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2024 (1) TMI 43 - AT - Insolvency and BankruptcyRejection of Resolution Plan - Liquidation ordered - Application under Section 66 of IBC - reliability of Forensic Audit Report, an independent expert agency - ineligibility of the Appellants under Section 29 (A) (g) of the Code - HELD THAT - It is seen CoC approved the resolution plan and accordingly the application for the liquidation of the Corporate Debtor was withdrawn by the Respondent/Resolution Professional. However, since the CoC at a later stage authorised the Respondent to file the application under section 66 of the Code, therefore the Respondent filed the said application after forming her independent opinion. Therefore, it is incorrect submissions made by Appellant that the Resolution Professional want to send the Corporate Debtor into liquidation. It is the contention of the Appellants that the Statutory Auditor did not find any fraudulent transactions contrary to the Forensic Audit Report submitted by M/s VMRS Associates, Chartered Accountants and therefore Forensic Audit Report was not correct. In this regard, it is observed that the role of Forensic Audit becomes relevant only when such situation occurs about alleged preferential, undervalued, fraudulent and extortionate type of transaction takes place and on most occasions the process of Forensic Audit is required to be undertaken after the annual financial statement of the Corporate Debtor are duly compiled and audited - the contention of the Appellant cannot be accepted that in absence of pointing out fraudulent transactions by the Statutory Auditors, the alleged fraudulent transactions should not have been taken into consideration by the Respondent or by the Adjudicating Authority. There are no error in the Impugned Order dated 12.11.2021 and there are no merit in the Appeal. Disapproval of Resolution Plan - Liquidation of the Corporate Debtor ordered - ineligible under Section 29 (A) (g) of the Code - HELD THAT - The Adjudicating Authority has power under Section 33(1) of the Code to reject plan and direct liquidation of Corporate Debtor, if any of the requirement of not fulfilled by Resolution Applicant - In the present case the Appellant/Resolution Applicant was declared ineligible under Section 29A(g) of the Code after determination of fraudulent transactions of Rs. 29,75,73,550/- by him along with related parties/ his family members vide order dated 12.11.2021 in I.A. 102/2021 - It is seen that the Adjudicating Authority has exercised its power in the light of Section 33(1) (a) for Initiation of Liquidation, where the Adjudicating Authority has to consider the maximum period permitted for completion of the CIRP under section 12 i.e., 330 days and in this case, around 1,469 days already been lapsed (25.07.2019 CIRP to 02.08.2023 date of liquidation order). It is evident that once the Resolution Applicant become ineligible under Section 29 (A) (g) of the Code, the Adjudicating Authority is bound to reject the Resolution Plan and consequently order for Liquidation of the Corporate Debtor - Section 29A(c) of the Code is provision which and has been added with clear intention to ensure that people who were at the helm of the affairs of the Corporate Debtor, do not come back in some other guise to get back the management/ control/ ownership of the Corporate Debtor without clearing its outstanding debts - the persons who are not covered under clause 29 A(g), will remain eligible to submit resolution plans under clause (c) of Section 29A, else will become ineligible as in the present Appeal. There are no error in the Impugned Order - appeal dismissed.
Issues Involved:
1. Section 66 Application under Insolvency & Bankruptcy Code, 2016. 2. Rejection of Resolution Plan and Liquidation Order under Section 33(1)(b) of the Insolvency & Bankruptcy Code, 2016. 3. Ineligibility under Section 29A(g) of the Insolvency & Bankruptcy Code, 2016. Summary: Issue 1: Section 66 Application under Insolvency & Bankruptcy Code, 2016 The appeals arose from two orders dated 12.11.2021 and 02.08.2023 by the National Company Law Tribunal, New Delhi. The first appeal (Company Appeal (AT) (Insolvency) No. 1070 of 2021) contested the order directing appellants to contribute Rs. 29,75,73,550/- to the assets of the Corporate Debtor and to institute criminal prosecution under relevant provisions of the law. The Adjudicating Authority allowed the application under Section 66 of the Insolvency & Bankruptcy Code, 2016, based on a Forensic Audit Report which identified fraudulent transactions. The Appellants, suspended directors of the Corporate Debtor, argued the findings were based on incomplete and incorrect data and that the statutory auditors had not identified any fraud. Issue 2: Rejection of Resolution Plan and Liquidation Order under Section 33(1)(b) of the Insolvency & Bankruptcy Code, 2016 The second appeal (Company Appeal (AT) (Insolvency) No. 1121 of 2023) challenged the order rejecting the resolution plan and ordering liquidation of the Corporate Debtor. The Adjudicating Authority found the Appellants ineligible under Section 29A(g) of the Code due to their involvement in fraudulent transactions as determined in the previous order. The Appellants contended that the resolution plan should not have been rejected on the grounds of ineligibility as the fraudulent transactions were identified after the submission of the resolution plan. Issue 3: Ineligibility under Section 29A(g) of the Insolvency & Bankruptcy Code, 2016 The Adjudicating Authority held that the Appellants were ineligible to submit a resolution plan under Section 29A(g) of the Code due to their involvement in fraudulent transactions. The Tribunal noted that Section 29A(g) bars promoters or those in control of a Corporate Debtor from submitting a resolution plan if fraudulent transactions have been identified. The Tribunal emphasized that the intent of the Code is to prevent defaulting promoters from regaining control of the Corporate Debtor through resolution plans. Conclusion: The Tribunal dismissed both appeals, upholding the orders dated 12.11.2021 and 02.08.2023. The Tribunal found no merit in the Appellants' arguments and confirmed the findings of fraudulent transactions and the consequent ineligibility under Section 29A(g) of the Code. The Tribunal also supported the Adjudicating Authority's decision to order liquidation of the Corporate Debtor in light of the rejection of the resolution plan.
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