2021 (9) TMI 928 - AT - Insolvency and Bankruptcy

Squaring off was preferential transaction under Section 43 - undervalue without permission of the Resolution Professional - Violation of Principles of Natural Justice - Squaring off Receivables against Debt - Sale of Car in Moratorium - HELD THAT - The Impugned Order shows that for the Appellant Mr. Navin Arora I/B AA Associates had appeared. There is nothing on record to show that this Advocate apprised the Adjudicating Authority that he is not instructed in I.A. 1108 of 2020 or that he apprised the Adjudicating Authority that for I.A. 1108 of 2020 for same Appellant (Respondent before Adjudicating Authority) there were different advocates appearing. We reject such approach, which are means of creating grounds to protract matter. There is no material also to show that on 07th January, 2021 or soon thereafter any grievance was raised with the Adjudicating Authority in writing that name of wrong advocate is shown for Respondent with regard to the M.A. concerned - the ground that Principles of Natural Justice were violated is rejected. Squaring off Receivables against Debt - HELD THAT - The entries were made by the Appellant who was functioning as Chief Executive Officer which was admittedly done on 31st March, 2018 which was after filing of the Application under Section 7 of IBC on 6th March, 2018. He has squared off what he had to receive against what was to be received by the Corporate Debtor from the three entities referred. What is the deal/understanding between him and the three entities is within the knowledge of the Appellant - On record fact remains that there is transfer of interest of the Corporate Debtor (which was to receive the amounts from the three entities) for the benefit of the Appellant Chief Executive Officer of Corporate Debtor who had to receive back unsecured loan given to Corporate Debtor, and this would put to detriment the other creditors of the Corporate Debtor - the Appellant was hit by Section 43 of IBC. Sale of Car in Moratorium - HELD THAT - The Appellant is guilty not only with regard to the contravening moratorium and liable for action under Section 74 of IBC but is also liable for misconduct in course of CIRP under section 70 of IBC. It appears that the Resolution Professional and the Adjudicating Authority need to ask the Appellant to explain the amount actually received under the sale of the car and to consider if it is also a case of criminal misappropriation - No doubt this is an appeal filed by the Appellant to clear himself of the liability to pay but Resolution Process, not being an adversarial litigation, when we notice violation of the provisions of IBC, under Rule 11 of NCLAT Rules we can make such orders as are necessary for meeting the ends of justice and to prevent abuse of the process of the Tribunal. The directions given by the Adjudicating Authority directing the Appellant to deposit ₹ 91,56,687/- toward amount which was squared off by the Appellant

Summary

Issues Involved:
1. Preferential Transaction and Squaring off Receivables against Debt.
2. Sale of Car during Moratorium.
3. Violation of Principles of Natural Justice.

Issue-wise Detailed Analysis:

1. Preferential Transaction and Squaring off Receivables against Debt:
The Resolution Professional (RP) filed I.A. No. 1108 of 2020 alleging that the Appellant had committed preferential transactions by squaring off an unsecured loan against receivables from three entities, amounting to ?91,56,687/-. The Adjudicating Authority observed that the transactions were preferential and undervalued, falling under Section 43 and 45(1) of the Insolvency and Bankruptcy Code (IBC). The Appellant's actions were deemed to have been done with the intent to defraud creditors, thus violating Section 43. The Appellant was directed to contribute ?91,56,687/- to the Corporate Debtor's assets.

2. Sale of Car during Moratorium:
The RP alleged that the Appellant sold a car belonging to the Corporate Debtor without permission during the Corporate Insolvency Resolution Process (CIRP), which began on 18th December 2018. The car was sold on 31st December 2018, violating Section 14 of IBC. The Adjudicating Authority held that this transaction was fraudulent and undervalued. The Appellant was directed to pay the difference between the book value and the sale price, totaling ?13,85,227/-. The sale transaction was declared invalid, and the car was to remain the property of the Corporate Debtor.

3. Violation of Principles of Natural Justice:
The Appellant claimed that the Impugned Order was passed without giving him an opportunity to be heard, thus violating the principles of natural justice. The Appellant argued that his reply was not considered, and there was confusion regarding representation by different advocates in various applications. The Tribunal rejected this argument, stating that the Appellant had multiple advocates and should have ensured proper representation. The Tribunal found no material evidence to support the claim of violation of natural justice.

Judgment and Directions:
The Tribunal upheld the Adjudicating Authority's directions for the Appellant to deposit ?91,56,687/- and declared the sale of the car invalid. The car was to be taken back by the RP and dealt with according to the Resolution Plan. The Tribunal also directed the RP to investigate the unaccounted ?25,000/- from the car sale and take appropriate legal action. The matter was remitted back to the Adjudicating Authority for further action as per the Resolution Plan. The appeal was disposed of with no order as to costs.