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TMI Blog2024 (1) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 Pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Law Tribunal, New Delhi Bench, Court-II. The subject matter, the background and the facts of the case are by and large similar and both the Impugned Orders as well as the Appeals are interconnected. Hence, we shall deal both these appeals jointly in subsequent discussion and a common judgement shall be pronounced. COMPANY APPEAL (AT) (Insolvency) No. 1070 of 2021 (Arising out of the Order dated 12.11.2021 passed by the National Company Law Tribunal, New Delhi (Court-II) in IB-984 (ND)/2019) 2. This Appeal has been filed against the Impugned Order dated 12.11.2021 passed by the National Company Law Tribunal, New Delhi Bench, Court-II (the Adjudicating Authority ) in IB- 984 (ND)/2019 in IA/102/2021, whereby, the Adjudicating Authority allowed the application preferred under Section 66 of the Insolvency Bankruptcy Code, 2016' (in short 'Code') by the Respondent and directed the Appellants to make total contribution of Rs. 29,75,73,550/- to the assets of Corporate Debtor. The Respondent was also directed to institute a criminal prosecution against the Appellants under relevant provisions of the law. The Adjudicating Authority further requested t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s proposed by Respondent and the CoC. 9. The Appellant stated that the 10th Meeting of the CoC held on 18.11.2020, pursuant to changes suggested by the Respondent and the CoC, the Appellant submitted the revised Resolution Plan on 18.11.2020, which was approved by the CoC. 10. It is the case of the Appellants that in the meantime, the Respondent also got forensic audit of Corporate Debtor conducted in accordance with Section 25 (2)(d) of the Code and Regulation 35 A of the IBBI Regulation, 2016 and accordingly M/s VMRS Association, Chartered Accountants were appointed to conduct forensic audit of the Corporate Debtor, who gave the Forensic Audit Report on 22.09.2020. It is the case of the Appellants that they submitted their detailed response on 20.11.2020 to the Respondent vis- -vis finding of Forensic Audit Report, bringing out fallacies and inaccuracies in the Forensic Audit Report. 11. The Appellants are aggrieved by the fact that the Respondent has failed to apply her mind while considering the Forensic Audit Report and has ignored the replies and clarification of the Appellants and further did not form an opinion, the Appellants also alleged that the Respondent did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary amendments in Regulations 35A and 40A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as IBBI Regulations, 2016 ) in terms of Section 12 of the Code. 18. The Appellants also assailed the Adjudicating Authority who failed to adhere to the timelines as stipulated in the Code Regulations and without application of mind, allowed the Application of the Respondent under Section 66 of the Code, ignoring the fact that the Corporate Debtor is a MSME and the intent of the Code is for the revival of the Corporate Debtor and not for liquidation of the same. 19. It is the case of the Appellants that application under Section 66 of the Code is not permissible, since there has been delay of 502 days since the was due in initiation of the CIRP was done on 25.07.2021 and cited the judgment of Delhi High Court passed in WP (C) No. 8705 of 2019 titled as M/s Venus Recruiters Pvt. Ltd. vs. Union of India Ors., wherein the High Court adjudicated that if the timelines of the Code are not followed, the purpose of the Code will be defeated and therefore it is the case of the Appellant that as such the application under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have taken note of the averments of the Appellants on Forensic Audit Report along with the written submissions of the Appellants. 24. It has been alleged by the Respondent that the Appellant is habitual in misleading the stakeholders as well as this Appellate Tribunal and the direction Mr. Sunil Tangri has been giving false address of his residence in all the affidavits to this CA (AT) (Ins.) No. 1121 of 2023 and pleading in the connected Appeal bearing CA (AT) (Ins.) No. 1070 of 2021 which was listed before this Appellate Tribunal on 01.09.2023. In response to this, the Appellants stated that the this happened due to inadvertent clerical error while drafting the affidavit and there was no intention of the Appellant to mislead this Appellate Tribunal. 