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2023 (3) TMI 74
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.... 2. A 'Corporate Insolvency Resolution Process' was initiated vide order dated 01.07.2019, by the 'Adjudicating Authority' in IBA/133/2019 on an application filed by an 'Operational Creditor' M/s Minsa Tech India Pvt. Ltd. under Section 9 of the I & B Code, 2016. Subsequently, Archana Motors Pvt. Ltd., the 'Corporate Debtor' was initiated for liquidation vide order dated 10.01.2020, by the 'Adjudicating Authority' in MA/38/KOB/2019. 3. The 1st Appellant was the Managing Director and Promoter of the 'Corporate Debtor' whereas the 2nd and 3rd Appellants were the Directors of the 'Corporate Debtor'. 4. An Interlocutory Application was filed vide IA (IBC)/27/KOB/ 2021 was filed under Section 66 of the I & B Code, 2016 by the 'Liquidator' of the 'Corporate Debtor', the Respondent herein with following prayers :- "(a) Pass an order to declare that the entries of Rs. 21.37 crore made in the audited financial statement for the year 2018 described in Paragraphs 15 of the application are fraudulent transactions; (b) pass an order to declare that the Respondent No. 1 to 3 are liable for the loss of Rs. 21.37 Crore suffered by the Corporate Debtor and direct the Respond....
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.... Bank' for restructuring the loans and also tried to retrieve the lost data through an agency, however, they were not successful. 11. Learned Counsel for the Appellants criticised the conduct of the 'Respondent' who did not even bother to visit the site physically and has not taken into account the assets and liabilities position of the 'Corporate Debtor' over the number of years in analysing alleged fraudulent transactions and the 'Respondent' also failed to factor into the impact of the flood etc. Learned Counsel for the Appellants stated that the 'Respondent' wrongly concluded on the basis of the earlier turnovers and assets mentioned in the balance sheet of the 'Corporate Debtor'. Learned Counsel for the Appellants emphasised their genuine efforts to revive the company and settle the dues and made substantial payment from their own personal sources to creditors even after commencement of 'Corporate Insolvency Resolution Process'. 12. Learned Counsel for the Appellants gave the analysis based on the various balance sheets from the year 31.03.2014 to 31.03.2017 and concluded that during these four financial years their business was very good and the cumulative turnover was ....
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....rity' did not differentiate between the person who was responsible and the person who were not connected with the business operations. 16. Learned Counsel for the Appellants stated that as regard loss of data and alleged failure of the 'Appellants' to retrieve the lost data, the 'Appellants' approached 'M/s Stellar Information Technology Pvt. Ltd.' who were the best data recovery service provider in India and despite all efforts of the agency to salvage the lost data, the agency informed the 'Corporate Debtor' that the agency could not retrieve 864 GB data. Learned Counsel for the Appellants stated that that only due to this reason, the 'Corporate Debtor' could not furnish the required data to the 'Respondent'. Learned Counsel for the Appellants further stated that the 'Respondent' could have checked this fact from the agency, which the 'Respondent' did not bother to do find actual facts. 17. Learned Counsel for the Appellants mentioned that they made detailed submissions before the 'Adjudicating Authority' about alleged frauds on the basis of Mitigation of the value of the assets worth Rs. 21.37 crores. * Learned Counsel for the Appellants submitted that as regard f....
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.... opposed the 'Appeal' and stated that the 'impugned order' had taken care of all facts and provisions of law and therefore, no fault can be find in the 'impugned order'. 23. Learned Counsel for the Respondent stated that during verification of books of accounts and other record of the 'Corporate Debtor', he came to belief that the 'Appellants' have entered into fraudulent transactions against the interest of the 'Corporate Debtor' and other stakeholders with fraudulent intentions and therefore, he filed an Application under Section 66 of the I & B Code, 2016, bearing IA/27/KOB/2021 for declaring such wrongful transactions as fraudulent and recovering Rs. 21.37 crores from the 'Appellants'. 24. Learned Counsel for the Respondent stated that the 'Appellants' were neither able to provide the item wise details of fixed assets as indicated in the balance sheet of 2017-18 including its descriptions of items, their location, asset register, etc., which clearly established that the accounts were falsely made and fixed assets shown in the Balance Sheet were of fictitious nature and were done with an intend to defraud the creditors. 25. Learned Counsel for the Respondent further sta....
