TaxTMI 
TaxTMI 
2019 (9) TMI 1316
X X X X Extracts X X X X
X X X X Extracts X X X X
....njay Raj and Mr. Srinivas, who are responsible for defrauding the creditors, in order to recover the total dues of Rs. 461,163,402/-. The Resolution Professional brought it to the notice of the Adjudicating Authority (National Company Law Tribunal), Bengaluru Bench, the relevant facts thereof are quoted below: 1) The Corporate Debtor M/s. Bhuvana Infra Projects is incorporated in the year 2011 and it is the sub contracting Arm of its Group Companies and undertakes work contracts exclusively for its group Companies. The Group consists of M/s. Golden Gate Properties Ltd., (GGPL), M/s. Prisha Properties India Pvt. Ltd. (PPIL) and M/s. Commune Properties Pvt. Ltd., (CPIL) New Age Properties LLP and other Companies. This is visible from the complete Turnover of the Corporate Debtor with billing breakup of the Group is as below: Sr. No. Year Respondent 7 M/s. Prisha Properties India Pvt. Ltd. (Rs.) Respondent 6 M/s. Commune Properties (Rs.) Respondent 8 M/s. Golden Gate Properties (Rs.) Total as per Audited Financials (Rs.) 1. 2011-12 39,178,307 Nil Nil 39,178,307 2. 2012-13 177,757,510 Nil Nil 177,757,510 3. 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the rest of the assets worth Rs. 7,441,849 is not found physically. Also, as pointed out in the audit report 2017/18 and also confirmed in the forensic audit report, the inventory of amount Rs. 941,23,192/- have been written off without any revenue recognized/no invoice raised. Hence, the minimum amount due from the Group to the Corporate Debtor amounts to: Sl. No. Details Amount overdue from Group (Rs.) To be recovered from the Directors of CD (Rs.) Total amount due (Rs.) 1. Receivables overdue 322,064,568 322,064,568 2. Assets with Group 15,176,560 15,176,560 3. Assets not found 7,441,849 7,441,849 4. WDV of Assets sold to scrap dealers and money siphoned off 22,357,233 22,357,233 5. Inventory consumed, not invoiced 94,123,192 94,123,192 Total dues from Group 337,241,128 123,922,274 461,163,403 5. The application was opposed by Mr. Sanjay Raj, one of the Promoters, on the ground that the application was not maintainable either on law or on facts. It was denied that the company was a Shell Company and asserted that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by invoking powers conferred U/s 212/213 of the Companies Act, 2013 and thereafter, aggrieved party can take appropriate legal course of action. 19. In the result by exercising powers conferred on this Adjudicating Authority, which being NCLT, U/s 213 of Companies Act, 2013, I.A. No. 446/2018 in C.P(IB) No. 122/BB/2017 is disposed with following directions: 1) Learned Resolution Professional is directed to forward all material documents, which is connected to the present case including the Forensic Audit Report dated 14.12.2018, the Central Government, within a period of three weeks from the receipt of the copy of the order. 2) Learned Resolution Professional is also directed to furnish all the documents forwarded to the Central Government, to all parties/ other side duly following principles of natural justice. 3) The Central Government is directed to refer the matter to the SFIO for further investigation into the Affairs of the Corporate Debtor, Bank of Maharashtra and other related Companies including Director of Companies of Corporate Debtor & related Companies and officials of Bank of Maharashtra basing on the Report of Forensic Audit Report....
X X X X Extracts X X X X
X X X X Extracts X X X X
....apati Ramesh, Promoter to handover all the records and assets of the Corporate Debtor to the Resolution Professional. It was informed by the Appellant- Mr. Lagadapati Ramesh that all the records have been handed over to the Resolution Professional, but the same has been denied by the Resolution Professional. 17. We have heard learned counsel for the Appellants and the Respondent as well as perused the record. 18. Section 66 of the I&B Code relates to fraudulent trading or wrongful trading, if found during the Resolution Process or Liquidation Process in regard to the business of the Corporate Debtor, which reads as under: " 66. Fraudulent trading or wrongful trading.- (1) If during the corporate insolvency resolution process or a liquidation process, it is found that any business of the corporate debtor has been carried on with intent to defraud creditors of the corporate debtor or for any fraudulent purpose, the Adjudicating Authority may on the application of the resolution professional pass an order that any persons who were knowingly parties to the carrying on of the business i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed any part of the property of the corporate debtor of the value of ten thousand rupees or more; or (c) wilfully concealed, destroyed, mutilated or falsified any book or paper affecting or relating to the property of the corporate debtor or its affairs, or (d) wilfully made any false entry in any book or paper affecting or relating to the property of the corporate debtor or its affairs; or (e) fraudulently parted with, altered or made any omission in any document affecting or relating to the property of the corporate debtor or its affairs; or (f) wilfully created any security interest over, transferred or disposed of any property of the corporate debtor which has been obtained on credit and has not been paid for unless such creation, transfer or disposal was in the ordinary course of the business of the corporate debtor; or (g) wilfully concealed the knowledge of the doing by others of any of the acts mentioned in clauses (c), (d) or clause (e); or (ii) at any time after the insolvency commencement date, committed any of the acts mentioned in sub-clause (a) to (f) of clause (i) or has the knowledge of the doing by others of any ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oes not deliver to the Resolution Professional all or part of the property of the Corporate Debtor in his control or custody and does not deliver to the Resolution Professional all books and papers in his control or custody belonging to the Corporate Debtor and fails to inform the resolution professional the information in his knowledge that a debt has been falsely proved by any person during the Corporate Insolvency Resolution Process or prevents the production of any book or paper affecting or relating to the property or affairs of the Corporate Debtor etc., such person is punishable with imprisonment for a term which shall not be less than three years, but which may extend to five years, or with fine, which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both, which is apparent from Section 70 and reads as follows: "70. Punishment for misconduct in course of corporate insolvency resolution process.- (1) On or after the insolvency commencement date, where an officer of the corporate debtor- (a) does not disclose to the resolution professional all the details of property of the corporate debtor, and details of transactions ther....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rate debtor with intent to defraud or deceive any person, he shall be punishable with imprisonment for a term which shall not be less than three years, but which may extend to five years, or with fine which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both." 72. Punishment for wilful and material omissions from statements relating to affairs of corporate debtor.