Principal Bench of NCLAT rules that bank balance vests in bankruptcy trustee by operation of law, dismisses unauthorized withdrawals by bankrupt, and clarifies limited protection for personal jewellery under IBC and related rules.
In a significant ruling delivered on October 7, 2026, the Principal Bench of the National Company Law Appellate Tribunal (NCLAT), New Delhi, dismissed appeals filed by Ms. Manju Sirohi, a personal guarantor in the bankruptcy proceedings of M/s Saha Infratech Private Limited. The appeals challenged orders passed by the National Company Law Tribunal (NCLT) directing Ms. Sirohi to refund Rs. 19,17,500 withdrawn from her bank account post commencement of bankruptcy proceedings and refusing to recall an ex-parte order against her.
The case arose after Ms. Sirohi was declared bankrupt under Section 126 of the Insolvency and Bankruptcy Code, 2016 ("IBC") on May 21, 2025. Subsequently, Mr. Anup Kumar was appointed as the Bankruptcy Trustee. Ms. Sirohi's bank statement showed a credit balance of over Rs. 19 lakh as on the commencement date, comprising Rs. 13.25 lakh from the sale of her personal jewellery and Rs. 5.66 lakh transferred from her mother-in-law's account. Despite repeated intimation about the vesting of her estate in the trustee, Ms. Sirohi withdrew the entire amount between June and July 2025.
The Bankruptcy Trustee filed an application seeking directions for refund of the unauthorized withdrawals. The NCLT passed an ex-parte order directing Ms. Sirohi to repay the amount, which she later challenged before the NCLAT both on merits and by seeking recall of the ex-parte order. She argued that the sale proceeds of her personal jewellery were excluded assets under Section 79(14)(c) read with Rule 5(a) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors) Rules, 2019, which protects unencumbered personal ornaments up to Rs. 1 lakh.
The NCLAT, comprising Justice Mohammad Faiz Alam Khan and Technical Member Naresh Salecha, rejected Ms. Sirohi's appeals. The tribunal held that under Sections 154 and 155 of the IBC, the entire estate of the bankrupt, including money lying in bank accounts as of the commencement date, vests immediately in the Bankruptcy Trustee by operation of law without any conveyance or transfer. Therefore, the withdrawals made post-commencement were unauthorized dealings with property not belonging to the bankrupt.
The tribunal emphasized that the appellant's plea of ignorance of the moratorium or vesting was not a valid defense. The trustee had delivered intimation well before the withdrawals, and the bankrupt was represented at creditors' meetings. The NCLAT clarified that Section 128(1)(c) restrains creditors from acting against the bankrupt's property but does not regulate the bankrupt's conduct.
Regarding the jewellery sale proceeds, the NCLAT reiterated that the protection under Section 79(14)(c) and Rule 5(a) extends only to unencumbered personal ornaments up to a value of Rs. 1 lakh, which cannot be parted with according to religious usage. The sale proceeds, being money and exceeding the prescribed limit by more than thirteen times, do not retain the status of excluded assets and thus form part of the bankruptcy estate.
The tribunal further noted that the appellant failed to show any prejudice in dismissal of her recall application for the ex-parte order, particularly since she had multiple opportunities and there was no record supporting her claim of connectivity issues during the hearing.
In conclusion, the NCLAT upheld the trustee's right over the funds, dismissed the appeals, and refused the recall application. The ruling affirms the strict operation of the insolvency framework regarding vesting of assets and limits the scope of excluded assets under personal guarantor bankruptcy proceedings.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - In bankruptcy of personal guarantor, amount lying in bank account on commencement date vests in Bankruptcy Trustee by operation of law - Subsequent withdrawals by bankrupt are unauthorised - Sale proceeds of jewellery are not excluded assets, except to limited extent of unencumbered personal ornaments protected under Section 79(14)(c) read with Rule 5(a) of 2019 Rules up to Rs. 1,00,000/- - Recall of ex-parte order rightly refused where sufficient opportunity was granted and no prejudice shown.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 61, 79(14), 95(1), 123, 126, 128(1)(c), 154, 155, 178; Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors) Rules, 2019 Rule 5(a); National Company Law Tribunal Rules, 2016 Rule 11
