TaxTMI 
TaxTMI 
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2025 (12) TMI 1390
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....irected to deposit a sum of Rs. 1,00,700/- (One lakh seven hundred only) and sum of Rs. 10,54,00,000/- (Ten crores fifty-four lakhs only) jointly with other directors of the corporate debtor (CD) with a consequential interest of 8% p.a. within one month of the date of passing of the order. 2. We find from the record that in fact 4 appeals were filed by the appellant as well as other Directors of the CD. CA (AT) (Ins) No. 1129 of 2022 is the instant appeal filed by one of the Director of the CD, namely Rana Sarkar, CA (AT) (Ins) No. 1130 of 2022 was filed by the Respondent No. 4 of the instant appeal namely, DAG Creative Media Pvt. Ltd. and the CA (AT) (Ins) No. 1145 of 2022 was filed by Mr. Arunendu Sarkar who has been arrayed as Respondent no. 2 in the instant appeal and who is reported to have died. Another appeal, CA (AT) (Ins) no. 1146 of 2022, was filed by Mrs. Snighda Sarkar who has been arrayed as Respondent No. 3 in the instant appeal. 3. The record would further reveal that all aforesaid appeals including the instant appeal were connected and were being listed together and the fact of the death of Respondent No. 2, Arunendu Sarkar was brought to the knowledge of this....
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....ions therein appointed Neha B Agarwal and Company as the transaction auditor to conduct the transaction audit of CD and upon receiving the transaction audit report, wherein certain transactions are held to be doubtful and fraudulent, moved an application before Ld. Tribunal under Section 66, 67 of the IBC, which has been allowed by Ld. Tribunal by passing the impugned order, which is the subject matter of this appeal, which has been preferred by the appellant-Rana Sarkar (Suspended Director of the CD). 8. Ld. Counsel for the appellant, while drawing our attention towards the impugned judgment, submits that Ld. Tribunal has passed the impugned judgment without application of judicial mind and without appreciating the facts and material placed on record in right perspective, has endorsed the view taken by the RP which was based only on the bank accounts of the CD and the report of the transaction auditor, without independently analysing the evidentiary value of the same. 9. It is vehemently submitted that Ld. Tribunal has failed to fulfil its duty, of application of judicial mind, pertaining to the impugned transactions in order to assess, so far as the appellant is concerned, ....
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....or of the CD namely, Arunendu Sarkar (deceased) was primarily in charge of the affairs of the CD and he has already admitted so, in his appeal i.e. CA (AT) (Ins) No. 1145 of 2022 and thus it was clear that appellant was not in charge of the affairs of the CD. The appellant was also not a signatory to any of the accounts of the CD and it has also not been alleged by the Respondent No. 1. However, even when these aspects were brought in the knowledge of Ld. Tribunal, these have not been considered in right perspective and the findings have been based against the appellant, only on the transactional audit report which was based only on the bank accounts of the CD. 15. It is further submitted that so far as payment received by the appellant and the deceased Arunendu Sarakar of Rs. 9 lakhs is concerned the same is the Directors remuneration and this has been completely ignored by the RP as well as by Ld. Tribunal. 16. It is further submitted that the having regard to the nature of business of the CD, cash withdrawals were made for being used for labour, site expenses and mess bill and in fact he had spent a huge money, from his own pocket, pertaining to various litigations, in whi....
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....inion was formed by the RP and he filed an application under Section 66 and 67 of the IBC before tribunal. 20. It is vehemently submitted that RP found massive cash withdrawals aggregating to Rs. 10.54 Crores between financial year 2011-2012 to 2015- 2016, and no acceptable explanation with regard to these huge cash withdrawals was given and it was stated that these cash withdrawals were used for labour, site expenses, mess bills, however no supporting documentation was provided and in absence of any voucher or project record such explanation are untenable. 21. While highlighting transaction of withdrawal of cash of Rs. 6,92,77,265/- against realisation of Rs. 8,06,90,064/- on 20.11.2012, Cash withdrawal of Rs. 203 lakhs in financial year 2012-2013, cash withdrawal of Rs. 59,57,500/- against realisation of Rs. 35,096,271/- in financial year 2013-2014, Cash withdrawal of Rs. 886,500/- against realisation of Rs. 12,987,038/- in financial year 2014-2015 and finally Cash withdrawal of Rs. 8,993,000/- against realisation of Rs. 1,366,349/- in the financial year 2015-2016, it is submitted that in these years' total cash withdrawal of Rs. 10.54 Crores have been made and this pattern....
