NCLAT asks Axis Bank, Siti Network’s creditors to hold ₹143 crore in separate interest-bearing account

The National Company Law Appellate Tribunal (NCLAT) has ordered Axis Bank Ltd and other creditors of bankrupt Siti Networks, a subsidiary of Essel Group, to keep ₹143 crore in a separate interest-bearing account.

This decision came in response to a challenge to an order from the National Company Law Tribunal (NCLT) in Mumbai dated 1 October mandating the lenders repay this amount to Siti Networks, which is currently undergoing insolvency proceedings.

NCLAT agreed to hear the lenders’ challenge against the NCLT’s ruling but noted the need to protect Siti Networks' interests by maintaining the funds in a separate account until a final decision is reached.

“In its ruling, the NCLAT stated that given the appellants are banks and financial institutions, there should be no apprehension that they will not reverse the amount into the account of the corporate debtor if a final decision in the appeal mandates such action. The interim management will ensure that the interests of all parties are protected during this process,” NCLAT stated in its order.

The NCLT had ordered the repayment of ₹143 crore to Siti Networks following a petition from Asset Reconstruction Company (India) Ltd, a creditor that had alleged that other creditors had unlawfully withdrawn funds from Siti Networks while a stay on the insolvency proceedings was in effect.

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The Mumbai bench of the NCLT, led by Justices Laxmi Gurung and Charanjeet Singh Gulati, had instructed that all transactions and appropriations made between March 2023 and August 2023 during the stay period must be reversed and returned to Siti’s account within four weeks.

After taking over the company’s operations in August 2023, resolution professional Rohit Ramesh Mehra discovered that Axis Bank had withdrawn funds from Siti and distributed about ₹143 crore to various lenders, including IndusInd Bank, RBL Bank, Aditya Birla Finance, and IDBI Bank, despite the stay on proceedings.

The insolvency proceedings against Siti Networks commenced on 22 February 2023 after IndusInd Bank petitioned the NCLT over an alleged default of ₹148 crore. Following the NCLT’s admission of the case, Mehra invited creditors to submit their claims by 8 March 2023.

Shilpi Asthana, a suspended director of Siti, challenged the NCLT’s order in the NCLAT, which initially stayed the insolvency proceedings. However, after a detailed hearing, the NCLAT dismissed Asthana’s appeal for lacking merit. The Supreme Court subsequently upheld this dismissal.

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In August 2023, after regaining control of Siti, the resolution professional sought clarification regarding the insolvency commencement date, which NCLAT confirmed as 22 February 2023.

Mehra reported significant financial transactions between Siti Networks and its creditors during the stay period, leading to substantial changes in the company’s financial position without his oversight.

As of 5 September, both financial and operational creditors had filed claims against Siti Networks totalling ₹1,206 crore.

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