The National Company Law Appellate Tribunal (NCLAT) dismissed appeals by a personal guarantor challenging orders directing return of post-bankruptcy withdrawals, affirming that the bankrupt's estate vests in the trustee immediately upon appointment under Section 154 of the Insolvency and Bankruptcy Code, 2016 (IBC), rendering such withdrawals unauthorized regardless of claims regarding excluded assets or hardship.
Background & Facts
The Dispute
The appellant, Ms. Manju Sirohi, is a personal guarantor of M/s Saha Infratech Private Limited (corporate debtor). Assets Care & Reconstruction Enterprise Ltd. (ACRE) is a financial creditor of the corporate debtor. The insolvency process against the corporate debtor initiated proceedings against the appellant as a personal guarantor under Section 61 of the IBC.
Key Facts
- The appellant was declared bankrupt under Section 126 of the IBC on 21.05.2025
- Mr. Anup Kumar was appointed as Bankruptcy Trustee under Section 125 of the IBC on 21.05.2025
- Between 16.06.2025 and 24.07.2025, the appellant withdrew a total of Rs. 19,17,500/- from her Union Bank of India savings account (No. 398502010053816)
- The withdrawals comprised: 16.06.2025 (Self - Rs. 9,95,000/-); 21.06.2025 (Self - Rs. 9,00,000/-); 06.07.2025 (ATM - Rs. 10,000/-); 23.07.2025 (ATM - Rs. 10,000/-, Rs. 1,500/-, Rs. 500/-, Rs. 500/-); 24.07.2025 (ATM - Rs. 1,000/-)
- The appellant contended the withdrawn amount consisted of: (a) Rs. 13,25,248.00 from sale of personal jewellery on 24.03.2025; and (b) Rs. 5,66,966.00 transferred from her mother-in-law's account on 11.03.2025
- The appellant's Union Bank of India statement showed a credit balance of Rs. 19,07,366.46 on 21.05.2025 (date of bankruptcy)
- Total withdrawals (Rs. 19,17,500/-) exceeded the account balance on 21.05.2025 by Rs. 10,135.54, indicating additional funds were deposited post-bankruptcy
Procedural History
- 10.04.2023: Adjudicating Authority (National Company Law Tribunal, New Delhi) appointed Mr. Anup Kumar as Resolution Professional in CP(IB)-80/ND/2023
- 21.02.2025: Adjudicating Authority initiated ex-parte proceedings against the appellant under IA-5276/2024 due to non-appearance
- 03.03.2025 and 16.03.2025: Appellant sold personal jewellery to sustain herself in Delhi NCR
- 11.03.2025: Appellant received funds transferred from mother-in-law's bank account pursuant to its closure
- 14.05.2025: Adjudicating Authority reserved orders in IA-5276/2024
- 21.05.2025: Adjudicating Authority declared appellant bankrupt under Section 126 of IBC and appointed Respondent No. 2 as Bankruptcy Trustee under Section 125 of IBC
- 11.09.2025: Bankruptcy Trustee filed IA-4604/ND/2025 seeking return of Rs. 19,17,500/- as unauthorized withdrawal
- 08.12.2025: Appellant appeared but subsequently failed to appear despite notice, leading to ex-parte proceedings
- 03.08.2026: Adjudicating Authority passed ex-parte order directing appellant to pay back Rs. 19,17,500/- to Respondent No. 2
- 20.08.2026: Adjudicating Authority dismissed recall application (RA-73/ND/2026) seeking recall of the 03.08.2026 order
- 07.10.2026: Date of the present judgment
Relief Sought
The appellant sought to set aside the impugned orders dated 03.08.2026 and 20.08.2026, and to allow both appeals (Comp. App. (AT) (Ins) No. 1772 of 2026 and Comp. App. (AT) (Ins) No. 1773 of 2026).
The Legal Issue
The central question was whether withdrawals made by a bankrupt from her personal bank account after the date of bankruptcy declaration could be justified as withdrawals of excluded assets under Sections 79(14) and 155(2) of the IBC, thereby negating the characterization of such withdrawals as unauthorized under Section 154 of the IBC.
Arguments Presented
For the Appellant
The appellant contended that:
- Her personal jewellery constituted an excluded asset under Section 155(2)(a) read with Section 79(14) of the IBC
- The proceeds from sale of jewellery (Rs. 13,25,248.00) and funds transferred from mother-in-law's account (Rs. 5,66,966.00) were excluded assets
- She was unaware of the moratorium at the time of withdrawals, which should excuse the transactions
- Her counsel's inability to appear due to unstable internet connection on 03.08.2026 prejudiced her recall application
- The withdrawn amounts represented her last resort to sustain herself as a senior citizen with no income source
For the Respondent
Respondent No. 2 (Bankruptcy Trustee) contended that:
- Under Section 154 of the IBC, the estate of the bankrupt vests in the trustee immediately from the date of appointment without any conveyance, assignment or transfer
- Any amount lying in the bankrupt's account forms part of the bankruptcy estate under Section 155 of the IBC and is distributable to creditors under Section 178
- The withdrawal was made after due intimation by the trustee vide letter dated 30.05.2025
- The Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors) Rules, 2019 limit the value of unencumbered personal ornaments under Section 79(14) to Rs. 1,00,000/- (Rule 5(a))
- The jewellery sale proceeds (Rs. 13,25,248.00) exceeded the permissible limit by over thirteen times, negating exclusion claims
- Hardship cannot enlarge the closed list of excluded assets under Section 79(14)
- The appellant failed to avail opportunities granted by the adjudicating authority and cannot raise pleas at this stage
The Court's Analysis
The tribunal began by noting that material facts were not in dispute, with the appellant not denying any withdrawals. The core dispute was purely legal.
