Resolution applicant disqualified under Section 29A(g) after forensic audit reveals fraudulent transactions worth Rs 29.75 crore

The NCLAT dismissed an appeal challenging liquidation orders under Section 66 of IBC. The appellant resolution applicant was declared ineligible under Section 29A(g) after forensic audit revealed fraudulent transactions worth Rs. 29,75,73,550. The tribunal held that forensic audit reports by independent expert agencies are reliable for determining fraudulent transactions, even when statutory auditors don't identify them. The adjudicating authority properly exercised powers under Section 33(1) to reject the resolution plan and order liquidation after 1,469 days exceeded the 330-day CIRP limit. Section 29A(g) prevents persons involved in fraudulent transactions from regaining control without clearing debts.

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Issues Involved:
1. Section 66 Application under Insolvency & Bankruptcy Code, 2016.
2. Rejection of Resolution Plan and Liquidation Order under Section 33(1)(b) of the Insolvency & Bankruptcy Code, 2016.
3. Ineligibility under Section 29A(g) of the Insolvency & Bankruptcy Code, 2016.

Summary:

Issue 1: Section 66 Application under Insolvency & Bankruptcy Code, 2016

The appeals arose from two orders dated 12.11.2021 and 02.08.2023 by the National Company Law Tribunal, New Delhi. The first appeal (Company Appeal (AT) (Insolvency) No. 1070 of 2021) contested the order directing appellants to contribute Rs. 29,75,73,550/- to the assets of the Corporate Debtor and to institute criminal prosecution under relevant provisions of the law. The Adjudicating Authority allowed the application under Section 66 of the Insolvency & Bankruptcy Code, 2016, based on a Forensic Audit Report which identified fraudulent transactions. The Appellants, suspended directors of the Corporate Debtor, argued the findings were based on incomplete and incorrect data and that the statutory auditors had not identified any fraud.

Issue 2: Rejection of Resolution Plan and Liquidation Order under Section 33(1)(b) of the Insolvency & Bankruptcy Code, 2016

The second appeal (Company Appeal (AT) (Insolvency) No. 1121 of 2023) challenged the order rejecting the resolution plan and ordering liquidation of the Corporate Debtor. The Adjudicating Authority found the Appellants ineligible under Section 29A(g) of the Code due to their involvement in fraudulent transactions as determined in the previous order. The Appellants contended that the resolution plan should not have been rejected on the grounds of ineligibility as the fraudulent transactions were identified after the submission of the resolution plan.

Issue 3: Ineligibility under Section 29A(g) of the Insolvency & Bankruptcy Code, 2016

The Adjudicating Authority held that the Appellants were ineligible to submit a resolution plan under Section 29A(g) of the Code due to their involvement in fraudulent transactions. The Tribunal noted that Section 29A(g) bars promoters or those in control of a Corporate Debtor from submitting a resolution plan if fraudulent transactions have been identified. The Tribunal emphasized that the intent of the Code is to prevent defaulting promoters from regaining control of the Corporate Debtor through resolution plans.

Conclusion:

The Tribunal dismissed both appeals, upholding the orders dated 12.11.2021 and 02.08.2023. The Tribunal found no merit in the Appellants' arguments and confirmed the findings of fraudulent transactions and the consequent ineligibility under Section 29A(g) of the Code. The Tribunal also supported the Adjudicating Authority's decision to order liquidation of the Corporate Debtor in light of the rejection of the resolution plan.

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