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....ounsel for the Respondent No. 1 has placed reliance on following case laws: (i) Swapan Kumar Saha vs. Ashok Kumar Agarwal, RP of PKS Ltd. CA (AT) (Ins) No. 2355 of 2024, decided on 06.11.2025. (ii) Aditya Kumar Tibrewal, Resolution Professional, M/s Sri Balaji Forest Products Pvt. Ltd. vs. Om Prakash Pandey, CA (AT) (Ins) No. 583 of 2021. (iii)State Bank of India vs. Dommeti Surya Rama Krishna Saibaba, Liquidator of Kumar Aquatech Agencies Pvt. Ltd., CA (AT) (CH) (Ins) No. 461 of 2023. 26. Having heard Ld. Counsel for the parties and having perused the record it is reflected that after being appointed as IRP in pursuance of order dated 20.11.2019, whereby the CIRP was initiated against the CD, the IRP complained of non-cooperation from Suspended Board of management of the CD, including the appellant and in this regard he filed an application before Ld. Tribunal under Section 19(2) of the Code where on certain directions were given by Ld. Tribunal to the Directors of the CD. 27. It is also evident that this appellate tribunal also in CA (AT) (Ins) No. 211 of 2020 vide its order dated 04.02.2020, has directed the Suspended Management of the CD to hand over the....
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....transaction of huge cash withdrawals, in the opinion of the RP, were fraudulent. Sl. No. Financial Year Amount of Withdrawal (in lakhs) 1. 2011-12 693.00 2. 2012-13 203.00 3. 2013-14 60.00 4. 2014-15 09.00 5. 2015-16 89.00 Total 1054.00 31. Apart from the aforesaid transaction the RP was also of the view that Rs. 15.20 lakhs was refunded to DAG Creative Media Pvt. Ltd. (DCMPL) as unsecured loan however the payment which was received from the DCMPL was Rs. 52,60,000/- and payment from the account of the CD to DCMPL was Rs. 67,80,000/- thus Rs. 15,20,000/- is stated to be paid in excess to the amount received from such creditor. It is to be recalled that appellant is stated to be a Director of the DCMPL also at the relevant time. 32. It is also pertinent to mention here that on the basis of the ROC records of DCMPL the appellant resigned from this company on 27.05.2016 while the CIRP of the CD was initiated in the year 2019. Likewise Rs. 63,50,000/- shown to be taken as unsecured loan from Snigdha Sarkar which is shown to be refunded in full in the year 2012 and Snigdha Sarkar is shown to be the wife of anoth....
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....orate debtor, and (b) such director or partner did not exercise due diligence in minimizing the potential loss to the creditors of the corporate debtor. 2[(3) Notwithstanding anything contained in this section, no application shall be filed by a resolution professional under sub-section (2), in respect of such default against which initiation of corporate insolvency resolution process is suspended as per section 10A.] Explanation. -For the purposes of this section a director or partner of the corporate debtor, as the case may be, shall be deemed to have exercised due diligence if such diligence was reasonably expected of a person carrying out the same functions as are carried out by such director or partner, as the case may be, in relation to the corporate debtor. RBI by Mater Direction RBI Master Direction on Frauds- Classification and reporting by Commercial Banks and select FIs, DBS.CO.CFMC. BC.No.1/23.04.001/2016-17, classifies Fraud as In order to have uniformity in reporting, frauds have been classified as under, based mainly on the provisions of the Indian Penal Code: a. Misappropriation and criminal breach of trust. ....
