2021 (10) TMI 83 - AT - Insolvency and Bankruptcy

Transfer of the Corporate Debtor funds to Respondent No. 1 - fraudulent purpose or not - seeking direction to Respondent No. 2 (Appellant No. 1 herein) and Respondent No. 3 (Respondent No. 2 herein) jointly and severally to contribute ₹ 65 lacs to the Corporate Debtor - HELD THAT - The Corporate Debtor -'Perfect International Private Limited' and the Appellant No. 2 entered into two Agreements viz. Agreement dated 12.10.2015 and 16.08.2016 respectively - Corporate Debtor made the first tranche of payment on 19.12.2016 of ₹ 25,00,000/- including the advance of ₹ 5,00,000/- as a part payment of the initial contract of 2015 for facilitation of securing long term working capital loan for the Corporate Debtor. Corporate Debtor released the second tranche of payment of ₹ 30,00,000/- to the Appellant No. 2 which included ₹ 4,00,000/- as balance commission amount for arranging the long term working capital loan from SREI Equipment Finance Limited and ₹ 26,00,000/- as part of commission for getting business order from M/s. Regen Powertech Private Limited - Corporate Debtor released the third tranche of payment on 31.03.2018 amounting to ₹ 10,00,000/- as balance commission amount for getting business order from M/s. Regen Powertech Private Limited. There is no illegality committed by the Ld. Adjudicating Authority while passing the impugned order. The impugned order passed by the Ld. Adjudicating Authority (National Company Law Tribunal), Special Bench, Chennai is hereby affirmed - Appeal dismissed.

Summary

Issues Involved:
1. Validity of the agreements dated 12.10.2015 and 16.08.2016.
2. Nature of payments made by the Corporate Debtor to the Appellant.
3. Compliance with statutory requirements (service tax, TDS) for the payments.
4. Determination of fraudulent transactions under Section 43 and 66 of the Insolvency and Bankruptcy Code, 2016.
5. Adjudicating Authority's decision on the impugned order dated 01.02.2020.

Issue-wise Detailed Analysis:

1. Validity of the agreements dated 12.10.2015 and 16.08.2016:
The agreements between the Corporate Debtor and Appellant No. 2 were scrutinized. The first agreement dated 12.10.2015 involved consulting on business and restructuring, including arranging long-term and working capital debt for the Corporate Debtor, with a 3% commission fee. The second agreement dated 16.08.2016 involved facilitating procurement of purchase orders from windmill manufacturing companies, with a 5.5% commission on purchase orders and ?5 Lacs for expenses. The Tribunal found these agreements suspicious, noting that the Corporate Debtor was not a party to the engagement letters, and no invoices or service tax were charged.

2. Nature of payments made by the Corporate Debtor to the Appellant:
The Corporate Debtor made payments totaling ?65 Lacs to Appellant No. 2 in three tranches on 19.12.2016, 27.06.2017, and 31.03.2018. These payments were purportedly for services rendered under the aforementioned agreements. The Resolution Professional (Respondent No. 1) alleged these payments were preferential and fraudulent. The Tribunal noted the payments were recorded as advances in the Corporate Debtor's books, and there was no response or justification from the Respondent No. 2 regarding these payments.

3. Compliance with statutory requirements (service tax, TDS) for the payments:
The Tribunal observed that no invoices were raised by Appellant No. 2 for the payments, no service tax was charged, and no TDS was deducted by the Corporate Debtor. This lack of compliance with statutory requirements, such as Rule 4A of the Service Tax Rules, 1994, and Section 194J of the Income Tax Act, 1961, further cast doubt on the legitimacy of the transactions.

4. Determination of fraudulent transactions under Section 43 and 66 of the Insolvency and Bankruptcy Code, 2016:
The Resolution Professional, upon reviewing the Corporate Debtor's books, found the payments to be preferential and fraudulent. The Tribunal affirmed this view, noting the suspicious nature of the agreements and the lack of statutory compliance. The Tribunal also highlighted the common interests between the Appellants and Respondent No. 2 in another company, Udveka Engineering Pvt. Ltd., which further supported the finding of fraudulent intent.

5. Adjudicating Authority's decision on the impugned order dated 01.02.2020:
The Tribunal upheld the Adjudicating Authority's order dated 01.02.2020, which directed the Appellants to contribute ?65 Lacs to the Corporate Debtor. The Tribunal found no illegality in the Adjudicating Authority's decision, affirming that the transactions were indeed fraudulent and preferential.

Order:
The Tribunal dismissed the appeal, affirming the Adjudicating Authority's order and directing the Appellants to contribute ?65 Lacs to the Corporate Debtor. The judgment was to be uploaded on the Appellate Tribunal's website and communicated to the Adjudicating Authority (National Company Law Tribunal), Special Bench, Chennai.