NCLT Orders Director to Deposit ₹48 Lakhs Seized by CBI into Company's Liquidation Account

Bengaluru: The National Company Law Tribunal (NCLT), Bengaluru Bench, has ruled that assets belonging to a company undergoing liquidation must be handed over to the liquidator, even if they are held by a third party under an indemnity bond issued by a criminal court. The bench, comprising Shri Sunil Kumar Aggarwal (Judicial Member) and Shri Radhakrishna Sreepada (Technical Member), directed an erstwhile representative of M/s. Welworth Software Pvt. Ltd. to deposit nearly ₹48 lakhs, previously seized by the CBI, into the company's liquidation account.

The Tribunal adopted a "coordinated approach," also directing the liquidator and the representative to jointly approach the criminal court to secure a discharge of the indemnity bond, thereby protecting the representative from double liability.

Background of the Case

The case revolves around a sum of ₹47,98,000/- seized by the Central Bureau of Investigation (CBI) from the premises of Welworth Software Pvt. Ltd. on October 5, 2020, during a search related to a criminal case against Mr. D.K. Shivakumar.

Mr. Putta Kempanna, representing the company at the time, successfully petitioned the High Court of Karnataka for the release of this amount. By an order dated March 4, 2021, the High Court directed the CBI to return the money to the company. However, this release was conditional upon Mr. Kempanna executing an indemnity bond and providing property deeds as surety for the equivalent amount to the trial court.

Subsequently, Welworth Software was admitted into the Corporate Insolvency Resolution Process (CIRP) on February 1, 2022, and later ordered into liquidation on November 30, 2022. The appointed liquidator discovered through a transaction audit that the ₹47.98 lakhs released to Mr. Kempanna had not been deposited into the company's accounts. The liquidator's application sought a direction for Mr. Kempanna to deposit these funds into the liquidation estate.

Arguments of the Parties

• The Liquidator argued that under the Insolvency and Bankruptcy Code (IBC), 2016, all assets belonging to the corporate debtor form part of the liquidation estate. The liquidator is duty-bound under Section 35 of the IBC to take custody and control of all such assets for equitable distribution among creditors. The fact that the money was held under a criminal court's order did not change its character as a company asset.

• Mr. Putta Kempanna (The Respondent) did not dispute that the money belonged to the company. He expressed his willingness to deposit the amount but raised a crucial concern: he would remain liable to the criminal court under the indemnity bond he had executed. He requested that he be discharged from this bond and his property documents be released before he transfers the funds, to avoid facing double liability.

Tribunal's Analysis and Legal Reasoning

The NCLT sided with the liquidator, emphasizing the overriding nature of the IBC. The Tribunal's reasoning was grounded in several key principles:

• Scope of Liquidation Estate: Citing Section 36 of the IBC, the bench affirmed that the liquidation estate comprises all assets owned by the corporate debtor, irrespective of who has physical possession. The seized cash, judicially recognized by the High Court as belonging to the company, unequivocally falls within this estate.

• Nature of Criminal Court Orders: The Tribunal clarified that an order for interim custody of seized property under the Code of Criminal Procedure (Cr.P.C.) is a temporary measure to preserve the asset. It does not confer any ownership rights on the custodian. The indemnity bond is merely a "risk-mitigation measure" for the criminal court and cannot obstruct the statutory process under the IBC.

• Binding Precedents: The NCLT relied on the Supreme Court's judgment in Sunderbhai Ambalal Desai v. State of Gujarat , which established that interim custody does not alter the property's title. It also cited the NCLAT's decision in National Spot Exchange Ltd. v. Namdhari Food International Pvt. Ltd. , which held that assets under seizure or attachment by investigative agencies are not excluded from the liquidation estate.

In a pivotal observation, the Tribunal highlighted the need for judicial comity: > "At the same time, comity of courts requires that directions issued by the Adjudicating Authority under the IBC should, where necessary, be accompanied by a requirement to approach the criminal court for variation/discharge of any subsisting indemnity bonds or sureties, so that the custodian is not left exposed to double liability."

The Final Verdict

The NCLT allowed the liquidator's application with a two-fold direction:

• Deposit of Funds: Mr. Putta Kempanna was directed to deposit the entire amount of ₹47,98,000/-, along with any accrued interest, into the liquidation account of Welworth Software Pvt. Ltd.

• Discharge of Indemnity Bond: The liquidator and Mr. Kempanna were ordered to jointly approach the High Court of Karnataka or the concerned Special Court within 15 days. This application will seek an order to discharge the indemnity bond and release the property documents furnished as surety, acknowledging that the funds are now under the control of the liquidator as part of the statutory IBC process.

This balanced decision ensures that the objectives of the IBC are met by consolidating the company's assets for creditors, while also providing a fair and practical remedy to protect the respondent from any adverse consequences arising from the criminal court's earlier orders.