2019 (8) TMI 1609 - Tri - Insolvency and Bankruptcy

Tribunal Orders SFIO Investigation on Fraudulent Transactions

The Tribunal found prima facie indications of fraudulent transactions involving the Corporate Debtor and related parties, leading to the direction for an ... Direction to Respondent to make such contributions to the assets of the Corporate Debtor as it may deem fit in accordance with Section 66 of the Code - investigation directed against the Respondent in respect of the writing off for the amount receivable from the Respondent - HELD THAT:- In the similar circumstance, one application was filed under Section 66 R/w Section 25(2), 69, 70 and other applicable Sections of the IBC, 2016 before this Adjudicating Authority, the Adjudicating Authority passed by order SMT. RAMANATHAN BHUVANESHWARI VERSUS MR PRATAP KUNDA [2019 (4) TMI 1772 - NATIONAL COMPANY LAW TRIBUNAL, BENGALURU BENCH] by directing the Central Government to refer matter to the SFIO for further investigation into the Affairs of the Corporate Debtor etc. And this order was questioned before the Hon'ble NCLAT in MR. M. SRINIVAS VERSUS SMT. RAMANATHAN BHUVANESHWARI, MR. PRATAP KUNDRA, MR. C.D. SANJAY RAJ, MR. L. RAMESH, MR. B.R. RAJASHEKAR, M/S COMMUNE PROPERTIES INDIA PVT. LTD., M/S PRISHA PROPERTIES INDIA PVT. LTD., M/S GOLDEN GATE PROPERTIES LTD. AND MR. JAYATHEERTHAK. B and it was dismissed by upholding the order. In the present case also, issue raised in the instant Company Application are required to be further investigation by the Serious Fraud Investigation Office - therefore, appropriate action can be taken against the erring Officials/Respondents basing on the report. The Central Government is directed to refer the matter to the SFIO for further investigation into the Affairs of the Corporate Debtor namely M/s. BCIL Red Earth Developers India Private Limited, Shri Hariharan Chandrashekhar, Ms. Kanchan Kaur, Shri Sanjay Ramanujam and M/s. Promptech Incorporated and other related Persons and Companies including Director of Companies of Corporate Debtor & related Companies, basing on the Review Report as expeditiously as possible. Issues Involved:1. Fraudulent transactions under Section 66 of the Insolvency and Bankruptcy Code (IBC), 2016.2. Write-off of receivables amounting to Rs. 1,25,45,046.3. Transfer of funds between related parties and potential diversion of funds.4. Appointment and actions of the Resolution Professional (RP).5. Allegations of improper business conduct and lack of transparency by the Corporate Debtor.6. Investigation by Serious Fraud Investigation Office (SFIO).Issue-wise Detailed Analysis:1. Fraudulent Transactions under Section 66 of the IBC, 2016:The Resolution Professional (RP) filed an application seeking directions under Section 66 of the IBC, 2016, to investigate and address identified transactions wherein the Corporate Debtor wrote off Rs. 1,25,45,046 against receivables from a contractor/vendor (Respondent No.4). The RP alleged that these transactions were carried out with the intent to defraud creditors and should be investigated further.2. Write-off of Receivables Amounting to Rs. 1,25,45,046:The RP discovered that the Corporate Debtor had advanced Rs. 2,17,00,000 to Respondent No.4 between April 2014 and September 2014. However, only Rs. 92,54,954 was returned, leaving a balance of Rs. 1,25,45,046, which was subsequently written off in the books of the Corporate Debtor in the Financial Year 2015-16. The RP found no evidence of efforts made by the Respondents to recover the written-off amount, suggesting a potential overstatement of loss in the Corporate Debtor’s books.3. Transfer of Funds Between Related Parties and Potential Diversion of Funds:The RP noted that Rs. 2,50,25,000 was transferred from Respondent No.4 to Respondent No.5 for purchasing plots, which was later refunded partially, leaving a balance of Rs. 1,36,70,000 as a liability in Respondent No.5’s books. The RP alleged that the Corporate Debtor’s funds were diverted to Respondent No.5, a non-funded company, and only a fraction of the amount was returned. This raised concerns about the transparency and legitimacy of these transactions.4. Appointment and Actions of the Resolution Professional (RP):The RP, upon taking charge, engaged S.P.R. & Co. to conduct a review of the Corporate Debtor’s transactions. The review identified several irregularities, including preferential transactions, undervalued transactions, and fraudulent transactions under Section 66 of the IBC. The RP’s findings were contested by the Respondents, who argued that the transactions were conducted in the ordinary course of business and with prior approvals from the financial creditor.5. Allegations of Improper Business Conduct and Lack of Transparency by the Corporate Debtor:The Respondents contended that the Corporate Debtor’s transactions were legitimate and conducted in the ordinary course of business. They argued that the RP’s allegations were unfounded and made with mala fide intent. The Respondents provided explanations for the transactions, including the adjustments made between related parties and the practices followed since 2010.6. Investigation by Serious Fraud Investigation Office (SFIO):Based on the RP’s findings and the review report by S.P.R. & Co., the Tribunal concluded that there were prima facie indications of fraudulent transactions. The Tribunal directed the Central Government to refer the matter to the SFIO for further investigation into the affairs of the Corporate Debtor and related parties. The Tribunal emphasized the need for a thorough investigation to determine the extent of fraud and take appropriate action against the erring officials and respondents.Conclusion:The Tribunal, exercising its powers under Section 213 of the Companies Act, 2013, directed the RP to forward all relevant documents to the Central Government. The Central Government was instructed to refer the matter to the SFIO for further investigation. The parties were granted liberty to pursue appropriate legal actions based on the SFIO’s findings. No order as to costs was made.