2024 (1) TMI 1322 - Tri - IBC

Directors ordered to pay Rs.13.74 lakhs for fraudulent car transfer under Section 66(2)(b) IBC 2016

The NCLT Hyderabad partially allowed an application seeking recovery of Rs.3.87 crores allegedly siphoned off by respondents from a corporate debtor. The ... Preferential Transactions or not - Fraudulent Transactions or not - Recovery of amounts illegally paid to related parties - recovery of amounts payable towards the electronic appliances - recovery of amounts payable towards the two wheelers - recovery of amounts of motor vehicles - whether the respondents can be directed to contribute to the assets of the Corporate Debtor for the amount involved in such transactions? HELD THAT:- The applicant has given details of some transactions claiming that the respondents have siphoned off the total amount of Rs.3.87 crores. Therefore, these transactions of siphoning off the money and performing these transactions are not submitted in the application. This application was listed for orders on 11.12.2023, but orders could not be pronounced on that day as the applicant has not unequivocally clarified the plea of fraudulent transactions. At the request of the learned counsel for the applicant, 10 days’ time was granted till 20.12.2023 to file brief synopsis/ submissions, as last chance. The applicant as well as the respondents have filed Synopsis in compliance of our directions vide order dated 11.12.2023. However, no new facts were added. In view of the same we are unable to decide the transactions of Rs.3.87 crores as tabulated at page 40, whether the same are Preferential Transactions or otherwise. As far as the vehicles are concerned, according to the respondents the same were sold by the husband of R/1 as he was looking after the affairs of the Company even before initiation of CIRP. It is found that the value of these assets is also not verified and even the applicant has not made any plea to treat them as fraudulent transactions, except one vehicle, the ownership of which has been transferred after initiation of CIRP. Thus, in absence of the requisite information, the transaction of Rs.3.87 crores cannot be classified at a preferential transaction - As regards Innova Crysta Car, its ownership has been transferred to a third person post imitation of CIRP. Hence we treat it a fraudulent transaction intended to defraud the creditors. As regards section 66(2) (b) of the IBC, 2016 it clearly states that On an application made by a resolution professional during the corporate insolvency resolution process, the Adjudicating Authority may by an order direct that a director or partner of the corporate debtor, as the case may be, shall be liable to make such contribution to the assets of the corporate debtor as it may deem fit, if such director or partner did not exercise due diligence in minimizing the potential loss to the creditors of the corporate debtor. Therefore, relying on the said section of the IBC, 2016, respondents no.1 and 2 are directed to contribute of Rs.13,74,585/- to the assts of the Corporate Debtor. Application allowed in part. Issues Involved:1. Preferential Transactions under Section 43 of the IBC.2. Fraudulent Transactions under Section 66 of the IBC.3. Recovery of amounts payable towards electronic appliances.4. Recovery of amounts payable towards motor vehicles.5. Time-barred application contention.Issue-Wise Detailed Analysis:1. Preferential Transactions under Section 43 of the IBC:The Resolution Professional (RP) alleged that the suspended board of directors conducted various preferential transactions prohibited under Section 43 of the IBC, 2016. The transactions involved entities like ICity Constructions and Padma Electricals, which were related parties. The Transaction Auditor's report indicated suspicious transactions but did not conclusively identify any preferential transactions under Section 43. The respondents argued that all transactions were bona fide and conducted during the normal course of business. The Tribunal found that the applicant did not provide sufficient evidence to classify the transactions amounting to Rs.3.87 crores as preferential.2. Fraudulent Transactions under Section 66 of the IBC:The RP contended that the respondents engaged in fraudulent trading or wrongful trading transactions. Specifically, the transfer of an Innova Crysta car post-CIRP commencement was highlighted as fraudulent. The Tribunal agreed that the transfer of the Innova Crysta car to a third person post-CIRP commencement was intended to defraud creditors and thus treated it as a fraudulent transaction under Section 66. Consequently, the Tribunal directed respondents No. 1 and 2 to contribute Rs.13,74,585/- to the assets of the Corporate Debtor.3. Recovery of Amounts Payable Towards Electronic Appliances:The RP claimed that electronic appliances with a book value of Rs.5,07,358/- were not produced for verification. The respondents attributed the disposal of these appliances to Suresh Kumar, the late husband of respondent No. 1. The Tribunal did not find sufficient grounds to hold the respondents accountable for the loss of electronic appliances under Section 66(2).4. Recovery of Amounts Payable Towards Motor Vehicles:The RP presented a list of vehicles, including two-wheelers and four-wheelers, that were not physically available despite being recorded in the Corporate Debtor's books. The respondents claimed that these vehicles were sold by Suresh Kumar. The Tribunal acknowledged the transfer of the Innova Crysta car as fraudulent but did not classify the other vehicle transactions as fraudulent due to a lack of evidence.5. Time-Barred Application Contention:The respondents argued that the application was time-barred, as it was filed beyond the 135-day limit from the CIRP commencement date. The Tribunal did not explicitly address this contention in its final judgment, focusing instead on the substantive issues of preferential and fraudulent transactions.Conclusion:The Tribunal partially allowed the application, directing respondents No. 1 and 2 to contribute Rs.13,74,585/- to the assets of the Corporate Debtor for the fraudulent transfer of the Innova Crysta car. The application was otherwise disposed of without costs.