Tribunal allows examination of fraudulent transactions & diversion of funds under IBC

The Tribunal found the application maintainable under Section 60(5)(c) of the IBC, 2016, allowing for examination of alleged fraudulent transactions and diversion of funds. Specific directions were given for the resolution process, including recovery of amounts due and securing evidence. The Tribunal addressed reliefs sought by the Applicant, emphasizing the role of the IRP/RP in these matters. The application was disposed of with instructions for further actions by the IRP/RP, highlighting the seriousness of the allegations and the need for thorough investigation.

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Issues Involved:

1. Maintainability of the application under Section 60(5)(c) of the Insolvency and Bankruptcy Code (IBC), 2016.
2. Allegations of fraudulent transactions and diversion of funds by the Corporate Debtor.
3. Reliefs sought by the Applicant, including impleading as a party, declaring the petition as an abuse of process, and various injunctions and orders against associated entities and individuals.

Issue-wise Detailed Analysis:

1. Maintainability of the Application under Section 60(5)(c) of the IBC, 2016:

The Tribunal first addressed whether the application filed by the Applicant is maintainable under Section 60(5)(c) of the IBC, 2016. Section 60(5)(c) grants the National Company Law Tribunal (NCLT) jurisdiction to entertain or dispose of any question of law or facts arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor. The Tribunal noted that the issues raised by the Applicant relate to the screening of certain properties, diversion of funds due to the Corporate Debtor, and alleged collusion between the Corporate Debtor and IDBI Bank’s officers. Since these issues pertain to the insolvency resolution process, the Tribunal held that the application is maintainable under Section 60(5)(c) of the IBC, 2016.

2. Allegations of Fraudulent Transactions and Diversion of Funds:

The Applicant alleged that officers of IDBI Bank and other banks colluded with Mr. SS Bhatia and Mr. GS Bhatia to fraudulently hive off and dissipate the assets and funds of the Corporate Debtor to various entities in the Bhatia Group. The Tribunal noted that the Applicant provided specific instances of purported business transfer agreements, transfer of overseas assets, and novation of purchase and sale contracts. The Tribunal acknowledged the seriousness of these allegations and directed the Interim Resolution Professional (IRP) or Resolution Professional (RP) to examine these transactions before finalizing the resolution process. The Tribunal also noted that if the IRP or RP fails to consider the material placed on record by the Applicant, the Applicant can raise these issues during the resolution plan consideration or liquidation process.

3. Reliefs Sought by the Applicant:

a. Impleading as a Party:
The Tribunal held that while the Applicant, being an Operational Creditor, has the right to participate in the Committee of Creditors (CoC) meetings and raise objections, a formal order of impleading the Applicant as a party to the insolvency proceedings is not necessary.

b. Declaring the Petition as an Abuse of Process:
The Tribunal did not find sufficient grounds to declare the petition filed by the Financial Creditor as an abuse of process.

c. Orders against Associated Entities and Individuals:
The Tribunal held that it cannot direct the Financial Creditor to commence insolvency proceedings against associated companies or guarantors of the Corporate Debtor. The Tribunal also noted that the Financial Creditor, IDBI Bank, has already initiated insolvency proceedings against some guarantors.

d. Clarification of Earlier Order:
The Tribunal stated that the moratorium order under Section 13 of the IBC prohibits granting the relief sought by the Applicant during the moratorium period.

e. Document Disclosure by Financial Creditors:
The Tribunal held that this relief would arise only if the concerned Financial Creditors initiate insolvency resolution processes against the guarantors of the Corporate Debtor.

f. Intervention in Garnishee Proceedings:
The Tribunal directed the IRP/RP to take reasonable steps to recover amounts due to the Corporate Debtor.

g. Examination of Guarantors on Oath:
The Tribunal found that this is not the appropriate stage for taking evidence of the guarantors on oath.

h. Production of Corporate Debtor’s Books of Account:
The Tribunal directed the IRP/RP to secure all the books of evidence of the Corporate Debtor and produce them when directed by the Tribunal.

Conclusion:

The Tribunal concluded that the application is maintainable under Section 60(5)(c) of the IBC, 2016. It directed the IRP/RP to examine the transactions pointed out by the Applicant before finalizing the resolution process. The Tribunal also provided specific directions regarding the reliefs sought by the Applicant, emphasizing the need for the IRP/RP to take reasonable steps to recover amounts due to the Corporate Debtor and secure relevant evidence. The application was disposed of with these observations and directions.

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