TaxTMI 
TaxTMI 
2022 (11) TMI 1234
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....ating Authority, while allowing the Application has observed as follows; "9. Observations 9.1. This Adjudicating Authority has observed that Insolvency commenced on 23.05.2017 and it is apprehended by the Liquidator and the Forensic Auditor and the allegations made by one of the Operational Creditors that certain transactions which can be termed as Undervalued Transactions, Preferential Transactions and Fraudulent Transaction had been carried out by the Members of the Suspended Management though two years prior to the Insolvency Commencement date. 9.2. The Members of the Suspended Management are not cooperating with the Liquidator on the plea that transactions are falling beyond the two years from the insolvency commencement date 1e. 23.05.2017. 9.3. This Adjudicating Authority has also observed that Liquidator has written to Mr. Khalid Baigh, Mr. Amardeep Singh Bhatia, Mr. Gaurav Agarwal, the Directors of Asian Natural Resources India Limited on 21.07.2018 informing them that in order to study and scrutinize the transactions of the Company, he feels it is necessary and requires necessary documents, details and the information available with them in respect of 9 transaction....
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....llowed to get away by citing reasons such as lapse of time of look back period is 2 years only. 10. Judgement 10.1. Considering the documents, papers made available, arguments of both sides, involvement of high amount, Judgment of the Hon'ble High Court of Mumbai, the operations of the Corporate Debtor scattered in different countries, Corporate Debtor having number of associate companies and in the interest of justice to all stakeholders, exercising the inherent powers under Rule 11 of NCLT Rules, the Liquidator is hereby permitted to scrutinize /investigate the transactions executed/entered by the Corporate Debtor beyond 2 years from the insolvency commencement date i.e. from 01.04.2008 as required by the Forensic Auditor M/s. KPMG. The relevant information/documents/records are required to be sought by the Liquidator from the Directors/Suspended Board and other Personnel of the Corporate Debtor in relation to those transactions which have been entered into /executed by the Corporate Debtor from 01.04.2008. 10.2. Section 19 of the Code requires that the personnel of the Corporate Debtor, its promoters or any other persons associated with the management of the Corporat....
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....ned Counsel for the Appellant/'Mr. Amardeep Singh Bhatia' submitted that Section 43 of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as 'The Code') deals with Preferential Transactions and specifies that the preference shall be deemed to be given, to a 'Related Party', during the period of two years, preceding the Insolvency Commencement Date ('ICD'), or if the persons are other than a 'Related Party' then during the period of one year preceding the ICD. Learned Sr. Counsel submitted that Section 46 of the Code which deals with Avoidable Transactions refers to 'Transactions' made with any person within a period of one year preceding the ICD, or if a 'Transaction' is made with a 'Related Party', then within a period of two years preceding the ICD. It is contended that a bare reading of Sections 43 & 46 of the Code show that the 'relevant time' is either two years for a 'Related Party' or one year for any party other than a 'Related Party', prior to ICD. Learned Counsel, placed reliance on the Judgement of the Hon'ble Supreme Court in 'Anuj Jain, IRP for Jaypee Infratech' Vs. 'Axis Bank Ltd.' (2020) 8 SCC 401, in support of his argument, that transactions beyond ....
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....s chapter; that the relevant period is defined in Section 46 of the Code; that even for the above examination, the Liquidator must have possession of all the material documents so that he can determine if there are undervalued transactions during the relevant period; that the corporate debtor cannot deny documents at the threshold itself; and that even if there are extortionate credit transactions, the Liquidator can approach the Adjudicating Authority as per Section 50. It is important to note that Section 50 presupposes that the Liquidator has possession of all material transactions dehors the two year look back period. 6. Section 66 of the Code deals with fraudulent or wrongful trading. It is the case of the Liquidator that there is no look back period of two years and Section 66 and if the Liquidator finds that there is a fraud committed by the 'Corporate Debtor' at any time, then he can approach the Adjudicating Authority by filing an Application and seeking directions under Section 66(2) of the Code. It is contended that even under Section 66; there is a presupposition that the Liquidator has possession of all the documents, hence, the Liquidator cannot be denied documents b....
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.... acquired by the corporate debtor to the extent that - (i) such security interest secures new value and was given at the time of or after the signing of a security agreement that contains a description of such property as security interest, and was used by corporate debtor to acquire such property; and (ii) such transfer was registered with an information utility on or before thirty days after the corporate debtor receives possession of such property: Provided that any transfer made in pursuance of the order of a court shall not, preclude such transfer to be deemed as giving of preference by the corporate debtor. Explanation. - For the purpose of sub-section (3) of this section, "new value" means money or its worth in goods, services, or new credit, or release by the transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the liquidator or the resolution professional under this Code, including proceeds of such property, but does not include a financial debt or operational debt substituted for existing financial debt or operational debt. (4) A preference shall be deemed to be given at a relevant time, if - (a....
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....her these transactions took place 'during the relevant time'. We find force in the contention of the Liquidator that unless he is in the possession of all the material documents, he cannot determine whether they are 'Undervalued Transactions' or 'Preferential Transactions', during the relevant period of time, and therefore, the 'Corporate Debtor' cannot deny these documents at the threshold itself. 11. Now we address to 'Fraudulent Trading' or 'Wrongful Trading' as provided for under Section 66 of the Code. For ready reference, the said Section is being reproduced as hereunder: "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 in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit. (2) On an application mad....
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....t QB pp. 712 and 713: (All ER p. 345 C) "No judgement of a court, no order of a minister, can be allowed to stand if it has been obtained by fraud. Fraud unravels everything." In the same judgement Lord Parker, L.J. observed that fraud "vitiates all transactions known to the law of however high a degree of solemnity"." 14. There is no provision in the Code for the Appellant to invoke the clause concerning relevant period of two years solely on the ground of denying documents/information directed to be given to the Liquidator. Regulation 9 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, read as follows: "9. Personnel to extend cooperation to liquidator. (1) The liquidator may make an application to the Adjudicating Authority for a direction that a person who- (a) is or has been an officer, auditor, employee, promoter or partner of the corporate debtor; (b) was the interim resolution professional, resolution professional or the previous liquidator of the corporate debtor; or (c) has possession of any of the properties of the corporate debtor; shall cooperate with him in the collection of information necessary for the conduct of ....
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.... 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 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." 17. There is no denial that the Liquidator had communicated regularly to the directors including the Appellant herein of various dates by email, and otherwise seeking information regarding the details concerning nine transactions relating to FY 2009-2019, which were necessary for the purpose of Forensic Audit being carried out by M/s. KPMG. Having regard to the provisions of the Code and the aforenoted Section 213 of the Companies Act, 2013, it....