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TMI Blog2021 (1) TMI 937X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench in view of the view that R1 i.e. Royal India Corporation Limited through various fraudulent transactions and by way of fudging the Books of Accounts in connivance with the R2 and R3 have defrauded the Corporate Debtor company to the extent of ₹ 1,19,08,05,762/-. This includes the clear admitted dues of ₹ 31.01 crore - The Bench directs that the total amount of ₹ 1,19,08,05,762/- be returned by R1 into the Corporate Debtor s account within a period of 7 days from the pronouncement of this Order. Application allowed. - IA No. 1266 OF 2020 IN CP No. 2556 OF 2019 - - - Dated:- 7-1-2021 - Smt. Suchitra Kanuparthi, Member (J) and Shri. Chandra Bhan Singh, Member (T) For the Petitioner: Mr. Ayush Rajani, Practising Company Secretary for Resolution Professional i/b AKR Advisors. For the Respondents: Mr. Hemal Patel, Advocate. ORDER The I. A. No. 1266 of 2020 in C. P. 2556 of 2019 is filed Under Section 66 read with Section 26 of the Insolvency and Bankruptcy Code, 2016 (hereinafter called as Code ) by Mr. Nandkishor V. Deshpande, (hereinafter called as Applicant ), who is a Resolution Professional of the Corporate Debtor against 1. Roy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Professional ( RP ). An intimation was made to the Hon ble Tribunal by the 13 February 2020 Bank under Section 22(1)(a) of the Code, informing that IRP was appointed as the RP. 6. At the outset, the Applicant states that the Corporate Debtor is a company which is engaged in the business of importing and exporting gold as also sale/ purchase of gold in local market, as mentioned above. Generally as a matter of practice no credit is offered to the purchasers of the gold items, since either the amount is received in advance or maximum within a period of 2-3 days. In no case any major credit period/facilities are offered to any parties. However based on the analysis, critical evaluation of data and desktop searches as made by the Applicant, an exception has been observed with regard to certain creditors, Respondent no. 1 being one of them, to whom fraudulent preference has been given while dealing in a business transaction which is carried out under ordinary business, thereby resulting into fraudulent/ wrongful trading fortifying presence of mens-rea, and aiming at procuring secret advantage to Respondent nos. 2 and 3 in affiliation and knowledge of Respondent no. 4. 7. Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2020 calling upon the Respondent no.1 to submit ledgers of Corporate Debtor in its books and confirm balances up to insolvency commencement date. The said letters were even duly delivered to Respondent no.1, however it has failed to provide any response so far. 13. Despite persistent follow ups to extract information from Respondent no.1 who has dodged the quintessential query so far, is all going plainly towards unequivocally establishing non-transparency, wilful deliberate suppression and mala fide intent to continue to suppress material information corresponding to potential loss appearing to indicate fraud upon the creditors. 14. The Applicant RP contemplates that the alleged transactions falls under the provisions of Section 66 of the Code, arising as a result of fraudulent or wrongful trading with an intent to defraud the creditors of the Corporate Debtor. Further, the said transactions could not have been possible without assistance of Respondent nos. 2 and 3 in affiliation with Respondent no.4. 15. The Applicant Resolution Professional ( RP ) states that there has been non-cooperation from the promoters / directors of the Company to provide all the relevant inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in an ordinary course of business resulting into fraudulent/ wrongful trading, which has ultimately into closure of business of the Corporate Debtor, shows wilful misconduct and gross negligence with an intent to defraud its creditors. 20. In view of the facts mentioned above, the Applicants pray for the following relief(s): a. Consider and allow the IA No. 1266 of 2020 in terms of Section 66 read with Section 26 of IBC, 2016; b. Direct the Respondents as detailed in this application, to make such contributions to the assets of the Corporate Debtor equivalent to the sums as stated in this Application, in respect of benefits wrongfully availed by from the Corporate Debtor; c. Pass appropriate directions / orders in terms of Section 67 of the Code including for recovery/ restoration of legitimate amounts due to the Corporate Debtor; d. Intimate IBBI for initiating a complaint to the Special Court in terms of section 236(2) of the Code, if this Hon'ble Tribunal deems fit; e. Impose such fine under section 70 and 71 of the Code upon the Respondents as this Hon ble Tribunal may deem fit; f. And for such other/ further order(s) and/or direction (s) as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect data and information hence not maintainable and thus, there is no occasion to reply the same. Submissions by the R2 and R3: 29. The R2 and R3 deny that there were any fraudulent or wrongful trading between R1 and the Corporate Debtor. As a matter of general practice in bullion market, money is advanced to parties against purchase of bullion/gold which is subject to be adjusted against future gold. All the transactions are trust based on the ground of goodwill of the parties. It is baseless and incorrect statement contained by the Applicant that fraudulent preference has been given while dealing in a business transaction which is carried out under ordinary business, thereby resulting into fraudulent/wrongful trading fortifying presence of mens-rea and aiming at procuring secret advantage to R2 and R3 in affiliation and knowledge of R4. 