2019 (9) TMI 1316 - AT - Insolvency and Bankruptcy

CIRP Process - allegation that fraudulent business activity carried on by Corporate Debtor - defrauding the creditors - HELD THAT - From bare perusal of Section 66 of I B Code, it is clear that if during the Corporate Insolvency Resolution Process or Liquidation Process, it is found that any business of the Corporate Debtor has been carried on with intent to defraud creditors of the Corporate Debtor or for any fraudulent purpose, it is always open to the Adjudicating Authority to pass appropriate orders in terms of the said provisions on the application filed by the Resolution Professional. The allegations as levelled by the Resolution Professional, prima facie attracts not only to the provisions of Section 66, but also provisions such as Section 68 punishment for concealment of property; Section 69 punishment for transactions defrauding creditors; Section 70 punishment for misconduct in course of corporate insolvency resolution process; Section 71 punishment for falsification of books of corporate debtor; Section 72 punishment for wilful and material omissions from statements relating to affairs of corporate debtor and Section 73 punishment for false representations to creditors, if found prove - No punishment for imprisonment can be imposed by the Adjudicating Authority (National Company Law Tribunal) except to pass order in terms of Section 66 of the I B Code. In terms of sub-section (1) of Section 60, the National Company Law Tribunal is the Adjudicating Authority for the purpose of I B Code. It is having concurrent jurisdiction as the National Company Law Tribunal under the Companies Act, as also as the Adjudicating Authority under the I B Code - From bare perusal of Section 212 of the Companies Act, 2013, it will be evident that such investigation into affairs of company can be made only on receipt of a report of the Registrar or Inspector under Section 208 of the Companies Act, 2013 or on intimation of a special resolution passed by a company that its affairs are required to be investigated; or in the public interest; or on request from any Department of the Central Government or a State Government. Section 212 does not empower the National Company Law Tribunal or the Adjudicating Authority to refer the matter to the Central Government for investigation by the Serious Fraud Investigation Office even if it notices the affairs of the Company of defrauding the creditors and others - However, investigation into affairs of company at the instance of the Tribunal has been prescribed under Section 213 - For punishment of fraud in a manner as prescribed in Section 447 of the Companies Act, 2013, the matter is required to be tried by a Special Court as established under Section 435 which requires speedy trial for offences under the Companies Act, 2013. The same Court i.e. Special Court established under Section 435 is the Court empowered under Section 236 of the I B Code for trial of such offence under the I B Code also. The Tribunal/ Adjudicating Authority, on receipt of application/complaint of alleged violation of the aforesaid provisions and on such consideration and being satisfied that there are circumstances suggesting that defraud etc. has been committed, may refer the matter to the Central Government for investigation by an Inspector or Inspectors as may be appointed by the Central Government - the procedure laid down under Section 213 of the Companies Act, 2013 can be exercised by the Tribunal/ Adjudicating Authority. Appeal disposed off by way of remand.

Summary

Issues Involved:
1. Corporate Insolvency Resolution Process (CIRP) against M/s. Bhuvana Infra Projects Private Limited.
2. Allegations of fraudulent transactions and misconduct by the Promoters.
3. Request to attach personal assets of the Promoters to recover dues.
4. Opposition by the Promoters and Group Companies.
5. Directions for investigation by Serious Fraud Investigation Office (SFIO).
6. Legal competence of the Adjudicating Authority to direct SFIO investigation.
7. Application of Sections 66, 68, 69, 70, 71, 72, 73 of the Insolvency and Bankruptcy Code (I&B Code) and Section 213 of the Companies Act, 2013.

Detailed Analysis:

1. Corporate Insolvency Resolution Process (CIRP) against M/s. Bhuvana Infra Projects Private Limited:
The Resolution Professional initiated CIRP against M/s. Bhuvana Infra Projects Private Limited, alleging that the company was a shell company with no business activities, employees, or assets, and sought to recover dues amounting to ?461,163,402/- by attaching the personal assets of the Promoters.

2. Allegations of Fraudulent Transactions and Misconduct by the Promoters:
The Resolution Professional alleged that the Promoters defrauded creditors by diverting assets and funds to Group Companies, as evidenced by the Forensic Audit Report. The Corporate Debtor had significant receivables from its Group Companies and had distributed assets worth ?1.52 Crores to these companies. There were discrepancies in the financial statements, including unaccounted inventory and assets not found physically.

3. Request to Attach Personal Assets of the Promoters to Recover Dues:
The Resolution Professional sought to attach the personal assets of Mr. Pratap Kunda, Mr. Sanjay Raj, and Mr. Srinivas to recover the dues. The total amount due from the Group Companies and Directors was ?461,163,403/-.

4. Opposition by the Promoters and Group Companies:
The application was opposed by the Promoters and Group Companies on various grounds, including the doctrine of res-judicata, denial of allegations, and assertion that the company was not a shell company. They argued that the application was not maintainable and that the amounts referred to were subject to reconciliation and final settlement.

5. Directions for Investigation by Serious Fraud Investigation Office (SFIO):
The Adjudicating Authority, considering the allegations and the Forensic Audit Report, referred the matter to the SFIO for further investigation under Sections 212 and 213 of the Companies Act, 2013. The Resolution Professional was directed to forward all relevant documents to the Central Government and the SFIO.

6. Legal Competence of the Adjudicating Authority to Direct SFIO Investigation:
The Appellants challenged the order, arguing that the Adjudicating Authority did not have the power to direct an SFIO investigation under Section 213 of the Companies Act, 2013. The Tribunal clarified that while the Adjudicating Authority could not directly order an SFIO investigation, it could refer the matter to the Central Government for investigation by an Inspector, who could then recommend an SFIO investigation if necessary.

7. Application of Sections 66, 68, 69, 70, 71, 72, 73 of the I&B Code and Section 213 of the Companies Act, 2013:
The Tribunal examined the applicability of various sections of the I&B Code and the Companies Act, 2013. It was noted that Sections 66, 68, 69, 70, 71, 72, and 73 of the I&B Code deal with fraudulent trading, concealment of property, transactions defrauding creditors, misconduct during CIRP, falsification of books, omissions from statements, and false representations to creditors. Section 213 of the Companies Act, 2013 empowers the Tribunal to order an investigation if there are circumstances suggesting fraudulent conduct.

Conclusion:
The Tribunal modified the impugned order, referring the matter to the Central Government for investigation by an Inspector under Section 213 of the Companies Act, 2013. If the investigation revealed actionable material, the Central Government could further refer the matter to the SFIO. The appeals were disposed of with directions for appropriate investigation and no order as to costs. The Secretary, Ministry of Corporate Affairs, was directed to ensure the investigation as ordered.