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 tribunal found insufficient evidence to classify most transactions as preferential or fraudulent due to lack of requisite information and unverified asset values. However, it treated the transfer of an Innova Crysta car post-CIRP initiation as fraudulent transaction intended to defraud creditors. Under Section 66(2)(b) of IBC 2016, the tribunal directed respondents to contribute Rs.13,74,585 to corporate debtor's assets for failing to exercise due diligence in minimizing creditor losses.

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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.

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