Adjudicating Authority dismisses application alleging fraudulent transactions by Directors under Insolvency and Bankruptcy Code

The Adjudicating Authority rejected an application under Section 66 of the Insolvency and Bankruptcy Code, 2016 against Directors for alleged fraudulent transactions. Despite suspicions raised by a special audit report by M/s. Price Water House Coopers (PWC), the State Bank of India's forensic audit did not find evidence of fraud. The Authority determined that the evidence presented was insufficient to establish fraudulent intent or actions that could have avoided insolvency. Consequently, the application was dismissed due to the lack of conclusive evidence supporting the allegations of fraudulent transactions by the Directors.

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Issues:
Application under Section 66 of Insolvency and Bankruptcy Code, 2016 against Directors alleging fraudulent transactions. Examination of special audit reports by Resolution Professional and State Bank of India. Dispute over the genuineness of transactions and the need for directors' contribution to assets of the Corporate Debtor.

Analysis:
The case involved an application under Section 66 of the Insolvency and Bankruptcy Code, 2016, where the ex-Resolution Professional of the Corporate Debtor filed against the Directors alleging fraudulent trading transactions during 2016-17. The Resolution Professional appointed M/s. Price Water House Coopers (PWC) to conduct a special review of the accounts, leading to suspicions of fraudulent transactions. The PWC report highlighted concerns about the genuineness of certain transactions, raising questions about the motive behind them.

The Respondent Directors denied the allegations, providing explanations for each transaction in question. Additionally, the State Bank of India, a Financial Creditor, conducted a special Forensic Audit supporting the view that the transactions did not defraud the creditors. The State Bank of India's report emphasized that the transactions were not prejudicial to the corporate creditors' interests, questioning the justification for categorizing them as fraudulent under Section 66 of the IBC, 2016.

The Adjudicating Authority considered the reports from PWC and the State Bank of India. While PWC raised suspicions due to missing purchase receipts, the State Bank of India's audit did not find evidence of fraud. The Authority noted that Section 66 requires proof of fraudulent intent or actions that could have avoided insolvency, which was not established in this case. The Authority concluded that the evidence was insufficient to direct the Directors to contribute a significant amount under Section 66, leading to the rejection of the application.

In the final order, the Authority rejected the application, citing the lack of conclusive evidence to support the allegations of fraudulent transactions by the Directors. The decision was based on the findings from the special audits and the absence of clear indications of fraudulent intent or actions that could have prevented insolvency.

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