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TMI Blog2022 (10) TMI 523X X X X Extracts X X X X X X X X Extracts X X X X ..... aw. In this connection, this Tribunal, pertinently points out that it is not open to the Directors of a Company accused of Fraudulent Trading to allege that the Company s Claim for recovery in Tort, are barred. The Yardstick / Tape i.e., to be pressed in to service to determine, the Liability, is whether a Director had exercised the General Knowledge, Skill and Experience, to be expected of a person, in carrying out the functions of his duties. The aspect of Fraud is the cementing platform for a Liability. An element of Dishonesty, is to be Proved and the Aspect of Dishonesty, cannot be inferred, when the Conduct of the concerned Individuals is Receptive of more than one explanation. It must be borne in mind, that for Fraudulent Trading / Wrongful Trading, Relevant Facts / Acceptable Materials, are to be pleaded by a Party, by providing requisite details / adequate facts, to fall within the parameters of Section 66 of the I B Code, 2016. The stand taken by the respective parties, comes to a Resultant Conclusion that the Transfer of Assets among the Group Companies ex-facie is not a Fraudulent Trading, as per Section 66 (1) of the Insolvency Bankruptcy Code, 2016. Moreover, because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Applicants and no documentary proof has been filed in support of the same, to show that the business of the Corporate Debtor was carried out by the Respondents with a dishonest intention and to defraud the creditors. 35. Further, it is also a fact borne on record that the Applicant has also not served the copy of the entire Transaction Audit Report to the Respondents, which left them in lurch and to answer to the contentions raised by the Applicants. In this connection, reliance was placed upon the decision of the Hon ble Supreme Court in the matter of T. Takano Vs- Securities and Exchange Board of India Anr; (2022 SCC OnLine SC 210), wherein the Hon ble Supreme has held that fraud is a sensitive and serious allegation and the authority claiming such allegation is duty bound to provide the copies of the report concerning the allegations even before issuing the Show-cause notice. Further, it has been held that nondisclosure of such reports is not in compliance with the principles of natural justice before the final decision is arrived at. Therefore, non-disclosure of the report of the transaction audit conducted by the RP of the Corporate Debtor is sufficient for this Tribunal t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant establishes the fact that the second and third Respondents, in respect of exercising due Pleadings , in maximising the Potential Loss to the Creditors of the Corporate Debtor had transferred the Land of the Corporate Debtor and Registered the Land in the name of the ₹ 1st Respondent / Company . 8. The Leaned Counsel for the Appellant takes a stand that the Adjudicating Authority (`National Company Law Tribunal , Division Bench II, Chennai) had failed to note that the Transfer of Assets within the Group Companies , per se, would constitute a Fraudulent Trading / Wrongful Trading , as per Section 66 of the Insolvency Bankruptcy Code, 2016. Continuing further, it is the stand of the Appellant / Applicant that the Adjudicating Authority (`National Company Law Tribunal , Division Bench II, Chennai) had committed an error in placing reliance heavily on the Forensic and Audit Report , without adverting to the Statutory Documents , Registers , Bank Statements , Records of Rights and Sale Deed , produced along with the Application . 9. The Leaned Counsel for the Appellant points out that the Adjudicating Authority (`National Company Law Tribunal , Division Bench II, Chennai) shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 14. The plea of the Learned Counsel for the Appellant / Applicant is that 2.03.36 hectares of Land in the Registration District of Morbi in Gujarat State was purchased with `RISPL funds of Rs.58,25,050/- (including Stamp Duty , Registration Charges etc.,) in February and March 2017 and that the said sum of Rs.58,25,050/- was transferred from RISPL s SBI CC A/c. No. 31486176855 in favour of the Seller Farmer . Furthermore, it is represented that the Appellant / Applicant found that no Documents were available in the Records of the Corporate Debtor and that the Assets were to be traced. In fact, the second and third Respondents (Suspended Directors) had never given these details to the Appellant / Applicant , in her endeavours to procure the Asset details of the `Corporate Debtor . Besides this, the ₹ 1st Respondent / `M/s. Regen Powertech Private Limited , is a Related Party of the Corporate Debtor , by means of being the Holding Company of the Corporate Debtor , and having a `Common Directorship (the second and third Respondents). 15. The Grievance of the Appellant /`Resolution Professional/`Applicant is that she had arranged to secure the Certified Copy of the Registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Private Limited . 19. On the side of the Appellant , a contention is raised that the conduct of the Suspended Directors of the Corporate Debtor from the commencement date of the `Corporate Insolvency Resolution Process (`CIRP ) had not furnished the necessary requisite details / Documents , as prayed for, by the Appellant , and the silence of the second and third Respondents affirm their role in the `Business of Corporate Debtor , with an intention to defraud the Creditors . Apart from that, the Suspended Directors of the Company / RPPL (`Holding Company ) in `Corporate Insolvency Resolution Process , from 09.12.2019. 