25. The Appellants alleged that onus is on Resolution Professional/ the Respondent to prove the financial transactions as fraudulent transactions without any reasonable doubts which has not happened in the present case. It has also been stated that the Respondent has acted negligently by not incorporating corrected tally data and explanations furnished by the Appellants. It is further case of the Appellants that the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligibility of the Appellant as per the provisions of Section 29 A of Code. Upon hearing the submissions made by the counsel of the Appellant as well as the Respondent, the Adjudicating Authority granted liberty to the Respondent to move an appropriate application in accordance with law. 30. The Appellant stated that on 02.08.2023, IA 5756 along with other applications were again taken up for hearing, whereby the Adjudicating Authority dismissed IA 5756 in light of the ineligibility of the Appellant to be a resolution applicant as per the provisions of Section 29A of the Code and further ordered the liquidation of the Corporate Debtor and appointed the Respondent as the Liquidator of the Corporate Debtor. 31. It is the case of the Appellant that the Adjudicating Authority was wrong in holding him to be ineligible under Section 29(A) (g) of the Code as at the time of submission of Resolution Plan by him, no finding on Section 66 Application of the Respondent was available and it is much after submission of his Resolution Plan, the Adjudicating Authority passed the Impugned Order in Company Appeal (AT) (Insolvency) No. 1070 of 2021 on 12.11.2021. The Appellant argued that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present appeal, and the same cannot be allowed in terms of the judgment of this Appellate Tribunal in CA (AT) No. 147 of 2018 in the matter of Value Fab Solutions Pvt. Ltd. vs. ROC [(2018) SCC OnLine NCLAT 280] dated 22.05.2018, where it has been held that the new grounds for the first time in the Appeal cannot be allowed. It is the case of Respondent that on this ground alone, the Appeal deserves to be dismissed. 35. The Respondent assailed the conduct of the Appellants, who after commencement of CIRP, decided not to co-operate with the Respondent and did not furnish requested information inspite of several e-mails and personal requested by the Respondent persuading. It has been submitted that due to non-submission of relevant records, data, information and non- cooperation by the Appellants, the Respondent/ Resolution Professional was not able to perform her duties efficiently especially in preparation of Information Memorandum (in short IM'), issuance of Expression of Interest (in short 'EOI ) etc. 36. The Respondent pointed out that she sent letters by speed post to the Corporate Debtor as well as the Appellants as Suspended Directors of the Corporate Debto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S Associates, Chartered Accountant were appointed on 14.08.2020 to conduct the forensic audit in order to analyse financial transactions of the Corporate Debtor and their related parties. The Forensic Audit Report was submitted on 22.09.2020 for the financial year 2016-17, 2017-18 2018-19 and for the period from 01.04.2019 to 02.09.2019. 39. The Respondents submitted that based on Forensic Audit Report, which was an expert opinion, the Respondent/Resolution Professional formed an independent and unbiased opinion and made determination of fraudulent transactions and filed an application on 08.12.2020 under Section 66 of the Code before the Adjudicating Authority vide I.A. No. 102 of 2021, which was allowed by the Adjudicating Authority. 40. The Respondent strongly refuted the allegation of the Appellants that she has not performed her duties diligently and blindly relied upon the Forensic Audit Report. It is the case of the Respondent that even the Statutory Auditors have given adverse remarks in their independent Auditors Report of the Corporate Debtor for the financial year 2016-17, 2017-18 2018-19, which clearly demonstrate that the records of the Corporate Debtor wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing dealt separately. Thus, the revised plan has been considered by the CoC only after the best efforts by the Adjudicating Authority otherwise the liquidation of the Corporate Debtors would have happened much earlier. Thus, the Adjudicating Authority was not turning blind eye and was trying to revive the Company. 43. The Respondent strongly supported the decision of the Adjudicating Authority on ineligibility of the Appellants to submit the Resolution Plan in terms of Section 29A of the Code. It is the case of the Respondent that it became evident from the records and on the basis of Forensic Auditor Report that there has been an embezzlement of funds and thereafter the appropriate judgement was passed by the Adjudicating Authority. The Respondent refuted all the averments of the Appellant and reiterated background of the case. As per the Respondent, she filed the application for avoidance of fraudulent transactions on 08.12.2020 bearing no. I.A. 102/2021 and the Adjudicating Authority passed order dated 12.11.2021, wherein the Adjudicating Authority determined the fraudulent transactions of Rs. 29,75,73,550/- and an order to erstwhile directors/ Appellant to make contributi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33 of the Code. 46. The Respondent also pointed out that due to non-cooperation of the Appellant as well as the Statutory Auditors despite her all efforts, she has no choice but to file an application No. CA 1531 of 2019 under Section 19(2) of the Code against the Appellants and Statutory Auditors of the Corporate Debtors. 