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2021 (12) TMI 1374 - Tri - Insolvency and BankruptcySham and fraudulent transactions therefore null and void - Contribution to the assets of the Corporate Debtor in terms of Section 66 of the Code by reimbursing/refunding the amount with an interest @ 12% - direction to erstwhile/suspended board of Directors i.e. Non-Applicants/Respondent Nos. 15 to 20 to provide the details and addresses of the independent parties - Section 68 69 70 of IBC - HELD THAT - After the initiation of CIRP in terms of Section 14(1) all proceedings the institution of suit or continuation of pending suits against the corporate debtor shall remain stay during the Moratorium. Similarly in terms of Section 33(5) when a liquidation order is passed no suit or other legal proceeding shall be instituted by or against the Corporate Debtor. Of course it is subject to the provision contained in Section 52 of the IBC - A bare perusal of the provision shows that the exception referred to in Section 32A is not applicable in case of a promoter or in the management or control of the corporate debtor or a related party of such a person. Though the proceeding under Section 66 shall not be continued against the respondent No. 1 as the respondent No. 1 is under liquidation but the promoters the persons in the management/control of the Corporate Debtor or a related party of such person are still liable under Section 66 of the IBC. There is no material produced on behalf of the respondents on the record which controvert the pleadings of the applicant We further notice that the prayer of the applicant is based upon the Transaction Audit conducted by the Chartered Accountant for the period from 01.03.2013 (date of Incorporation of the Corporate Debtor) to 21.10.2019 (date of order of Initiation of CIRP against the Corporate Debtor). It is observed that so far the preferential transactions under section 43 avoidance of undervalued transaction under section 45 and section 50 are concerned in the absence of the relevant documents and information the Auditor has shown their inability to comment on these transactions - A perusal of the provision shows that if during the corporate insolvency resolution process or liquidation process it is found that any business of the corporate debtor has been carried out on with intent to defraud creditors of the corporate debtor or for any fraudulent purpose the Adjudicating Authority may on the application of the resolution professional or liquidator as the case may be pass an order. The respondents No. 2 to 21 the suspended board of directors of the corporate debtor and other related persons were carrying on business with intent to defraud the creditors of the corporate debtor or with fraudulent purpose and accordingly they misappropriated Rs. 2687.27 Lakhs and diverted to their own use with intent to defraud the creditors. Therefore they are liable to make such contribution to the assets of the corporate debtor - the Respondents number 2 to 21 are directed to make contribution of Rs. 2687.27 Lakhs jointly or severely to the assets of the corporate debtor within a period of maximum 02 months from the date of this order. And if they fail to pay the aforesaid amount within the prescribed period then same shall be realised from their property/properties. The present application is hereby allowed.
Issues Involved:
1. Fraudulent and Sham Transactions 2. Liability of Promoters/Directors 3. Application of Section 66 of the Insolvency and Bankruptcy Code (IBC), 2016 4. Legal Impediment under Section 33(5) of IBC 5. SEBI's Findings and Legal Proceedings 6. Transaction Audit Report Detailed Analysis: 1. Fraudulent and Sham Transactions The Resolution Professional (RP) filed an application under Sections 66, 68, 69, 70, and other relevant provisions of the Insolvency and Bankruptcy Code (IBC), 2016, seeking to declare transactions between the Corporate Debtor and various respondents from 01-03-2013 to 21-10-2019 as sham and fraudulent, thus null and void. The RP appointed M/s. Gaurav J. & Co. to conduct a transaction audit, which revealed that approximately Rs. 1527.82 Lakhs were transferred to related parties and Rs. 982.12 Lakhs were withdrawn by the erstwhile directors without proper documentation, indicating fraudulent intent. 2. Liability of Promoters/Directors The RP argued that the Corporate Debtor deviated from its main objective and collected Rs. 36.73 Crores from the public through a collective investment scheme. Out of this, Rs. 15.27 Crores were siphoned off to related parties, and Rs. 9.82 Crores were withdrawn by the ex-directors. The RP sought to hold the promoters/directors liable under Section 66 of the IBC. The Tribunal noted that SEBI had already found the promoters/directors guilty of running an unregistered scheme and misappropriating funds. 3. Application of Section 66 of the Insolvency and Bankruptcy Code (IBC), 2016 The Tribunal emphasized that Section 66 of the IBC allows for holding individuals liable if it is found that the business was conducted with intent to defraud creditors. The Tribunal found that the transactions mentioned in the audit report fell under Section 66, as they were carried out with fraudulent intent. Consequently, the Tribunal directed the respondents to contribute Rs. 2687.27 Lakhs to the assets of the Corporate Debtor. 4. Legal Impediment under Section 33(5) of IBC The Liquidator of Respondent No. 1 argued that under Section 33(5) of the IBC, no suit or legal proceedings could be initiated against the Corporate Debtor once a liquidation order is passed. However, the Tribunal clarified that while proceedings under Section 66 could not continue against the Corporate Debtor in liquidation, the promoters and related parties could still be held liable. 5. SEBI's Findings and Legal Proceedings SEBI had previously found the promoters/directors guilty of running an unregistered investment scheme and misappropriating funds, a finding upheld by the Securities Appellate Tribunal (SAT). The Tribunal noted that SEBI had attached assets worth more than Rs. 1000 Crores, reinforcing the fraudulent nature of the transactions. 6. Transaction Audit Report The Transaction Audit Report, conducted by M/s. Gaurav J. & Co., was crucial in identifying the fraudulent transactions. The report highlighted the transfer of funds to related parties and the withdrawal of large sums by the ex-directors without proper documentation. The Tribunal relied heavily on this report to conclude that the transactions were fraudulent and to direct the respondents to make contributions to the Corporate Debtor's assets. Conclusion: The Tribunal allowed the application, directing the respondents to contribute Rs. 2687.27 Lakhs to the Corporate Debtor's assets within two months. Failure to do so would result in the amount being realized from their properties. Additionally, the Tribunal directed the RP to institute criminal prosecution against the respondents under Section 60 of the IBC.
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