2024 (5) TMI 999 - AT - Insolvency and Bankruptcy

Resolution Professional wins Section 66 IBC fraudulent transaction case worth Rs. 127 crore against controlled entity

Royal India Corporation Limited Versus Mr. Nandkishor Vishnupant Deshpande, (Resolution Professional for Royal Refinery Pvt. Ltd.), Mr. Vishal Choudhary, Mr. Gaurav Panwar, Mr. Manish Panwar

The NCLAT dismissed an appeal challenging an NCLT order under Section 66 IBC, 2016 regarding fraudulent transactions. The Resolution Professional had ... Maintainability of proceedings under Section 66 of IBC, 2016 - Resolution Professional has not given clear opinion or determination or finding as required under Regulation 35 A - Fraudulent transaction or not - HELD THAT:- The Resolution Professional had informed the CoC that there are no matching assets/inventory with the Corporate Debtor. Only thereafter, Application under Section 66 IBC was filed thereby showing that the Resolution Profession had complied with the Regulation 35A of IBBI (Resolution Process for Corporate Persons), Regulation 2016. As per provisions of sub-section (1), the Adjudicating Authority can pass an order directing “any person”, who was party to carrying on the business of Corporate Debtor in such manner as to defraud creditors of the Corporate Debtor, or for any fraudulent purpose, to make him liable to make such contribution to the assets of the Corporate Debtor as it may deem fit. A plain reading clearly shows that action can be taken against ‘any person’ for recovery of amount involved in the fraudulent transaction. In the present case, there is a finding that Manoj Punamia was running several companies in its business of gold refinery. The finding of the Customs Department was that both the Appellant Company (RICL) and Corporate Debtor (RRPL) were being managed by Mr. Manoj Punamia. Mr. Manoj Punamia and his wife were said to be shareholders of the Appellant Company. In these circumstances, the appellant cannot be said to be a third party, as both RICL and RRPL are under the control of same person - This is a case where the outstanding of Appx. Rs. 158 Cr. was brought down to Rs. 31 Cr. by alleged entries so as to reduce the amount due to the Corporate Debtor thereby reducing likelihood of recovery, causing loss to the creditors of the Corporate Debtor. On similar facts, in the case of MR. NANDKISHORE VISHNUPANT DESHPANDE (RESOLUTION PROFESSIONAL FOR ROYAL REFINERY PVT. LTD. VERSUS SHRI BAIJU TRADING AND INVESTMENT PRIVATE LIMITED; MR. VISHAL CHOUDHARY; MR. GAURAV D PANWAR; MR. MANISH PANWAR; MR. MUKESH MEHTA AND RAKSHA BULLION VERSUS ROYAL REFINERY PRIVATE LIMITED [2021 (1) TMI 1322 - NATIONAL COMPANY LAW TRIBUNAL MUMBAI] the order of NCLT under Section 66 of IBC, 2016 was upheld by this Tribunal [2023 (7) TMI 958 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH], vide order dated 29.03.2023 - Similarly, in the case of Tridhaatu Kirti Developers LLP [2023 (1) TMI 455 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] against the same respondents, who are also Respondents in the present appeal, the order of NCLT under Section 66 IBC was upheld by this Tribunal. Section 66 of IBC, 2016 empowers the Adjudicating Authority to pass an order for recovery from such fraudulent transactions as contribution to the assets of the Corporate Debtor. Such action has also been upheld by Hon’ble Supreme Court in the case of Phoenix Arc (P) Ltd. vs. Spade Financial Services Ltd. [2021 (2) TMI 91 - SUPREME COURT]. Thus, it is apparent that entries were made in its accounts by the Appellant to reduce its liability towards the Corporate Debtor - there are no reason to interfere with the order of the Adjudicating Authority. The Appeal is accordingly dismissed. Issues Involved:1. Validity of proceedings under Section 66 of the Insolvency and Bankruptcy Code (IBC), 2016 against the appellant.2. Allegations of fraudulent transactions between the corporate debtor and the appellant.3. Compliance with Regulation 35A of the CIRP Regulations by the Resolution Professional.4. Determination of the amount due from the appellant to the corporate debtor.Issue-wise Detailed Analysis:1. Validity of Proceedings under Section 66 of IBC, 2016 Against the Appellant:The appellant argued that proceedings under Section 66 of IBC, 2016 are not maintainable against them as the Resolution Professional (RP) did not provide clear opinion or determination as required under Regulation 35A. The appellant also cited the judgment of Hon'ble Supreme Court in Gluckrich Capital Pvt. Ltd. Vs. The State of West Bengal & Ors. to support its contention that the remedy against third parties is not available under Section 66 of IBC. However, the Tribunal noted that Section 66(1) of IBC allows the Adjudicating Authority to pass an order directing 'any person' who was knowingly party to fraudulent transactions to make contributions to the assets of the corporate debtor. The Tribunal distinguished the present case from the cited judgments, noting that the appellant and the corporate debtor were under the control of the same person, Mr. Manoj Punamia, and thus could not be considered third parties.2. Allegations of Fraudulent Transactions:The RP submitted that the business of the corporate debtor involved trading in gold bullion and that the appellant had several transactions with the corporate debtor between 01.04.2018 to 20.05.2019. The RP argued that the transactions were fraudulent, as evidenced by the sudden change in the nature of transactions post the DRI raid in May 2019, which reduced the outstanding amount from Rs. 158 crores to Rs. 31 crores. The RP also highlighted that no physical inventory was found during the DRI raid or when the RP took over. The Tribunal found that the appellant had not challenged the outstanding amount of Rs. 158 crores as of 20.05.2019 and that the reduction in liability was achieved through fraudulent entries.3. Compliance with Regulation 35A of CIRP Regulations by the Resolution Professional:The appellant contended that the RP did not comply with Regulation 35A, which requires a clear determination of fraudulent transactions. The RP countered this by stating that the application under Section 66 was filed after analyzing records seized by the DRI and informing the Committee of Creditors (CoC) about the lack of matching assets/inventory. The Tribunal found that the RP had complied with Regulation 35A by conducting a thorough investigation and making a clear determination of fraudulent activities.4. Determination of the Amount Due from the Appellant to the Corporate Debtor:The RP submitted that the total liability owed by the appellant to the corporate debtor was Rs. 1,58,07,56,469/- as on 20.05.2019, which was reduced to Rs. 31,01,83,022/- through fraudulent entries. The Tribunal noted that no books of accounts were made available for the period post the DRI raid and that the statutory auditor had also stated that he had no access to the books of accounts. The Tribunal concluded that the reduction in liability was achieved through fraudulent entries, causing a loss to the creditors of the corporate debtor.Conclusion:The Tribunal dismissed the appeal, finding no reason to interfere with the order of the Adjudicating Authority. The Tribunal held that the proceedings under Section 66 of IBC, 2016 were valid against the appellant, the transactions between the appellant and the corporate debtor were fraudulent, the RP had complied with Regulation 35A, and the outstanding amount due was correctly determined. All pending Interlocutory Applications were closed, and no order as to costs was made.