9911796707
TMI Blog2023 (7) TMI 958X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay back. The expression any person includes a knowing party to the carrying out fraudulent transactions. Section 66 of the I B Code, 2016, therefore, clearly provides that if it is found that any business of the Corporate Debtor has been carried on with an intent to defraud the creditors of the Corporate Debtor or for any fraudulent purpose, the Adjudicating Authority may on the application of the Resolution Professional pass an order to make liable to such contribution to the assets of the Corporate Debtor as may deemed fit. This Appellate Tribunal notes that the business of the Corporate Debtor was related to trading in Bullion i.e. import/ export/ dealing in local markets by way of sale/purchase of gold and the Corporate Debtor was not at all connected with business of financial services or lending money - this Appellate Tribunal finds it quite unusual on the part of the Corporate Debtor to lend such huge amount of Rs. 41.03 crores and similarly unusual on point of the Appellant to have benefitted of this largesse without any explainable rhyme or reason. From the averments made during the hearing as well as records available, it transpires that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impugned order dated 29.01.2021 passed by the Adjudicating Authority [National Company Law Tribunal, Mumbai Bench] in I.A. No. 1125 of 2020 in C.P. No. 2556/MB/2019, whereby, the Adjudicating Authority allowed the application filed under Section 66 r/w Section 26 of the Insolvency Bankruptcy Code, 2016 (in short I B Code, 2016). 2. Raksha Bullion filed an application under Section 9 of the I B Code, 2016 in C.P. (I.B.) 2556/MB/2019 in the matter of Raksha Bullions Vs. Royal Refinery Pvt. Ltd. ( Corporate Debtor ) on account of default of Rs. 4,90, 01,183/- . The said application was admitted, the Corporate Insolvency Resolution Process (in short CIRP ) against the Corporate Debtor was initiated on 13.11.2019 and Mr. Nandkishor Vishnupant Deshpande ( Respondent No. 1 ) was appointed as Interim Resolution Professional (in short IRP ). 3. The Adjudicating Authority on 16.04.2021 passed the order of liquidation of the Corporate Debtor in I.A. No. 59/2021 filed by Mr. Nandkishor Vishnupant Deshpande, Resolution Professional in C.P. 2556/I B/MB/2019 titled as Raksha Bullion vs. Royal Refinery Private Limited , and wherein Mr. Arihant Nenawati was appoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C ) and took loan/ financial assistance from the Corporate Debtor . 8. It is the case of Appellant , that they came to know that Respondent No. 1 has moved an application under Section 66 of the I B Code, 2016 against the Appellant alleging fraudulent transaction between the Appellant and the Corporate Debtor involving an amount of Rs. 41.03 crores. The Adjudicating Authority issued notice dated 15.09.2020 to the Appellant and they filed their Reply/Written Submissions before the Adjudicating Authority . The Appellant stated that they also pleaded before the Adjudicating Authority that the application was misconstrued and without any substance, however, the Adjudicating Authority admitted the application of the Respondent No. 1 , which has placed the Appellant in jeopardy. 9. The Appellant submits that the Respondent No. 1 has not brought out any supporting documentary evidence to establish that transactions between the Appellant and the Corporate Debtor were fraudulent in nature. The Appellant further submits that they have availed financial assistance to overcome their financial distress and therefore transactions should have been treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g evidence. The Appellant submits that contrary to these judgments, the Adjudicating Authority accepted the application of Respondent No. 1 . 14. The Appellant amplified that there are three milestones in Section 66 which are required to be met before admission of an application under Section 66. First, there should be clear opinion which should be followed by suitable determination as second milestone and finally there should be concrete finding as final milestone. As per the Appellant these milestones were not met herewith. The Appellant further submitted that in addition the Regulation 35A of the IBBI (Insolvency Resolution Process for Corporate Person) Regulations, 2016 has also not been complied with and no mens-rea was established and therefore the impugned order was illegal. The Appellant referred to Para 16 of the impugned order dated 29.01.2021 wherein in the findings, the Adjudicating Authority termed the transaction as suspicious transaction . Similarly, in Para 17 the Adjudicating Authority has noted that the Appellant is a principal beneficiary of fraudulent transaction . The Appellant submitted that these findings are without app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Financial Reports of the Corporate Debtor were audited by statutory auditor upto Financial Year 2017-18 which establishes bonafide transactions in the Company. All the transactions were genuine and took place in a bonafide manner. Moreover, these transactions are also reflected in Appellant s books of accounts and acknowledged in their Audited Financial Statement's and Income Tax Returns. Hence, the alleged transactions don't fall under the provisions of Section 66 of the I B Code, 2016. The Respondent Nos. 2 3 further stated that all the transactions, between the Appellant and the Corporate Debtor were entered into in good faith and during the ordinary course of business. 21. Concluding arguments, the Appellant urged this Appellate Tribunal to allow the appeal and set aside the impugned order dated 29.01.2021. 