The National Company Law Appellate Tribunal (NCLAT) has overturned a decision by the National Company Law Tribunal (NCLT) in a recent judgment, stating that Punjab National Bank (PNB) must refund ₹4.50 crore to the liquidation estate of Vegan Colloids Ltd. This decision reinforces the importance of the Insolvency and Bankruptcy Code (IBC) in ensuring a fair and transparent distribution of assets during liquidation.
The case began when Bank of India filed a petition against Vegan Colloids Ltd. under the IBC, leading to a Corporate Insolvency Resolution Process (CIRP) which was later converted to liquidation. PNB filed a claim for ₹18.17 crore and relinquished its security interest over the company’s assets. However, during the liquidation process, discrepancies were found in the company’s financial reports, which revealed that PNB had recovered ₹4.50 crore from the company’s assets and paid it back without going through the official liquidation process.
The liquidator sought a refund from PNB, claiming that the amount belonged to the liquidation estate and that PNB had violated the IBC by bypassing the official process. NCLT initially dismissed the application, but NCLAT overturned this decision, finding that PNB had failed to provide evidence that the funds came from guarantor payments and had illegally taken the money from the company’s assets. The tribunal also ruled that the bank’s actions disrupted the liquidation estate and violated the IBC’s provisions on asset distribution.
NCLAT emphasized that all assets, including receivables, are part of the liquidation estate and that creditors must adhere to the IBC’s waterfall mechanism during liquidation. The ruling also highlighted the importance of the liquidator’s role in safeguarding assets for fair creditor payouts.
The judgment is seen as a precedent against unilateral creditor recoveries that undermine the insolvency process and is expected to set a benchmark for creditor accountability in liquidation proceedings. This decision reinforces the sanctity of the IBC framework, ensuring that corporate debtor assets are distributed transparently and fairly. It is a victory for insolvency professionals and underscores the importance of the IBC in ensuring equitable distribution of assets during liquidation.