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.... Lacs (Annexure:14) 3. Remico enterprise 21.00 Lacs (Annexure: 14) 35. It is on the basis of aforesaid material, Ld. Tribunal found these transactions as fraudulent and passed the order impugned herein. The relevant part of the order of the Ld. Tribunal is also reproduced as under: "5. We have heard the Ld. Counsel for the parties and perused the record. After consideration of the contentions of the parties and the record produced before along with the pleadings, we find that: A. At page 66 i.e., part of transaction audit report a methodology of audit for conducting the transaction audit of corporate debtor was formulated. One of the important features of this methodology included decides analysing the documents and discussions with the Resolution Professional. B. From the averments contained in the application we find that opinion of Resolution Professional while filing the instant application is not based merely on the report of the transaction audit as contended by the respondents. It was only after the satisfaction of the Resolution Professional it was thought appropriate to appoint the transactional auditor to determine the transactions m....
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....onvenience is reproduced as under: Section 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 direct that a director or partner of the corporate debtor, as the case may be, shall be liable to make such contribution to the assets of the corporate debtor as it may deem fit, if- (a) before the insolvency commencement date, such director or partner knew or ought to have known that there was no reasonable prospect of avoiding the commencement of a corporate insolvency resolution proce....
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....ority as to whether the business of CD was carried on with intent to defraud creditors of the CD or was carried on for any fraudulent purpose. 61. In view of the above, the Applications filed in respect of "Fraudulent and Wrongful trading" carried on by the CD, could not be termed as "Avoidance Applications" used for the Applications filed under Sections 43, 45 and 50 to avoid or set aside the Preferential, Undervalued or Extortionate Civil Appeal Nos. 1632-1634 of 2022 Page 95 of 145 transactions, as the case may be. There is clear demarcation of powers of the Adjudicating Authority to pass orders in the Avoidance Applications filed by the Resolution Professional under Section 43, 45 and 50 falling under Chapter III and the Applications filed by the Resolution Professional in respect of the Fraudulent and Wrongful trading of CD, under Section 66 falling under Chapter VI of the IBC. If the Resolution Professional has filed common applications under Sections 43, 45, 50 and also under Section 66, the Adjudicating Authority shall have to distinguish the same and decide as to which provision would be attracted to which of the Applications, and then shall exercise the powers an....
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....uld not have been avoided and failed to exercise due diligence in minimising potential loss to the creditors, AA may direct the erring director or partner to be liable and make such contributions to the assets of the CD as it may deem fit. We observe that the first provision (section 66(1)) is very broad but not the second one (Section 66(2)) ...... 45. From a bare reading of Section 66(1) and Section 66(2) of the IBC we find that both have self-contained provisions, with clear mechanisms for their invocation during a CIRP. Further, a perfunctory glance at Section 67 of the IBC will make it abundantly clear that the draftsmen and legislators clearly intended for Sec 66(1) and Section 66(2) to operate independently, as the opening line of Section 67(1) and 67(2) of the IBC would reflect, " The crux of the above placed cases is that Section 66 of the IBC, 2016 deals with two different situations. Section 66(1) of IBC, 2016 deals with 'Fraudulent Trading' and Section 66(2) of IBC, 2016 deals with 'Wrongful Trading'. Section 66(1) of IBC, 2016 imposes liability on 'any person' who were knowingly parties to the carrying on the business with a dishonest intention to defraud t....
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....dence could not be produced. In such a case, only criminal investigation can unearth the evidence and learned Adjudicating Authority in para 12 of the Impugned Order has rightly noted that the FC has filed a complaint with CBI, New Delhi on 16.07.2022." The facts of this case is to be appreciated in the background of above place dictum of law. 43. We find that it is reflected from the record that the resolution professional since taking charge of the corporate debtor was complaining about the non-cooperation by the suspended directors of the corporate debtor, including the appellant. The resolution professional has also moved an application before the learned Tribunal under section 19(2) of the IBC and vide order dated 2nd January 2020 certain directions were given to the suspended Board of management of the corporate debtor to to cooperate with RP by handing over all books of accounts and required information of assets within seven days without fail, failing which liberty was given to the RP to approach the local police station. RP also informed learned tribunal that the registered office of the CD is under lock and directors are not giving access to RP to hand over possessi....
