2022 (9) TMI 1166 - AT - Insolvency and Bankruptcy

Seeking contribution to the Corporate Debtor, under Section 66 (2) of IBC, 2016 - fraudulent and knocked off Receivables - Preferential Transactions - fraudulent motive/dishonest intention - diversion of Receivables of the Corporate Debtor - HELD THAT - It is not in dispute that the Corporate Debtor Insolvency Resolution Process (CIRP) had attained finality and that the Resolution Plan became Functus Officio and he cannot file / pursue any Petition/ Application on behalf of the Company - The ingredients of Section 23 of the Insolvency Bankruptcy Code, 2016 pertains to the Role of the Resolution Professional to conduct Corporate Insolvency Resolution Process (CIRP) in managing the affairs of the Corporate Debtor during the Resolution Process Period and not at a later point of time. This Tribunal, significantly, points out that, whenever Fraud on a Creditor is perpetrated in the course of carrying on Business, it does not necessarily follow that the Business is being carried on with an Intent to Defraud the Creditor - One cannot remain oblivious of the candid fact that, if the Directors of a Company had acted on a bonafide belief that the Company would recover from its Financial Problems / Difficulties, then, they will not be held liable for the act / offence of Fraudulent Trading. The aspect of Fraudulent Trading requires a very High Degree of proof, which is attached to the Fraudulent Intent. To put it emphatically, a more compelling Material / Evidence is required to satisfy the conscience of this Tribunal, on a preponderance of probability. Apart from that, an isolated/ solo fraud case, against the person, then, action in tort can be resorted to, as opined by this Tribunal. No wonder, a Creditor, who was defrauded, will have recourse to an alternative remedy, under Civil Law. In the instant Case on hand, the Appellant / Applicant before the Adjudicating Authority (National Company Law Tribunal, Division Bench II, Chennai) had filed application under Section 66 (1) of the Insolvency and Bankruptcy Code, 2016. In this connection, this Tribunal significantly points out that in respect of an Application (Filed under Section 66 of the Insolvency and Bankruptcy Code, 2016) Fraudulent Trading / Wrongful Trading, by the Applicant/ Resolution Professional is concerned, Tangible Materials / Relevant Facts are to be pleaded in an Unambiguous and Unequivocal Terms, by supplying the necessary details / facts as the case may be. The averments projected by the Appellant / Applicant in application do not come within the Four Parameters, of the ingredients of Section 66 of the Insolvency and Bankruptcy Code, 2016). Viewed in that perspective, the Impugned Order dated 01.07.2022 in application passed by the Adjudicating Authority (National Company Law Tribunal, Division Bench II) in dismissing the Application, without Costs, is free from any Legal error. Consequently, the Appeal fails. Application dismissed.

Summary

Issues Involved:
1. Applicability of Section 66(1) and 66(2) of the Insolvency & Bankruptcy Code, 2016.
2. Determination of fraudulent trading and wrongful trading.
3. Evaluation of the evidence provided by the Appellant.
4. The role and responsibilities of the Resolution Professional post-approval of the Resolution Plan.
5. The validity of claims and counterclaims regarding financial transactions between the Corporate Debtor and the Respondents.

Issue-wise Detailed Analysis:

1. Applicability of Section 66(1) and 66(2) of the Insolvency & Bankruptcy Code, 2016:
The Tribunal noted a stark contrast between Section 66(1) and 66(2) of the IBC, 2016, emphasizing that their scopes are different. The Appellant sought contributions from the Respondents under Section 66(2). The Tribunal examined whether the transactions alleged by the Appellant fell within the confines of 'Fraudulent Trading' as per Section 66(1), which involves carrying on business with intent to defraud creditors or for any fraudulent purpose. The Tribunal referenced the Supreme Court's decision in Anuj Jain IRP for Jaypee Infratech Limited vs. Axis Bank Limited, highlighting the need for specific material facts and different enquiries for preferential, undervalued, and fraudulent transactions.

2. Determination of fraudulent trading and wrongful trading:
The Tribunal required the Appellant to prove that the Respondents knowingly carried on the business with the Corporate Debtor with a dishonest intention to defraud the creditors. The Appellant failed to provide documentary proof to support the allegations of fraudulent intent. The Tribunal concluded that the reasons given by the Respondents were plausible and did not fall under Section 66(1) of the IBC, 2016.

3. Evaluation of the evidence provided by the Appellant:
The Appellant alleged that a sum of Rs.70,82,13,056/- was routed from the Corporate Debtor's bank account to the 1st Respondent's account without reason, constituting a fraudulent transaction. However, the Tribunal found that the Appellant failed to prove the dishonest intention of the Respondents to defraud the creditors. The Appellant's claims were based on allegations without sufficient documentary evidence.

4. The role and responsibilities of the Resolution Professional post-approval of the Resolution Plan:
The Tribunal referred to the Insolvency Law Committee's report, which stated that the successful resolution applicant should not be permitted to file applications against improper trading or to avoid transactions. Regulation 38 of the IBBI Regulations, 2016, specifies the mandatory contents of the resolution plan, including the manner in which proceedings in respect of avoidance transactions will be pursued post-approval. The Tribunal noted that the CIRP had attained finality, and the Resolution Professional could not file or pursue any application on behalf of the company.

5. The validity of claims and counterclaims regarding financial transactions between the Corporate Debtor and the Respondents:
The Respondents argued that the payments made to the Corporate Debtor were accounted for and that the claims of fraudulent transactions were baseless. The 1st Respondent claimed liquidated damages from the Corporate Debtor and explained that the returned sum of Rs.70,82,13,056/- was accounted for in the sale consideration. The Tribunal found that the Appellant's claims were not supported by convincing tangible or documentary materials.

Conclusion:
The Tribunal dismissed the Appellant's application, finding no merits in the claims of fraudulent trading or wrongful trading. The Appellant failed to provide sufficient evidence to prove the dishonest intention of the Respondents to defraud the creditors. The Tribunal upheld the Adjudicating Authority's order and dismissed the appeal without costs.