TaxTMI 
TaxTMI 
2021 (8) TMI 653
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....ny required. Further, the Adjudicating Authority directed the Respondents to contribute a sum of Rs. 12.31 lakh to the Corporate Debtor's assets under Section 66 of the IBC, 2016, within four weeks from the date of Order. Accordingly, being aggrieved by the said Order, this Appeal is preferred. However, the original parties status in the Company Petition represents them in this Appeal for the sake of convenience. Brief Facts 2. The Corporate Insolvency Resolution Process has been initiated against the Corporate Debtor by the Corporate Applicant/Corporate Debtor under Section 10 of the Insolvency and Bankruptcy Code with effect from 15th April 2019, and IRP/RP was appointed. During the CIRP period, the Resolution Professional (in short 'RP') with the approval of the Committee of Creditors (from now on referred to as 'CoC') has engaged the Forensic Auditor to investigate the Corporate Debtor's affairs and find out any avoidable transactions or vulnerable transactions entered by the Corporate Debtor before the Corporate Insolvency Process period ( in short 'CIRP'). 3. The Forensic Audit was carried by the Forensic Auditor, who submitted its ....
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....f the relief portion as contained in the Application; we direct as follows; (i) let the Registrar of Companies, Coimbatore under whose jurisdiction the corporate debtor is amenable, to inspect the books and conduct inquiries as provided under section 206 and section 207 of the Companies Act, 2013 and also furnish a report to the Appropriate Authority for necessary action under section 208, if any required; (ii) we direct the resolution professional to provide a copy of the Forensic Audit Report filed before this Tribunal along with its Application for the purpose of reference. (iii) in relation to Clause (c) of the relief portion, we return the finding that the respondents are directed to contribute a sum of Rs. 12.31 lakhs to the assets of the corporate debtor, taking into consideration the provision of section 66 of the IBC, 2016 within a period of 4 weeks from the date of this Order." Grounds of Appeal 5. The Adjudicating Authority has failed to take notice that no special pleadings have been made against the Appellant's either under Section 66 (1) or under Section 66 (2) of the Code, passed an order under Section 206 and Section 207 of the C....
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....ential transaction as per Section 43 of the IBC 2016. b. Former Directors did not hand over the cash balance of Rs. 12.31 lakhs to the IRP when the CIRP commenced. c. The receivables written off arbitrarily for Rs. 649.39 lakhs of M/S Sakal Papers Ltd, Pune, must be recovered from the Promoter Directors for causing wrongful loss to the Corporate Debtor. d. Payments made to customers and written off the sum of Rs. 50.28 lakhs must be recovered from the Promoter Directors for causing wrongful loss to the Corporate Debtor. e. Loans given to parties and written off amounting to Rs. 43.49 lakhs must be recovered from the Promoter-Director for causing wrongful loss to the Corporate Debtor. 11. The Appellant has produced ledger statements for 1st April 2019 to 4th July 2019 regarding cash expenses for the 1st time as part of the appeal documents, however, without any voucher slips for the entries. Such documents were neither submitted before NCLT nor have the Appellant moved an Application seeking an order from this Appellate Tribunal to produce the said documents by specifying reasons for non-production before the NCLT. The Resolution Professional h....
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....egistrar is satisfied on the basis of information available with or furnished to him or on a representation made to him by any person that the business of a company is being carried on for a fraudulent or unlawful purpose or not in compliance with the provisions of this Act or if the grievances of investors are not being addressed, the Registrar may, after informing the Company of the allegations made against it by a written order, call on the Company to furnish in writing any information or explanation on matters specified in the Order within such time as he may specify therein and carry out such inquiry as he deems fit after providing the Company a reasonable opportunity of being heard: Provided that the Central Government may, if it is satisfied that the circumstances so warrant, direct the Registrar or an inspector appointed by it for the purpose to carry out the inquiry under this sub-section: Provided further that where business of a company has been or is being carried on for a fraudulent or unlawful purpose, every officer of the Company who is in default shall be punishable for fraud in the manner as provided in Section 447. (5) Without prejudice ....
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....nquiry; (b) summoning and enforcing the attendance of persons and examining them on oath; and (c) inspection of any books, registers and other documents of the Company at any place. (4)(i) If any director or officer of the Company disobeys the direction issued by the Registrar or the inspector under this section, the Director or the officer shall be punishable with imprisonment which may extend to one year and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees. (ii) If a director or an officer of the Company has been convicted of an offence under this section, the Director or the officer shall, on and from the date on which he is so convicted, be deemed to have vacated his office as such and on such vacation of office, shall be disqualified from holding an office in any company. Corresponding Law: S. 209-A of Act 1 of 1956. Section 207 enforced w.e.f. 1-4-2014 208. Report on inspection made.-The Registrar or inspector shall, after the inspection of the books of account or an inquiry under Section 206 and other books and papers of the Company under Section 207, subm....
