TaxTMI 
TaxTMI 
2021 (1) TMI 937
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....f Section 67 read with Section 70 and 71 of the Code. Submissions by the Applicant: 2. A Corporate Insolvency Resolution Process (hereinafter referred to as "CIRP") of Royal Refinery Private Limited (Corporate Debtor) was commenced by Order of this Hon'ble Tribunal dated 13 November 2019 in Company Petition No. 2556/MB/2019, uploaded on 20 November 2019 (certified copy received on 22 November 2019), pursuant to insolvency petition filed by the Operational Creditor under the provisions of Section 9 of the Code when Mr. Nandkishor Deshpande was appointed as the Interim Resolution Professional ("IRP"). 3. A public announcement of CIRP in the present matter was issued on 21 November 2019 in 'Form A' under Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which was published in newspapers viz Business Standard dated 22 November 2019, FREEPRESS JOURNAL dated 22 November 2019 and NAVSHAKTI dated 22 November 2019 intimating the commencement of the CIRP process and inviting claims from all the creditors to be filed by 04 December 2019. 4. ....
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....e since Respondent no. 3 who is a suspended director of the Corporate Debtor had been appointed as a key managerial person of Respondent no. 1 for the period 10 August 2018 to 09 January 2019, during which much of the alleged transactions relating to sale of gold/gold items have occurred between the Corporate Debtor and the Respondent no.1. 8. As far as Respondent no. 1 is concerned, on evaluation of data to the extent acquired, it has been learnt that there are 3 ledger accounts which are maintained viz. Royal India Corporation Limited (General Ledger), Royal India Corporation Limited (Jewellery) and Royal India Corporation Limited (Local). The Applicant has analysed and assessed all 3 running ledger accounts for the period 01 April 2018 to 20 May 2019, which predominately relates to similar entries in the nature of local sales made with regard to gold/ gold items. 9. Table below summarises the aforesaid accounting entries entered between the Corporate Debtor and Respondent no. 1: Particulars Amount in Rs. Royal India Corporation Limited (General Ledger) 10,54,92,600/- Royal India Corporation Limited (Jewellery) ....
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....ovide relevant documents, and whatever the RP has managed has been through information mainly acquired from Director of Revenue Intelligence. Due to this, the Applicant Resolution Professional is not in a position to work effectively thereby fulfilling his duties as defined under section 25 of the Code. The instances of non - cooperation by the directors are being reflected in several emails that have been sent out by the RP seeking details/documents/clarifications, to which Respondents have either not responded appropriately, or provided evasive replies and piecemeal information, thereby creating ambiguities and hindrances in the CIRP Process. 16. The Applicant states that at COC meetings which have taken place so far, act of non-cooperation and lack of information provided by the promoter/ directors and statutory auditor of the Company has been raised and discussed. 17. Eventually a separate application under the provision of Section 19(2) has been filed against the Respondent nos. 2 to 4 citing instances of non-cooperation which is pending adjudication. Further....
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....rant. Submissions by the R1: 21. The Respondent denies and disputes all the allegations and certain contentions raised, levelled and contained by the Applicant in above Interlocutory Application. 22. The contents of the present application are made on assumption and presumption hence not maintainable and liable to be dismissed. 23. The R1 is neither Corporate Debtor in main petition or present application nor promoter/suspended director of the Corporate Debtor. The R1 is a separate entity and not liable for wrongful or fraudulent trading in Corporate Debtor, if any. 24. The R1 submits that in general practice in the bullion market, monetary transaction between the sellers and purchasers are common. Advanced amounts are subject to adjustment against trading of the gold/bullion from time to time. Respondent used to maintain running trading account with the Corporate Debtor hence disbursement of advance and trading for long period on beneficial conditions such as booking on prevailing rate for future goods, discounts etc. are usual in bullion business operations. The R1 strictly denies that fraudulent preference which is carried out under o....
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....ed between Corporate Debtor and R1. After relieving from the Corporate Debtor, R3 joined the Corporate Debtor independently but not being in charge. 31. There are huge mismatch in amount of the Corporate Debtor hence not maintainable. 32. The R2 and R3 denies the amount announced by the applicant i.e. Rs. 158,07,56,469/-. The original outstanding amount is Rs. 31,01,83,019/- as on commencement of CIRP. 33. The R2 and R3 deny all the allegations for non-co-operation in CIRP. The R2 and R3 are fully co-operating the Applicant in CIRP of the said Corporate Debtor ab-initio. De-facto, the R1 have been attended maximum CoC meetings, provided all available documents and details as required by the Applicant through email. Due to some unavoidable circumstances which were beyond control of the R2 and R3, the R2 and R3 couldn't provide certain details to the Applicant immediately but the R2 and R3 made all the efforts and continuing to provide the remaining details to the Applicant. 34. The functions of the Corporate Debtor were affected due to seizure of various data and documents during search by the DRI, Mumbai. The R2 and R3 always co-operated the Appl....
