On the day the NCLT admits an insolvency petition, the powers of the company's board of directors are suspended. An interim resolution professional takes over management, bank accounts and records. Many directors are surprised by how sudden and complete this is. They are also surprised to find that they still have duties, and some important rights.
Directors who understand their position can protect themselves, contribute to a better outcome for the company and keep their options open, including the option of appealing the admission or bidding for the company if they are eligible. Directors who resist or disappear risk applications against them, personal liability and a weaker hand later. This page explains what suspended directors can and must do.
हिंदी में सारांश
जब NCLT किसी कंपनी के खिलाफ दिवाला याचिका सà¥à¤µà¥€à¤•à¤¾à¤° करता है, तो निदेशक मंडल (board) की शकà¥à¤¤à¤¿à¤¯à¤¾à¤‚ निलंबित हो जाती हैं और IRP पà¥à¤°à¤¬à¤‚धन संà¤à¤¾à¤² लेता है। निलंबित निदेशकों को IRP के साथ पूरा सहयोग करना होता है और सà¤à¥€ रिकॉरà¥à¤¡ सौंपने होते हैं। उनà¥à¤¹à¥‡à¤‚ कमेटी ऑफ कà¥à¤°à¥‡à¤¡à¤¿à¤Ÿà¤°à¥à¤¸ (CoC) की बैठकों में à¤à¤¾à¤— लेने का अधिकार है (वोट के बिना), और रेज़ोलà¥à¤¯à¥‚शन पà¥à¤²à¤¾à¤¨ की पà¥à¤°à¤¤à¤¿ पाने का अधिकार à¤à¥€à¥¤ निजी गारंटी और गलत लेनदेन की ज़िमà¥à¤®à¥‡à¤¦à¤¾à¤°à¥€ पर सलाह ज़रूर लें।
Is this your situation?
- Your company has just been admitted into insolvency and an IRP has contacted you
- The IRP wants records, passwords and access to premises and bank accounts
- You want to know whether you can attend creditors' meetings and see resolution plans
- You are worried about personal liability for transactions before insolvency
- You gave a personal guarantee for the company's loans
- You want to appeal against the admission order
- You are considering a resolution plan for the company
What changes on admission
The board is suspended
Under Section 17, the powers of the board vest in the interim resolution professional. Directors cannot sign cheques, enter contracts or take decisions for the company.
Officers report to the professional
Officers and managers of the company report to the resolution professional, who decides how the business is run day to day.
Bank accounts are controlled
Banks act on the professional's instructions. Directors' signing authority ends.
Directors remain directors
Suspension is not removal. Directors keep their position on the register, but without powers, until the outcome of the process.
Moratorium protects the company, not you
The moratorium stops actions against the company. It does not protect directors in their personal capacity, including on personal guarantees.
Statutory duties continue
Directors must still cooperate, disclose information and avoid acts that harm the company's assets.
Your duties as a suspended director
Hand over records and assets
Section 19 requires the company's personnel, including directors and promoters, to extend all assistance and cooperation to the professional. This includes books of account, contracts, statutory records, passwords, keys and information about assets.
Disclose transactions
The professional will look at transactions in the years before insolvency. Give full information about related-party dealings, asset sales and large payments.
Do not obstruct
If directors do not cooperate, the professional can apply to the NCLT for directions, and the tribunal can order compliance. Non-cooperation can also be considered against directors later.
Avoid dealing with company assets
Removing assets, documents or funds after admission can attract serious consequences under the Code.
Your rights as a suspended director
Attend committee meetings
Under Section 24, members of the suspended board are entitled to notice of meetings of the committee of creditors and may attend and participate, though they do not vote.
Receive the resolution plans
The Supreme Court held in Vijay Kumar Jain v Standard Chartered Bank (2019) that suspended directors are entitled to copies of resolution plans placed before the committee, subject to confidentiality undertakings.
Appeal the admission
Directors (or the company through them) can appeal the admission order to the NCLAT within 30 days, with at most 15 more days allowed for sufficient cause. See NCLAT appeal (IBC).
