2021 (3) TMI 552 - Tri - Insolvency and Bankruptcy

CIRP - Preferential Transactions - undervalued transactions - fraudulent trading or wrongful trading - HELD THAT - The specific material fact in relation to the transaction which is sought to be challenged by the resolution professional is required to be pleaded in the application. As to the present case, the applicant has sought to reverse the transactions purported to be done by the respondents under sub-section (2) of section 66 of the IBC, 2016. It is required to be noted that six transactions are alleged, in relation to which reliefs have been sought for. However, out of the six transactions alleged to be falling under the provisions of section 66, it is required to be seen that in relation to transactions alleged under clauses (a), (d), (e) and (f) in the reliefs portion of the applications prima facie it is seen that third parties are involved without which the transactions would not have been perpetrated and hence the impleadment of these parties becomes essential which the applicant has failed to do and in the absence of these parties we are unable to consider the said allegations and the attendant reliefs sought for. However, the transactions alleged in relation to these reliefs are of very serious nature as brought forth in the Forensic Audit Report, the audit of which had been commissioned only after the approval from the members of the CoC. When the Forensic Audit Report commissioned by the CoC itself returns with serious findings against the respondents, being the promoters, the same is required to be not ignored and is required to be taken in all seriousness. It is evident that based on an application filed under section 10 of the IBC, 2016 on March 4, 2019 by the corporate debtor through its promoters/directors who are the respondents herein, CIRP had been initiated by this Tribunal in relation to the corporate debtor vide its order dated April 15, 2019. By now its trite that whether it be under sections 7, 9 or section 10 of the IBC, 2016 the petitioner(s) under the concerned sections of the IBC, 2016 are required to approach this Tribunal with a bona fide and honest intent seeking for the resolution of the insolvency of the corporate debtor and the petition should not have been filed with a fraudulent or malicious intent, lest the person approaching this Tribunal should become liable to prosecution under section 65 of the IBC, 2016 - The disclosures in particular made under form 6 of the said Rules and the annexures filed thereunder are of significant importance for this Tribunal coming to a conclusion the existence of insolvency of the corporate debtor and for initiating the CIRP for its resolution. Thus, furnishing any misleading, wrongful or fraudulent information will in itself vitiate the petition and the proceedings if any initiated thereunder. Let the Registrar of Companies, Coimbatore under whose juris diction the corporate debtor is amenable to inspect the books and conduct inquiries as provided under sections 206 and 207 of the Companies Act, 2013 and also furnish a report to the appropriate Authority for necessary action under section 208, if any required - the resolution professional is directed to provide a copy of the Forensic Audit Report filed before this Tribunal along with this application for the purpose of reference.

Summary

Issues Involved:
1. Invocation of Section 66 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016) for fraudulent and wrongful trading.
2. Diversion of funds to related parties.
3. Non-handover of cash balance.
4. Arbitrary write-off of receivables.
5. Payments made to customers and written off.
6. Loans given to parties and written off.
7. Diversion of stocks.

Detailed Analysis:

1. Invocation of Section 66 of IBC, 2016 for Fraudulent and Wrongful Trading:
The applicant sought to invoke Section 66 of the IBC, 2016, focusing on fraudulent trading and wrongful trading. Section 66(1) imposes liability on any person knowingly carrying on business with dishonest intent to defraud creditors. Section 66(2) deals with directors or partners who knew or should have known about impending insolvency but failed to minimize potential loss to creditors. The Tribunal examined whether the transactions alleged by the applicant fell within the confines of wrongful trading under Section 66(2).

2. Diversion of Funds to Related Parties:
The applicant alleged that funds were diverted to related parties, Trinity Papers India P. Ltd. and Sivasakthi International, amounting to ?541.58 lakhs and ?378.73 lakhs respectively. The Forensic Audit Report indicated these transactions were preferential under Section 43 of the IBC, 2016. However, the Tribunal noted that third parties involved in these transactions were not impleaded, making it challenging to consider the allegations without their presence.

3. Non-Handover of Cash Balance:
The applicant claimed that former directors did not hand over a cash balance of ?12.31 lakhs to the Interim Resolution Professional (IRP) when the Corporate Insolvency Resolution Process (CIRP) commenced. The Tribunal found no satisfactory explanation from the respondents regarding the utilization of the cash balance, leading to the conclusion that the respondents had removed the cash with dishonest intent to defraud creditors. The respondents were directed to contribute ?12.31 lakhs to the assets of the corporate debtor.

4. Arbitrary Write-Off of Receivables:
Receivables amounting to ?649.39 lakhs from Sakal Papers P. Ltd. were allegedly written off arbitrarily, causing wrongful loss to the corporate debtor. The Tribunal noted that the applicant failed to demonstrate how these write-offs were computed and did not implead necessary third parties involved in these transactions, making it difficult to consider the allegations.

5. Payments Made to Customers and Written Off:
Payments amounting to ?50.28 lakhs made to customers were written off, allegedly causing wrongful loss to the corporate debtor. The Tribunal observed that the applicant did not provide sufficient evidence or involve necessary third parties, making it challenging to consider these allegations.

6. Loans Given to Parties and Written Off:
Loans given to various parties amounting to ?43.49 lakhs were written off. The Tribunal noted that the corporate debtor had no objects for providing loans to third parties and that these transactions were a ruse for pilferage. However, the applicant failed to implead necessary third parties, making it difficult to consider the allegations.

7. Diversion of Stocks:
The applicant alleged that stocks worth ?2,70,46,147 were diverted by the respondents. The Tribunal found inconsistencies in the stock figures provided by the respondents but noted that the applicant failed to quantify how the figure of ?2,70,46,147 was computed. The Tribunal directed the Registrar of Companies, Coimbatore, to inspect the books and conduct inquiries under Sections 206 and 207 of the Companies Act, 2013.

Conclusion:
The Tribunal directed the Registrar of Companies, Coimbatore, to inspect the books and conduct inquiries for the transactions alleged under clauses (a), (b), (d), (e), and (f) of the relief portion. For clause (c), the respondents were directed to contribute ?12.31 lakhs to the assets of the corporate debtor within four weeks. The application was disposed of with these directions.