The Background
A company called Supreme Transport Organization Pvt. Ltd. (the Corporate Debtor) owed
money to Axis Bank and defaulted. So Axis Bank went to court (NCLT) and got the company put
into insolvency proceedings (CIRP) in September 2023.
Once CIRP starts, a moratorium kicks in — this is like a legal freeze. The company's own directors lose control, and a court-appointed Resolution Professional (RP) takes over managing
everything, including the bank accounts and assets.
What Went Wrong
Even after the freeze was imposed, the old director (Mr. Ammeet Kumar Agarwal) kept
operating the company bank account and even sold a property in Panvel — despite the
appellate tribunal specifically refusing him permission to sell any property. Money — about Rs.
8.05 crores — was withdrawn/moved from the company's bank account during this frozen
period.
What the RP Did
The RP filed an application asking the court to:
1. Investigate the fraud angle (under Section 66 – fraudulent/wrongful trading)
2. Recommend prosecution (under Section 74 – penalty for violating the moratorium)
3. Use the court general powers (Section 60(5)) to get the money restored to the
company
What the Lower Court (NCLT) Ruled
The NCLT looked at everything but said: "I don't need to decide whether this was fraud under Section 66. Instead, it simply said: You broke the moratorium rule by moving company funds
after the freeze — so put the Rs. 8.05 crores back. It also forwarded the case to IBBI/Ministry
of Corporate Affairs for possible action under Section 74.
The Appeal — Director's Argument
The director appealed, arguing: You (RP) accused me under Section 66 (fraud). If you couldn't
prove fraud, you can't just switch tracks and make me pay under some other provision. That's
unfair and beyond your jurisdiction.
What the Appellate Tribunal (NCLAT) Decided
The Tribunal rejected this argument and dismissed the appeal, reasoning:
1. The application was filed under multiple sections (66, 74, AND 60(5)) — not just
Section 66. So relief didn't have to depend on proving fraud.
2. Section 66 (fraud) and Section 14 (moratorium violation) are different things. You
don't need to prove fraud to say you illegally moved company money during the freeze
— give it back. Protecting company assets during insolvency is a separate, independent
power the court has.
3. The order to repay Rs. 8.05 crores was about restoring assets, not punishing for fraud.
So it didn't need a Section 66 finding to be valid.
4. The director never disputed the actual sale or the amount — his objection was purely
you didn't have the power to order this, not the calculation is wrong.
5. Section 74 became a non-issue anyway — because Parliament removed/deleted
Section 74 from the law entirely (via a 2026 amendment). So that part of the order was
moot regardless.
Key Takeaway
A moratorium breach is a self-standing wrong — it doesn't need a fraud finding to be
actionable.
RPs: Plead moratorium violations under Sections 14/60(5) explicitly, so relief isn't
hostage to proving fraud under the tougher Section 66 standard.
Suspended management: Operating accounts or selling assets post-CIRP invites
restoration orders regardless of intent, unless backed by contemporaneous proof.
Drafting: Clear, provision-specific prayers protect relief from being tied to an unproven
allegation cited elsewhere in the same application.
Note: Section 74 is no longer part of the Code (omitted, 2026 Amendment) —
references to it in past or pending orders are now infructuous.