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....espondent stated that he tried his best to verify such claims but could not do so as these were bogus and were only in book of accounts as entries created only to defraud the 'Corporate Debtor' and other 'Stakeholders'. Learned Counsel for the Respondent gave the list of major advances as under :- Name Amount in Rs. (Crores) Remarks Sri Sai Financial Services Ltd. 1.37 Company struck off from MCA records Abdul Azeez 0.72 Advance for land CP Andrew 0.91 Advance for land Edward 0.05 Advance for land Archana Motors 0.20 A sister concern MI George 0.19 A director Dealers 0.86 Advance for use for vehicle purpose 29. Learned Counsel for the Respondent submitted that while examining Financial Statement as on 31.03.2018 he to noticed that Rs. 2.35 crores reflected as value of 'other current assets', out of which receivable from buyers constituted Rs. 1.53 crores and no detail could be furnished by the 'Appellants' to establish this amount. 30. Learned Counsel for the Respondent submitted that he has given all the documentary evidence and details to the 'Adjudicating Authority', who after being satisfied regarding....
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....nt here. 39. Learned Counsel for the Respondent concluding his pleadings urging this 'Appellate Tribunal' to dismiss the 'Appeal'. Findings 40. Heard Learned Counsel for the 'Appellant' and the 'Respondents' and also perused record made available to us. 41. As regards, the basic ingredients of Section 66, this 'Appellate Tribunal' notes carefully the provision of Section 66 of the I & B Code, 2016, which is reproduced herein 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 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 made by a resolution professional during the corporate insolvency resolution process, the Adjudicating Authority may by an order ....
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....r success of Section 66 Application, namely, (i) Business of the 'Corporate Debtor' has been carried out with an intent to defraud the creditors. (ii) Directors participated in carrying on business of the 'Corporate Debtor' despite knowing likely insolvency of the 'Corporate Debtor'. 45. This 'Appellate Tribunal' takes into consideration the plea of the 'Appellants' that it was only the 1st 'Appellant' who was involved in carrying out day-to-day business of the 'Corporate Debtor' and 2nd & 3rd Appellants were not responsible for day-to-day business. However, the word 'any person knowing parties to' may be wide enough to cover even those who could not be said to have carried out business directly but in somehow , directly or indirectly, participated in the fraudulent act of the 'Corporate Debtor'. In normal Corporate Structure, ultimately it is the role of the 'Board of Directors' to have control over the affairs of the 'Corporate Debtor' through the Board Meetings and therefore are accountable for the conduct of business and cannot escape their liability in case, the 'Adjudicating Authority' is satisfied regarding meeting ingredients of Section 66 of the I & B ....
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....of such assets or such assets being fictitious and fraudulent. The 'Appellants' further submitted that on the contrary these were examined and certified by the Auditors and therefore the claims of the 'Respondent' is baseless and the 'Adjudicating Authority' has failed to take into account this vital fact. The 'Appellants' submitted that the vehicles were taken back by Sundaram Finance who financed these demo-vehicles. Per-contra, the 'Respondent' brought out that despite the 'Appellants' being asked to submit details, no details were made available. This 'Appellate Tribunal' also notes that the 'Adjudicating Authority' has clearly recorded that the 'Appellants' herein were unable to provide item wise details, location, assets register, invoices, etc. or offer the asset for physical verification. Similarly, the 'Adjudicating Authority' also recorded regarding non-availability of any vehicle in the Company or evidence of sale as reflected in the books of accounts. In absence of these, the 'Adjudicating Authority' held these entries in the books of accounts amounting to Rs. 5.33 crores which included Rs. 4.21 crores as buildings, Rs. 0.41 crores as plant and machinery and Rs. 0.47 cr....
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..... This 'Appellate Tribunal' tends to agree with the 'Adjudicating Authority' and is not impressed with the arguments of the 'Appellants'. Therefore, on this count also, no error is found in the 'impugned order'. 51. This 'Appellate Tribunal' note that Rs. 4.8 crores have been shown in the Financial Statement for the year 2018 towards loans and advances. The 'Respondent' has given list of major advances (details at Para 28) which could not verified or found to be of related parties. It is a case of the 'Appellants' that all agreements entered into with parties have also been lost in the floods and as such could not be furnished to the 'Liquidator'. On the other hand, 'Liquidator' has clearly established that contact details of Sai Finance Service Ltd., Abdul Azeez and CP Andrews were not found in the addresses provided. From the details of loans and advances given by the 'Respondent', prima-facie the 'Respondent' has succeeded in establishing that most of such parties did not exist nor such party were found. Similarly, few parties were found to be related parties. All such evidence, prima-facie points out towards wrongful intent of the 'Corporate Debtor'. Therefore, we do not ....