Appeals Dismissed in Fund Transfer Case: Violation of Insolvency & Bankruptcy Code

The Appellate Tribunal dismissed the appeals filed by the Promoter and Yajur International Pvt. Ltd. against the Adjudicating Authority's order, which found a transfer of funds by the Promoter to Yajur International Pvt. Ltd. in violation of Section 14 of the Insolvency and Bankruptcy Code, 2016. The Tribunal upheld the Adjudicating Authority's decision, emphasizing that the transfer occurred after the moratorium order and just before the Resolution Professional took charge, indicating a breach of the I&B Code. No costs were awarded, and the appeals were rejected based on the violation of Section 14 of the I&B Code.

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Issues: Violation of Section 14 of the Insolvency and Bankruptcy Code, 2016

In the present case, the Appellate Tribunal considered two appeals filed by the Promoter of a Corporate Debtor and Yajur International Pvt. Ltd. against a common order passed by the Adjudicating Authority. The order held that a transfer of funds by the Promoter to Yajur International Pvt. Ltd. was in violation of Section 14 of the Insolvency and Bankruptcy Code, 2016 (I&B Code).

Analysis:

1. The Appellate Tribunal noted the arguments presented by the Promoter's counsel, stating that the application filed by the Resolution Professional regarding the transfer in question was not maintainable under various sections as it did not involve related party transactions or preferential transfers. However, the Tribunal found that the Adjudicating Authority correctly determined that the transfer violated Section 14 of the I&B Code, making the application maintainable under Section 74 of the I&B Code.

2. It was established that the application under Section 7 was filed by a Financial Creditor against the Corporate Debtor, and an order of moratorium was passed on the same date. The payment in question to Yajur International Pvt. Ltd. was for supplies made prior to the date of admission into Corporate Insolvency Resolution Process, not during the process itself.

3. The counsel for Yajur International Pvt. Ltd. argued that other suppliers who supplied materials before the moratorium date were also paid by the Resolution Professional, which was disputed by the Resolution Applicant's counsel. The Operational Creditor claimed to still be supplying materials during the resolution process and receiving payments, but this was denied by the Resolution Professional's counsel.

4. The Tribunal emphasized that the transfer of funds to Yajur International Pvt. Ltd. by the Promoter was done after the moratorium order was passed and just before the Resolution Professional took charge. The Tribunal observed that the Promoter hastily made the payment to Yajur International Pvt. Ltd. at that time, leading to the conclusion that the Adjudicating Authority's order did not require interference.

5. Ultimately, the Appellate Tribunal found no merit in the appeals and dismissed them. However, considering the circumstances, no order was given regarding costs. The decision was based on the violation of Section 14 of the I&B Code due to the transfer of funds by the Promoter to Yajur International Pvt. Ltd. before the Resolution Professional's involvement, despite the moratorium being in place.

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