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.... 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 affairs of the Company ought to be investigated by an inspector or inspectors appointed by the Central Government and where such an order is passed, the Central Government shall appoint one or more competent persons as inspectors to investigate into the affairs of the Company in respect of such matters and to report thereupon to it in such manner as the Central Government may direct: Provided that if after investigation it is proved that- (i) the business o....
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....onal purpose of the Company. The entire proceedings conducted by the Adjudicating Authority were flawed in law that vitiated and violated natural justice principles. The Adjudicating Authority had not heard the Appellants before recording its prima facie opinion for directing further inquiries under Sections 206 and 207 of the Companies Act, 2013 and directing an amount of Rs. 12.31 lakhs to the assets of the Corporate Debtor. 17. The Appellant further contends that Adjudicating Authority overlooked the written submissions and case laws, both Indian and English, and other documentary evidence, i.e., audited financial statements for 2018-2019. Therefore, the findings and conclusions of the Forensic Auditor as accepted by the Adjudicating Authority are erroneous and against the legal provision. The Adjudicating Authority considered the audited financial statements for 2018-19 instead of material misstatements made by the Forensic Auditor based on the unaudited financial statements. 18. Further, the fundamental flaw in the Forensic Audit Report is that the observation made therein was entirely inconsistent with audited financial statements for the Financial Year 2018-19. The For....
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....d to the Corporate Debtor's destruction. 22. This Appellate Tribunal in case of Neeta Shrinivas Zanvar and Another vs Nagarjuna Agro Chemicals Private Limited and Others, 2021 SCC OnLine NCLAT 135 has held that: "26. Further, as stated (supra), the Learned the NCLT has also been granted powers to direct an investigation into a company's affairs. However, such direction may be issued only to the Central Government and not to the Registrar under Section 210(2) and 213. The NCLT, in passing the Order, for the investigation to be conducted into the affairs of the Respondent No. 1 Company by the Registrar, ignored the mandate of Section 213, which requires "good reasons" to be shown and "satisfaction" of the Learned NCLT of the circumstances, both of which are absent in the impugned Order. 31. Therefore, the direction issued by the Learned NCLT appointing the Registrar of Companies to investigate into the affairs of Respondent No. 1 Company violates the provisions of the statute, in as much as in terms of Section 210(2) of the Companies Act, 2013, such a direction can be given only to the Central Government and not to the Registrar. In terms of Section 213 o....
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....enquiry as he deems fit after providing the Company with a reasonable opportunity of hearing. 25. It is pertinent to mention that under proviso to Sub-section (4) of Section 206, Central Government is empowered to direct the Registrar or any inspector appointed by, for the purpose to carry out the enquiry under this sub-section. 26. The learned Counsel for the Respondent submits that the specific case of Appellants is that the Respondent filed an application under Sections 43, 45 and 66 (2) of IBC, 2016. Still, the one composite Application under these Sections is not maintainable. In this regard, it is stated that though the Respondent had quoted the above sections in the relief column, but relief is sought only under Section 66 of I&B Code. In addition to the above, it is a well-established principle of law that the wrong quoting of the provision of law does not render the Application invalid. 27. Further, the Respondent, during arguments, stated that the Applicant before the Adjudicating Authority/National Company Law Tribunal, categorically conceded that though the Application is filed under Sections 43, 45 (2) and 66 (2) of IBC, 2016, but the Respondent herein was con....
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....owever, except denial, the Appellant's response failed to substantiate their stand with documentary evidence for the cited transactions, including cash balance expenditure. Furthermore, the Appellant's were provided with an opportunity during the argument to explain the transactions. Therefore, the contentions of the Appellant that no opportunity was provided by the Adjudicating Authority to file a detailed counter along with the evidence is nothing but too shy away from their legal responsibilities. 35. It is essential to mention that the proceeding under the Insolvency and Bankruptcy Code, 2016, is initiated by the Corporate Debtor/Corporate Applicant itself. Serious irregularities are reported in the Forensic Audit Report against the Corporate Debtor. However, the power of the NCLT to order an investigation under the Companies Act, 2013 can not be denied. But whether the Adjudicating Authority under the I& B Code is empowered to order inquiry and investigation about affairs of the Company or not is to be observed. 36. Based on the Forensic Audit Report and Application filed by the RP, the Adjudicating Authority noticed that the Corporate Debtor had diverted a sum o....