20. The categorical averment made by the Appellant in IA(IBC)/591(CHE)/2021 in IBA/1424/2019, before the Adjudicating Authority (`National Company Law Tribunal , Division Bench II, Chennai) is that the Sale registered in the name of `RPPL (`Holding Company ), instead of `RISPL , when direct funds Transfer was made by the Corporate Debtor to the Farmer was contemplated by the `Respondents in a wilful manner, with a malafide intention for satisfying a fraudulent purpose . 21. The submission of the Appellant is that in reducing the Loss to the Creditors of the Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regen Powertech Private Limited , were added every year with a particular focus on Related Party Transactions (being the issue in IA(IBC)/591(CHE)/2021 in IBA/1424/2019) and not one clarification was made in respect thereof and this indicates that the Transactions are legitimate one. 26. The Prime stand of the second and third Respondents, before the Adjudicating Authority (`National Company Law Tribunal , Division Bench II, Chennai) is that the Two Resolution Professionals have complete control over the Employees , Records and Books of Accounts and among them, they have to find a way to give access to each, they need. 27. As a matter of fact, it is the case of the second and third Respondents that everything in both the Companies shall benefit with the knowledge of the respective Bankers and the Resolution Professionals can refer to the relevant Documents , being available at the Registered Office of both the Companies. For any clarification, relating to the Transaction questioned and the same were not in their possession. 28. The second and third Respondents in their Replies to IA(IBC)/591(CHE)/2021 in IBA/1424/2019, before the Adjudicating Authority (`National Company Law Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ud , against an `Individual , the action, in Civil Wrong (Tort) will lie. Furthermore, a Creditor , who was Defaulter has a `viable , `effective , an `efficacious , `alternate remedy in Civil Law . In this connection, this `Tribunal , pertinently points out that it is not open to the `Directors of a `Company accused of `Fraudulent Trading to allege that the `Company s Claim for recovery in `Tort , are barred. 33. The Yardstick / Tape i.e., to be pressed in to service to determine, the Liability , is whether a Director had exercised the `General Knowledge , `Skill and `Experience , to be expected of a person, in carrying out the functions of his duties, as per decision `In re Produce Marketing Consortium Ltd. 1989 BCLC 520 . The aspect of `Fraud is the cementing platform for a `Liability . An element of Dishonesty , is to be `Proved and the `Aspect of Dishonesty , cannot be inferred, when the `Conduct of the concerned Individuals is `Receptive of more than one explanation, as per decision `In re M. Kushler Ltd., reported in 1943 Ch D 248 (CA) . 34. At this juncture, this `Tribunal worth recalls and recollects the decision of the Hon ble High Court of Kerala, in the matter of South I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng more. Exhibit A-4 indicates that paper was supplied to the company only once during 1974, i.e., in the month of June; and by that time the outstandings had been brought down to around Rs. 11,000. No supply was made at all in 1975, but still the company paid Rs. 7,760 during that year. These facts do not fit in with a presumption that the directors of the company were aware, at the time the purchases were made, that there was no reasonable prospect of repayment at all. The inference referred to by Maugham J. in William C. Leitch Bros.' case [1932] 2 Ch 71 (Ch D) is one to be drawn when knowledge on the part of the directors is shown to exist; it is not an inference to be drawn about such knowledge itself. 35. It is the `Obligatory Duty , on the part of the Appellant to prove the subjective satisfaction of this Tribunal that 1) `An Individual , must be knowingly carrying on the business with the Corporate Debtor , 2) Such an `Individual , ought to have a Dishonest Intent , to `Defraud the Creditors . 36. No wonder, the ingredients of Section 66 (1) and 66 (2) of the Insolvency Bankruptcy Code, 2016, operate in a different field. It must be borne in mind, that for `Fraudulent T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a Fraudulent Trading , as per Section 66 (1) of the Insolvency Bankruptcy Code, 2016. Moreover, because of the fact that all Transactions between the Companies as well as the Asset details were maintained in a Transparent Manner on an `SAP System (including the `Fixed Assets Register ) and further the Transactions of the Corporate Debtor and the 1st Respondent were `Audited , every year, the Plea of Fraudulent Trading as projected by the Appellant / Applicant is not proved, to the subjective satisfaction of this Tribunal , in a convincing manner . Apart from that, mere Averments / Allegations made in IA(IBC)/591(CHE)/2021 in IBA/1424/2019, before the Adjudicating Authority (`National Company Law Tribunal , Division Bench II, Chennai) are not good enough to exhibit that the business of the Corporate Debtor was carried out by the Respondents either with a mala-fide intent for achieving a Fraudulent Purpose or with a dishonest intent to Defraud the Creditors . 40. Looking at from any point of view, this `Tribunal , comes to an inevitable and irresistible conclusion that the view arrived at by the Adjudicating Authority (`National Company Law Tribunal , Division Bench II, Chennai) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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