TaxTMI 
TaxTMI 
2022 (12) TMI 498
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.... Authority', (National Company Law Tribunal, Kochi Bench, Kerala). 2. The 'Adjudicating Authority' (National Company Law Tribunal, Kochi Bench, Kerala), while passing the 'Impugned Order' dated 02.06.2022 in IA(IBC)/196/KOB/2021 in IBA/13/KOB/2020 (Filed by the '1st Respondent' / 'Resolution Professional') at Paragraph Nos.24 and 25 had observed the following: - "24. Issue Number (ii) : - It is seen from the records that this IA is filed on the basis of the report filed by the forensic auditor appointed by the Applicant. We have also gone through the report meticulously. In the report, the Forensic Auditor stated as under: - a) Agreement for sale of mortgaged land by the Corporate Debtor It is evident from the above-mentioned observations that, these transactions were deliberately entered into by the suspected Managing Director of the Corporate Debtor, for keeping assets of the Corporate Debtor beyond the reach of the Secured Creditor ie Federal Bank, as this land property was mortgaged as security with the Bank. Furthermore, actual facts were concealed from the bank by misrepresenting that no agreements were existing for the sale of the mortg....
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....The intention of K.N.Narayanan Namboodiripad, the suspended Managing Director for entering into such an agreement is suspected to deceive the Corporate Debtor and the buyers 25. From the Forensic Audit it is clear that this is a fit case to direct the Respondents to make good the losses caused to the creditors of the Corporate Debtor as the transactions referred to in the earlier paragraphs are fraudulent transactions, holding that the Respondents are personally liable for such deliberate and wilful default. The Respondents 1 to 6 are jointly and severally responsible to pay Rs. 2,94,77,269/- (Rupees Two Crore Ninety Four Lakh Seventy Seven Thousand Two Hundred and Sixty Nine Only) with interest @ 12% per annum to the account of the Resolution Professional of the Corporate Debtor within two weeks from the date of receipt of this order. and 'disposed of' the said 'Interlocutory Application'. Appellants' Submissions: 3. Challenging the 'impugned order' dated 02.06.2022 in IA(IBC)/196/KOB/2021 in IBA/13/KOB/2020 passed by the 'Adjudicating Authority', (National Company Law Tribunal, Kochi Bench, Kerala), the Learned Counsel for the 'Appellants' submits that the the '....
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....ns' of Section 66 (2) (a) of the I&B Code, 2016, and as such, to the determination of 'applicability' under Section 66 (1) of the I&B Code, 2016 to the 'Facts and Circumstances' of the 'Instant Case'. 7. The Learned Counsel for the 'Appellants' submits that the 'Adjudicating Authority', (National Company Law Tribunal, Kochi Bench, Kerala) had himself interpreted the 'Decision' of this 'Tribunal' in 'Aditya Kumar Tiberwal Vs. Omprakash Pandey and Ors. (Comp. App. (AT) (Ins) No.583 of 2021) and in any event the 'impugned order' is in violation of the 'Law' laid down by the Hon'ble Supreme Court in the matter of 'Central Board of Trustees v Indore Composite Pvt. Ltd., (2018) 8 SCC 443 is as under: - "14) Indeed, in the absence of any application of judicial mind to the factual and legal controversy involved in the appeal and without there being any discussion, appreciation, reasoning and categorical findings on the issues and why the findings impugned in the writ petition deserve to be upheld or reversed, while dealing with the arguments of the parties in the light of legal principles applicable to the case, it is difficult for this Court to sustain such order of the Divis....
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....e said person should have a dishonest intention to defraud the creditors; 10.3. It can be seen that Section 66(1) of BC, 2016 is pari materia to the provisions of Section 213 of UK Insolvency Act, 1986, which is extracted hereunder; 213 Fraudulent trading. (1) If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, the following has effect. (2)The court, on the application of the liquidator may declare that any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned are to be liable to make such contributions (if any) to the company's assets as the court thinks proper. 10.4 On analysing Section 66(2) of BC, 2016 it is to be seen that it deals with 'Wrongful Trading' and for a transaction to qualify under Section 66(2) the following conditions must be satisfied; (a) Liability can be fixed upon only 'Director' or 'Partner'; (b) They knew, or ought to have concluded that there was no re....
