TaxTMI 
TaxTMI 
2025 (12) TMI 1617
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 66 of the Code and directed appellants no. 1 to 3 to jointly or severely contribute to the CD a sum of Rs. 16,49,32,520/- i.e (sixteen crores forty-nine lakhs thirty-two thousand five hundred and twenty) and Rs. 29,65,464/- (twenty-nine lakhs sixty-five thousand four hundred sixty-four) along with interest of @12% p.a from the date of the order till its payment. 2. Ld. Counsel for the appellants submits that on 30.10.2019, one Mr. Rajendra Shah, financial creditor (FC) filed an application under Section 7 of the IBC, 2016 bearing in CP (IB) No. 3863/ (MB)/2019 requesting to initiate Corporate Insolvency Resolution Process (CIRP) against the CD (Varsha Corporation Ltd.) for non-payment of outstanding dues and vide order dated 10.06.2022, the application aforesaid was admitted and CIRP against the CD was initiated and Respondent No. 1 Vinod Kumar Pukharaj Ambavat, was appointed as Interim Resolution Professional (IRP). 3. It is further submitted that the appellant filed an appeal against the aforesaid CIRP admission order to this appellate tribunal which was dismissed vide order dated 02.11.2022, and the order of this appellate tribunal was further assailed by the appellants ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and Associates was submitted. 10. It is further submitted that on 22.12.2022 Respondent No. 1 mechanically filed IA No. 110 of 2023 under Section 25(2)(j) read with Section 43, 45 and 66 of the Code for seeking appropriate directions against appellants with respect to certain transaction identified as either preferentially or fraudulent. 11. It is also submitted that during the pendency of aforesaid proceedings the RP preferred an application bearing IA No. 314 of 2023 seeking liquidation of the CD which was allowed vide order dated 02.08.2023 and the CD was put under liquidation and it was on 12.03.2025, the IA No. 110 of 2023 was allowed by the Ld. NCLT partly holding transactions with M/s Swastik Diamonds (Respondent No. 2) and Maa Kali Jewellers/ Respondent No. 3 as fraudulent under Section 66 of the Code and directions as indicated in the opening part of this judgment were issued. 12. It is submitted with considerable force that liquidator has failed to discharge the burden of proving fraud which was heavy on him because to label a transaction fraudulent the intention to defraud is mandatory which is completely lacking in this case. Reliance in this regard has been pl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Renuka Devi Rangaswamy v. Madhusudan Khemka Suspended Director of M/s Regen Infrastructure and Services Pvt. Ltd. & Ors. (Comp. App. (AT) (CH) (Ins.) No. 356 of 2022). 17. Ld. Counsel for the Respondent No. 1 on the other hand submitted that the appeal is liable to be dismissed as the same is devoid of merits and also that the appellants being erstwhile directors of the CD not only failed to discharge their fiduciary duties but also facilitated and approved transactions that were patently prejudicial to the interest of the creditors and in utter disregard to standard commercial norms and are deliberate attempt to siphon off assets of the CD to defeat the lawful claims of the creditors. 18. It is further submitted that, the transactions executed by the Appellants, acting as suspended directors of the Corporate Debtor, with M/s Swastik Diamonds ("Respondent No. 2) and Maa Kali Jewellers/Respondent No. 3 and 1 do not qualify as transactions taken place in the ordinary course of business, instead, the pattern, timing, quantum, and commercial irrationality of these transactions demonstrate that they were entered into with full knowledge of impending insolvency, and with the inten....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 66(2) of the IBC a director or any person in charge of the management of the CD having knowledge that there is no reasonable prospect of avoiding the CIRP and he did not exercise due diligence in minimising the potential loss to the creditors would be liable to contribute to the assets of the CD for any loss occurred to the CD and in the instant case appellants were in charge of the management of the CD and these transactions have been made when the CIRP application was pending before the adjudicating authority. 25. It is also submitted that the appellants have not only acted with gross negligence but also with specific knowledge that the prospective insolvency proceedings pending in the NCLT could not be avoided and all these transactions have been done with the intent to defraud the creditors of the CD and after having full knowledge of the pendency of the proceedings before NCLT. 26. Ld. Counsel for the Respondent has drawn our attention on the timeline of these transactions in order to show that all these transactions have been done during the pendency of application filed by the financial creditor under Section 7 of the IBC with fraudulent intention and even without ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 process in respect of such corporate debtor; and (b) such director or partner did not exercise due diligence in minimising the potential loss to the creditors of the corporate debtor. 