30. The R2 and R3 deny that the R1 is classified as a related party. It is a fact that the R3 was appointed as director of R1 from 10.08.2018 to 09.01.2019. during this period, he was not holding any position in the Corporate Debtor and it has been falsely alleged that alleged transactions relating to sale of gold have occurred bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auditor of the Corporate Debtor since 7th December 2019 to 13th February 2020 and has not provided co-operation to the Applicant. The Applicant further alleges that Respondent No.4 did not exercise due diligence reasonably expected of a person carrying out the respective functions. Respondent No.4 humbly submits that the allegations as contained in the Application do not depict the true and correct picture and hence, it is imperative to place the same on record. Shorn of unnecessary details and to avoid repetition, the important facts are as follows: a. The Respondent No. 4 submits that the Corporate Debtor had engaged Manish Panwar Co. i.e. the Respondent No. 4 s proprietary firm as the statutory auditors of the Corporate Debtor on 30.09.2018 vide Appointment Letter dated 01.10.2018 till the conclusion of 7th Annual Meeting. b. The Respondent No. 4 submits that it is a matter of record that Respondent No.4 did not issue any statutory audit report since he was not given access to the books of accounts of the Corporate Debtor. Respondent No. 4 humbly submits that he has never held any documents/data of the Corporate Debtor since the access to the books of accounts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the supporting relevant documents, mark out deviation from internal procedures/ controls and issue internal audit report. Respondent No. 4 has no role to play in relation with the carrying out of business and business decisions of the Corporate Debtor. I crave leave to refer and rely upon the guidelines of the ICAI to substantiate the submissions. f. The Respondent No. 4 submits that the Applicant has baselessly tried to point out the resignation of the Respondent No. 4 as a suspicious and dubious act. However, it is pertinent to mention that the Respondent No. 4 had resigned for the purposes of taking admission in a course in the University of Canada and for which he had also received an acceptance letter. Amongst many, this was also one of the reasons why he had also surrendered the COP. g. The Respondent No. 4 submits that as and when the Applicant has required any information, he has always answered and cooperated with the Applicant. It is further submitted that the Applicant has also been provided with the statement of facts wherein the Respondent No. 4 has given a detailed explanation and provided all the information. Therefore, the Applicant is unnecessarily p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicating Authority may pass necessary direction to Respondents to make good the potential loss suffered by the other Creditors of ₹ 158,07,56,469/-. 43. This Bench, while deciding this case is banking on the ledger which has been made available by the RP as received by him from the Directorate of Revenue intelligence (DRI) which shows that a total amount of ₹ 158,07,56,469/- is payable by Respondent No. 1 to the Corporate Debtor. In arriving at the total of ₹ 158,07,56,469/-, the RP has taken into account, as received from DRI, 3 Ledger accounts of R1 as reflected in the Books of Accounts of the Corporate Debtor. Here, it may be mentioned that all the details as provided by the RP are based on the documents provided by DRI, hence are a period for not later than endMay 2019. It is due to the fact that DRI had carried out a search and seizure exercise in the 3rd or 4th week of May, 2019 and had confiscated all financial data, computers and other records of the Corporate Debtor. This was done because of various offences committed at that time under the Customs Act, 1962 by the Directors of the Corporate Debtor Company. This Bench while deciding the fraud i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Corporate Debtor with R1 (RICL). This is very evident from the table which has been produced before us by the RP with details about Invoices. A copy of the last page of the table in this regard is as under:- It can be seen from the above document that the Invoices are always raised by the R1 (RICL) seeking purchase of gold bars from the Corporate Debtor. It is for this reason that in the Ledger Account maintained with the Corporate Debtor, it is only the payment which comes to the Corporate Debtor account and what goes out is by way of sale of gold bar. This fact is very germane and we will refer to it subsequently while proving the fraud committed by R1, R2 and R3. 