47. It is the case of the Respondent that based on Forensic Audit Report, she filed I.A. No. 102 of 2021 under Section 66 of the Code before the Adjudicating Authority but the Appellants wilfully chose not to contest or deny any allegations and rather took lame technical plea of limitation and the Adjudicating Authority after going in all details allowed the I.A. No. 102 of 2021. 48. It is the case of the Respondent that the Forensic Auditors submitted that their report was based on findings of Forensic Audit Report who were specifically appointed to finding affairs of the Corporate Debtor review independent auditors and only thereafter the Respondent/Resolution Professional identified few transactions falling within the purview of Section 43,45, 49 and 66 of the Code and also duly informed to the IBBI vide e-mail dated 10.12.2020 as required under regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15,92,574/- 07. Miscellaneous Balances written-off 1,85,31,876/- 08. Saurabh Tangri director s son of Corporate Debtor 57,22,478/- 09. Sunil Tangri current account 3,13,178/- 10. Sunil Tangri loan account 1,24,99,000/- 11. Sunil Tangri Imprest account 57,18,641/- 12. Ramani Tangri account is recoverable 54,54,000/- 13. Entries post CIRP date 8,53,67,678/- 14. Non-showing of actual sales consideration of plant 50,00,000/- Total Fraudulent Transactions 29,75,73,550/- Since above break up of alleged frauds are under several heads, we will endeavor to examine the relevant and significant points of alleged frauds, in an item-wise-item approach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales etc., in the financial statements, which was never done by the Appellants. After going through all above details, we find the reasonings and submissions of the Appellants that stock worth of Rs. 5,48,50,824/- were destroyed, are not convincing to us and we tend to agree that such diversion of stock has been done by the Appellants with clear intent to divert funds from the Corporate Debtor to personal pockets of the Appellants with illegal intentions. (ii) As regarding allegation of misappropriation of funds under related party transactions, the Respondent as well as Forensic Audit Report pointed out that M/s S Arthah Trading Company is owned by Mr. Aditya Tangri son of the Appellants and the address of both this company as well as Corporate Debtor is same i.e., 163, 2nd Floor, Kailash Hill, New Delhi and these are clearly related parties and credit balance accumulated are not genuine funds for which detailed technical analysis has been done by the Forensic Auditors. The Appellants submitted that the findings have been based on incorrect accounts, which were due to errors in tally data. The Appellants further submitted that these transaction were conducted at arm' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personnel including their relatives diverted money from the Corporate Debtor account in the name of remuneration. The Respondent submitted that as per written statement of Mr. Sunil Tangri vide e-mail on 02.08.2020 where he stated that his wife is a sleeping partner and their son Mr. Saurabh and Mr. Aaditya Tangri played no role in the affairs of the Corporate Debtor and in the background it is strange that how board of directors has shown the remuneration of Rs. 36,06,000/- in financial year 2011-2012 to 2013-2014 and Rs. 41,52,000/- to Mr. Saurabh and Mr. Aaditya Tangri and as well as director remuneration of Rs 1,11,56,000/- to Mr. Sunil Tangri which was far to excessive as compared to the profit of the Corporate Debtor. The said amount has been booked with mala-fide intention to withdraw the money form the account of Corporate Debtor. In response, it is the case of the Appellants that the remuneration paid cannot be case of fraud. We find logic in the finding of Forensic Audit Report and submission of the Respondent that when there is no commensurate profits, accounts of Corporate Debtor itself are not maintained due to so called financial crunch of the Corporate Debtor, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (vii) The Respondent has alleged that the Corporate Debtor has written off miscellaneous balance amount of Rs. 1,85,31,876/- between the period from 01.04.2017 to 02.09.2019 from the books of the Corporate Debtor and several fraudulent entries have been made which does not give true and fair picture of the Corporate Debtor and tantamount to frauds. It is the case of the Appellants that the debit balances which have been written off were no more recoverable, similarly write back of credit balances which were no more payable as per normal business decisions and as such these cannot be treated as alleged frauds. We find such write off huge amount of Rs. 1,85,31,876/- without any rationale and find contention of the Respondent to be fair. (viii) The Respondent has also pointed out regarding diversion of funds in the name of Directors and related party of Forensic Audit Report finding Nos. 18, 19, 20, 21 22, as pointed out at Saurabh Tangri director s son of Corporate Debtor amounting to Rs. 57,22,478/-, Sunil Tangri current account