TaxTMI 
TaxTMI 
2025 (7) TMI 488
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....lant. Brief facts of the case 2. Brief facts of the case are given below: i. M/s Easytech Global Private Limited (hereinafter referred to as the "Corporate Debtor") is a company incorporated in India on June 06, 2014 under the relevant provisions of Companies Act, 2013 having its Corporate Identification Number as CIN U51505DL2014PTC267884 and registered address as E-92, 2nd Floor, Masjid Moth, Greater Kailash-III, New Delhi- 110048. The Appellant- Mr. Gopal Kalra is the erstwhile Director of the CD. ii. Vide Order dated October 04, 2018, the Hon'ble National Law Company Tribunal admitted the captioned company petition filed by M/ s Insynergy Supply Chain Solutions Private Limited/ Operational Creditor against the Corporate Debtor under Section 9 of the Code. As the Corporate Insolvency could not be resolved, Adjudicating Authority vide order dated April 03, 2019, allowed the application for liquidation of the Corporate Debtor under Section 33(2) of the Code. Mr. Akhilesh Kumar Gupta was appointed as Liquidator and is the Respondent in this appeal. iii. A forensic audit of the Corporate Debtor was conducted based on the decision of the Committee....
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....r are fraudulent in nature or not. 4. Ld. Counsel submits that the forensic audit report that has been relied upon by the Liquidator specifically states that the transaction has caused a "notional loss" to the corporate debtor. 5. Ld. Counsel states that during the course of arguments, the submission of the Respondent was that the transactions in question are fraudulent on account of variance in debit notes and credit noted as mentioned in the forensic audit report. 6. It is his submission that the difference in the Credit and Debit note is on account of the fact that the goods were purchased at a different rate and sold at a higher rate and the difference was to be the profit of the Corporate Debtor which profit is evident from the fact that the transactions overall have resulted in a net cash inflow for the Corporate Debtor, which was already reeling with losses. Therefore, this was an attempt to revive the Corporate Debtor which bore fruit for FY 14-15 and 15-16 and only in 16-17 those certain losses occurred. 7. Ld. Counsel further submits that the Corporate Debtor overall has had no cash loss, further strengthens the argument of the Appellant that in the absence of....
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.... could not cause any loss to banks or even the Corporate Debtor. However, it is undisputed that some cash inflow in terms of profit was earned for the corporate debtor, a fact mentioned in the forensic audit report. 11. Summing up Ld. Counsel submits that in view of the above, it cannot be said that the transactions in question are fraudulent in nature or that proper diligence has not been done by the Appellant to minimize potential losses to the creditor. He therefore prays for allowing the appeal. Submission of the Respondent 12. Ld. Counsel for the Respondent stated that vide order dated January 11, 2024 the Ld. Adjudicating Authority allowed IA 5545 of 2021 filed by the Ld. Liquidator in CP IB No. 794 (ND) of 2018 while concluding that the present Appellant entered into fraudulent transactions with fictitious and non-existent entities for LED business thereby causing substantial loss and directed the Appellant to contribute a sum of Rs. 3,18,00,000/- to the assets of the Corporate Debtor. 13. Ld. Counsel invited attention to the observations of the Forensic Auditor regarding the LED business conducted by the Appellant with the following entities: Satyam Tra....
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....mentioned fictitious entities and failed to provide any justifiable explanation regarding the same. 15. Ld. Counsel states that Part 4.4 of the Forensic audit report can be referred to understand the financial loss which the Appellant has caused/ made to incur to the Corporate Debtor as a result of conducting transactions of sales/ purchases with fraudulent and fictitious entities. As per para 4.4(i), the Appellant has recorded gross purchases of LED Bulbs of Rs. 9.33 Crores against which gross sales of Rs. 9.88 Crores has been recorded. 4.4 Suspicious Led Bulbs Trading Transactions i. Details of trading activities related to Led Bulb recorded in Books of Accounts along with total trading activities in PY 2016-17 are given below: Table 1: Details of trading activities during FY 16-17 (figures in INR Cr.) Nature Transactions Trading Purchases Trading Sales LED bulЬ 9.33 9.88 Total 18.28 21.41 Percentage 51% 46% Total 9.33 9.88 As per para 4.4 (ii), Out of above purchases of INR 9.33 Crores, the Appellant has issued Debit notes of INR 6.28 Crores to these so-called suppliers, thereby resultin....