47. The Ledger Account which has been produced by R1 is as under:- Similarly the Ledger account of R1 as provided by R2 R3 vide their submission is as under: It can be seen from the boxes that the R1 which all through has been Purchaser of gold from the Corporate Debtor till May, 2019 has turned into a Seller of gold. Nowhere in the records since 2018 it is a Seller of gold. The same is also evident from the invoices since 31.03.2018 which has been produced by the RP. This is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor after passing the fraudulent entries. The Bench here observes an interesting fact that the copy of the ledgers provided by the Respondents as part of their Affidavit in Reply show an amount of ₹ 31,01,83,022/- as payable by Respondent No.1 to the Corporate Debtor. 49. In deciding the amount of fraudulent transaction, the Bench, in order to reduce any ambiguity, has gone by the ledger accounts submitted by R1 (the beneficiary) and R2 and R3 (erstwhile directors). This, the Bench has done because, instead of three separate ledgers as produced by the RP based on DRI records only single ledger has been produced by R1 and on the other hand by R2 R3. By and large, the Bench finds that transactions before May 2019 are broadly in order. However, the fraudulent entries have been made only subsequent to the DRI raid i.e., from June 2019 onwards and till the time the Corporate Debtor went into Insolvency as on 13.11.2019. Adding up the purchase entry as appearing in the ledger account provided by R2 and R3 are almost the same as is the sale entry made by R1. This, as has been demonstrated in preceding paragraphs, is fraudulent entry which has been done by R1, R2 and R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate debtor 52. The Bench also is of the clear view that the present case is squarely covered u/s 66(1) of the Code with respect to conduct and liability of Respondent No.1 to repay the assets and benefits of the Corporate Debtor which has wrongfully been received by Respondent No.1 in connivance with Respondent No.2 and 3. Section 66 (1) imposes a liability on any persons who were knowingly parties to the carrying on of business with a dishonest intent to defraud creditors, to make contributions to the assets of the corporate debtor as per the order of the Adjudicating Authority. The use of phrase any persons in section 66(1) suggest that outsiders can also be liable for fraudulent trading, as long as they had a dishonest intention of fraudulently carrying on such trade. The provision is not only restricted to insiders like employees, directors or partners. It is wide enough to include fraud on behalf of third parties like other corporate persons and creditors. In this case covers the conduct of Respondent No 1. The words used in section 66(1) i.e. the Adjudicating Authority may on the application of the resolution professional pass an order that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y disclosed the affairs of the 'Corporate Debtor' from time to time to the Applicant / Resolution Professional and indulged in falsification and determination of Books and Records of the Corporate Debtor and made wilful and material omissions relating to its affairs and further defrauded its creditors In reality, the Applicant/Resolution Professional filed the application before the Adjudicating Authority in terms of Sections 60(5), 66, 67, 70, 71, 72, 73 and 235A of the I B Code and sought the undermentioned reliefs which run as under.. The Resolution Professional/Applicant found discrepancies in the Accounts of Corporate Debtor i.e. (i) non-existence of Debtors and that the recent Balance sheet of the Corporate Debtor reflected Debtors of ₹ 191 crores (Approx.) as trade receivables etc. In fact the Resolution Professional/Applicant after taking charge, grew suspicious of the genuineness / veracity of dates and receivables pursuant to the non-delivery of letters to the debtors. The Resolution Professional / Applicant later came to know that most of the addresses of the Debtors as shown in the Tally either had not existed or even if they had existed, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isonment cannot be imposed by it, except to pass orders u/s 66 of the I B Code. Section 71 of the Code deals with punishment for falsification of books of Corporate Debtor and Section 72 of the Code speaks of punishment for wilful and material omission committed by the Officer of the Corporate Debtor instatements relating to its affairs. Section 73 is concerned with the punishment of fraud and false representations to the Creditors subject to the proof of the same. 55. In view of the above Judgments, both by the Hon'ble NCLAT and Hon'ble Supreme Court, it becomes clear that Respondent No.1 is clearly covered u/s of 66(1) and Respondent 2 and 3 are also covered u/s. 66(2)(a) and 66(2)(b) of the Code. 56. The Bench in view of the view that R1 i.e. Royal India Corporation Limited through various fraudulent transactions and by way of fudging the Books of Accounts in connivance with the R2 and R3 have defrauded the Corporate Debtor company to the extent of ₹ 1,19,08,05,762/-. This includes the clear admitted dues of ₹ 31.01 crore. 57. The Bench directs that the total amount of ₹ 1,19,08,05,762/- be returned by R1 into the Corporate Debtor s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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