2019 (7) TMI 1629 - Tri - Insolvency and Bankruptcy

Maintainability of application - Section 66 of Insolvency and Bankruptcy Code, 2016 - transaction of trading purchase and sales of certain goods in fraudulent manner - HELD THAT - It is seen that the Resolution Professional in concurrence with the Committee of Creditors directed the PWC to carry special review of the accounts of the Corporate Debtor. PWC carried a review of the accounts and submitted report to the Resolution Professional. It is not necessary to go into details of the report. Suffice to note the facts that PWC did not come to any definite conclusion that the transactions sought to be examined are the fraudulent, preferential or undervalued in nature as contended by the Resolution Professional. According to them the transactions in dispute appears not to be genuine as they did not get corresponding purchase receipts of 4 out of such 6 transactions. In this case, the Forensic Audit was carried. The Auditor clearly opined that the creditors of the Corporate Debtor were not defrauded due to transactions in question. The transactions cannot be said to be fraudulent in nature. PWC opined some transactions to be suspicious because they did not get some correspondence purchase receipt - it is not enough to draw conclusion that transaction in question carried by the respondent in fraudulent manner. Application dismissed.

Summary

Issues:
Application under Section 66 of Insolvency and Bankruptcy Code, 2016 against Directors alleging fraudulent transactions. Examination of special audit reports by Resolution Professional and State Bank of India. Dispute over the genuineness of transactions and the need for directors' contribution to assets of the Corporate Debtor.

Analysis:
The case involved an application under Section 66 of the Insolvency and Bankruptcy Code, 2016, where the ex-Resolution Professional of the Corporate Debtor filed against the Directors alleging fraudulent trading transactions during 2016-17. The Resolution Professional appointed M/s. Price Water House Coopers (PWC) to conduct a special review of the accounts, leading to suspicions of fraudulent transactions. The PWC report highlighted concerns about the genuineness of certain transactions, raising questions about the motive behind them.

The Respondent Directors denied the allegations, providing explanations for each transaction in question. Additionally, the State Bank of India, a Financial Creditor, conducted a special Forensic Audit supporting the view that the transactions did not defraud the creditors. The State Bank of India's report emphasized that the transactions were not prejudicial to the corporate creditors' interests, questioning the justification for categorizing them as fraudulent under Section 66 of the IBC, 2016.

The Adjudicating Authority considered the reports from PWC and the State Bank of India. While PWC raised suspicions due to missing purchase receipts, the State Bank of India's audit did not find evidence of fraud. The Authority noted that Section 66 requires proof of fraudulent intent or actions that could have avoided insolvency, which was not established in this case. The Authority concluded that the evidence was insufficient to direct the Directors to contribute a significant amount under Section 66, leading to the rejection of the application.

In the final order, the Authority rejected the application, citing the lack of conclusive evidence to support the allegations of fraudulent transactions by the Directors. The decision was based on the findings from the special audits and the absence of clear indications of fraudulent intent or actions that could have prevented insolvency.