Tribunal Orders CoC Reconstitution & Voting Rights Cancellation for Fraudulent Transactions

The Tribunal found Respondent Nos. 1 and 2, along with Respondent Nos. 3 to 7, engaged in fraudulent transactions to deceive the insolvency process. Despite objections, the forensic audit report was deemed reliable, revealing evidence of fraud. Respondent Nos. 3 to 7 were removed from the Committee of Creditors due to fraudulent inclusion. The Tribunal ordered the reconstitution of the CoC, canceling the voting rights of Respondent Nos. 3 to 7 to safeguard genuine creditors' interests and maintain the insolvency resolution process's integrity.

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Issues Involved:
1. Fraudulent transactions and intent to defraud creditors.
2. Validity and reliability of the forensic audit report.
3. Removal of certain respondents from the Committee of Creditors (CoC).
4. Reconstitution of the CoC and cancellation of voting rights.

Detailed Analysis:

1. Fraudulent transactions and intent to defraud creditors:
The application was filed under Section 66 read with Section 60(5) of the Insolvency & Bankruptcy Code, 2016, alleging that the suspended directors (Respondent Nos. 1 and 2) and certain home-buyers (Respondent Nos. 3 to 7) engaged in fraudulent transactions to defraud creditors. The forensic audit conducted by Mazars Business Advisors Pvt. Ltd. revealed that Respondent Nos. 1 and 2 withdrew funds from the Corporate Debtor's account and transferred them to the related parties of Respondent Nos. 3 to 7, effectively returning the funds within 24 hours. This created a false impression that Respondent Nos. 3 to 7 were financial creditors, which misled the Resolution Professional (RP) and other stakeholders.

2. Validity and reliability of the forensic audit report:
Respondent Nos. 1, 2, and 7 challenged the forensic audit report's validity, arguing that it was incomplete and did not consider audited financial statements and other relevant documents. They claimed that the transactions were in the ordinary course of business and lacked fraudulent intent. However, the Tribunal found these objections baseless, noting that the forensic audit provided sufficient evidence of fraudulent transactions.

3. Removal of certain respondents from the Committee of Creditors (CoC):
The Tribunal found that Respondent Nos. 3 to 7 were fraudulently included in the CoC as financial creditors due to the circuitous transactions orchestrated by Respondent Nos. 1 and 2. The Tribunal observed that the funds purportedly invested by these home-buyers were returned to their related parties through personal accounts of the suspended directors, thereby nullifying any genuine financial debt. Consequently, the Tribunal directed the removal of Respondent Nos. 3 to 7 from the CoC.

4. Reconstitution of the CoC and cancellation of voting rights:
The Tribunal ordered the RP to reconstitute the CoC by canceling the voting rights of Respondent Nos. 3 to 7. The transactions were declared null and void due to their fraudulent nature. This decision aimed to protect the interests of genuine creditors and ensure the integrity of the insolvency resolution process.

Conclusion:
The Tribunal concluded that Respondent Nos. 1 and 2, in collusion with Respondent Nos. 3 to 7, engaged in fraudulent transactions to mislead the insolvency process. The forensic audit report, despite objections, was deemed reliable and provided sufficient evidence of fraud. The Tribunal directed the removal of the fraudulent home-buyers from the CoC and ordered the RP to reconstitute the CoC, ensuring that only genuine creditors participate in the insolvency resolution process.

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