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.... subsection (4) to the functions carried out in relation to a company by a director of the company includes any functions which he does not carry out but which have been entrusted to him. (6) For the purposes of this section a company goes into insolvent liquidation if it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up. (6A) For the purposes of this section a company enters insolvent administration if it enters administration at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the administration. (7) In this section "director" includes a shadow director. (8) This section is without prejudice to section 213. 10.6 Thus, there seems to be a stark contrast in relation to Section 66(1) and 66(2) of BC, 2016. It is needless to say that even the scope of sub - section (1) and (2) of Section 66 of BC, 2016 are different. As to the present case, the Applicant sought the Respondents to make contribution to the Corporate Debtor, under Section 66(2) of IBC, 2016. 10.7 The essenc....
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.... in relation to the 'Wrongful Trading', in view of the fact that the concept of 'Wrongful Trading' is being imported from the UK Insolvency Act, 1986 into the IBC, 2016 which is still at a nascent stage in this Country. Thus, it becomes imperative for this Tribunal to refer to the decision of the English Court. Thus, by taking a cue from the judgments rendered by the English Court in this regard, the following acts, but not limited to, would amount to 'Wrongful Trading'; (i) Repaying the director loan made to the Company while other creditors were not paid; (ii) Repayment of a loan to a family member; (iii) A director paying his own salary whilst the salary for the employees was not paid; (iv) Buying goods on credit when there is no means to pay for them; (v) Using Customer deposits for cash-flow purposes with no means of supplying goods; (vi) Repaying bank personal guarantees over other creditors; (vii) Not keeping proper accounting records; (viii) Falsification of company records; (ix) Any transfer or sale of assets at anything less than a fair and reasonable commercial value;....
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.... but it appears expedient to observe that the arena and scope of the requisite enquiries, to find if the transaction is undervalued or is intended to defraud the creditors or had been of wrongful/fraudulent trading are entirely different. Specific material facts are required to be pleaded if a transaction is sought to be brought under the mischief sought to be remedied by Sections 45/46/47 or Section 66 of the Code. As noticed, the scope of enquiry in relation to the questions as to whether a transaction is of giving preference at a relevant time, is entirely different. Hence, it would be expected of any resolution professional to keep such requirements in view while making a motion to the Adjudicating Authority. 10.12. From the above judgment of the Hon'ble Apex Court, it is to be noted that specific material fact in relation to the transaction which is sought to be challenged by the Resolution Professional is required to be pleaded in the Application. As to the present case, the Applicant sought to reverse the transactions purported to be done by the Respondents under Section 66 of BC, 2016. Also in the present case, the Applicant has not specifically pleaded as to w....
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.... defraud the creditors. On the other hand, the provisions of Section 66 related to fraudulent trading and wrongful trading entail the liabilities on the persons responsible therefor. We are not elaborating on all these aspects for being not necessary as the transactions in question are already held preferential and hence, the order for their avoidance is required to be approved; but it appears expedient to observe that the arena and scope of the requisite enquiries, to find if the transaction is undervalued or is intended to defraud the creditors or had been of wrongful/fraudulent trading are entirely different. Specific material facts are required to be pleaded if a transaction is sought to be brought under the mischief sought to be remedied by Sections 45/46/47 or Section 66 of the Code. As noticed, the scope of enquiry in relation to the questions as to whether a transaction is of giving preference at a relevant time, is entirely different. Hence, it would be expected of any resolution professional to keep such requirements in view while making a motion to the Adjudicating Authority. 29.2. In the present case, it is noticed that NCLT in its detailed and considered order....
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....oblems' / 'Difficulties', then, they will not be held liable for the 'act' / 'offence' of 'Fraudulent Trading'. 35. As a matter of fact, the 'aspect' of 'Fraudulent Trading' requires a very 'High Degree of proof', which is attached to the 'Fraudulent Intent'. To put it emphatically, a more compelling 'Material' / 'Evidence' is required to satisfy the conscience of this 'Tribunal', 'on a preponderance of probability'. Apart from that, an 'isolated' / 'solo fraud' case, against the person, then, action in 'tort' can be resorted to, as opined by this 'Tribunal'. No wonder, a 'Creditor', who was defrauded, will have 'recourse' to an 'alternative remedy', under 'Civil Law'. 36. In the instant Case 'on hand', the 'Appellant' / 'Applicant' before the 'Adjudicating Authority' (National Company Law Tribunal, Division Bench - II, Chennai) had filed IA(IBC)/489(CHE)/2021 in IBA/1099/2019 under Section 66 (1) of the Insolvency and Bankruptcy Code, 2016. In this connection, this 'Tribunal' significantly points out that in respect of an 'Application' (Filed under Section 66 of the Insolvency and Bankruptcy Code, 2016) 'Fraudulent Trading' / 'Wrongful Trading', by the 'Applicant....