22. The Respondent No. 1 vehemently opposed all the averments made by the Appellant as misleading, mischievous, devoid of any merit and pure abuse of process of law and therefore the Appeal need to be dismissed. 23. Per-contra, the Corporate Debtor was in business of trading in Bullions i.e. importing and exporting gold a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the amount disbursed as long term borrowings (loan) by the Corporate Debtor and not credit for trading activities . The Respondent No. 1 assailed the conduct of the Appellant who has now changed his stand in rejoinder before this Appellate Tribunal and stated that money pertains to regular business transactions which is evident from Para 5 of the Rejoinder which reads as the borrowing by the Appellant was pertaining to a regular business transaction between the Appellant and the Corporate which had been mislabelled as a fraudulent transaction by the Respondent No. 1 in I.A. No. 1125 of 2020 in C.P. No. 2556/I B/MB/2019. 27. The Respondent No. 1 elaborated that alleged loan of Rs. 41.03 crores was given by the Corporate Debtor to the Appellant whereas the Corporate Debtor was functioning as a Gold Bullion Trader and not in business of lending money. The Respondent No. 1 further alleged that by no stretch of imagination such huge amount can be written off without any reasons and therefore cannot be treated anything other than the fraudulent and sham transaction. 28. The Respondent No. 1 also referred to the impugned order dated 29.01.2021 which men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for liquidation, which would benefit all stakeholders. 32. The Respondent No. 1 concluded his pleadings with request to dismiss the present appeal in view that consent transactions have been clearly entered into clandestinely with an intent to defraud the creditors knowing well the nature of transaction and therefore meeting all the ingredients of Section 66 of the I B Code, 2016. 33. In order to examine issues raised in the appeal , it will be desirable to look into the provisions of Section 66 r/w Section 26 of the I B Code, 2016 and Regulation 35A of the IBBI (Insolvency Resolution Process for Corporate Person) Regulations, 2016. These are as under:- 26. Application for avoidance of transactions not to affect proceedings. The filing of an avoidance application under clause (j) of sub-section (2) of section 25 by the resolution professional shall not affect the proceedings of the corporate insolvency resolution process. 66. Fraudulent trading or wrongful trading. (1) If during the corporate insolvency resolution process or a liquidation process, it is found that any business of the corporate debtor has been carried on with intent to defraud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [***]. (3) Where the resolution professional makes a determination under sub-regulation (2), he shall apply to the Adjudicating Authority for appropriate relief on or before the one hundred and thirty-fifth day of the insolvency commencement date.] (emphasis supplied) 34. This Appellate Tribunal notes from the findings in the impugned order in this regard which are reproduced below for the sake of Convenience : 21. Therefore, the Bench is beset that 4 sets of Ledger account as appearing in the books of accounts of i) Corporate Debtor collected from the DRI in May, 2019 where it shows as Rs. 41.24 crores, ii) ledger account produced by R1 where it shows the same amount as unpaid and ii) ledger account produced by R2 and R3 where the due amount is about Rs 41.03 crore but the same has been written off by making a write off entry and iv) balance sheet as submitted by the R2 and R3 (the suspended directors) as part of their reply in a separate I.A. No. 1212 of 2020 where R2 and R3 have disclosed that there is an outstanding balance from of R1 of Rs. 41.24 crore as receivable by the Corporate Debtor from. 24. The Bench is aware that section 66 (1) of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 37. We also note that, similarly, as per Regulation 35A of the IBBI (Insolvency Resolution Process for Corporate Person) Regulations, 2016, the Resolution Professional is required to form an opinion whether the Corporate Debtor has been subjected to any transaction covered under Sections 43, 45, 50 66 of the I B Code, 2016 and where such opinion has been formed the Resolution Applicant shall make a determination and subsequently is required to apply to the Adjudicating Authority for appropriate relief. 38. This Appellate Tribunal notes that the business of the Corporate Debtor was related to trading in Bullion i.e. import/ export/ dealing in local markets by way of sale/purchase of gold and the Corporate Debtor was not at all connected with business of financial services or lending money. It has also been brought to our notice that as per normal business practice in gold business, the transaction and dealing occur on spot payment basis and in such business there is hardly any scope for lending money. It also transpires that the bullion/ gold business is conducted on thin margins and cash flow of the such business is required to be regulated/ maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial assistance was backed by suitable resolutions by both parties Appellant and Corporate Debtor being separate corporate entities, whether such agreement was registered. This Appellate Tribunal observed that there were no answers from the Appellant on such specific queries. The Appellant s only defence to these queries was that these were normal commercial transaction done through proper banking channels and payments were made/received through RTGS. It is further the case of the Appellant that these were recorded in the ledger accounts and therefore cannot be treated as fraudulent transaction. On the face of it, the non-discloser and evasive replies on the part of the Appellant on pointed queries raises adequate suspicion and genuine doubts about the transaction and prima facie cannot find fault in the impugned order on this account. 