- Where an officer of the corporate debtor makes any material and wilful omission in any statement relating to the affairs of the corporate debtor, he shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to five years, or with fine which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both. 24. On the other hand, Section 73 prescribes for punishment for false representations to creditors by any officer of the Corporate Debtor, including the Promoters on or after the insolvency commencement date, as quoted below: "73. Punishment for false representation to creditors.- Where any officer of the corporate debtor- (a) on or after the insolvency commencement date, makes ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the Board or the Central Government or any person authorised by the Central Government in this behalf. (3) The provisions of the Code of Criminal Procedure, 1973 shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be deemed to be a Court of Session and the person conducting a prosecution before a Special Court shall be deemed to be a Public Prosecutor. (4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, in case of a complaint under sub-section (2), the presence of the person authorised by the Central Government or the Board before the Court trying the offences shall not be necessary unless the Court requires his personal attendance at the trial." 28. Normally, the IBBI or the Central Government are not party to a Corporate Insolvency Resolution Process. Even if the matter is referred to IBBI, it cannot file straightaway a compliant before the Special Court without any investigation and only if a prima facie case is made out. Therefore, the question arises as to how in such cases the matter can be referred to by the Adjudicating Authority to the IBBI or the Cen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....investigation in the manner and follow the procedure provided in this Chapter; and submit its report to the Central Government within such period as may be specified in the order. (4) The Director, Serious Fraud Investigation Office shall cause the affairs of the company to be investigated by an Investigating Officer who shall have the power of the inspector under section 217. (5) The company and its officers and employees, who are or have been in employment of the company shall be responsible to provide all information, explanation, documents and assistance to the Investigating Officer as he may require for conduct of the investigation. (6) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), [offence covered under section 447] of this Act shall be cognizable and no person accused of any offence under those sections shall be released on bail or on his own bond unless (i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and (ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Serious Fraud Investigation Office shall submit the investigation report to the Central Government. (13) Notwithstanding anything contained in this Act or in any other law for the time being in force, a copy of the investigation report may be obtained by any person concerned by making an application in this regard to the court. (14) On receipt of the investigation report, the Central Government may, after examination of the report (and after taking such legal advice, as it may think fit), direct the Serious Fraud Investigation Office to initiate prosecution against the company and its officers or employees, who are or have been in employment of the company or any other person directly or indirectly connected with the affairs of the company. (15) Notwithstanding anything contained in this Act or in any other law for the time being in force, the investigation report filed with the Special Court for framing of charges shall be deemed to be a report filed by a police officer under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974). (16) Notwithstanding anything contained in this Act, any investigation or other action taken or initiate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....howing that the applicants have good reasons for seeking an order for conducting an investigation into the affairs of the company; or (b) on an application made to it by any other person or otherwise, if it is satisfied that there are circumstances suggesting that (i) the business of the company is being conducted with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to any of its members or that the company was formed for any fraudulent or unlawful purpose; (ii) persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or (iii) the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, or the manager, of the company, order, after giving a reasonable opportunity of being heard to the parties concerned, that the affai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of such matters and to report thereupon to it in such manner as the Central Government may direct. 35. If after investigation it is proved that (i) the business of the company is being conducted with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose, or that the company was formed for any fraudulent or unlawful purpose; or (ii) any person concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, then, every officer of the company who is in default and the person or persons concerned in the formation of the company or the management of its affairs shall be punishable for fraud in the manner as provided in section 447. 36. For punishment of fraud in a manner as prescribed in Section 447 of the Companies Act, 2013, the matter is required to be tried by a Special Court as established under Section 435 which requires speedy trial for offences under the Companies Act, 2013. The same Court i.e. Special Court established under Section 435 is the Court empowered under Section 236 of the I&B Code for trial of such offence under the I&B Code also. 37. In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....referred to the Serious Fraud Investigation Office or not. This will depend on the gravity of charges as may be found during the investigation by the Inspector. 42. In view of the aforesaid position of law, we are of the view that the Adjudicating Authority was not competent to straight away direct any investigation to be conducted by the Serious Fraud Investigation Office. However, the Adjudicating Authority (Tribunal) being competent to pass order under Section 213 of the Companies Act, 2013, it was always open to the Adjudicating Authority/Tribunal to give a notice with regard to the aforesaid charges to the Promoters and others, including the Appellants herein and after following the procedure as laid down in Section 213, if prima facie case was made out, it could refer the matter to the Central Government for investigation by the Inspector or Inspectors and on such investigation, if any, actionable material is made out and if the Central Government feels that the matter requires investigation through the Serious Fraud Investigation, it can proceed in accordance with the provisions as discussed above. Impugned order shows parties have been heard on the charges claimed by the....