Ex-Directors/Promoters liable for fraudulent transactions post-resignation, must contribute to Corporate Debtor's assets.

The Appellate Tribunal upheld the Adjudicating Authority's decision, dismissing the appeal by the ex-Directors/Promoters. The Tribunal found that the ex-Directors/Promoters engaged in fraudulent transactions, exercised financial control post-resignation, and failed to cooperate with the Interim Resolution Professional (IRP). The Tribunal supported the Adjudicating Authority's application of Sections 66 and 67 of the Insolvency and Bankruptcy Code, holding the ex-Directors/Promoters liable to contribute to the Corporate Debtor's assets and initiating prosecution under Section 69 of the IBC, 2016.

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Issues Involved:
1. Fraudulent transactions and non-cooperation by ex-Directors/Promoters.
2. Financial control and share sale transactions.
3. Writing off bad debts and cash transactions.
4. Bank transactions post-resignation.
5. Applicability of Sections 66 and 67 of the Insolvency and Bankruptcy Code (IBC), 2016.

Issue-wise Detailed Analysis:

1. Fraudulent Transactions and Non-Cooperation by Ex-Directors/Promoters:
The Interim Resolution Professional (IRP) filed I.A. 2153/2020 seeking directions against the ex-Directors/Promoters to make good the losses caused by fraudulent transactions and refer the matter to the Insolvency and Bankruptcy Board of India (IBBI) under Section 236 of the Code. The IRP contended that the ex-Directors/Promoters did not cooperate by withholding important documents and information, which hindered the Transaction Auditor from submitting a report. The IRP based his findings on his analysis of the available data.

2. Financial Control and Share Sale Transactions:
The ex-Directors/Promoters sold their 100% shareholding in the Corporate Debtor to Committed Cargo Care Limited on 20/10/2017 and later repurchased part of it on 31/03/2018. The Adjudicating Authority found no substantial reasons for these circuitous transactions and concluded that they were intended to defraud the creditors. The ex-Directors/Promoters failed to explain the objective behind these transactions.

3. Writing Off Bad Debts and Cash Transactions:
The Balance Sheet of the Corporate Debtor showed significant receivables and bad debts written off during the years 2017-18 and 2018-19. The IRP alleged that the ex-Directors/Promoters wrote off debts to defraud creditors. The Adjudicating Authority noted that Rs.42,33,304/- was settled for a mere Rs.3 lakhs, which was considered a fraudulent transaction. This settlement occurred during the tenure of the ex-Directors/Promoters.

4. Bank Transactions Post-Resignation:
The IRP provided evidence of bank transactions conducted by the ex-Directors/Promoters after their resignation on 31/12/2018. The total transactions amounted to Rs.19,98,602/- up to 26/07/2019. The bank records from ICICI Bank showed that the ex-Directors/Promoters were authorized signatories during this period. This evidence contradicted the ex-Directors/Promoters' claim that they were not involved in any bank transactions post-resignation.

5. Applicability of Sections 66 and 67 of the Insolvency and Bankruptcy Code (IBC), 2016:
The Adjudicating Authority applied Sections 66 and 67 of the Code, which deal with fraudulent trading and wrongful trading. The Authority concluded that the ex-Directors/Promoters carried on business with the intent to defraud creditors and were liable to make contributions to the Corporate Debtor's assets. The Authority directed the ex-Directors/Promoters to contribute specific amounts and also initiated prosecution under Section 69 of the IBC, 2016.

Conclusion:
The Appellate Tribunal upheld the Adjudicating Authority's decision, finding no illegality or infirmity in the order. The Tribunal dismissed the appeal, concluding that the ex-Directors/Promoters engaged in fraudulent transactions, exercised financial control post-resignation, and failed to cooperate with the IRP. The Tribunal emphasized that the IRP's analysis and the absence of cooperation justified the findings of fraudulent transactions under Section 66 of the Code.

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