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2022 (11) TMI 1009 - AT - Insolvency and BankruptcyAttachment of immovable property - Validity of attachment warrants - fraudulent trading - Section 25(2)(J) read with Section 66 of IBC - HELD THAT - For purchase of the property in question, loan was obtained in joint name of company/corporate debtor and both the appellants. It is also not in dispute that the loan amount was repaid from the account of the corporate debtor/company. However, at the time of registration to the reasons best known to the appellants the said property was got registered in the name of Appellant No. 1. It has also been noticed that after getting the said property registered which was purchased from the fund of corporate debtor, sometime in the year 2006 both the appellants tendered resignation as directors of the company. However, subsequently it has been noticed by the competent authority that the said company was being run by both the appellants - In forensic audit report it appears that it was noticed that fraud was committed by the appellant in getting the property registered in his name. It has further been noticed that after getting the property registered in his name both the directors tendered resignation from the Board of the company. However, the record suggests that both the directors were continuing to run the corporate debtor even thereafter. Fraudulent trading - HELD THAT - Levelling of section does not matter if a petition is filed before the Court having jurisdiction to deal with the same - On perusal of the section 66 of IBC, it is evident that if during liquidation process it is found that any fraud was committed then the Adjudicating Authority has jurisdiction to examine the same and pass appropriate order. In the present case on the basis of forensic audit report it was noticed that in relation to registration of property in the name of appellant fraud was committed. Loan for the purchase of the said property was taken on the joint agreement of appellants as well as corporate debtor and thereafter entire loan amount was repaid from the corpus of the corporate debtor itself and as such it can be inferred that by committing fraud the property was got registered in the name of Appellant No. 1. Accordingly considering the fraud which was noticed in the Forensic audit report the appellant is not entitled to raise question of limitation. Appeal dismissed.
Issues Involved:
1. Validity of the impugned orders dated 26.02.2021 and 20.12.2019. 2. Legitimacy of the attachment and auction of property bearing No. G-158, Sector 41, Noida. 3. Jurisdiction of the National Company Law Tribunal (NCLT) under Section 25(2)(j) and Section 66 of the Insolvency and Bankruptcy Code (IBC), 2016. 4. Applicability of the Benami Transactions (Prohibition) Act, 1988. 5. Power of review by the Adjudicating Authority under Rule 11 of the NCLT Rules and Section 420 of the Companies Act, 2013. Detailed Analysis: 1. Validity of the Impugned Orders: The appeal challenges the orders dated 26.02.2021 and 20.12.2019 passed by the NCLT. The order dated 26.02.2021 dismissed the review petition filed by the appellants, holding that there was no provision for review under Regulation 11 of the NCLT rules and that the original order dated 20.12.2019 was neither erroneous nor contrary to the record. The order dated 20.12.2019 directed the attachment and auction of the property in question, based on findings from a forensic audit report that indicated fraudulent diversion of funds by the appellants. 2. Legitimacy of the Attachment and Auction of Property: The NCLT ordered the attachment and auction of the property bearing No. G-158, Sector 41, Noida, which was fraudulently recorded in the name of Appellant No. 1. The forensic audit revealed that the property was purchased using funds diverted from the corporate debtor, Helpline Hospitality Pvt. Ltd. The NCLT concluded that the property belonged to the corporate debtor and directed the liquidator to proceed with the public auction to maximize the liquidation value of the corporate debtor's assets. 3. Jurisdiction of NCLT under Section 25(2)(j) and Section 66 of IBC: The appellants argued that the application filed by the liquidator under Section 25(2)(j) was not maintainable. However, the NCLT clarified that the application was also filed under Section 66 of the IBC, which deals with fraudulent trading or wrongful trading. The NCLT has jurisdiction to pass orders under Section 66 if it finds that the business of the corporate debtor was carried on with intent to defraud creditors. The forensic audit report provided sufficient evidence of fraudulent diversion of funds, justifying the NCLT's orders. 4. Applicability of the Benami Transactions (Prohibition) Act, 1988: The appellants contended that the NCLT had no jurisdiction to interfere with property covered under the Benami Transactions Act. However, the NCLT did not treat the property as benami but rather as an asset of the corporate debtor, fraudulently registered in the name of Appellant No. 1. The NCLT's decision was based on the forensic audit report and the fact that the property was purchased with funds from the corporate debtor. 5. Power of Review by the Adjudicating Authority: The appellants sought a review of the order dated 20.12.2019, arguing that there were apparent errors. The NCLT dismissed the review petition, holding that it had no inherent power to review its own orders under Rule 11 of the NCLT Rules or Section 420 of the Companies Act. The NCLT found no apparent error in the original order that warranted a review. The appeal also referenced judgments from the Supreme Court and NCLAT, but the NCLT concluded that these were not applicable to the present case. Conclusion: The appeal was dismissed, affirming the NCLT's orders for the attachment and auction of the property. The NCLT's jurisdiction under Section 66 of the IBC was upheld, and the arguments regarding the Benami Transactions Act and the power of review were rejected. The NCLT's findings were based on substantial evidence of fraudulent diversion of funds, justifying the attachment and auction of the property to recover the corporate debtor's assets.
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