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.... 16. Added further, the '1st Respondent' / 'Petitioner' / 'Resolution Professional' had prayed for an 'Order', against the Respondents 1 to 6 each, to furnish an 'indemnity bond' for Rs.3.64 Crore to the 'Corporate Debtor', towards the 'Market Value' of the 'Land', as a 'Security', till disposal of all pending 'Liquidation', arising out of the 'Bogus Sales Agreement' and 'Power of Attorney', with respect to 3.63893 Acres of 'Land' owned by the 'Corporate Debtor'. 17. In addition to the aforesaid prayers, the '1st Respondent' / 'Petitioner' / 'Resolution Professional', had sought a 'Relief' before the 'Adjudicating Authority', (National Company Law Tribunal, Kochi Bench, Kerala) to pass an 'Order' against the 'Respondents 1 to 6 therein, 'jointly' and 'severally' to contribute Rs.66,70,200/-, being the 'amount' 'withdrawn' from the 'Corporate Debtor', by the 'Directors', from the 'amount' received, against the 'Share Purchase Agreement', executed with Sri Ramani Resorts and Hotels Private Limited with an interest at the rate of 24% per annum for the entire consideration of Rs.1,00,00,000/-, from the date of 'Receipt', till the date of 'Payment'. Besides this, the '1st Respondent....
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....ication' projected by the 'Petitioner' / 'Resolution Professional', cannot be entertained by the 'Adjudicating Authority' (National Company Law Tribunal, Kochi Bench, Kerala). Continuing further, according to the '1st Appellant' / '1st Respondent', the ingredients of Section 67 of the I&B Code, 2016 is 'applicable to the Proceedings' under Section 66 of the I&B Code, 2016, does not provide for 'Contingent Funds and Liabilities', as prayed for, by the 'Petitioner' / 'Resolution Professional'. 22. The Learned Counsel for the '1st Appellant' / '1st Respondent' projects a 'Plea', that the 'allegations of Fraud', against the '1st Appellant' / '1st Respondent' in IA(IBC)/196/KOB/2021 in IBA/13/KOB/2020 are 'baseless' and 'contrary' to the fact on 'Record'. Moreover, the 'Share Purchase Agreement' with Sri Ramani Resorts and Hotels Private Limited dated 21.11.2022 had not created 'any Debt', upon the Company. Further, the facts on 'Record' indicate that Section 66 of the I&B Code, 2016 is not fulfilled and that the 'Directors' had endeavoured their best, to avoid the 'Insolvency Resolution Process', and continued to 'Litigate' the matter before the 'Hon'ble Supreme Court, on their own ....
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....etitioner' / 'Resolution Professional' had relied on the 'Judgment', of this 'Tribunal' in Comp. App. (AT) (Ins) 583/2021 in 'Aditya Kumar Tibrewal v Om Prakash Pandey & Oths., wherein it is held that: - "Answer III Application questioning the transactions covered by Section 49 and 66 of the Code are not to be rejected on the ground that Application has been filed beyond the period prescribed under Section 46 of the Code. The timeline prescribed for transactions under Section 46 does not cover the transactions covered by Section 49 and 66 of the Code." 27. It comes to be known that IA(IBC)/196/KOB/2021 in IBA/13/KOB/2020 was filed on 09.11.2021, well within the 'permissible time limit' of '135 Days', as per Regulation 35 (3) of the IBBI (Insolvency Regulation for Corporate Persons), Regulations, 2016. In fact, as on 09.11.2021, the 'number of days' of the 'CIRP' was '224 days' and after excluding '90 days', from the CIRP period, by virtue of an 'Order', passed by the 'Adjudicating Authority' (National Company Law Tribunal, Kochi Bench, Kerala), in IA(IBC)/129/KOB/2021 in IBA/13/KOB/2020 and IA(IBC)/196/KOB/2021 in IBA/13/KOB/2020 are in time. Besides this, the 'time lim....
