2021 (6) TMI 192 - Tri - Insolvency and Bankruptcy

Liquidation order - recovery of unauthorized transactions effected by the bank after June 14, 2017 - undervalued transactions - HELD THAT - It is required to be noted that upon an application originally filed by the corporate debtor under section 10 of the IBC, 2016 seeking thereof to initiate the CIRP against itself the same came to be admitted by this Tribunal on June 14, 2017. As per the provisions of the IBC, 2016 once an application under section 7, 9 or 10 of the IBC, 2016 is admitted by the Adjudicating Authority, the moratorium as envisaged under section 14 of the IBC, 2016 irrespective of who had initiated the process will come into effect - it is clear from a combined reading of the provisions of sections 17 and 18 of the IBC, 2016 that once the interim resolution professional in relation to the corporate debtor is appointed by this Tribunal the management of the affairs of the corporate debtor shall vest with the IRP and further the powers of the board of directors or the partners of the corporate debtor shall stand suspended and will be exercised by the IRP. From the documents filed by the third respondent/Bank of India, it is seen that the said amount of ₹ 79,65,070 was being distributed to about 69 persons for the period from June 30, 2017 to September 28, 2017 at the behest of the first and second respondent herein by way of various bank instruments, viz., cheques/NEFT/RTGS and cash withdrawals. At this juncture, it is to be borne in mind that the avoidance transactions as contem plated under Chapter III of the IBC, 2016 would come into place only in relation to the transactions which happened prior to the commencement of CIRP. However, section 66 of the IBC, which deals with fraudulent trading and wrongful trading which falls under Chapter VI does not make such a distinction - the first and second respondents have also acted in violation of the moratorium as envisaged under section 14 of the IBC, 2016. The first and second respondent have knowingly transferred the sum of ₹ 79,65,090 to the accounts of the creditors, which would amount to fraudulent trading as envisaged under section 66(1) of the IBC, 2016 aided and abetted by the third respondent which they are required to duly account for the corporate debtor, presently under liquidation and hence as such they are liable to make such contribution to the assets of the corporate debtor - first to third respondents are directed to pay to the liquidation estate managed by the applicant, a sum of ₹ 79,65,090 along with interest chargeable at bank rates from the respective date of withdrawals, within a period of 60 days from the date of this order. In relation to the fourth respondent, the IBBI is directed to take suitable action - application disposed off.

Issues Involved:
1. Contribution to the assets of the corporate debtor.
2. Recovery of unauthorized transactions.
3. Punishment under sections 68 and 74 of the IBC.
4. Jurisdiction and maintainability of the application.
5. Responsibilities and actions of the Interim Resolution Professional (IRP) and Committee of Creditors (CoC).
6. Role and actions of the bank (third respondent).
7. Fraudulent trading and wrongful trading under section 66 of the IBC.

Detailed Analysis:

Contribution to the Assets of the Corporate Debtor:
The applicant sought an order directing the respondents to contribute ?79,65,070 to the assets of the corporate debtor. The Tribunal noted that the corporate debtor filed for CIRP on June 14, 2017, and the moratorium under section 14 of the IBC came into effect. Despite the moratorium, the first and second respondents diverted the entire amount of an Income-tax refund credited to the corporate debtor's account. The Tribunal concluded that the respondents violated the moratorium and were liable to contribute the diverted amount to the corporate debtor's assets.

Recovery of Unauthorized Transactions:
The applicant requested an order to recover unauthorized transactions made after the initiation of the moratorium. The Tribunal found that the first and second respondents illegally transferred the Income-tax refund amount from the corporate debtor's account, violating section 14 of the IBC. The Tribunal directed the respondents to repay the amount to the liquidation estate managed by the applicant.

Punishment Under Sections 68 and 74 of the IBC:
The applicant sought punishment for the first and second respondents under sections 68 and 74 of the IBC for concealing the bank account and swindling the Income-tax refund. The Tribunal observed that the respondents' actions constituted fraudulent trading under section 66(1) of the IBC, as they knowingly transferred funds during the moratorium period. The Tribunal held the respondents accountable for their fraudulent actions.

Jurisdiction and Maintainability of the Application:
The first and second respondents argued that the application was ultra vires the liquidator and not maintainable. They claimed that the IRP and RP never filed an application against them for non-cooperation during the CIRP. The Tribunal dismissed these arguments, stating that the respondents' actions during the moratorium period were clear violations of the IBC, making the application maintainable.

Responsibilities and Actions of the IRP and CoC:
The fourth respondent (IRP) claimed he could not perform his duties due to non-cooperation from the CoC. The Tribunal found this argument unconvincing, noting that the IRP failed to notify the bank about his appointment, leading to unauthorized transactions. The Tribunal held the IRP responsible for not diligently performing his duties and directed the Insolvency and Bankruptcy Board of India (IBBI) to take suitable action against him.

Role and Actions of the Bank (Third Respondent):
The third respondent (Bank of India) argued that it was unaware of the CIRP initiation and allowed usual banking operations. The Tribunal found the bank equally culpable, as it should have acted on the instructions of the IRP once the CIRP commenced. The bank's failure to do so contributed to the unauthorized transactions, making it liable to contribute to the corporate debtor's assets.

Fraudulent Trading and Wrongful Trading Under Section 66 of the IBC:
The Tribunal invoked section 66(1) of the IBC, which addresses fraudulent trading during the CIRP or liquidation process. The Tribunal cited the Supreme Court's decision in Embassy Property Developments P. Ltd. v. State of Karnataka, affirming that fraudulent transactions during the insolvency resolution process can be inquired into by the Adjudicating Authority. The Tribunal concluded that the first and second respondents' actions amounted to fraudulent trading, making them liable to contribute to the corporate debtor's assets.

Conclusion:
The Tribunal directed the first to third respondents to pay ?79,65,070 to the liquidation estate managed by the applicant, along with interest. The IBBI was instructed to take suitable action against the fourth respondent (IRP) for his failures. The application was allowed with these directions.

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