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....ta of the Corporate Debtor since the access to the books of accounts of the Corporate Debtor was given only at the registered office of the Corporate Debtor. c. The Respondent No. 4 submits that it was the lackadaisical attitude of the management and subsequent arrest of directors of the Corporate Debtor which restrained him from conducting the statutory audit of the Company. Respondent No. 4 was further informed that all the books of accounts and data has been ceased by the DRI. It is further submitted that the Respondent No. 4 had resigned from the position of the statutory auditor because he was surrendering his Certificate of Practice ("COP") and wished to pursue higher studies. d. Therefore, the Respondent No. 4 submits that he had informed the Applicant that no audit was done by the auditors since the management had not provided the relevant papers of the Corporate Debtor for conducting the audit. e. The Respondent No. 4 submits that a statutory auditor is an external or outside office service supplier whose role is limited to conducting statutory audit as per the established norms provided by the Institute of Cha....
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....tement of facts wherein the Respondent No. 4 has given a detailed explanation and provided all the information. Therefore, the Applicant is unnecessarily persecuting the Respondent No. 4 by trying to link the alleged transaction with him. h. The Respondent No. 4 further submits that the Respondent No. 4 has even searched and provided the internal audit report for the year 2016-17 and draft internal audit report for the year 2017-18 through his advocates to the advocates of the Applicant vide email dated 25.10.2020. 39. The Respondent No. 4 submits that the Applicant has made erroneous allegations and statements against him, which are not only illfounded and illusory but are also baseless. It is submitted that the Applicant has no evidentiary proof to support the bald statements made by him regarding Respondent No.4's involvement in the transactions being made between the Respondent No. 1 and the Corporate Debtor. 40. The Respondent No. 4 submits that the Applicant has tried to link him with the above-mentioned transactions only because he was the statutory auditor of the Corporate Debtor for the period of 2018-2019. However, it is ....
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....rds of the Corporate Debtor. This was done because of various offences committed at that time under the Customs Act, 1962 by the Directors of the Corporate Debtor Company. This Bench while deciding the fraud in this case mainly has looked into the Ledger Account of R1 as appearing in the books of the account of the Corporate Debtor which has been provided by RP, R1 itself and R2 & R3 (the suspended directors). The scrutiny done by this Bench in this matter is for the period between end-May 2019 and 13.11.2019, the date when CIRP had commenced against the Corporate Debtor. 44. The RP has provided Ledger account of R1 which mainly has 3 parts: (1) Royal India Corporation Ltd. (Local) (RICL-L)); (2) Royal India Corporation Ltd. (Jewellery) (RICL-J) and (3) Royal India Corporation Ltd. (General Ledger) (RICL-JL). As per the last entry of RICL Jewelry, on 01.04.2019 the credit shown is Rs. 5.58,03,104/-, in the RICL General Ledger it is Rs. 10,54,92,600/- ending 30.03.2019 and in the RICL Local Ledger it is Rs. 141, 94,60,765/-. In all, as mentioned by the RP, it totals to Rs. 158,07,56,469/-. The Bench finds that the three types of different Ledge....
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....chaser" of gold from the Corporate Debtor till May, 2019 has turned into a "Seller" of gold. Nowhere in the records since 2018 it is a "Seller" of gold. The same is also evident from the invoices since 31.03.2018 which has been produced by the RP. This is for the simple reason that a Refinery doesn't take gold, the Refinery's job is to refine the raw gold to 99.5% purity and sell it to the jewelers. There can never be a transaction where the Jeweler sells jewelry to the Corporate Debtor, which is a gold Refinery. The R1 knew here that they cannot make any changes by way of fraud in the Ledger Account for the period before May 2019 because, that account has already been seized by DRI and therefore it be almost impossible to make fraudulent entries for any amount before May 2019. Therefore, from 27.07.2019 onwards till 31.08.2019 the R1 cooked their ledger and showed sales to the Corporate Debtor, which is a total role reversal. Similarly R2 and R3 also aligned themselves in this and have mentioned these as "Purchase" in the Books of account of the Corporate debtor. As the Bench has pointed earlier that the transaction with the Corporate Debtor of R1 was for the purchase ....
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....solvency as on 13.11.2019. Adding up the "purchase" entry as appearing in the ledger account provided by R2 and R3 are almost the same as is the "sale" entry made by R1. This, as has been demonstrated in preceding paragraphs, is fraudulent entry which has been done by R1, R2 and R3. Therefore, the Bench has no doubt in its mind that the R1, R2 and R3 have defrauded and has dues to the extent of Rs. 86,06,22,740/- which is an amount due to the Corporate Debtor but has been fraudulently reduced by showing illegal entries of "sale" entry by R1 and concomitant "purchase" entry in the ledger by R2 and R3. 50. Therefore, in view of the above this Bench, after examining the fraudulent entries comes to the following conclusion:- (a) That an amount of Rs. 31,01,83,022/- crore is clearly receivable as showed in the ledger account of both R1 as well as R2 and R3. There is no dispute by any of the parties in any manner as far as this is concerned. (b) The fraudulent entries benefiting Respondent No.1 to the tune of Rs. 1,19,08,05,762/-(86,06,22,740+31,01,83,022) with an intent to defraud the Corporate Debtor be returned by R1 into the Corporat....
