Suspended directors found liable for fraud, fined auditor for balance sheet, ex-management to compensate.

The tribunal held the suspended directors liable for fraudulent transactions, directing them to compensate and refund misappropriated amounts. The Auditor was fined for signing the balance sheet without adequate support. Additionally, the tribunal ordered the retrieval and compensation of amounts involved in preferential and undervalued transactions, with assets to be vested back into the Corporate Debtor. The ex-management was found responsible for the fraudulent, preferential, and undervalued transactions, requiring compensations and reimbursements to the Resolution Professional.

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Issues Involved:
1. Fraudulent and wrongful trading under Section 66 of the IBC.
2. Preferential and undervalued transactions under Sections 43 and 45 of the IBC.

Detailed Analysis:

Issue 1: Fraudulent and Wrongful Trading under Section 66 of the IBC

Background and Application:
The Resolution Professional filed an application under Section 66 of the IBC, seeking various directions against the ex-management of the Corporate Debtor, including the disclosure of inventories, recovery of misappropriated amounts, and addressing losses caused by fraudulent trading.

Findings:
1. Inventory Write-Offs: The Corporate Debtor wrote off inventories worth Rs. 265.53 Crore without proper documentation, indicating malafide intentions.
2. Export Debtors Write-Offs: Export debtors' balances amounting to Rs. 119.36 Crore were written off without supporting documents, suggesting fund diversion.
3. Sale of Inventories at Loss: Inventories were sold at a net loss of Rs. 47.21 Crore, with inadequate records, indicating deliberate financial distortion.
4. Missing Vehicles: 22 vehicles listed in the balance sheet were unaccounted for, implying misappropriation.
5. Sale of Daryaganj Property: The property was sold at a book loss of Rs. 2.32 Crore, with proceeds diverted to various bank accounts, violating the sanction letter from YES Bank.

Respondents' Defense:
1. Accounts and NPA Declaration: The accounts were running smoothly until mid-2018, and the NPA declaration was due to temporary difficulties.
2. Ordinary Course of Business: Transactions were made in the ordinary course of business without intent to defraud creditors.
3. Frozen Meat Sales: Inventories were sold at lower prices due to bad quality and export constraints.
4. Lack of Access to Documents: Respondents claimed they had no access to documents to support their defense.

Tribunal's Observations:
The tribunal found that the respondents failed to provide satisfactory documentary evidence to support their claims. The transactions were deemed fraudulent, intending to defraud creditors.

Judgment:
The tribunal held the suspended directors liable for the fraudulent transactions and directed them to compensate and refund the misappropriated amounts. The Auditor was also fined Rs. 1,00,000 for signing the balance sheet without sufficient documentary support.

Issue 2: Preferential and Undervalued Transactions under Sections 43 and 45 of the IBC

Background and Application:
The Resolution Professional filed an application under Sections 43 and 45 of the IBC, seeking to reverse preferential and undervalued transactions and vest the assets back into the Corporate Debtor.

Findings:
1. Preferential Transactions: The Corporate Debtor adjusted creditors' balances against debtors' balances worth Rs. 8.00 Crore without proper banking channels, giving undue preference to certain creditors.
2. Sale of Subsidiary: The Corporate Debtor sold its subsidiary, accepting liabilities worth Rs. 19.68 Crore without proper disclosure and approval.
3. Undervalued Transactions: The Corporate Debtor sold its Mumbai plant and Daryaganj property at significantly undervalued prices, causing substantial losses.
4. Circular Trading: The Corporate Debtor engaged in circular trading of stock, incurring losses of Rs. 4.57 Crore.

Respondents' Defense:
1. Ordinary Course of Business: Transactions were made in the ordinary course of business, and the business was affected by external factors like government notifications.
2. Lack of Evidence: The respondents claimed that the Resolution Professional failed to provide material evidence to demonstrate undervalued transactions.
3. Consent of Creditors: The respondents argued that creditors' consent was obtained for certain transactions.

Tribunal's Observations:
The tribunal found that the respondents failed to provide satisfactory evidence to support their claims. The transactions were deemed preferential and undervalued, conducted with the knowledge of impending insolvency.

Judgment:
The tribunal directed the respondents to retrieve and compensate the amounts involved in preferential and undervalued transactions. The possession of the Mumbai plant was to be handed over to the Resolution Professional, and the sale proceeds of the Daryaganj property and vehicles were to be reimbursed.

Conclusion:
The tribunal allowed both applications, holding the ex-management liable for fraudulent, preferential, and undervalued transactions, and directed appropriate compensations and reimbursements to be made to the Resolution Professional.

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