2021 (5) TMI 944 - Tri - Insolvency and Bankruptcy

CIRP proceedings - illegal transfer of IPR and business by the corporate debtor - Failure on the part of Promoter-Director Jasjit Singh Sawhney to provide information to the RP for discharging his functions during the CIRP - avoidance of preferential transactions, undervalued transactions and fraudulent and wrongful trading and diversion of the business of the Corporate Debtor. Non-co-operation of promoter-director and his men - HELD THAT - Initially, the Resolution Professional/the applicant sent emails dated 14.03.2019, 18.03.2019 to its promoter director (Rl-Sahweny) seeking information of the corporate debtor, to which Mr. Sawhney on 19.03.2019 replied seeking time to provide information, subsequent to it, one of the employees of the Corporate Debtor namely Mr. Sumit Gupta sent an email on 31.03.2019 along with some information. As that information was not sufficient to discharge CIRP functions, this Applicant had mailed on 02.04.2019, 15.04.2019, 16.04.2019, 23.04.2019 and 07.05.2019 requesting Mr. Sawhney and Mr. Sumit Gupta to provide information, but whereas Mr. Sumit Gupta wrote back on 13.05.2019 seeking time to provide pending documents as Mr. Sawhney was not feeling well. In this application, R1 has filed reply for the first time disclosing that the shares of Pipetel Communications Private Limited (Pipetel) and Net4 Network Services Limited (Net4 Network) held by the CD were transferred to Trak Online Net India Private Limited (Trak Online), the business of the CD was transferred to Net4 Network through Master Reseller Agreement (MSA) and Trade Marks of the CD were assigned to the promoter director Mr. Sawhney - This Bench also directed Mr. Sawhney to provide information on passing various orders 03.07.2019, 22.07.2019, 02.09.2019, 27.10.2019 and 20.12.2019, but till date no progress, except providing piece meal information, which is not enough to figure out the transactions of the Corporate Debtor. Avoidance of preferential transactions, undervalued transactions and fraudulent and wrongful trading and diversion of the business of the Corporate Debtor - HELD THAT - It is evident that the directors fraudulently transferred the shareholding of the Corporate Debtor in their subsidiary companies to Trak Online to take out the holding of the corporate debtor over Net4 Network so that the corporate debtor will not have any right over the business of the corporate debtor subsequently transferred to Net4 Network, that the Corporate Debtor entered into undervalued and fraudulent transactions such as execution of Assignment Agreement of trade marks in favor of its director (R1) and execution of Master Reseller Agreement in favor of Net4 Network (R2) for keeping the assets of the Corporate Debtor beyond the reach of the Creditors so as to defraud the Creditors - the declaration of assignment of trademarks in the name of R1 is declared null and void and execution of Master Reseller Agreement in favor of Net4 Network is invalid, and direct R1 to restore the trade name Net4 to the Corporate Debtor and R2 to restore the business of the corporate debtor it has taken through Master Reseller agreement from the Corporate Debtor with immediate effect. Likewise, we hereby declare the Share Transfer Agreements reflecting transfer of Pipetel shares held by CD to Trak Online and transfer of Net4 Network shares to Trak Online as null and void. For the transactions mentioned being declared as null and void, u/s. 66 67 of the Code, whatever business so far Net4 Network held from the date of alleged transfer of business shall be inspected by an auditor appointed by this Bench on the suggestion made by the RP within 15 days thereof, and the auditor shall determine the opportunity loss to the CD within 30 days from the date of his appointment. Upon approval of the said report by this Authority, the promoter director Mr. Jasjith Singh Sawhney (R1) shall pay back the loss estimated by the auditor to the CD because R1 is the person caused all these fraudulent transactions happened. R1 shall produce all relevant records within seven days from the date of receipt of request from the auditor to be appointed by this Bench. Application disposed off.

Summary

Issues Involved:
1. Non-cooperation from the promoter director and associates during CIRP.
2. Preferential transactions, undervalued transactions, fraudulent trading, and wrongful trading.
3. Transfer and diversion of business assets and shareholding.
4. Assignment of trademarks.
5. Compliance with statutory requirements and procedural lapses.

Issue-wise Detailed Analysis:

Non-cooperation from the promoter director and associates during CIRP:
1. The Resolution Professional (RP) filed CA 1140/2019 against the Promoter-Director for non-cooperation and failure to provide necessary information for discharging CIRP functions.
2. Multiple requests for information were made by the RP, but sufficient data was not provided. The RP had to file applications and the Tribunal issued several orders directing the Promoter-Director to comply, which were largely ignored.

Preferential transactions, undervalued transactions, fraudulent trading, and wrongful trading:
1. CA 1756/2019 was filed under Sections 43, 45, 49, and 66 of the Insolvency and Bankruptcy Code (the Code) to address preferential transactions, undervalued transactions, and fraudulent trading by the Promoter-Director.
2. The RP noted that financial statements were not audited post-2015-2016, and crucial data was allegedly lost in Chennai floods, which was deemed unbelievable as per MCA records.
3. The RP accused the Promoter-Director of diverting business and assets of the Corporate Debtor (CD) to related entities to defraud creditors.

Transfer and diversion of business assets and shareholding:
1. The Promoter-Director transferred shares of Pipetel and Net4 Network (subsidiaries of the CD) to Trak Online, reducing the CD's shareholding significantly.
2. The Master Reseller Agreement (MSA) transferred the CD's business to Net4 Network, allegedly without proper authorization and Board resolutions.
3. The Tribunal found these transactions lacked transparency, were not reported to regulatory bodies, and were executed to defraud creditors.

Assignment of trademarks:
1. The trademark "net4" was assigned to the Promoter-Director for a nominal consideration of ?1,000, which the Tribunal deemed undervalued and fraudulent.
2. The Tribunal found the assignment lacked proper documentation, Board resolutions, and was executed within the look-back period, making it a fraudulent transaction.

Compliance with statutory requirements and procedural lapses:
1. The Tribunal noted multiple statutory and procedural lapses, including failure to file necessary forms with the Registrar of Companies (ROC) and non-compliance with SEBI regulations.
2. The Tribunal emphasized the importance of timely and accurate reporting of transactions and resolutions to regulatory authorities.

Reliefs Granted:
1. The Tribunal declared the assignment of trademarks to the Promoter-Director and the Master Reseller Agreement as null and void.
2. The Tribunal directed the Promoter-Director to restore the trademark "net4" and the business of the CD to their original state.
3. The Tribunal ordered an audit to determine the opportunity loss to the CD and directed the Promoter-Director to compensate for the estimated loss.
4. CA 1140/2019 and 1756/2019 were disposed of with these directives.

Conclusion:
The Tribunal concluded that the Promoter-Director engaged in fraudulent and undervalued transactions, diverted business assets, and failed to cooperate during CIRP, thus defrauding the creditors. The Tribunal's orders aimed to restore the CD's assets and ensure compliance with legal and procedural requirements.