Tribunal Rules Against Time-Barred IBC Application, Orders Recovery

The Tribunal held that the application under Section 66 of the IBC was not time-barred, considering various factors including the impact of the Covid pandemic and non-cooperation by the Appellants. The Tribunal also found the Appellants engaged in fraudulent and under-valued transactions, leading to directions for recovery of amounts jointly and severally. A related appeal concerning the rejection of the Resolution Plan was upheld, affirming the liquidation order for the Corporate Debtor. Both appeals were dismissed, and costs were not awarded.

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Issues Involved:
1. Whether the application filed by the Resolution Professional under Section 66 of the IBC before the Adjudicating Authority was barred by limitation.
2. Whether the Appellants had indulged in fraudulent trade transactions and certain avoidance transactions, and whether the Adjudicating Authority committed any error while passing the impugned order dated 26.04.2022.

Issue-Wise Detailed Analysis:

Issue 1: Limitation of Application under Section 66 of IBC

Analysis:
The key point of contention is whether the application filed by the Resolution Professional under Section 66 of the IBC was time-barred as per Regulation 35-A of the CIRP Regulations. Regulation 35-A prescribes timelines for the Resolution Professional to form an opinion, make a determination, and apply to the Adjudicating Authority regarding transactions covered under Sections 43, 45, 50, or 66 of the IBC.

The Tribunal noted that the timeline prescribed in Regulation 35-A is directory and not mandatory. This interpretation aligns with the principles laid down by the Hon'ble Supreme Court in various judgments, including "State of Uttar Pradesh Vs. Manbodhan Lal Shrivastava" and "Lalaram Vs. Jaipur Development Authority," which emphasize that the intent of the legislature and the consequences of non-compliance should guide the interpretation of statutory provisions.

The Tribunal observed that the delay in filing the Section 66 application was due to several factors, including the stalling of CIRP proceedings due to a One Time Settlement (OTS) proposal and non-cooperation by the Appellants in timely submission of accounts. The Adjudicating Authority had condoned the delay, considering these reasons and the impact of the Covid pandemic. The Tribunal found no reason to interfere with this decision, holding that the application cannot be rejected solely on the ground of delay.

Issue 2: Fraudulent and Avoidance Transactions

Analysis:
The Tribunal examined whether the Appellants indulged in fraudulent and under-valued transactions.

1. Diversion of Funds:
- The Corporate Debtor had invested Rs. 13.45 crores in its sister concern, MDTPCL. The Appellants argued that this was a commercial decision taken with good intentions and with the knowledge of Financial Creditors. However, the Transaction Auditor (TA) and the Adjudicating Authority found this to be a wrongful diversion of borrowed funds, leading to increased financial liability and constituting a fraudulent trade practice.

2. Unusual Write-off of Inventory:
- The TA raised concerns about the write-off of 2352 quintals of paddy attributed to the storm 'FANI'. The Appellants claimed the write-off was legitimate due to stock damage and insurance claims. However, the TA and the Adjudicating Authority found the timing of the write-off suspicious, coinciding with the initiation of CIRP, and noted the absence of proper records for damaged stock, concluding it was a fraudulent act.

3. Under-valuation of Income:
- The TA reported a significant drop in the Corporate Debtor's gross profit ratio, which the Appellants attributed to increased costs. The Adjudicating Authority found this explanation unreasonable, supporting the TA's findings of under-valuation.

4. Advances to Certain Persons:
- The Appellants contended that advances were made in the ordinary course of business. However, the TA found these advances suspicious due to the lack of business turnover and failure to provide detailed particulars of the entities involved. The Adjudicating Authority agreed with the TA's assessment that these were undervalued transactions intended to siphon off funds.

Conclusion:
The Tribunal upheld the Adjudicating Authority's findings that the Appellants had engaged in fraudulent and under-valued transactions, justifying the directions for recovery of amounts from the Appellants jointly and severally.

Separate Judgment:
The Tribunal also addressed a related appeal concerning the rejection of the Resolution Plan under Section 29-A(g) of the IBC. The Adjudicating Authority had found the Resolution Applicant, along with two other directors, ineligible to submit a Resolution Plan due to their involvement in fraudulent transactions. The Tribunal upheld this decision, affirming the liquidation order for the Corporate Debtor.

Final Decision:
Both appeals were dismissed, affirming the Adjudicating Authority's orders in IA Nos. 276/2020 and 337/2020, with no costs awarded.

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