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....cts and circumstances of the case. 47. Coming to the transaction audit report submitted by the auditor, perusal of the same would reveal that apart from other facts the auditor has found the following unexplained cash withdrawals from the corporate debtor and pertaining to which no reasonable explanation was provided by the suspended board of directors. The details of the unexpected cash withdrawal found by the auditor as fraudulent is being reproduced as under: "1. Unexplained Cash Withdrawal We have noted that large sum of money was withdrawn in Cash by the Corporate Debtor for which no reasonable explanation could be provided by the suspended board of directors. The Summary of Cash withdrawal in following years is given below: Sl. No. Financial Year Amount of Withdrawal (Figure in Lacs) 1. 2011-212 693.00 (Annexure:1) 2. 2012-2013 203.00 (Annexure2) 3. 2013-2014 60.00 (Annexure:3) 4. 2014-2015 09.00 (Annexure:4) 5. 2015-2016 89.00 (Annexure:5) 6. Total 1054.00 2.Unexplained Related Party Transaction: Sl. No. Related Party Amount (Figure in Lacs) 1. DAG Creative Me....
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.... to clear evidence available pertaining to huge cash withdrawals and certain payments which were made to related parties and no reasonable explanation of the same was given by the directors and thus the auditor hold these transactions as fraudulent in nature as the purpose for such withdrawal and payments was not explained. 51. In our considered opinion the auditor has involved the appellant and other directors of the suspended Board of management of the corporate debtor in preparation of the transaction audit report of the CD and it is evident that except lame explanation no reliable documentation was provided by the appellant or any of the directors, which may justify these huge cash withdrawals and related party transactions without any proper documentations. 52. We also notice that so far as appellant is concerned, he in this appeal has stated that at the relevant time, he was having dispute with the other directors of the corporate debtor from 2010 -11 and in fact he was not allowed by them to participate in the affairs of the company and the dispute has escalated to such an extent that a complaint was also filed at some police station on 24.01.2013. He further took a de....
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....vely. In our considered opinion also these transactions, having regard to the timing of withdrawal and non-furnishing of any documentation appears to be per se fraudulent and this huge amount of cash was withdrawn when the corporate debtor was in financial distress and these huge cash withdrawals have not been justified by the appellant or any of the directors of the CD. 55. We also observe here that no doubt the formation of an opinion pertaining to fraudulent transaction and initial burden with regard to establishing transactions as fraudulent, is on the Resolution Professional, but the Resolution Professional could not be compelled to tender that evidence which is impossible for him to file. We may recall that the only record which was available with the resolution professional was the bank statements of the Corporate Debtor and finding certain entries as suspicious, the RP formed an opinion and took a decision of transaction audit of the CD, which we have already approved and when his suspicion was fortified by the report of the transaction auditor, he rightly formed an opinion pertaining to these transactions being fraudulent and made to defraud the creditors of the corpora....
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.... being made as no voucher or any book of account or relevant information was made available by the appellant or any other director, which may justify these transactions. 58. We have perused not only the impugned judgement but also the transaction audit report as well as the reply of the appellant filed before learned tribunal and are of the considered view that the opinion of the Resolution Professional pertaining to labelling these transactions as fraudulent and transacted with the intention to defraud the creditors of the CD was based on documentary evidence which was available before him in the shape of bank statements and the transaction audit report pertaining to the CD. The Resolution Professional as well as the Adjudicating Authority has taken into consideration all the relevant facts, evidence and circumstances in order to arrive at a justified conclusion that the transactions in questions are fraudulent and have been made with the intention to defraud the creditors of the CD. It appears to be an admitted situation that no reliable document was ever provided by the appellant or any other director of the suspended Board of management of the CD to the resolution profession....