Propose a settlement
Promoters can negotiate with creditors and seek withdrawal under Section 12A within the window allowed after the committee is formed. See settle and withdraw.
Submit a resolution plan
If eligible under Section 29A, promoters can bid for the company like any other applicant. See Section 29A eligibility.
Raise objections before the NCLT
Directors can raise objections to the professional's conduct or to a resolution plan that is illegal, for example one that ignores the law on distribution.
Personal risks to watch
Insolvency often brings personal exposure for directors, and it is better to understand it early.
Personal guarantees
If you guaranteed the company's loans, lenders can proceed against you even while the company is in insolvency. They may file a personal guarantor insolvency under Section 95. Since 26 May 2026, an application against a personal guarantor of a company no longer triggers an automatic interim moratorium, so lenders can continue other recovery steps against you. Get advice on defending a guarantor petition.
Avoidance and fraudulent trading
Preferential, undervalued, extortionate and fraudulent transactions before insolvency can be reversed, and directors may be ordered to contribute to the company's assets for fraudulent or wrongful trading under Section 66. See avoidance transactions.
Statutory dues and other laws
Some liabilities, such as certain tax or labour obligations, may follow directors under other laws. The approval of a resolution plan gives the company a clean slate, but it does not release former promoters or guarantors from their personal liabilities.
What we advise directors to do
Meet the professional early
Set up a meeting with the interim resolution professional within the first few days. Agree how records and access will be handed over.
Keep a record of the handover
Prepare a list of documents, devices and assets handed over, and get it acknowledged. This protects you against later allegations.
Review your personal exposure
List guarantees, related-party transactions and large payments in the past two years. We assess the risk and plan responses.
Decide quickly on appeal or settlement
The 30-day appeal clock starts on the admission order. The Section 12A window opens and closes early in the process. Decide your strategy in the first weeks.
Participate, don't disengage
Attend committee meetings, read resolution plans and raise legitimate concerns. A constructive approach often helps if a promoter-backed solution is later considered.
Time and typical cost
Fees are agreed in writing for each task and do not depend on the outcome.
| Task | Usual time | What it involves |
|---|---|---|
| Initial advice on rights and exposure | First week after admission | Meeting and written note |
| Handover protocol with the professional | 1 to 3 weeks | Correspondence, acknowledgements |
| Appeal against admission | Within 30 days (+15 at most) | Appeal and stay application |
| Representation at committee meetings | Throughout the process | Attendance, review of plans |
| Defending applications against directors | As they arise | Replies and hearings before the NCLT |
Documents directors should keep copies of
Company records
- Board minutes and resolutions for the past three years
- Audited financial statements and management accounts
- List of related-party transactions
Personal exposure
- Personal guarantee deeds and invocation notices
- Correspondence with lenders about restructuring
- Any notices received personally
The insolvency process
- Admission order and public announcement
- Handover list acknowledged by the professional
- Notices of committee meetings and minutes
A director who stayed engaged
Here's a made-up example. The managing director of a Gurugram logistics company was suspended when the company was admitted into insolvency on a bank's petition. He feared he would be blamed for everything and considered ignoring the professional.
We advised him to cooperate fully. We prepared a handover list of records, servers and vehicles, acknowledged by the professional, and a note explaining two related-party payments made a year earlier, with supporting invoices. He attended committee meetings and received the resolution plans under a confidentiality undertaking. When the professional later reviewed transactions, the earlier explanation and records meant no avoidance application was filed against him.
Mistakes suspended directors make
- Withholding records out of anger: non-cooperation leads to NCLT directions against you and colours every later decision.
- Using company funds after admission: any payment or transfer by former management after admission can be treated as a serious breach.
- Speaking to creditors or the press carelessly: statements about the company's affairs can be used against you in avoidance or fraud proceedings.
- Ignoring personal guarantees: lenders often move against guarantors while the company is in insolvency. Plan your response early.
- Missing committee meetings: you are entitled to attend. Absence means you lose the chance to correct mistaken assumptions about the business.
- Assuming you cannot bid: if you are eligible under Section 29A, a promoter-backed plan may be possible. Check before writing yourself off.