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....ebit notes and credit notes, during 'Review Period' a notional loss of Rs 3.19 Crore seems to have got generated on account of the LED Turnover, which is depicted as below : 17. Ld. Counsel submitted that, had these transactions with fictitious suppliers/customers not taken place, an amount of INR 3.19 crores would have been available to financial and other creditors of the Corporate Debtor which has been siphoned off by way of these transactions. 18. Ld. Counsel further submits that an analysis of audited financial statements of the Corporate Debtor for the FY 2016- 2017 & 2017-2018 will also reveal significant discrepancies in sales and purchase returns. Sales returns totaled to Rs. 10.34 crore, but purchase returns were only Rs. 6.43 crore, indicating that nearly Rs. 3.91 crore worth of goods returned by customers were not credited back by suppliers. This discrepancy directly contradicts the Appellant's claim that all unsold or returned goods were duly returned to suppliers. Such irregularity clearly evidences the siphoning of funds by the Appellant, carried out with the fraudulent intention to cause wrongful loss to the Corporate Debtor and to secure wrongful ....
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....pellate Tribunal also raised a baseless defence that the transaction as admitted by the Appellant only caused a notional loss to the Corporate Debtor and not any actual loss. This defence of the Appellant hold no water in view of its own books of accounts as it can no longer be a notional loss if the transactions have actually taken place, as duly admitted by the Appellant while making his final submissions. 22. Ld. Counsel further submitted that the Appellant himself claims that the Corporate Debtor was involved in the business of LED bulbs. Appellant also agrees that there were sale and purchase transactions for the LED bulbs. It is also evident from the Forensic Auditor's report that all the entities with which the Corporate Debtor transacted for LED bulbs were fictitious and non-existent. Therefore, if the Corporate Debtor itself agrees that there were transactions for sale and purchase of LED bulbs, it cannot be a notional but an actual loss. 23. Ld. Counsel has cited this Appellate Tribunal's Judgement in 'Jagdish Kumar Parulkar Vs. Vinod Agarwal [Comp. App. (AT) (Ins) No. 483 of 2022]' wherein para 6 and para 35 it held that: Para 6 "It is further submitte....
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.... accounts and the sale proceeds were not routed through the Corporate Debtor's account. The Resolution Professional has therefore claimed that this clever maneuvering of sales and purchase transactions amounted to be fictitious and fraudulent sale of stocks being booked by the suspended director and that the actual stocks were sold off and the amounts received from such transactions were siphoned off by the suspended management in some other account of the suspended directors.....Prima-facie, we are of the view that there is sufficient and adequate reason to subscribe to the contention of the Appellant that the Respondents had wrongfully diverted funds of the Corporate Debtor which in turn had aggravated the financial health of the Corporate Debtor and tantamount to fraudulent trade practice." 24. Ld. Counsel further cites this Appellate Tribunal's judgement in 'Shri Baiju Trading and Investment Private Limited vs. Arihant Nenawati & Ors.' [Comp. App. (AT) (Ins) No. 699 of2021] wherein it was held in para 36 that: Para 36. "Section 66 of the I & B Code, 2016, therefore, clearly provides that if it is found that any business of the 'Corporate Debtor' has been....
