Appellate Tribunal affirms fraud finding in Rs. 41.03 crores transaction case under Insolvency & Bankruptcy Code

The Appellate Tribunal upheld the Adjudicating Authority's decision, finding the transactions between the Appellant and the Corporate Debtor fraudulent under Section 66 of the Insolvency & Bankruptcy Code, 2016. The Tribunal determined that the transactions, involving a significant sum of Rs. 41.03 crores, were suspicious and not in line with normal commercial practices. The Appellant's failure to cooperate and the lack of a forensic audit further supported the finding of fraud. As a result, the Tribunal ordered the Appellant to repay the amount to the Corporate Debtor, affirming the lower court's decision.

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Issues Involved:
1. Legitimacy of the transactions between the Appellant and the Corporate Debtor.
2. Compliance with Section 66 of the Insolvency & Bankruptcy Code, 2016.
3. Requirement of forensic audit for establishing fraudulent transactions.

Summary of Judgment:

Legitimacy of Transactions:
The Appellant, engaged in Non-Banking Financial Services (NBFC), contended that the financial transactions with the Corporate Debtor were normal commercial transactions and not fraudulent. The Appellant argued that the transactions were recorded in the ledger accounts and were conducted to overcome financial distress. However, the Appellate Tribunal noted that the Corporate Debtor, involved in bullion trading, was not in the business of lending money. The Tribunal found it unusual for the Corporate Debtor to lend Rs. 41.03 crores without any explainable reason, raising doubts about the nature of the transactions.

Compliance with Section 66 of I & B Code, 2016:
The Tribunal examined the provisions of Section 66, which allows the Adjudicating Authority to pass orders if it finds that the business of the Corporate Debtor was carried on with intent to defraud creditors. The Tribunal noted that the Adjudicating Authority had correctly classified the transactions as fraudulent under Section 66, considering the suspicious nature of the transactions and the contradictory statements made by the Appellant regarding the nature of the relationship and transactions with the Corporate Debtor.

Requirement of Forensic Audit:
The Appellant argued that the Resolution Professional did not conduct a forensic audit to establish the fraudulent nature of the transactions. The Tribunal referred to its earlier judgment in the case of Nitin Bharal, Ex-Director & Ors. vs. Stockflow Express Private Limited, which stated that a forensic audit is not mandatory for establishing fraudulent transactions. The Tribunal found merit in the Resolution Professional's prima facie suspicion of fraudulent transactions and noted that the Appellant's non-cooperation in providing information further supported the finding of fraud.

Conclusion:
The Appellate Tribunal upheld the Adjudicating Authority's order, directing the Appellant to remit Rs. 41.03 crores to the Corporate Debtor's account. The Tribunal concluded that the transactions were fraudulent, done with the intent to defraud the creditors of the Corporate Debtor, and met the requirements of Section 66 of the I & B Code, 2016. The appeal was dismissed, and the impugned order dated 29.01.2021 was affirmed.

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