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2021 (9) TMI 197 - AT - Insolvency and BankruptcyLiability for Fraudulent Conduct of Business - fraudulent transactions - existence of claim of the Appellant against the Corporate Debtor - movement of funds of the Corporate Debtor in the cooperative bank which was opened for the limited period from 19.07.2019 to 15.10.2019 - Section 61 of the Insolvency and Bankruptcy Code, 2016 - HELD THAT - The Operational Creditor (Appellant) is a public incorporated Company since 09.04.1986 - It is not in dispute that they have not supplied the material and the amount were not due for collection. What wrong has been done by the Operational Creditor is violation of Section 14 of the Code. We are in agreement with the order passed by the Adjudicating Authority to the extent of refund of money and the same is in order - there is no need to interfere with the order of the Adjudicating Authority. The appeal is dismissed.
Issues Involved:
1. Applicability of Section 66(1) of the Insolvency and Bankruptcy Code, 2016. 2. Violation of Section 14 of the Insolvency and Bankruptcy Code, 2016. 3. Legitimacy of the withdrawal of funds by the Operational Creditor during the Corporate Insolvency Resolution Process (CIRP). Detailed Analysis: 1. Applicability of Section 66(1) of the Insolvency and Bankruptcy Code, 2016: The Appellant argued that Section 66(1) of the Code, which deals with fraudulent trading or wrongful trading, was incorrectly applied to their case. They contended that they were unaware of the CIRP and acted in the ordinary course of business by collecting dues. They cited the Supreme Court judgment in Usha Ananthasubramaniam Vs. Union of India, emphasizing that the business of the Company was not mismanaged. The Tribunal, however, upheld the Adjudicating Authority’s application of Section 66(1), noting that the Appellant's actions involved connivance with the suspended directors of the Corporate Debtor, thus constituting fraudulent transactions. 2. Violation of Section 14 of the Insolvency and Bankruptcy Code, 2016: The Tribunal highlighted that the Appellant violated Section 14 of the Code, which imposes a moratorium prohibiting various actions against the Corporate Debtor, including the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the Corporate Debtor. The Appellant's withdrawal of funds during the CIRP was deemed a clear violation of this provision. The Tribunal noted that the Appellant's actions were not in compliance with the moratorium imposed under Section 14, thus supporting the Adjudicating Authority’s decision. 3. Legitimacy of the Withdrawal of Funds by the Operational Creditor during CIRP: The Tribunal scrutinized the movement of funds from the Corporate Debtor’s bank account and found that the Appellant had withdrawn funds during the CIRP period, which was against the provisions of the Code. The Adjudicating Authority had elaborately explained the process of CIRP and the improper operation by the ex-directors allowing the withdrawal of money by the Appellant. The Tribunal agreed with the Adjudicating Authority’s order directing the Appellant to refund the amount withdrawn during the CIRP, emphasizing that the Appellant's actions were unauthorized and in violation of the moratorium. Conclusion: The Tribunal dismissed the appeal, affirming the Adjudicating Authority’s order for the Appellant to refund ?2,42,54,121/- to the Corporate Debtor’s account. The Tribunal held that the Appellant’s actions constituted a violation of Section 14 and were fraudulent under Section 66(1) of the Code. However, the Appellant was granted the liberty to file a claim before the Liquidator, who may consider it as per the provisions of the Code and related regulations. All pending applications were disposed of, and interim orders were vacated. No orders as to costs were issued.
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