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TMI Blog2021 (9) TMI 787X X X X Extracts X X X X X X X X Extracts X X X X ..... s averred that under section 25(1) of the I B Code the Corporate Debtor has issued notice dated 19.02.2014 for withdrawal of an amount of ₹ 1452 crores in order to invest the said amount in plant and machinery, for carrying some civil work, to invest some amount in fixed assets for laying transmission lines, etc. In view of this it was for the Resolution Professional to put on record the material indicating that though the Corporate Debtor has shown the above expenses, in fact, those amounts were not spent at all for the purpose for which it is shown to have been spent - It is not in dispute that the Liquidator (then Resolution Professional) has sold the Corporate Debtor as a going concern. It means that the Corporate Debtor was a going concern throughout the CIRP period and hence it has to be held that the entire loan amount has not been misused as alleged by the RP. Second transaction called in question by the Resolution Professional is that the Corporate Debtor gave advance to M/s. Sokeo Power Pvt. Ltd. in 2014. It was independent transaction carried out by the Corporate Debtor and the creditors having no relations thereto except the allegation that the Corporate De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated parties are the beneficiaries of such fraudulent transactions being carried by the suspended management of the Corporate Debtor. 3. The following facts are not in dispute: 3.1 One M/s. Rohan Varma Constructions Private Limited-one the Operational Creditors of the Corporate Debtor had filed application under section 9 of the I B Code, 2016 against the Corporate Debtor to initiate Corporate Insolvency Process (CIRP) of the Corporate Debtor. On 14.08.2017 the Corporate Debtor was admitted in CIRP. Initially, one Mr. Kranti Kumar Kedari, Resolution Professional having Registration No. IBBI/IPA-001-IP-P00173/2017-18/10342 appointed as Interim Resolution Professional (IRP). He took over the management and affairs of the Corporate Debtor suspending its Directors. Thereafter, Committee of Creditors (CoC) was formed. The CoC, in its first meeting held on 25.09.2017 appointed the applicant as Resolution Professional replacing the IRP. On 16.01.2018, the Resolution Professional had filed application (bearing IA No. 40 of 2018) under section 66 of the I B Code, 2016 against the same respondents. This Adjudicating Authority by speaking order dated 08.05.2018, rejected the said appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). As per the terms of the said TR Agreement, the Corporate Debtor was supposed to utilize the loan amount subject to the conditions mentioned in that Agreement dated 24.02.2011. The terms of the Agreement were amended on 19.01.2015. As per some of the terms and conditions of TR Agreement, the Corporate Debtor was obliged to use the amount for construction and implementation of 660 MV coal-based Thermal Power Project at Sasthavinallur and Pallakkurichi villages, Sattankulam Taluk, Tuticorin District in the State of Tamil Nadu. As per the Resolution Professional's own assertion, the Corporate Debtor was engaged in the business of generation and distribution of electricity (Para 9 of the application). 6. According to the RP, the suspended management of the Corporate Debtor, in the year 2016, used some amount from the TR Account and created Fixed Deposits from that account. They pledged those Fixed Deposits with Bank of India and UCO Bank and allowed its subsidiary companies, viz. Respondents no. 6 to 11 to raise loan against those Fixed Deposits. The Resolution Professional alleged that this act of Ex-Management of the Corporate Debtor is amounting to siphoning off the loan am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is mainly based on the review of records, sample verification of documents/ transactions and physical observation of the events. As the basis of sample selection is purely judgmental in view of the time available, the outcome of the analysis may not be exhaustive and representing all possibilities, though we have taken reasonable care to cover the major eventualities. 3. This report does not comment upon any change/development taken place in the process and functioning of processes after the last date of our field work. 4. Out observations are based on data provided to us by Resolution Professional. 11. If we take note of the above Disclaimer declared by the Auditor, then we have to hold that this Audit Report, on the basis of which the Resolution Professional wanted us to infer that the transactions in dispute are fraudulent in nature, etc., is too inconclusive report. The Auditor himself is not confident about the finding recorded by him for want of sufficient material before him. If we keep out of our consideration such inconclusive Audit Report, we have to hold that there is no additional and sufficient material brought on record by the Resolution Professional so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear that, (a) The Resolution Professional has to form an opinion that the ex-management of the Corporate Debtor carried business of the Corporate Debtor in a fraudulent manner to defraud the creditors. (b) This Adjudicating Authority while passing order has to record its finding that before commencement of insolvency of the Corporate Debtor, such Directors ought to have known that there was no reasonable prospects of avoiding CIRP of the Corporate Debtor. (c) Such Directors did not exercise due diligence to minimize the potential loss in respect of such Corporate Debtor. and (d) There is a presumption of fact that such Directors had exercised due diligence that there was reasonable prospect of a person carrying out same transaction as carried out by such Directors. 14. The presumption of fact as noted above appears to be based on a principle that no one wishes to put his business in CIRP at the cost of his losing control thereon. 15. In view of the above, if we examine the transaction in dispute, we find that from the loan amount, the Corporate Debtor had created Fixed Deposits and sought loan to its subsidiary companies pledging those Fixed Deposits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at, regard being had to them, it is the duty of the person keeping silence to speak2, or unless his silence, is, in itself, equivalent to speech. Illustrations (a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse's unsoundness. This is not fraud in A. (b) B is A's daughter and has just come of age. Here the relation between the parties would make it A's duty to tell B if the horse is unsound. (c) B says to A-- If you do not deny it, I shall assume that the horse is sound . A says nothing. Here, A's silence is equivalent to speech. (d) A and B, being traders, enter upon a contract. A has private information of a change in prices which would affect B's willingness to proceed with the contract. A is not bound to inform B. 18. It suggests that while entering into any contract/agreement, if any party to the contract or its agent with intent to deceive another party, conceals some material facts thereto or promises something without any intention to perform that promise or does some act during the contract, which is specifically declared to be fraudulent, it is fraud. In this case, the fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or utilised for a purpose unrelated to the operations of the borrower, it would be termed as siphoning off the funds. We have examined the transactions in dispute with the above angle. Still it cannot be said that creating Fixed Deposits by using some part of the loan amount to raise funds for subsidiary companies, which were also related in business and in co-related activities of the Corporate Debtor. In our considered opinion, for want of sufficient material it cannot be said that it was an act of siphoning off the amount. 23. Second transaction called in question by the Resolution Professional is that the Corporate Debtor gave advance to M/s. Sokeo Power Pvt. Ltd. in 2014. It was independent transaction carried out by the Corporate Debtor and the creditors having no relations thereto except the allegation that the Corporate Debtor ought not to have advanced such amount and the amount was given in advance to defraud them. In fact, this Adjudicating Authority in para 76 of its earlier order dated 08.05.2018 passed in IA No. 12 of 2018 in C.P.(I.B.) No. 150/9/HDB/2017, has recorded finding that, 76. Therefore, the transaction relating to advance money paid to Sokeo Power ..... X X X X Extracts X X X X X X X X Extracts X X X X
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