2022 (11) TMI 1234 - AT - Insolvency and Bankruptcy

Undervalued Transactions - Preferential Transactions - Fraudulent Transaction - it is alleged that these transaction had been carried out by the Members of the Suspended Management though two years prior to the Insolvency Commencement date - HELD THAT - Though the relevant time is provided for under the Code, the fact remains that unless the Liquidator, scrutinises and peruses the material which is relevant, to determine whether the Preferential Transactions or Undervalued Transactions took place at the relevant time , he cannot come to a conclusion as to whether these transactions took place during the relevant time . There are force in the contention of the Liquidator that unless he is in the possession of all the material documents, he cannot determine whether they are Undervalued Transactions or Preferential Transactions , during the relevant period of time, and therefore, the Corporate Debtor cannot deny these documents at the threshold itself. There is no provision in the Code for the Appellant to invoke the clause concerning relevant period of two years solely on the ground of denying documents/information directed to be given to the Liquidator - this Tribunal, is of the earnest view that the Adjudicating Authority has rightly invoked its Inherent Power under Rule 11 of the Company Law Rules, 2016 in the interest of justice to direct the Promoters to provide the relevant information. On an Application preferred by the Liquidator, seeking clarification as to whether the Liquidator was allowed to investigate the Transactions executed or entered into by the Corporate Debtor , beyond two years from the ICD and relevant records can be asked for from the Promoters, the Adjudicating Authority has affirmed that the Promoters should give the necessary documents to the Liquidator and cooperate to enable the Forensic Auditors M/s. KPMG to complete the Audit - there is no illegality or infirmity in the Order of the Adjudicating Authority having exercised its Inherent Powers under Rule 11 of NCLT Rules, 2016 and hence this Appeal fails. Appeal dismissed.

Issues Involved:
1. Investigation of transactions beyond the two-year look-back period.
2. Cooperation of the Suspended Management with the Liquidator.
3. Applicability of Sections 43, 45, 46, and 66 of the Insolvency and Bankruptcy Code, 2016.
4. Invocation of Rule 11 of the NCLT Rules, 2016.
5. Relevance of the judgment in 'Anuj Jain, IRP for Jaypee Infratech' Vs. 'Axis Bank Ltd.'

Detailed Analysis:

1. Investigation of Transactions Beyond the Two-Year Look-Back Period:
The Appellant challenged the Adjudicating Authority's order permitting the Liquidator to investigate transactions beyond the two-year look-back period from the Insolvency Commencement Date (ICD). The Appellant argued that Sections 43 and 46 of the Insolvency and Bankruptcy Code, 2016 (the Code), restrict the investigation of preferential and undervalued transactions to a period of two years for related parties and one year for others preceding the ICD. The Respondent contended that fraudulent transactions under Section 66 of the Code have no such limitation. The Tribunal noted that while Sections 43 and 46 specify relevant periods, the Liquidator must scrutinize all material documents to determine if transactions fall within these periods. The Tribunal upheld the Adjudicating Authority's decision, emphasizing that Section 66 does not specify a look-back period, allowing investigation of fraudulent transactions at any time.

2. Cooperation of the Suspended Management with the Liquidator:
The Suspended Management was not cooperating with the Liquidator, citing the limitation of the two-year period. The Adjudicating Authority directed the Suspended Management to provide all necessary documents and information from 01.04.2008 onwards to the Liquidator and the Forensic Auditor, M/s. KPMG. The Tribunal reinforced this directive, stating that Section 19 of the Code mandates the personnel of the Corporate Debtor to extend full cooperation to the Liquidator. The Tribunal also noted that Regulation 9 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, requires cooperation without specifying a time limit.

3. Applicability of Sections 43, 45, 46, and 66 of the Insolvency and Bankruptcy Code, 2016:
The Tribunal examined the provisions of Sections 43, 45, 46, and 66. Section 43 deals with preferential transactions, Section 45 with undervalued transactions, Section 46 specifies the relevant periods for avoidable transactions, and Section 66 addresses fraudulent trading. The Tribunal clarified that while Sections 43 and 46 have specified look-back periods, Section 66 does not. The Tribunal emphasized that the Liquidator needs access to all relevant documents to determine if transactions fall under these sections and that fraudulent transactions can be investigated irrespective of the time frame.

4. Invocation of Rule 11 of the NCLT Rules, 2016:
The Appellant argued that the Adjudicating Authority acted outside its jurisdiction by invoking Rule 11 of the NCLT Rules, 2016. The Tribunal disagreed, stating that the Adjudicating Authority rightly invoked its inherent powers under Rule 11 in the interest of justice. The Tribunal highlighted that Section 213 of the Companies Act, 2013, empowers the Tribunal to order an investigation into the affairs of a company if there are circumstances suggesting fraudulent conduct, supporting the Adjudicating Authority's decision.

5. Relevance of the Judgment in 'Anuj Jain, IRP for Jaypee Infratech' Vs. 'Axis Bank Ltd.':
The Appellant cited the judgment in 'Anuj Jain, IRP for Jaypee Infratech' to argue against the investigation of transactions beyond two years. The Tribunal found this judgment irrelevant to the present case, noting that the Adjudicating Authority had already passed an order under Sections 43, 45, and 66 of the Code in that case. The Tribunal reiterated that the Liquidator must scrutinize documents to determine the nature of transactions, and Section 66 allows investigation of fraudulent transactions without a time limit.

Conclusion:
The Tribunal upheld the Adjudicating Authority's order, permitting the Liquidator to investigate transactions beyond the two-year look-back period and directing the Suspended Management to provide all necessary documents. The Tribunal emphasized the need for cooperation from the Suspended Management and the applicability of Section 66 for investigating fraudulent transactions without a time limit. The appeal was dismissed, affirming the Adjudicating Authority's exercise of inherent powers under Rule 11 of the NCLT Rules, 2016.

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