amounting to Rs. 3,13,178/-, Sunil Tangri loan account amounting to Rs. 1,24,99,000/-, Sunil Tangri Imprest account amounting to Rs. 57,18,641/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the post CIRP, any adjustment by the Corporate Debtor is not permissible and contention of the Respondent are acceptable. The contention of the Appellants that the Ex-Accountant wrongly gave such details to the Respondent, does not carry any credence and is not acceptable. (x) The Respondent has also pointed that there has been fund diversion through non-shown of actual sales worth Rs. 50 Lakhs and has been pointed out in detailed analysis in the Forensic Auditors Report in various paragraphs which has analyzed various transactions of sales and noted that the cash and cheque payment are also not matched with the buyers Mr. Neeraj Gupta proprietor of Modern Trading Company and based on analysis Forensic Auditors Report concluded diversion of Rs. 50 Lakhs into cash mode by the Directors of the Corporate Debtor amounting to fraud. The Respondent pointed out that from it has been noted that table of payments made by the Appellants are not reconciled with each other and it appears that the cash and cheque payment are also not matching with the balance maintained by the buyer Mr. Neeraj Gupta, Proprietor of Modern Trading Mfg Co. It appears that the sale between Corporate Debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding since long is also a red flag, the Respondent based on Forensic Audit Report Finding no. 10 stated that the Corporate Debtor wifully held the creditors for long time and was not interested to make the payment and settle the dues which resulted in the court cases and the insolvency process against the directors. (xii) The Respondent also submitted that the Appellants has not provided any fixed assets register to the auditor showing the details of the assets, thus the transfer of fixed assets indicates fraudulent trading to defraud the stake holders. 52. 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. 53. It is the contention of the Appellants that the Statutory Auditor did not find any fraudulent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... propriated or written off or diverted by the respondents with intend to defraud the creditors of the corporate debtor or for any fraudulent purpose. 47. Hence, we are of the considered view that the respondents/Suspended Board of Directors of the Corporate Debtor have carried on the business with intent to defraud the creditors of the Corporate Debtor or with fraudulent purpose. Accordingly, we direct the Respondents to make total contributions of Rs.29,75,73,550/- to the assets of the Corporate Debtor within two months from the date of the order. 48. Apart from that, the RP/Applicant is directed to institute a Criminal prosecution against the respondents under Chapter VII (Part II) of IBC under Section 69 and other relevant provisions, in accordance with the provisions of law. 49. Accordingly, the present application is hereby Allowed. 50. The Learned Registrar is directed to send a copy of this order to the IBBI with a request to make necessary amendment in Regulation 35A and 40A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016, in terms of Section 12 of the IBC, as referred in Para 26 of the Order. As can be seen from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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. 58. 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 liquation order). 59. Coming to the issues regarding ineligibility under Section 29 (A) (g) of the Code, we have already noted the detailed analysis done by the Adjudicating Authority in quoted paragraphs. 60. In this connection, we will like to note Section 29(A)(c) and Section 29(A)(g) of the Code which read as under :- 29A. Persons not eligible to be resolution applicant. -(c) [at the time of submission of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r i.e., in clauses (c) of S. 29A of the Code. If a person has been a promoter, or in the management, or control of the Corporate Debtor in which a preferential, undervalued, fraudulent and extortionate transactions have taken place, and in respect of which an order has been made by the Adjudicating Authority under the Code, such person become ineligible to submit any resolution plan under S. 29A(g) of the Code and such eligibility cannot be restored back by paying off the debts of the corporate debtor. Therefore, it becomes clear that 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. Therefore, we do not find any thing wrong on this point in findings. 63. We do not find any error in the Impugned Order dated 02.08.2023 in CA (AT) (Insolvency) No. 1121/2023. 64. In fine, both the Appeals i.e., Company Appeal (AT) (Insolvency) No. 1070 of 2021 and Company Appeal (AT) (Insolvency) No. 1121 of 2023 challenging the Impugned Orders dated 12.11.2021 and 02.08.2023 are found to be devoid of any merit and stand dismissed. No Costs. Interlocutory Applica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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