2018 (10) TMI 1748 - Tri - Insolvency and Bankruptcy

Conduct of Resolution Professional - it was alleged that the Resolution Professional had acted in unethical and arbitrary manner - Requirement of forensic audit - HELD THAT - Merely an Investigation do not snatch away any right of a person who is under Investigation. Rather, through an Investigation he can establish his innocence or uprighteousness. In my opinion the Respondent Debtor and the Management are therefore entitled for this opportunity to establish their bona fides and honesty in maintaining the Books of Account of the Debtor Company. Considering the instances of the transactions as defined us/.43, 45 and 66 of the Insolvency Code, it is proper and justifiable that a true and correct picture shall emerge only after Forensic Examination. To accomplish this task of Forensic Audit I have perused the list of Auditors and assign M/s. Pipara Co. LLP, Bhawik Madrecha, email id [email protected] with a direction to complete the assignment within 4 weeks' time within the Fees quoted in the List of Forensic Auditors. Application allowed.

Summary

Issues:
1. Application seeking order under Sections 43, 45, and 66 of The Insolvency & Bankruptcy Code, 2016
2. Allegations of irregularities in financial records of the Corporate Debtor
3. Request for forensic audit and investigation
4. Allegation of unethical behavior by Resolution Professional
5. Expiry of CIRP and liquidation order
6. Dispute over the necessity of a forensic audit

Analysis:

1. The Application was submitted by the Resolution Professional seeking orders under Sections 43, 45, and 66 of The Insolvency & Bankruptcy Code, 2016. The Applicant requested a forensic audit and investigation into the affairs of the Corporate Debtor, citing irregularities in financial records.

2. The Resolution Professional identified irregularities in the financial records of the Corporate Debtor, alleging engagement in preferential, undervalued, and fraudulent transactions as per the provisions of The Code. Examples of such transactions were provided, including preferential rental agreements and undervalued property transactions.

3. The Resolution Professional highlighted instances of fraudulent transactions, such as outstanding dues from overseas parties and significant write-offs without proper documentation. The need for a forensic audit was emphasized to uncover the truth behind these transactions and ensure transparency.

4. The Respondent Debtor raised allegations of unethical behavior against the Resolution Professional, claiming that the actions were arbitrary and unethical. The Respondent argued that the Resolution Professional failed to act diligently and should face disciplinary action.

5. There was a dispute regarding the expiry of the Corporate Insolvency Resolution Process (CIRP) and the subsequent liquidation order. The Respondent contended that the Resolution Professional was not legally entitled to file the Miscellaneous Application after the expiry of the CIRP.

6. The necessity of a forensic audit was debated, with the Respondent claiming that the transactions in question were supported by evidence and did not warrant further investigation. However, the Tribunal found it appropriate to order a forensic audit to uncover the truth behind the alleged irregularities.

In conclusion, the Tribunal allowed the Miscellaneous Application, directing a forensic audit by assigning M/s. Pipara & Co. LLP to complete the investigation within four weeks. The decision aimed to ensure transparency and uncover the truth behind the financial irregularities of the Corporate Debtor.