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TMI Blog2024 (1) TMI 1322X X X X Extracts X X X X X X X X Extracts X X X X ..... ndents 1 to 3 under sections 43 and 66(2) to contribute the funds to the extent of Rs.387.48 lakhs to the assets of the Corporate Debtor; (b) Order for the recovery of amounts payable towards the electronic appliances and direct the respondents 1 and 2 under sections 43 and 66(2) to contribute the funds to the extent of Rs.5,07,358/- to the assets of the Corporate Debtor; (c) Order for the recovery of amounts payable towards the two wheelers and direct the respondents 1 and 2 under sections 43 and 66(2) to contribute the funds to the extent of Rs.68,445/- to the assets of the Corporate Debtor; (d) Order for the recovery of amounts of motor vehicles and direct the respondents 1 and 2/ directors of the Corporate Debtor company to contribute the funds to the extent of Rs.13,74,585/- for the book value of Innova Crysta, under section 66(1);" The Applicant : The applicant herein is the Resolutions Professional of ICOAT Projects Private Limited/ Corporate Debtor. He was appointed as IRP by this Tribunal vide order dated 23.03.2022 in CP (IB) No.157/9/HDB/2021, and later appointed as Resolutions Professional in CoC Meeting dated 13.07.2022. The respondents : Respondents no.1 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transactions. Transaction Auditor conclusion: There were payments to related parties on which there is no clarity on the nature and purpose of payments and which may amount to mis-utilization of funds and preferential payments over other financial and operational creditors. As regards creditor's payments and adjustments with other receivables we are unable to comment whether the amounts are paid actually or just settled the transactions as per the convenience of the company. We have not identified any Preferential Transaction under section 43 of IBC where as we have noticed some preferential payments as mentioned above. (2) Section 45: Undervalued Transactions. Conclusion: There is no evidence to show any undervalued transactions. (3) Section 50 : Extortionate credit transactions. Conclusion: There is no extortionate credit transactions. (4) Section 66 : Fraudulent trading or wrongful trading transaction. Auditor's conclusion: The company appears to be involved in fraudulent transactions as the company has not maintained proper books of accounts and not followed proper accounting procedures and no valid explanation is provided to us for the observations made by us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year 2021-22: (Rs in lakhs) No. Name of the unit Opening balance of Asset to the CD as 31.03.2021 Transactions during the period Balance Asset Ought to be as on 31.03.2022 Balance of Asset Shown in the Books after internal transfers (Unaudited) Difference Debit Credit 1 Lorven Infra 320.68 0.00 0.00 320.68 0.00 320.68 2 Shuklaam Exim Ltd. 0.00 320.22 253.41 66.81 0.00 66.81 3 Padma Electricals 0.00 0.00 0.00 0.00 0.00 0.00 4 ICity Constructions 0.00 212.78 656.34 -443.56 -56.07 -387.49 TOTAL 320.68 533.00 909.75 -56.07 -56.07 0.0 Column-wise Remarks: Column (1) : Siphoned off to ICity Constructions Column (2) : - do - Column (3) : NAP Column (4) : Identified as preferential payment to ICity Constructions. Remarks: (i) Balances with (-) denote that amount is debt owed by the Corporate Debtor to the entity concerned. Otherwise they are assets to the Corporate Debtor . (ii) Funds to the tune of Rs.387.49 lacs were siphoned to the credit of M/s ICity Construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arte. Hence the applicant submits that the directors knew about commencement of CIRP. Hence the above transactions come under the ambit of section 66(2) of IBC, 2016. Said section is reproduced hereunder: "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 creditors of the corporate debtor or for any fraudulent purpose, the Adjudicating Authority may on the application of the resolution professional pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit. (2) On an application made by a resolution professional during the corporate insolvency resolution process, the Adjudicating Authority may by an order direct that a director or partner of the corporate debtor, as the case may be, shall be liable to make such contribution to the assets of the corporate debtor as it may deem fit, if- (a) before the insolvency commencement date, such director or partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,20,000 Zero -- 2. Bajaj Splendor bike 20.08.12 20,000 1,739 Members of suspended Board claim that vehicles were sold by Suresh Kumar (late husband of R/1) and formalities of such sale were not completed. 3. Bajaj Discover bike 08.10.13 29,000 5,647 4. Bajaj Discover bike 30.06.15 59,100 19,795 5. Maruti Dezire car 01.07.25 6,40,179 2,14,460 RTA record shows that it is transferred to Nakka Raghupathi in 2020 and book entry not reversed to that effect. 6. TVS XL bike 26.05.15 30,494 10,215 As in columns 2, 3 and 4. 7. Innova Crysta car 31.07.17 24,68,928 13,74,585 RTA records shows it is transferred to Potluri Rajasekhar vide NOC dated 26.05.2022, viz. post commencement of CIRP. 8. Platina ES bike 14.06.18 48,550 31,049 As in columns 2, 3 and 4. 