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....mpt to revive the Corporate Debtor. He states that although the Corporate Debtor was facing losses, the LED bulb business was introduced as a measure to generate revenue. He claims that while there may have been differences in the amounts recorded via debit and credit notes, these reflect pricing adjustments and returns, not fraud. 29. The Appellant emphasizes that the Forensic Audit Report itself uses the phrase "notional loss," and contends that there was no actual cash loss to the Corporate Debtor. Moreover, he submits that no personal gain accrued to him and that the transactions led to a net inflow of funds. He argues that at most, the decisions may be seen as poor business judgment, but do not meet the threshold of fraudulent intent required under Section 66(1). He also relies on judicial observations in 'Regen Powertech Pvt. Ltd. vs. Wind Construction Pvt. Ltd.' (supra), to argue that fraudulent trading requires a high degree of proof and that a bona fide director cannot be penalized merely for commercial failure. 30. The Respondent (Liquidator) disputes these contentions and submits that the transactions were fictitious in their entirety. He relies heavily on the Fore....
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.... to Rs.6.28 crores and credit notes amounting to Rs.10.06 crores were issued, effectively erasing both purchase and sales transactions from a financial impact perspective. However, despite this accounting cancellation, actual payments totaling Rs.3.43 crores were made to these fictitious vendors, and a shortfall of Rs.0.52 crores remained unrecovered from fictitious customers. 35. The Forensic Audit also shows Real Financial Loss to the Corporate Debtor. Contrary to the Appellant's claim of a "notional loss," we find that the transactions resulted in a tangible and quantifiable cash outflow from the Corporate Debtor's account. The total loss attributable to these fraudulent transactions stands at Rs.3.18 crores consisting of excessive payments to fake suppliers and recoveries not made from fake customers. 36. The issuance of debit and credit notes, in a backdated fashion, to negate the effect of purported purchases and sales indicates that the purpose of the entire structure was never to conduct genuine trade, but to falsely represent high volumes of business activity. No stock of LED bulbs was found, no invoices could be traced to actual delivery of goods, and no plausible b....
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.... fraudulent purpose, as contemplated under Section 66(1) of the IBC. The Appellant, being a knowing and active participant in such transactions, is liable under the said provision. Issue II: Whether direction to the Appellant to contribute Rs.3.18 crores to the Corporate Debtor's assets is legally sustainable? 42. This issue deals with the validity of the direction passed by the Adjudicating Authority in exercise of powers under Section 66(1) of the IBC, whereby the Appellant was held liable to contribute Rs.3.18 crores to the assets of the Corporate Debtor. The legal sustainability of this direction is pivotal because, while fraudulent conduct may be established in principle, the remedy awarded must still be grounded in evidence, proportional to the misconduct, and compliant with the boundaries of judicial discretion under the Code. 43. The Appellant has challenged the order dated 11.01.2024 on the grounds that the direction to contribute Rs.3.18 crores is not based on any actual loss suffered by the Corporate Debtor, but is a reflection of "notional" or hypothetical losses as mentioned in the Forensic Audit Report. He asserts that no funds were misappropriated and that t....
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.... basis for quantifying the liability. 49. The issue here is whether the amount of Rs 3.18 Cr determined on a rational basis. We have seen that the Forensic Audit Report and supporting ledgers clearly outlined the methodology through which this figure was derived. The total figure comprises of the following components: i. Rs. 2.67 crores - This represents excess payments made to fictitious suppliers beyond the legitimate payable balances. As per the ledger and audit findings, while the opening balance due to these suppliers stood at Rs.0.76 crores, actual payments of Rs.3.43 crores were made, creating an excess outflow of Rs.2.67 crores to non-existent vendors. ii. Rs. 0.52 crores - This figure accounts for the shortfall in recoveries from customers who were also found to be fictitious. Against opening recoverable of Rs.5.41 crores, only Rs.4.89 crores were recovered, leaving Rs.0.52 crores unrecovered due to these sham transactions. 50. Thus, the computation of Rs.3.18 crores is arithmetically precise and is not based on assumptions. These funds exited the company's books and were never returned-whether as goods, cash, or receivables; leaving the Corporate D....