2023 (6) TMI 194 - AT - Insolvency and Bankruptcy

Fraudulent/wrongful trading - related party transaction of not - Lands sold at a Higher Amount than at which, the same was purchased - intent of defrauding its Creditors - HELD THAT - The expression Party to the carrying on business, indicates taking positive steps, in carrying on company s business, in a fraudulent manner. The intent to defraud, is to be judged, by its effect on a Person, who is the object of conduct, in question - A preponderance of probability suffices, but the degree of probability must be such that the Tribunal, is satisfied and further that under Section 66 of the I B Code, 2016, it is not essential to attract that there ought to be a Debtor and a Creditor relationship. It must be borne in mind that for proving a Fraudulent Trading needs meeting the High Standard of Proof, which is attached to a Fraudulent Intent. A Director, of a Company, may be proceeded against for a Wrongful Trading, because of the reason of Negligent Failure of Management. Besides this, a person, knowingly a Party to a Fraudulent Trading, by the Company concerned, may be subject to the proceedings - The Appellant has a duty, to establish to the satisfaction of this Tribunal, that a person, is knowingly carrying on the business with the Corporate Debtor, with an dishonest intention, to defraud, the Creditors. For a Fraudulent Trading / Wrongful Trading, necessary materials are to be pleaded by a Litigant / Stakeholder, by furnishing Requisite Facts, so as to come within the purview of the ingredients of Section 66 of the I B Code, 2016. Suffice it, for this Tribunal, to pertinently point out that the ingredients of Section 66 (1) and 66 (2) of the I B Code, 2016, operate in a different arena. It is crystalline clear that the transaction of Transfer of Assets, among / within the Group Companies, ex-facie, will not come within the umbrage of the Fraudulent Trading, as per Section 66 (1) of the Code, as opined by this Tribunal. Furthermore, in the instant case, the Appellant / Applicant, has made an fervent endeavour, to converse the transactions, allegedly made by the Respondents, as per Section 66 of the Code. On a careful consideration of the contentions, advanced on behalf of the Appellant, and keeping in mind of the facts and circumstances of the case, in an integral manner, and also on going through the impugned order of dismissal, passed by the Adjudicating Authority (National Company Law Tribunal, Division Bench II, Chennai), comes to a conclusion that the Appellant / Applicant, had not established the Aspect of Fraud or Dishonest Intent, on the Respondents side, to the subjective satisfaction of this Tribunal. As such, the view taken by the Adjudicating Authority (National Company Law Tribunal, Division Bench II, Chennai), preferred by the Appellant / Applicant, in dismissing the application is free from any legal errors. Consequently, the Appeal, fails. Appeal dismissed.

Summary

Issues Involved:
1. Whether the transfer of assets within group companies constitutes 'fraudulent trading' under Section 66(1) of IBC, 2016.
2. Whether the transactions were conducted with fraudulent intentions to defraud creditors.
3. Whether the adjudicating authority erred in dismissing the application without considering the documentary evidence presented.

Summary:

Issue 1: Transfer of Assets Within Group Companies
The Adjudicating Authority observed that the transfer of assets within group companies does not per se constitute 'fraudulent trading' under Section 66(1) of IBC, 2016. The transaction appeared plausible as it occurred within the Regen Group, and the funds were provided by RPPL to the Corporate Debtor, which then provided them to the 3rd Respondent.

Issue 2: Fraudulent Intentions
The Appellant contended that the adjudicating authority ignored documented evidence such as sale deeds, bank statements, and financial statements indicating that the lands were purchased using the Corporate Debtor's funds but registered in the name of the 3rd Respondent. The Appellant argued that this transaction was not in the ordinary course of business and provided no profit or gain to the Corporate Debtor. However, the Adjudicating Authority found no merits in the allegations of fraud or dishonest intention on the part of the Respondents, as there was no substantial evidence to prove fraudulent trading.

Issue 3: Consideration of Documentary Evidence
The Appellant argued that the adjudicating authority failed to consider the overwhelming documentary evidence and accepted the unsubstantiated defense of the Respondents. The Appellant referred to various judgments to support the need for documentary proof in civil suits and the duty of the Resolution Professional to form an opinion and present evidence of fraudulent transactions. Despite these arguments, the Adjudicating Authority concluded that the Appellant had not established the aspect of fraud or dishonest intent to the satisfaction of the Tribunal.

Conclusion:
The Tribunal affirmed the decision of the Adjudicating Authority, stating that the transfer of assets among group companies did not constitute fraudulent trading under Section 66(1) of IBC, 2016. The Appellant failed to prove fraudulent intent or dishonest actions by the Respondents. Consequently, the appeal was dismissed without costs.