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....des it about the said M/s. Sivasakthi International that there has been a clear case of diversion of funds. 41. The Forensic Audit Report states that the receivables were written-off arbitrarily of Rs. 649.39 lakh from one M/s. Sakal Papers Pvt. Ltd., Pune and hence is required to be recovered from the Promoter - Directors for causing wrongful loss to the Corporate Debtor. 42. The Adjudicating Authority has noticed, referring the said Forensic Audit report in connection with the analysis of receivables written-off in the Financial Year 2018-2019, as pointed out in the table given below about M/s Sakal Papers Pvt. Ltd., as reflected in the Books of the Corporate Debtor:- Transaction Amount (INR in Lakhs) Opening Balance as on 01.04.2016 236.56 Sales during 2016-17 470.76 Receipt during 2016-17 100.21 Sales during 2017-18 33.75 Receipts during 2017-18 33.87 Write off in 2018-19 649.39 Closing Balance as on 31.03.2019 -42.40 43. Learned Counsel for the Applicant/RP emphasising the Forensic Audit Report submits that sales by the Corporate Debtor for the Financial Year 2018-2019 continued to be made therein, as to the parties desp....
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....been written off during the Financial Year 2018-2019. 50. The Ex Directors of the Corporate Debtor did not hand over the cash balance of Rs. 12.31 lakh to the IRP when the CIRP commenced. 51. From the balance sheet as of 31st March 2019, it is pointed out by Learned Counsel for the Applicant RP that for the year ended 31st March 2019, the 'cash' and 'cash equivalent' available in the hands of the Company/ Corporate Debtor was to the extent of Rs. 23,12,085/- and upon further reference to the notes to the balance sheet, it is pointed out by Learned Counsel for the Applicant that cash in hand is reflected as a sum of Rs.12,41,097/-. It is alleged that the said amount has not been handed over to the IRP by the Respondents at the time of initiation of the CIRP by this Tribunal on 15th April 2019. 52. Finally, there are allegations of diversion of stocks to the extent of Rs.2,70,46,147/- alleged by the Applicant against the Respondents/ suspended Directors of the Corporate Debtor. 53. However, as reflected on 31st March 2019, the stocks are the inventory carried by the Corporate Debtor that had been not handed over to the IRP/RP upon the initiation of the CIR....
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....) No. 498 of 2019 M. Srinivas Vs. Smt. Ramanathan Bhuvaneshwari. In this case, this Appellate Tribunal has held that; "17. Apart from the power conferred by Section 213 of the Companies Act, 2013, the 'National Company Law Tribunal' has inherent powers under Rule 11 of National Company Law Tribunal Rules, 2016. Therefore, in public interest, it is always open to the 'National Company Law Tribunal' after giving a reasonable opportunity of being heard to the parties concerned refer the matter to the Central Government for investigation, if the Tribunal/Adjudicating Authority forms a prima facie opinion that acts of fraud have been committed by Company or group of companies or its Director(s) or officers. In the present case 'Forensic Audit Report' alleged that the members of the 'Corporate Debtor' and its 'Group Companies' along with officers of the 'Bank of Maharashtra' have committed certain fraud, which, inter alia, suggest that a sum of Rs. 3,172.25 Lakhs are receivable by the 'Corporate Debtor'. The Appellant and others were given reasonable opportunity of hearing by Adjudicating Authority. As such no interference ....
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....f Karnataka Embassy Property Developments (P) Ltd. v. State of Karnataka, (2020) 13 SCC 308 had considered the aspect of fraud about both initiations of the petition as well as about the fraud committed by the Corporate Debtor and whether the Adjudicating Authority can inquire into it. 63. In the said case, Hon'ble Supreme Court has held that even fraudulent tradings carried on by the Corporate Debtor can be inquired into by the Adjudicating Authority under Section 66. NCLT is vested with the power to inquire into (i) fraudulent initiation of proceedings as well as (ii) fraudulent transactions. Therefore, it is clear that NCLT and NCLAT would have jurisdiction to inquire into fraud questions; they would not have jurisdiction to adjudicate upon disputes. 64. The law laid down has been followed in the subsequent decision rendered by the Hon'ble Supreme Court in Beacon Trusteeship vs Eartcon Infracon Private Limited, (2020) 158 CLA 382 (SC). 65. Both the above decisions categorically point out that the Tribunal is required to consider the aspect of fraud of which it is vested with the jurisdiction not only about the initiation of CIRP but also of the Corporate Debtor ....