2.13 The applicant contends that the transaction at serial no.7, having book value of Rs.13,74,585/- comes u/s 66 of the IBC, 2016 and it may be treated as a transaction carried on with intent to defraud creditors of the Corporate Debtor. 2.14 Besides, books of the Corporate Debtor show that there are computers/ laptops, book value of which is Rs.5,07,358/-. Said articles were not produced before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere made by the Corporate Debtor during the course of its business, which is reflected in Books of Account. The respondents do not have Books of Account subsequent appointment of RP. Para III (8), (10) and (11) : Suspended Board of Directors of ICOAT Project Pvt Ltd have conducted various preferential transactions prohibited u/s 43 and 66(2) .. In para III (6) of the IA, the applicant has stated that they have not identified any Preferential Transaction u/s 43 of IBC, whereas in para III(8) the applicant has alleged so. Thus, it a contradictory statement. The respondents submitted that the transactions done by Corporate Debtor with ICity Constructions and Padma Electricals are bona fide transactions during the course of its business. As such the same cannot be Preferential ones. Besides, there is no bar in carrying on any business transaction with ex Directors. III (12) : Respondents The respondents refute the no.1 and 2 knew that allegation that respondents no.1 and there was no reasonable 2 knew that there was no reasonable prospect of avoiding prospect of avoiding commencement of CIRP The respondents refute the allegation that respondents no.1 and 2 knew that there was no re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . ... Respondents no.1 and 2 have never indulged in any preferential or fraudulent transactions as alleged by the applicant. Audit conducted by Transaction Auditor is not in accordance with law. Such audit does not have credibility. Therefore, the respondents request for a fresh audit to un earth truth. 4. In the light of the contest as aforementioned, the Points that emerge for consideration is: POINTS: (1) Whether the respondents have entered into transactions which cane be treated as Preferential Transactions (section 43 of the IBC) and/ or Fraudulent Transactions (section 66 of the IBC)? (2) If the answer to Point (1) is 'yes', whether the respondents can be directed to contribute to the assets of the Corporate Debtor for the amount involved in such transactions? 5. We have heard Shri Varun Ambati, learned Counsel for the applicant/ RP and Shri P. Venkat Vivek, learned Counsel for the respondents, perused the Written Submissions and other documents submitted before us. 6. At the outset, we wish to refer to sections 43 and 66 of the IBC, 2016 and for better appreciation of the subject controversy, both the sections are reproduced hereunder: Preferential transactions an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit. (2) On an application made by a resolution professional during the corporate insolvency resolution process, the Adjudicating Authority may by an order direct that a director or partner of the corporate debtor, as the case may be, shall be liable to make such contribution to the assets of the corporate debtor as it may deem fit, if- (a) before the insolvency commencement date, such director or partner knew or ought to have known that the there was no reasonable prospect of avoiding the 62 commencement of a corporate insolvency resolution process in respect of such corporate debtor; and (b) such director or partner did not exercise due diligence in minimizing the potential loss to the creditors of the corporate debtor." Submissions: 7. This application is filed by the RP under sections 43 and 66(2) of the IBC, 2016 to contribute funds to the assets of the Corporate Debtor by wrongful transactions done by the respondents. The applicant submits that the Transaction Auditor appointed has found fraudulent trading or wrongful trading transactions or e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions of siphoning off the money and performing these transactions are not submitted in the application. This application was listed for orders on 11.12.2023, but orders could not be pronounced on that day as the applicant has not unequivocally clarified the plea of fraudulent transactions. At the request of the learned counsel for the applicant, 10 days' time was granted till 20.12.2023 to file brief synopsis/ submissions, as last chance. The applicant as well as the respondents have filed Synopsis in compliance of our directions vide order dated 11.12.2023. However, no new facts were added. In view of the same we are unable to decide the transactions of Rs.3.87 crores as tabulated at page 40, whether the same are Preferential Transactions or otherwise. As far as the vehicles are concerned, according to the respondents the same were sold by the husband of R/1 as he was looking after the affairs of the Company even before initiation of CIRP. We find that the value of these assets is also not verified and even the applicant has not made any plea to treat them as fraudulent transactions, except one vehicle, the ownership of which has been transferred after initiation of CIRP. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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