeared for the Respondent.
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