Introduction

The case of Sandeep Khaitan, RP v. Piyush Periwal and Another was adjudicated by the National Company Law Tribunal (NCLT) on March 24, 2021. This case primarily revolved around the freezing of personal bank accounts belonging to Shri Piyush Periwal, the Director of the suspended management of the company involved in the Corporate Insolvency Resolution Process (CIRP). The central issues pertained to the legality of the account freezes, the obligations of the Resolution Professional (RP) under the Insolvency and Bankruptcy Code (IBC), and the protection of directors’ personal assets during insolvency proceedings.

Summary of the Judgment

The NCLT, while hearing the matter via video conferencing, addressed grievances raised by both the petitioner, Sandeep Khaitan (Resolution Professional), and the respondent, Shri Piyush Periwal. The crux of the judgment focused on the improper freezing of Shri Periwal's personal bank accounts by HDFC Bank, allegedly without adequate authorization from the RP. The Tribunal directed the banks to unblock the personal accounts, emphasizing the necessity of such accounts for individuals. Additionally, the Tribunal scrutinized the actions taken by the RP during the CIRP, including the cessation of business activities and the declaration of layoffs, ensuring compliance with IBC provisions.

Analysis

Precedents Cited

The judgment references orders from both the Hon'ble High Court of Assam and the Hon'ble Supreme Court of India. The High Court's interlocutory order addressed the freezing of the petitioner’s bank accounts following allegations in an FIR, while the Supreme Court's order pertained to interim relief in similar insolvency contexts. These precedents collectively influenced the Tribunal’s decision to prioritize the operational continuity of the company and the protection of individual directors’ financial rights during ongoing legal investigations.

Legal Reasoning

The Tribunal's legal reasoning centered on balancing the objectives of the IBC with individual rights. Recognizing the importance of keeping the company operational during CIRP, the Tribunal found the freezing of personal accounts unwarranted without clear instructions from the RP. The application of Section 240-A of the IBC was pivotal, as it exempts MSMEs from certain provisions, thereby safeguarding the operational aspects of micro, small, and medium enterprises. The Tribunal emphasized that unilateral actions like freezing accounts could undermine the CIRP's goals of revival and continuity.

Impact

This judgment underscores the judiciary's stance on protecting the operational integrity of companies undergoing insolvency while safeguarding the personal financial rights of directors. By directing banks to unblock personal accounts without undue delay, the Tribunal sets a precedent that can influence future insolvency proceedings, ensuring that directors are not unduly penalized during investigations. Moreover, the emphasis on Section 240-A fortifies the application of IBC provisions tailored for MSMEs, promoting a more nuanced approach in insolvency resolutions.

Complex Concepts Simplified

Conclusion

The judgment in Sandeep Khaitan v. Piyush Periwal offers significant insights into the interplay between insolvency proceedings and the personal financial rights of company directors. By mandating the unfreezing of personal accounts without arbitrary restrictions, the Tribunal reinforced the importance of due process and the protection of individual rights within the broader framework of the IBC. Additionally, the emphasis on adhering to Section 240-A highlights the necessity of tailored insolvency processes for MSMEs, ensuring that the IBC's objectives of corporate revival are not compromised by procedural oversights or unilateral actions. This verdict serves as a guiding precedent for future cases, promoting a balanced and equitable approach in insolvency resolutions.