Rights and duties at a glance
| Topic | Your position as a suspended director |
|---|---|
| Board powers | Suspended; vest in the resolution professional |
| Directorship | Continues on record, without powers |
| Records and assets | Must be handed over; cooperation is a legal duty |
| Committee meetings | Entitled to notice and to attend and participate, without voting |
| Resolution plans | Entitled to copies, usually under confidentiality |
| Appeal against admission | Within 30 days to the NCLAT (+15 days at most) |
| Bidding | Allowed only if eligible under Section 29A |
| Personal guarantees | Not protected by the company's moratorium |
Employment and remuneration
Directors who are also employees of the company, such as a managing director or whole-time director, often ask whether their salary continues. The resolution professional decides which personnel are needed to run the business. A director whose services are retained may continue to be paid for work done during the process, as approved. Remuneration as a director, and any payments not approved by the professional, should not be taken. Directors who are not retained should keep a record of their last working day and any dues, which can be claimed in the process.
Checklist for a suspended director
- Keep a copy of the admission order and the public announcement
- Hand over books, records and passwords to the IRP and get a receipt
- List all personal guarantees you have given for the company
- Write down the key events leading up to the insolvency, with dates
- Attend CoC meetings when invited, and keep notes
- Ask for the information memorandum if you want to propose a plan and are eligible
- Respond promptly and in writing to IRP requests
- Take advice before signing any statement about the company's affairs
Facing an avoidance or fraud application
Resolution professionals must review past transactions and file applications against preferential, undervalued, extortionate or fraudulent transactions. Directors may be named personally, especially in fraudulent trading under Section 66, where the NCLT can direct a director to contribute to the company's assets. These applications can continue even after the plan is approved, if the plan says so.
The best defence is usually documentary: board minutes showing that a transaction had a business reason, valuation reports supporting prices, and evidence that the director acted on professional advice. Directors should keep personal copies of key records before handing over the books. See avoidance transactions. If a director wants to support a resolution plan, they must first check eligibility under Section 29A.
A director accused of diverting funds
Here's a made-up example. The resolution professional of a Delhi trading company filed an application alleging that a director had transferred Rs 3 crore to a related company in the year before CIRP. The director said the money repaid a genuine loan.
The director produced the loan agreement, bank records of the original loan coming in, board minutes approving repayment and the company's balance sheets showing the loan. The NCLT found that the repayment was preferential because it favoured a related party in the two-year look-back period, and ordered the related company to return the money. However, it rejected the allegation of fraud against the director personally, because the evidence showed a real loan and no intent to defraud.
Frequently Asked Questions
Do directors lose their posts when insolvency starts?
No. The board's powers are suspended, not the directorships. Directors remain on record but cannot act for the company.
Can suspended directors attend creditors' meetings?
Yes. They are entitled to notice and may attend and participate in meetings of the committee of creditors, but they cannot vote.
Are we entitled to see the resolution plans?
Yes. Suspended directors are entitled to copies of resolution plans, usually after signing a confidentiality undertaking.
What if we refuse to cooperate with the professional?
The professional can apply to the NCLT, which can direct compliance. Non-cooperation can also be held against you in later proceedings.
Does the moratorium protect us personally?
No. It protects the company. Personal guarantees and personal liabilities are not covered.
Can a suspended director appeal the admission?
Yes, within 30 days of the order before the NCLAT, with a maximum of 15 more days for sufficient cause.
Can we bid for the company?
Only if you and your connected persons are eligible under Section 29A. MSME promoters get some relief.
How are your fees decided?
By the work involved, agreed in writing for each task. They do not depend on the result.
Director of a Company in Insolvency?
Speak to us early. We will explain your duties, protect your rights and assess your personal exposure before it becomes a problem.
This page gives general information about the law as it stood when it was last reviewed. It is not legal advice on your case and does not promise any result. IBC rules and NCLT procedures change often, so outcomes depend on your own documents, dates and facts.
Need help with Rights of Directors During Insolvency?
Send us the notice, the petition or the order. We will tell you where you stand, which bench hears it and the date the next step is due, in plain words.