41. On a serious note, this Appellate Tribunal observes that in 2019 such huge loan was all of a sudden written off by the Respondent Nos. 2 3 from the books of the Corporate Debtor and evidently the Appellant is the principal/sole beneficiary. The plea of the Appellant made before us that it is a Corporate Debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Ram Preeti Yadav vs. U.P. Board of High School and Intermediate Education, [(2003) 8 SCC 311]as follows:- 10. It is also a matter of great suspicion as to how another marksheet was issued in his favour on 1-9-1986 with the words WB particularly when the Principal of the College admittedly was made known about the order dated 1-9-1985 passed by the first respondent cancelling the examination of Respondent No. 3. Thus, it is evident that a fraud was committed. Respondent No. 3 is the sole beneficiary of the said fraud and it, as much, must be presumed that he was a party thereto.: (emphasis supplied) 44. It cannot be the case of the Appellant s that the Appellant is not a party to the subject fraudulent and wrongful trading, despite being the sole beneficiary of the same and beyond any acceptable logical conclusion. 45. This Appellate Tribunal also examined the issue raised by the Appellant regarding outside investigation/ forensic audit not done by the Respondent No. 1 and therefore as per the Appellant , their transaction cannot be clarified as fraudulent transaction. This Appellate Tribunal notes that this aspect was suitably decided by this Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Code. 23. Keeping in view, the copy of the Bank Statements, amounts written off as bad debts during the Financial Year when the Appellant/Promoters were the Directors, the circuitous sale of shares, this Tribunal is of the earnest view that the contention of the Learned Counsel for the Appellant that there was no Transaction Audit and hence the Adjudicating Authority ought not to have given a finding of fraudulent transaction under Section 66 of the Code is unsustainable. If the IRP/RP has prima facie suspicion of any fraudulent transactions, as defined under the Code, have a recourse to approach the Adjudicating Authority for necessary action. At the cost of repetition, it is specifically averred by the IRP that there was no cooperation from the Appellant/Promoters and hence an Affidavit was filed by him with a detailed analysis. We find merit in the submission that not having cooperated in giving information to the IRP, the contention of the Appellants that the Adjudicating Authority has in the absence of any Audit Report, has given these findings, which cannot be relied upon, has no legs to stand. To reiterate, the debts written off to defraud the Creditors, the cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny material evidence of fraud against the appellant and the Resolution Professional has failed to substantiate his claim for proving fraud done by the appellant. 4. The Learned counsel for the appellant took us to the provisions of Section 66 of the Code and made an emphatic attempt to prove that the Resolution Professional has failed to establish any fraudulent or wrongful transaction. It was submitted by learned Counsel that the provisions of Section 66 (1) and 66(2) are against the director and partners of the CD and not against the third party. Section 66 of the Code is not a recovery provision to seek repayment of loan and has cited a few judgements as numerated hereunder to substantiate his claim that fraud must be not only pleaded but also be pleaded alongwith necessary evidence. 5. It was also attempted to be explained by the learned counsel of the appellant that there is no case against the appellant on fact. Learned counsel for the appellant submitted that the material facts pertaining to the dispute are briefly summarized as under: a) On 13.11.2019, CIRP was initiated against one Royal Refinery Pvt Ltd, where Mr. Nandkishore V Despande was appointed as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apex Court in the case of Phoenix A.R.C. Vs. Spade Financial Services (2021) 3 SCC 475 vide para 51 as tabulated below has identified the applicability of this provision 51. The IBC has made provisions for identifying, annulling or disregarding avoidable transactions which distressed companies may have undertaken to hamper recovery of creditors in the event of the initiation of CIRP. Such avoid able transactions include: i) Preferential transactions under Section 43 IBC; ii) Undervalued transactions under Section 45(2) IBC; iii) Transactions defrauding creditors under Section 49 IBC; and iv) Extortionate transactions under Section 50 IBC The IBC recognises that for the success of an insolvency regime, the real nature of the transactions has to be unearthed in order to prevent any person from taking undue benefit of its provisions to the detriment of the rights of legitimate creditors. 16. In view of the above stated fact and circumstances we are constrained to uphold the hand of the Adjudicating Authority and is not able to agree with the Appellant. (emphasis supplied) 48. We find above finding of this Appellate Tribunal as seen above a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