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.... 'Respondents' according to the '1st Respondent' / 'Applicant', are liable to compensate the 'Corporate Debtor' for Rs.10,74,654/-, siphoned off from the 'Corporate Debtor'. 32. The 'Appellants' / 'Respondents' had entered into an 'Agreement' to sell for sale of 3.64 Acres of 'Land' to a 'Third Party' Mr. Vethaselvaraj for Rs.30.74 lakh, when the 'Market Price' was above Rs.3.64 Crores and this 'Transaction', was made without the knowledge and concealing the said fact from the 'Financial Creditor'. Moreover, the said 'Bogus Transactions' resulted in transferring the total of 3.64 Acres of 'Land' to one Mr. Alexander for a meagre sum of Rs.30.74 lakh. Subsequently, the 'Corporate Debtor' filed a 'Civil Suit OS 127 of 2011 before the Learned District Munsiff Court, Nagercoil, to cancel the said 'Transaction' and the matter is pending. Unless the said 'Transactions' are reversed, the 'Appellants' / 'Respondents' are liable to 'indemnify' the 'Corporate Debtor', for such losses. 33. The stand of the '1st Respondent' / 'Applicant' is that after cancellation of 'Power of Attorney' and when the 'Financial Creditor' had enquired into the matter, the 'Appellants' / 'Respondents' had e....
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....' / 'Respondents' are 'jointly' and 'severally' to contribute not only Rs.43,87,415/- withdrawn from the 'Corporate Debtor' and also 'Commission' paid, amounting to Rs.10,00,000/- to Baby Mathew and interest at the rate of 24%, for the whole amount of Rs.1,00,00,000/-, from 04.09.2018, the date of 'Receipt' from Basal, till the date of 'Payment'. 37. The 'forceful stand' of the '1st Respondent' / 'the Resolution Professional' is that Rs.10,00,000/- commission was paid before the 'conclusion of sale' and that the 'Appellants' had entered into a 'Share Purchase Agreement' for 'sale of shares' which the 'Company' does not 'Possess the Share' and, therefore, the 'entire Transactions', are 'Fraudulent', which created a 'huge liability' on the 'Corporate Debtor'. Burden of Proof : 38. It is pertinently pointed out by this 'Tribunal' that the 'Resolution Professional', is empowered to 'file' / 'initiate' proceedings for 'Fraudulent' or 'Wrongful Trading'. Furthermore, if the 'Whole Business of Company', is to 'Defraud', then, the ingredients of Section '66' of the I&B Code, 2016 are fulfilled. Undoubtedly, the 'Resolution Professional' is to prove that the 'Business' of the 'Corp....
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....orne in mind that the 'Proceedings' for 'Wrongful Trading', are purely 'Civil' in 'Nature' and the 'way out' is that an 'Order', requiring the 'Director(s)' concerned, to contribute to the 'Company's Assets' and 'Disqualification', for being concerned in the 'Management of Company'. In reality, the 'compelling materials' / 'evidence' are required to satisfy the 'Adjudicating Authority', (Tribunal) on a preponderance of probability, in a given 'Case', brought before it. However, it is for the 'Adjudicating Authority', ('Tribunal') to take a 'Final Call' in the matter. It is pointed out that the 'Yardstick' / 'Tape' employed, to determine the 'Liability', is whether the 'Director' had exercised 'General Knowledge', 'Skill' and 'Experience', to be expected of a 'Person', carrying out the 'Functions'. The 'Foundation' for the 'Liability', is to whether the 'Concerned' knew or should have known, from the reasonable, and prudent Homo sapiens' perspective. 45. It is brought to the fore that IA(IBC)/196/KOB/2021 in IBA/13/KOB/2020 was filed by the '1st Respondent' / 'Resolution Professional' as 'Petitioner', based on the 'Report' filed by the 'Forensic Auditor', appointed by the 'Resolu....
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....hare Purchase Agreement executed by the Corporate Debtor is "void ab initio" and the intention of KN Narayanan Namboodiripad, the suspended Managing Director, and Mr. Venugopal T M, The COO of CD, for entering into such an agreement is Suspected to deceive the Corporate Debtor and the buyer. d) Share Purchase Agreement with M/s. Basel Products India Private Limited to sell 100% shares of the Company. This Share Purchase Agreement executed by the Corporate Debtor is also "void ab initio" as in this agreement also the CD agreed to sell the shares not owned by it but by the shareholders of the company. Entering into another SPA when a SPA (though "void ab initio) was existing and active on the date with M/s Sri Ramani Resorts and Hotels Pvt. Ltd is an intentional violation of the clauses of the original SPA. The intention of K.N.Narayanan Namboodiripad, the suspended Managing Director for entering into such an agreement is suspected to deceive the Corporate Debtor and the buyers. 25. From the Forensic Audit it is clear that this is a fit case to direct the Respondents to make good the losses caused to the creditors of the Corporate Debtor as the transactions....