NCLT Bengaluru Directs Deposit of Seized Corporate Funds into Liquidation Estate

Welworth Software Pvt. Ltd.'s Liquidation Process Takes Critical Step with Tribunal's Order on Seized Assets

In a significant decision, the National Company Law Tribunal (NCLT) Bengaluru Bench has directed the deposit of Rs. 47,98,000, previously seized by the Central Bureau of Investigation (CBI), into the liquidation estate of Welworth Software Pvt. Ltd. This ruling marks a pivotal development in the ongoing liquidation proceedings of the company under the Insolvency and Bankruptcy Code, 2016 (IBC).

The judgment, delivered by Shri Sunil Kumar Aggarwal, Member (Judicial), and Shri Radhakrishna Sreepada, Member (Technical), stems from an application filed by Mr. Narayana Kamma, the appointed Liquidator of Welworth Software Pvt. Ltd. The application sought directions for the Respondent, Sri Akshaya Kumar Karunam, to deposit the amount into the liquidation account of the Corporate Debtor, Welworth Software Pvt. Ltd.

The background of the case involves the seizure of the said amount by the CBI during a raid at the corporate debtor's premises in October 2020. Following legal proceedings, the High Court of Karnataka had previously ordered the release of the seized amount to the corporate debtor, subject to the execution of an indemnity bond and provision of surety by the Respondent. The Respondent, acting as custodian, had complied with these conditions.

The Tribunal's order underscores the liquidator's duty to take control of all assets belonging to the corporate debtor, including those seized by investigating agencies, for equitable distribution among creditors under the IBC framework. The judgment clarifies that seizure by an investigating agency does not alter the ownership or character of the asset, which remains part of the liquidation estate.

The NCLT bench emphasized the importance of comity between jurisdictions, allowing the liquidator and the Respondent to approach the Karnataka High Court for discharge of the indemnity bond and release of surety, thereby preventing double liability for the Respondent. This coordinated approach ensures respect for the criminal court's jurisdiction while integrating the asset into the insolvency framework.

The decision aligns with precedents set by the Supreme Court and NCLAT, reinforcing the principle that assets seized or attached by third parties must be brought under the control of the liquidator for distribution in accordance with the IBC's provisions.

As the liquidation process progresses, this ruling represents a crucial step in consolidating the corporate debtor's assets, paving the way for their equitable distribution among stakeholders.

Bottom Line:

Insolvency and Bankruptcy Code - Liquidation estate includes all assets belonging to the corporate debtor irrespective of their physical custody, subject to Section 36(4) exclusions.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 33, 35, 36, 53, 60(5); Criminal Procedure Code, 1973 Sections 451, 457, 482

Welworth Software Private Limited v. Sri Akshaya Kumar Karunam, (NCLT)(Bengaluru Bench) : Law Finder Doc Id # 2814799