IBC Moratorium | Criminal Court Cannot Direct Disbursal Of Corporate Debtor's Assets To Complainant Pending CIRP: Supreme Court

"But for that, the criminal proceedings cannot be said to be initiated to obtain recovery of the amounts alleged to have been defrauded by the accused." Supreme Court, in a ruling dated 31 July 2026, held that once a moratorium is imposed under Section 14 of the Insolvency and Bankruptcy Code (IBC), a criminal court cannot direct the disbursal of funds belonging to a Corporate Debtor to a complainant, even if those funds were deposited in court as a condition for anticipatory bail.

A bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran observed that the assets of the Corporate Debtor must be preserved for the Corporate Insolvency Resolution Process (CIRP) and cannot be diverted to satisfy private claims of recovery through criminal proceedings.

The matter arose from an application filed by an Interim Resolution Professional (IRP) seeking the release of funds deposited by the petitioner, M/s Vimla Fuels and Metals Limited, in connection with an anticipatory bail order. The petitioner had been directed by the Supreme Court to deposit Rs. 7.50 crore to demonstrate bona fides in a cheating case, out of which Rs. 5.05 crore was sourced directly from the bank account of the company. Following the admission of the company into insolvency proceedings by the NCLT, the IRP sought the return of these funds to the company's accounts to maintain the integrity of the CIRP, citing the moratorium under Section 14 of the Code.

The primary question before the court was whether the statutory moratorium under the IBC precludes the disbursal of funds deposited by an accused in a criminal court, when such funds are identified as assets of a company undergoing insolvency. The court was also called upon to reconcile the competing interests of a complainant seeking recovery in criminal proceedings and the collective interest of creditors in an insolvency process.

Moratorium Supersedes Individual Claims

The court underscored that the imposition of a moratorium under the IBC is an absolute bar on the transfer, encumbrance, or disposal of the Corporate Debtor's assets. Because the funds in question were undisputedly transferred from the account of the Corporate Debtor, they constitute the assets of the company. Consequently, the complainant in the FIR has no legal basis to claim these funds while the CIRP is underway.

Criminal Proceedings Are Not Recovery Mechanisms

The bench clarified the distinction between deposits made to ensure the bonafide of an accused and the underlying criminal liability. The court held that the deposit was a condition imposed solely to facilitate anticipatory bail and not a mechanism to enforce civil recovery of alleged debts. The court noted, "We only notice that a deposit was directed in a criminal proceeding on the undertaking of the accused, to enable anticipatory bail, that some amounts would be deposited to show her bona fides. But for that, the criminal proceedings cannot be said to be initiated to obtain recovery."

"The respondent who is a complainant in the FIR cannot claim disbursal of the entire amount, since Rs. 5,05,00,000/- along with interest accrued thereon would be the CD’s assets, which has to be disbursed to the IRP."

Registry Directed to Release Funds to IRP

In light of these observations, the court directed the Registry to disburse the sum of Rs. 5.05 crore, along with all accrued interest, to the IRP upon a proper application. The court clarified that the remaining balance of the deposited amount, if any, could be considered for the complainant subject to the complainant furnishing a bank guarantee of an equivalent amount.

No Interference With Anticipatory Bail

The court took pains to clarify that its order regarding the financial assets of the company did not in any manner prejudice the anticipatory bail granted to the petitioner. However, the bench added a stern caveat regarding the conditions of the bail. The court stated that if the petitioner is found to be non-cooperative with the investigation, the Investigating Officer remains at liberty to move the jurisdictional court for the cancellation of bail or to seek custodial interrogation.

The Supreme Court’s order reinforces the primacy of the IBC’s moratorium provisions over the collateral directions of criminal courts in matters involving the assets of a company. By prioritizing the preservation of the Corporate Debtor’s estate, the ruling ensures that the CIRP can proceed without the depletion of assets, while concurrently holding that criminal proceedings should not be utilized as a substitute for civil recovery suits.

Date of Decision: 31 July 2026