An insolvency tribunal has directed Axis Bank and other financial creditors of bankrupt Siti Networks to repay the company ₹143 crore. Siti Network, part of the Essel Group, is undergoing insolvency proceedings.
The tribunal’s order, issued on Tuesday, is based on a petition filed by Asset Reconstruction Company (India) Ltd, one of the creditors, which alleged that certain other creditors had unlawfully withdrawn funds from Siti while a stay on the insolvency proceedings was in effect.
After taking over the company’s operations in August 2023, resolution professional (RP) Rohit Ramesh Mehra found that Axis Bank had withdrawn funds from Siti and distributed about ₹143 crore to various other lenders, including while the stay was in effect. These lenders included IndusInd Bank, RBL Bank, Aditya Birla Finance, and IDBI Bank.
On Tuesday the Mumbai bench of the National Company Law Tribunal, led by Justices Laxmi Gurung and Charanjeet Singh Gulati, said, “All the transactions and appropriations undertaken during the stay period – i.e. between March 2023 and August 2023 – shall be reversed and the amounts shall be remitted back to the account of the corporate debtor (Siti) within four weeks from today.”
Asked why the tribunal took no action against Axis Bank for withdrawing the funds, advocate Ashish Pyasi, counsel for Asset Reconstruction Company and founder of Aendri Legal, said, “Though the withdrawal was held to be in breach of the moratorium, as there was no specific prayer for prosecution, no order to that effect has been passed by the NCLT. Also the breach of the moratorium can only be prosecuted in an appropriate court. NCLT does not have jurisdiction over that.”
How the case progressed
The insolvency proceedings against Siti began on 22 February 2023, after IndusInd Bank petitioned the NCLT over an alleged default of ₹148 crore. NCLT appointed Mehra as the RP who would oversee the day-to-day affairs of the company. Mehra invited the creditors to submit their claims before 8 March 2023.
After the NCLT admitted the company into insolvency, Shilpi Asthana, one of the suspended directors of Siti, challenged order in the National Company Law Appellate Tribunal (NCLAT) in Delhi. In an interim order on 7 March 2023, the NCLAT in effect stayed the insolvency proceedings against the company, and Siti was handed back over to the directors of the company.
However, after hearing the matter in detail, NCLAT concluded that Asthana’s appeal lacked merit and dismissed it. Asthana challenged this order in the Supreme Court but the apex court dismissed it, too.
In August 2023, after gaining control of the company, the RP filed for clarification of the insolvency commencement date. The bench clarified that it should remain 22 February 2023.
At the time, Mehra found that while the stay was in effect – March 2023 to August 2023 – there had been various financial transactions between the Siti Networks and its creditors. He said this led to significant changes in Siti’s financial position and that he had no control over the management of the company during that period. Mehra said he later found that Axis Bank had withdrawn funds from Siti and distributed it among the lenders.
As of 5 September, both the financial and operational creditors had filed claims against Siti Networks totalling ₹1,206 crore.