On the vesting principle, the tribunal held: "We need to appreciate that the estate, comprising all property belonging to the bankrupt at the commencement date, vests in the Trustee by operation of law, without any conveyance, assignment or transfer. Thus, it is clear that money at credit in a bank account is property and from 21.05.2025, the balance was the Trustee's to hold, and every withdrawal by the Appellant was a dealing with property that was not hers to deal with." This directly interpreted Section 154 IBC as effecting immediate vesting.
Regarding excluded assets, the tribunal rejected the appellant's claim that jewellery sale proceeds constituted excluded assets. It clarified: "Section 155(2)(a) excludes only 'excluded assets' as defined in section 79(14) of the code. The Clause (c) protects only unencumbered personal ornaments which cannot be parted with, in accordance with religious usage, of a value not exceeding Rs. 1,00,000/- (Rule 5(a) of the 2019 Bankruptcy Rules). We are not in position to accept the pleadings of the appellant because the proceeds are more than thirteen times the cap prescribed in the regulations. Further the exclusion attaches to described assets, not to money." The tribunal emphasized that Section 79(14) is a closed list and hardship cannot enlarge it.
On the appellant's unawareness defence, the tribunal stated: "We are of clear opinion that the plea of unawareness is no defence to vesting, which does not depend on the bankrupt's knowledge, and is in any case unproved." It noted the trustee's intimation was delivered on 05.06.2025 (eleven days before first withdrawal), the appellant participated in the creditors' meeting on 01.07.2025, and wrote to the trustee about her accounts on 22.07.2025.
The tribunal further observed that Section 128(1)(c) IBC restrains creditors from acting against the bankrupt's property but does not regulate the bankrupt, reinforcing that vesting operates independently of the bankrupt's knowledge or consent.
Finally, the tribunal found no merit in the recall application defence, noting no prejudice was shown and the appellant's version did not establish denial of hearing.
The Verdict
The appeals filed by the appellant (Manju Sirohi) were dismissed in their entirety. The tribunal found no merit in either Comp. App. (AT) (Ins) No. 1772 of 2026 or Comp. App. (AT) (Ins) No. 1773 of 2026. No order as to costs was passed, and any interim applications (IA) were deemed closed. The impugned orders dated 03.08.2026 (directing return of Rs. 19,17,500/-) and 20.08.2026 (dismissing recall application) were affirmed.
What This Means For Similar Cases
Vesting Is Automatic and Immediate
Practitioners must advise clients that upon appointment of a bankruptcy trustee under Section 125 IBC, the bankrupt's estate vests in the trustee forthwith under Section 154 IBC. This vesting occurs by operation of law and requires no further action, conveyance, or trustee intervention. Any transaction involving the bankrupt's property after the appointment date - including bank withdrawals - is deemed an unauthorized dealing with trustee-held property, regardless of the bankrupt's knowledge or intent.
Excluded Asset Claims Face Strict Limits
Claims that withdrawn funds constitute excluded assets under Sections 79(14) and 155(2) IBC will fail if:
- The asset does not fall within the closed list in Section 79(14) (money in bank accounts is explicitly excluded from this list)
- The value of purportedly excluded personal ornaments exceeds Rs. 1,00,000/- (the limit prescribed under Rule 5(a) of the 2019 Bankruptcy Rules for unencumbered ornaments)
- The exclusion is claimed for proceeds or traceable products (e.g., cash from jewellery sale) rather than the described asset itself
Hardship and Unawareness Are Irrelevant Defences
Arguments based on the bankrupt's financial hardship, lack of awareness of bankruptcy proceedings, or inability to secure legal representation due to technical issues (e.g., poor internet connectivity) cannot defeat a trustee's claim for return of unauthorized withdrawals. The vesting principle under Section 154 IBC is objective and does not depend on the bankrupt's subjective state or circumstances. Trustees should promptly intimate bankrupts of their duties, but failure to receive such intimation does not invalidate vesting.
Practical Steps for Trustees and Bankrupts
Trustees should:
- Immediately freeze bank accounts upon appointment using Section 155 IBC powers
- Issue clear intimation letters detailing the bankrupt's obligations (as done here on 30.05.2025)
- File applications under relevant IBC sections (e.g., Section 186 read with IBBI Regulations) for return of unauthorized withdrawals
Bankrupts and guarantors must:
- Cease all transactions involving personal assets immediately upon bankruptcy declaration
- Treat all post-appointment bank balances as trustee property, not personal funds
- Seek clarification from the trustee before undertaking any financial transaction
The judgment underscores that IBC's vesting mechanism is designed to protect the bankruptcy estate from depletion, and statutory exclusions are narrowly construed to prevent abuse.
