2022 (5) TMI 433 - AT - Insolvency and Bankruptcy

Seeking directions to be issued to the Directors of the Corporate Debtor/the Appellants herein to make good the losses caused on account of the fraudulent transactions entered into by them - Seeking reference of the matter to IBBI in view of the provisions under Sections 236 of the Code - HELD THAT - Section 18(1)(a) of I B Code clearly specifies that the IRP shall collect all information relating to the assets, finances and operations of the Corporate Debtor . Section 18(9) to perform other duties as specified by the Board. In fact, in this case the appointment of the IRP was not ratified in the first CoC and he continued to function as IRP. Viewed from the provisions under the Code, in the event of suspicion of any fraudulent transaction, it cannot be said that the IRP did not have the power to collect information and furnish a detailed analysis to the Adjudicating Authority. The contention of the Learned Counsel for the Appellant that the Appellants herein did not operate the Bank Account or were not involved in any Bank Transaction, post their resignation, is untenable. These Bank Transactions post resignation, squarely fall within the ambit of Section 66(1) i.e., it is found that the business of the Corporate Debtor has been carried on with an intent to defraud Creditors . Amounts written off as bad debts only because they could not be recovered - HELD THAT - A perusal of the scanned copy of the Bank Statement evidences that the Adjudicating Authority has rightly concluded that there are no reasons given for how an amount of Rs.42,33,304/- has been settled for a mere payment of Rs.3 Lakhs/-. This fraudulent transaction took place during the time the Appellants were Directors of the Corporate Debtor and squarely falls within the ambit of Section 66 of the Code. The debts written off to defraud the Creditors, the cash transaction post their resignation evidencing their financial control in the affairs of the Corporate Debtor , clearly establish that they are fraudulent transactions done with a wilful intention of financial gain at the cost of negatively effecting the Creditors - Appeal dismissed.

Summary

Issues Involved:
1. Fraudulent transactions and non-cooperation by ex-Directors/Promoters.
2. Financial control and share sale transactions.
3. Writing off bad debts and cash transactions.
4. Bank transactions post-resignation.
5. Applicability of Sections 66 and 67 of the Insolvency and Bankruptcy Code (IBC), 2016.

Issue-wise Detailed Analysis:

1. Fraudulent Transactions and Non-Cooperation by Ex-Directors/Promoters:
The Interim Resolution Professional (IRP) filed I.A. 2153/2020 seeking directions against the ex-Directors/Promoters to make good the losses caused by fraudulent transactions and refer the matter to the Insolvency and Bankruptcy Board of India (IBBI) under Section 236 of the Code. The IRP contended that the ex-Directors/Promoters did not cooperate by withholding important documents and information, which hindered the Transaction Auditor from submitting a report. The IRP based his findings on his analysis of the available data.

2. Financial Control and Share Sale Transactions:
The ex-Directors/Promoters sold their 100% shareholding in the Corporate Debtor to Committed Cargo Care Limited on 20/10/2017 and later repurchased part of it on 31/03/2018. The Adjudicating Authority found no substantial reasons for these circuitous transactions and concluded that they were intended to defraud the creditors. The ex-Directors/Promoters failed to explain the objective behind these transactions.

3. Writing Off Bad Debts and Cash Transactions:
The Balance Sheet of the Corporate Debtor showed significant receivables and bad debts written off during the years 2017-18 and 2018-19. The IRP alleged that the ex-Directors/Promoters wrote off debts to defraud creditors. The Adjudicating Authority noted that Rs.42,33,304/- was settled for a mere Rs.3 lakhs, which was considered a fraudulent transaction. This settlement occurred during the tenure of the ex-Directors/Promoters.

4. Bank Transactions Post-Resignation:
The IRP provided evidence of bank transactions conducted by the ex-Directors/Promoters after their resignation on 31/12/2018. The total transactions amounted to Rs.19,98,602/- up to 26/07/2019. The bank records from ICICI Bank showed that the ex-Directors/Promoters were authorized signatories during this period. This evidence contradicted the ex-Directors/Promoters' claim that they were not involved in any bank transactions post-resignation.

5. Applicability of Sections 66 and 67 of the Insolvency and Bankruptcy Code (IBC), 2016:
The Adjudicating Authority applied Sections 66 and 67 of the Code, which deal with fraudulent trading and wrongful trading. The Authority concluded that the ex-Directors/Promoters carried on business with the intent to defraud creditors and were liable to make contributions to the Corporate Debtor's assets. The Authority directed the ex-Directors/Promoters to contribute specific amounts and also initiated prosecution under Section 69 of the IBC, 2016.

Conclusion:
The Appellate Tribunal upheld the Adjudicating Authority's decision, finding no illegality or infirmity in the order. The Tribunal dismissed the appeal, concluding that the ex-Directors/Promoters engaged in fraudulent transactions, exercised financial control post-resignation, and failed to cooperate with the IRP. The Tribunal emphasized that the IRP's analysis and the absence of cooperation justified the findings of fraudulent transactions under Section 66 of the Code.