2019 (9) TMI 1316 - AT - Insolvency and Bankruptcy

Tribunal modifies order, refers matter for investigation under Companies Act. Appeals disposed with investigation directions.

Lagadapati Ramesh And M/s. Commune Properties India Pvt. Ltd. & Ors. Versus Smt. Ramanathan Bhuvaneshwari & Ors.

Lagadapati Ramesh And M/s. Commune Properties India Pvt. Ltd. & Ors. Versus Smt. Ramanathan Bhuvaneshwari & Ors. - [2020] 218 Comp Cas 528 (NCLAT - Del) Issues Involved:1. Corporate Insolvency Resolution Process (CIRP) against M/s. Bhuvana Infra Projects Private Limited.2. Allegations of fraudulent transactions and misconduct by the Promoters.3. Request to attach personal assets of the Promoters to recover dues.4. Opposition by the Promoters and Group Companies.5. Directions for investigation by Serious Fraud Investigation Office (SFIO).6. Legal competence of the Adjudicating Authority to direct SFIO investigation.7. Application of Sections 66, 68, 69, 70, 71, 72, 73 of the Insolvency and Bankruptcy Code (I&B Code) and Section 213 of the Companies Act, 2013.Detailed Analysis:1. Corporate Insolvency Resolution Process (CIRP) against M/s. Bhuvana Infra Projects Private Limited:The Resolution Professional initiated CIRP against M/s. Bhuvana Infra Projects Private Limited, alleging that the company was a shell company with no business activities, employees, or assets, and sought to recover dues amounting to Rs. 461,163,402/- by attaching the personal assets of the Promoters.2. Allegations of Fraudulent Transactions and Misconduct by the Promoters:The Resolution Professional alleged that the Promoters defrauded creditors by diverting assets and funds to Group Companies, as evidenced by the Forensic Audit Report. The Corporate Debtor had significant receivables from its Group Companies and had distributed assets worth Rs. 1.52 Crores to these companies. There were discrepancies in the financial statements, including unaccounted inventory and assets not found physically.3. Request to Attach Personal Assets of the Promoters to Recover Dues:The Resolution Professional sought to attach the personal assets of Mr. Pratap Kunda, Mr. Sanjay Raj, and Mr. Srinivas to recover the dues. The total amount due from the Group Companies and Directors was Rs. 461,163,403/-.4. Opposition by the Promoters and Group Companies:The application was opposed by the Promoters and Group Companies on various grounds, including the doctrine of res-judicata, denial of allegations, and assertion that the company was not a shell company. They argued that the application was not maintainable and that the amounts referred to were subject to reconciliation and final settlement.5. Directions for Investigation by Serious Fraud Investigation Office (SFIO):The Adjudicating Authority, considering the allegations and the Forensic Audit Report, referred the matter to the SFIO for further investigation under Sections 212 and 213 of the Companies Act, 2013. The Resolution Professional was directed to forward all relevant documents to the Central Government and the SFIO.6. Legal Competence of the Adjudicating Authority to Direct SFIO Investigation:The Appellants challenged the order, arguing that the Adjudicating Authority did not have the power to direct an SFIO investigation under Section 213 of the Companies Act, 2013. The Tribunal clarified that while the Adjudicating Authority could not directly order an SFIO investigation, it could refer the matter to the Central Government for investigation by an Inspector, who could then recommend an SFIO investigation if necessary.7. Application of Sections 66, 68, 69, 70, 71, 72, 73 of the I&B Code and Section 213 of the Companies Act, 2013:The Tribunal examined the applicability of various sections of the I&B Code and the Companies Act, 2013. It was noted that Sections 66, 68, 69, 70, 71, 72, and 73 of the I&B Code deal with fraudulent trading, concealment of property, transactions defrauding creditors, misconduct during CIRP, falsification of books, omissions from statements, and false representations to creditors. Section 213 of the Companies Act, 2013 empowers the Tribunal to order an investigation if there are circumstances suggesting fraudulent conduct.Conclusion:The Tribunal modified the impugned order, referring the matter to the Central Government for investigation by an Inspector under Section 213 of the Companies Act, 2013. If the investigation revealed actionable material, the Central Government could further refer the matter to the SFIO. The appeals were disposed of with directions for appropriate investigation and no order as to costs. The Secretary, Ministry of Corporate Affairs, was directed to ensure the investigation as ordered.