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....not only restricted to 'insiders' like employees, directors or partners. It is wide enough to include fraud on behalf of third parties like other corporate persons and creditors. In this case covers the conduct of Respondent No 1. The words used in section 66(1) i.e. "...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 in such manner shall be liable to make such contributions to the assets of the corporate debtor a sit may deem fit , shows that Adjudicating Authority has the power to demand contribution to the assets of the corporate debtor, from the defrauding party. In this case Respondent No 1 party would be responsible, without any limitation of liability, for the losses cause due to their fraudulent trading." 53. Besides Respondent No.1, the Bench is of the definite view that Respondent No.2 and 3 are also squarely covered Section 66(2) with respect to their misconduct and also makes them liable "to make such contributions to the assets to the Corporate Debtor". 54. The above responsibility of a "director" is clearly brou....
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....eceivables etc. In fact the Resolution Professional/Applicant after taking charge, grew suspicious of the genuineness / veracity of dates and receivables pursuant to the non-delivery of letters to the debtors. The Resolution Professional / Applicant later came to know that most of the addresses of the 'Debtors' as shown in the Tally either had not existed or even if they had existed, there was no such Companies/Firms found in the 'Addresses' described. Moreover, inspite of sending representatives to numerous debtors,90% of the addressees had not existed or the firms were not in existence at the given addresses, in the tally. Based on the Financial Audited Balance sheet of the year 2012-13, the discrepancies were pointed out and it was evident that there was falsification of the Accounts of the Corporate Debtor. Besides this, although the outstanding debts in the Books was Rs. 200 crores and that the Corporate Debtor being in trouble with a Debt of Rs. 500 crores, to pay the same to the 'Financial Creditors'. There was no record to show that the steps taken by the Directors relating to the recovery of the outstanding sum, payable to it. .... ... In this co....
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....e view that R1 i.e. Royal India Corporation Limited through various fraudulent transactions and by way of fudging the Books of Accounts in connivance with the R2 and R3 have defrauded the Corporate Debtor company to the extent of Rs. 1,19,08,05,762/-. This includes the clear admitted dues of Rs. 31.01 crore. 57. The Bench directs that the total amount of Rs. 1,19,08,05,762/- be returned by R1 into the Corporate Debtor's account within a period of 7 days from the pronouncement of this Order. 58. IA 1266/2020 in CP 2556/2019 is "Allowed" on the above lines and 'disposed of. ============= Document 1 ROYAL INDIA REFINERY PRIVATE LIMITED IN THE ONES RASED ON ROYAL INDIA CORPORATION LIMITED MUST Puty A CLAT Derry CGST 13000 20000 3307 14955 319 1,42.000 6.41.40.000 4.78.38442 5.14.200 843.100 HO 34 342.100 40300 1 35 H 10000 3,100,000 99.30% 10000 3,050,000 15000 3332 4.31.80.000 4300 4,95,750 7,49300 4.6.306 435 34093.000 NO IN 3441300 10 24 51475400 8 " 159 1000 1,40,000 47,400 10 28-10-2014/ 14-08 201 ....
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..../2019-20/32 9-5-2019 Cr Indusind Bank A/c Payment 7-6-2019 Cr Indusind Bank A/c Payment 5.00.000.00 33 98,00,000.00 41 64,37,500.00 1,61,04,050.00 27-7-2019 Cr Sales GST Sales 10/2019-20 7,39,74,600.00 1-8-2019 Cr Sales GST Sales 11/2019-20 8,88,37,500.00 Cr Sales GST Sales 12/2019-20 7,08,64,000.00 3-8-2019 Cr Sales GST Sales 15/2019-20 7,18,52,800.00 5-8-2019 Cr Sales GST Sales 16A/2019-20 5,42,29,500.00 6-8-2019 Cr Sales GST Sales 17/2019-20 5,56,20,000.00 7-8-2019 Cr Sales GST Sales 18/2019-20 4,51,14,000.00 9-8-2019 Cr Sales GST Sales 19/2019-20 6,03,99,200.00 13-8-2019 Cr Sales GST Sales 23/2019-20 5,70,10,500.00 16-8-2019 Cr Sales GST Sales 25/2019-20 3,80,07,000.00 17-8-2019 Cr Sales GST Sales 26/2019-20 3,03,89,120.00 20-8-2019 Cr Sales GST Sales 27/2019-20 6,11,44,920.00 21-8-2019 Cr Sales GST Sales 28/2019-20 2,31,13,200.00 23-8-2019 Cr Sales GST Sales 29/2019-20 5,73,19,500.00 24-8-2019 Cr Sales GST Sales 30/2019-20 3,44,84,400.00 27-8-2019 Cr Sales GST Sales ....