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Home Case Index All Cases Insolvency and Bankruptcy Insolvency and Bankruptcy + AT Insolvency and Bankruptcy - 2022 (10) TMI AT This

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2022 (10) TMI 523 - AT - Insolvency and Bankruptcy


Issues Involved:
1. Allegation of fraudulent trading under Section 66(1) of the Insolvency and Bankruptcy Code (IBC), 2016.
2. Non-disclosure of the transaction audit report and violation of principles of natural justice.
3. Consideration of relevant documents and forensic audit report by the Adjudicating Authority.
4. Transfer of assets within group companies and its characterization as fraudulent trading.

Issue-wise Detailed Analysis:

1. Allegation of fraudulent trading under Section 66(1) of the Insolvency and Bankruptcy Code (IBC), 2016:
The Appellant, a Resolution Professional, alleged that the Respondents engaged in fraudulent trading by transferring assets within group companies with the intent to defraud creditors. The Adjudicating Authority observed that the Appellant failed to prove the dishonest intention of the Respondents. It was noted that the transfer of assets within group companies does not per se constitute fraudulent trading under Section 66(1) of IBC, 2016. The Tribunal emphasized that allegations alone, without documentary proof, are insufficient to establish fraudulent trading. The Tribunal concluded that the transfer of assets was plausible and not done with an intent to defraud creditors.

2. Non-disclosure of the transaction audit report and violation of principles of natural justice:
The Adjudicating Authority noted that the Appellant did not serve the entire transaction audit report to the Respondents, leaving them unable to respond to the allegations properly. The Tribunal relied on the Supreme Court decision in T. Takano v. Securities and Exchange Board of India & Anr., which held that nondisclosure of such reports violates principles of natural justice. The Tribunal found that the non-disclosure of the audit report was a gross violation of natural justice, sufficient to dismiss the application.

3. Consideration of relevant documents and forensic audit report by the Adjudicating Authority:
The Appellant contended that the Adjudicating Authority failed to consider various documents, including audited financial statements, fixed assets register, bank statements, sale deed, and record of rights, along with the forensic and transaction audit report. The Tribunal noted that the Adjudicating Authority had relied heavily on the forensic and audit report without adequately considering the statutory documents. However, the Tribunal found that the Appellant did not provide sufficient evidence to substantiate the allegations of fraudulent trading.

4. Transfer of assets within group companies and its characterization as fraudulent trading:
The Tribunal examined whether the transfer of assets within group companies could be characterized as fraudulent trading. It was argued that the land purchased with the Corporate Debtor's funds was registered in the name of the 1st Respondent, a related party. The Tribunal noted that the Respondents had maintained transparency in transactions and asset details through the SAP system, and no personal gain was derived from the transactions. The Tribunal concluded that the transfer of assets within group companies does not constitute fraudulent trading under Section 66(1) of IBC, 2016, as there was no fraudulent intent or dishonest purpose.

Result:
The Tribunal upheld the Adjudicating Authority's decision, dismissing the application for lack of evidence of fraudulent trading. The Tribunal found that the transfer of assets within group companies was transparent and did not indicate any fraudulent intent. Consequently, the appeal was dismissed, and the connected stay application was closed.

 

 

 

 

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