NCLAT Asks Axis Bank, Other Lenders To Reverse Fund Appropraitions During Stay Period In Siti Networks CIRP

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has directed multiple financial creditors, including Axis Bank, Aditya Birla Finance Ltd., IDBI Bank Ltd., IndusInd Bank Ltd., and RBL Bank Ltd., to reverse funds appropriated from the accounts of Siti Networks Ltd. during an interim stay in its Corporate Insolvency Resolution Process (CIRP). The order comes amidst complex disputes surrounding the handling of funds by creditors in cases of CIRP under India’s Insolvency and Bankruptcy Code (IBC).

The financial creditors had filed appeals against an order by the National Company Law Tribunal (NCLT), Mumbai, which set the Insolvency Commencement Date (ICD) for Siti Networks as February 22, 2023. The creditors disputed directives from the NCLT regarding the handling of funds during the CIRP.

Background of the Dispute

The CIRP for Siti Networks Ltd. was initiated in early 2023 after an application under Section 7 of the IBC. However, a stay on the CIRP was granted by the NCLAT on March 7, 2023, following an appeal by Ms. Shilpi Asthana, a member of Siti Networks’ suspended board of directors. During this stay period, Axis Bank and other lenders appropriated funds from the corporate debtor’s accounts, leading to conflicts with other creditors, including Asset Reconstruction Company (India) Ltd. (ARCIL), over the legality of these transactions.

What did NCLAT Say

After reviewing the appeals, the NCLAT has upheld February 22, 2023, as the official ICD for Siti Networks Ltd., rejecting proposals to reset this date. The tribunal has ordered that:

• All transactions and appropriations conducted by financial creditors from Siti Networks’ accounts during the stay period, between March 7 and August 10, 2023, are to be reversed.
• The appropriated amounts must be returned to Siti Networks' account within four weeks from the date of the judgment.

The NCLAT emphasized that moratorium provisions under Section 14 of the IBC remain effective from the original ICD, rendering any fund appropriations by creditors during the stay period a violation of the moratorium.

To ensure the interests of all parties are safeguarded, the tribunal has instructed Axis Bank and other lenders to retain the reversed funds in separate interest-bearing accounts until the appeals reach a final resolution. "Appellants who are lenders cannot be allowed to retain the said amount and direction to reverse the amount is in accordance with law," the bench, chaired by Justice Ashok Bhushan, noted.

The case is set for a final hearing on December 3, 2024.