2024 (10) TMI 827 - AT - IBC

Violation of principles of natural justice - it is argued that the impugned order is non- speaking and arbitrary as the Appellants have not been given fair opportunity to present their case - maintainability of combined application under Sections 43, 45, 66 of IBC - transaction audit report was not made available to the Appellant - HELD THAT - It is not in dispute that total claim admitted in the resolution plan was Rs. 2351.97 Lakhs including claim of the financial creditors of Rs. 2277.80 Lakh and claim of the Operational Creditor of Rs.74.17 Lakhs. It is also not in dispute that the CoC in its second meeting held on 14.02.2020 appointed AKG Associates for carrying out the transaction audit for the period from 01.04.2017 to 04.12.2019 (CIRP Commencement date) and it is not in dispute either that the transaction auditor presented their final report in the 3rd CoC meeting held on 15.05.2020 and report was shared with the present Appellants. There is no objection raised to the final report by the Appellants submitted to the CoC. The RP then filed the application under Sections 25(2)(j), 43, 45, 66 and 235A of the Code in which the details of the preferential, undervalued and fraudulent transactions were given under separate heads. The application had to be filed because of the aforesaid transactions the total admitted claim of Rs. 2351.97 Lakh of the creditors became unrecoverable. The RP also gave the summary of avoidance transactions in which preferential was of Rs.502.46 Lakh, undervalued was of Rs. 1721.19 Lakh and Fraudulent was of Rs. 2384.32 Lakh. The present Appellants, who are arrayed as Respondent No.1 and 2 in the application bearing 2445 of 2020, did not choose to appear at the first instance despite service but later on they were allowed to appear by the Court and also allowed to file their reply to the application but they did not choose to file the reply either and as a result thereof, their right to file reply after giving appropriate opportunities was closed and the said order remained unchallenged at the instance of the Respondents (Appellants herein). In such circumstances at this stage, it does not lie in the mouth of the Appellants to make a complaint that they have not been heard or take the shelter of the principle of natural justice when they themselves are to be blamed for the lapse and negligence on their part in not even filing the reply. The decision in the case of GVR Consulting Services Pvt. Ltd. 2023 (4) TMI 1137 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI is very much applicable to the present facts and circumstances of the case because the application has been filed giving details under separate heads of the preferential, undervalued and fraudulent transactions determined by the Appellants. There are no merit in the present appeal and the same is hereby dismissed.

Issues Involved:

1. Validity of the impugned order by the Adjudicating Authority.
2. Preferential transactions under Section 43 of the Insolvency and Bankruptcy Code, 2016.
3. Undervalued transactions under Section 45 of the Code.
4. Fraudulent transactions under Section 66 of the Code.
5. Procedural fairness and opportunity to present a defense.
6. Maintainability of a combined application under Sections 43, 45, and 66.

Issue-wise Detailed Analysis:

1. Validity of the Impugned Order:

The appeal challenged the order dated 20.06.2022, which directed certain respondents to pay specified amounts to the Corporate Debtor and initiated penal proceedings against suspended directors. The appellants contended that the order was non-speaking and arbitrary, alleging that they were not given a fair opportunity to present their case. However, the tribunal found that the appellants were given multiple opportunities to file a reply, which they failed to do. Consequently, the order was upheld, and the appeal was dismissed.

2. Preferential Transactions under Section 43:

The transaction audit revealed several transactions deemed preferential, totaling Rs. 502.46 lakh. These transactions were not conducted in the ordinary course of business and involved payments to various parties, including related entities and suspended directors, which were considered preferential under Section 43. The tribunal upheld the findings of the transaction auditor and the resolution professional, affirming the need to reverse these transactions as avoidance transactions under the Code.

3. Undervalued Transactions under Section 45:

The audit identified undervalued transactions amounting to Rs. 1721.19 lakh. These involved sales of goods at significantly lower prices than their cost, resulting in substantial losses. The tribunal noted that these transactions were intended to transfer assets out of the creditors' reach and were not conducted in the ordinary course of business. The findings were supported by the transaction auditor's report, which highlighted the lack of substantial evidence to justify these sales.

4. Fraudulent Transactions under Section 66:

Fraudulent transactions totaling Rs. 2384.32 lakh were identified, involving sales and purchases without any actual movement of goods. These transactions were intended to inflate sales and purchases artificially and write off non-existent stock. The tribunal found that the suspended directors had deliberately engaged in these transactions to defraud creditors. The findings were supported by the transaction auditor's observations, which noted the absence of genuine transactions and the intent to defraud.

5. Procedural Fairness and Opportunity to Present a Defense:

The appellants argued that they were not given a fair opportunity to present their case. However, the tribunal found that the appellants were given multiple opportunities to file a reply, which they failed to utilize. The order proceeding against them ex-parte was set aside, and they were granted time to file a reply, which they did not do. Consequently, their right to file a reply was closed, and the tribunal held that the appellants were responsible for their non-compliance.

6. Maintainability of a Combined Application under Sections 43, 45, and 66:

The appellants contended that a combined application under Sections 43, 45, and 66 was not maintainable, citing the Supreme Court's decision in Anuj Jain Vs. Axis Bank Ltd. However, the tribunal referred to a decision in GVR Consulting Services Pvt. Ltd., which emphasized that while the application was combined, the resolution professional had provided separate details under different heads for each type of transaction. The tribunal found no infirmity in the application and upheld its maintainability.

Conclusion:

The tribunal dismissed the appeal, finding no merit in the appellants' arguments. The tribunal upheld the findings of preferential, undervalued, and fraudulent transactions, affirming the order of the Adjudicating Authority. The tribunal emphasized that the appellants were given ample opportunity to present their case, which they failed to utilize, and upheld the maintainability of the combined application under the relevant sections of the Insolvency and Bankruptcy Code, 2016.

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