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. 31. A plain reading of this Section would evidently demonstrate that if during the corporate insolvency re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stinction between the Avoidance Applications that may be filed by the Resolution Professional in view of Section 25(2)(j), for avoidance of transactions in accordance with Chapter III of the Code, and the Applications that may be filed by the Resolution Professional in respect of the Fraudulent trading or Wrongful trading under Section 66, which falls under Chapter VI of the Code. The legislature has consciously kept the Applications in respect of Fraudulent trading or Wrongful trading falling in Chapter VI, outside the purview of Section 25(2), which requires the Resolution Professional to undertake the actions and file applications for the avoidance of transactions in accordance with Chapter III. Both, the Avoidance Applications under Chapter III and the Applications in respect of Fraudulent trading or Wrongful trading under Chapter VI, operate in different situations. The powers of the Adjudicating Authority in respect of the Avoidance Applications filed under Chapter III and the powers of the Adjudicating Authority in respect of the Applications pertaining to the Fraudulent and Wrongful trading filed under Chapter VI, have also been separately circumscribed. 60. Howeve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g no default by the principal borrower on 01.08.2019, all subsequent action by the Bank on the alleged default dated 01.08.2019 are unsustainable. Hence, information recorded in the information utility on the strength of loan recall notice dated 18.11.2019 in no manner can be read as material to prove that default was committed by the Bank on 01.08.2019. Under the statutory scheme, the record of information utility is relevant but record of information utility is not conclusive proof of any default and a Corporate Debtor is always at liberty to disapprove the statement as contained in the information utility record. ... [Emphasis Supplied]" 37. In the case of Mr. Nalinesh Kumar Paurush & Ors. v. Mr. Arvind Mittal Resolution Professional of Temple Leasing and Finance Limited [Company Appeal (AT) (Insolvency) No. 346 of 2024 & IA No. 6783 of 2024] this appellate tribunal set aside order of the NCLT directing appellants to contribute to the asset of the CD holding that "the transactional audit report which may not be termed as a conclusive piece of evidence, has arrived at an erroneous conclusion that impugned transactions made by the appellant at the relevant point of time were....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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'." 41. In Manish Kumar Bhagat, Liquidator of Pioneer Globex Pvt. Ltd. v. Narendrakumar Jayantilal Shah & Ors. (2025 SCC OnLine NCLT 1401), this appellate tribunal in paragraph No.10 held as under: - "10. The Audit Report has been prepared with constraints and limitations. In absence of crucial records, no conclusion can be drawn that the alleged transactions done are under section 66 & 67 of I & B Code 2016. The applicant has not filed sufficient evidence to hold that the alleged transactions are fraudulent transaction under section 66 of the Code. It is also pertinent to note that the RP has not form opinion and determination as per Regulation 35A of IBBI (Resolution Process for Corporate Persons) Regulations, 2016. " 42. In Renuka Devi Rangaswamy v. Madhusudan Khemka Suspended Director of M/s. Regen Infrastructure and Services Pvt. Ltd. & Ors. (Company Appeal (AT) (CH) (Ins.) No. 356 of 2022), a coordinate bench of this appellate tribunal held that "A `Single Fraud', against `a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the CD, while under Section 66(2) of IBC, 2016, which deals with 'Wrongful Trading', Liability can only be fixed upon only 'Director' or 'Partner' and for a transaction to qualify under this Sub Section it must be shown that the parties to such transaction knew, or ought to have concluded that there was no reasonable prospect of avoiding insolvency proceedings and they did not take due diligence with a view to minimizing the potential loss to the creditors of the company. Thus both these sub sections of Section 66 of the Code takes care of two different situations and also the scope of sub -section (1) and (2) of Section 66 of IBC, 2016 is different. No need to say that the facts alleged and evidence produced must satisfy the ingredients of this section and the facts from which the intention to defraud may be deduced must be proved to satisfy of the conscience of the 'Tribunal' certainly on the scale of 'preponderance of probability'. However, no strait jacket formula can be formulated to fit in all factual situations and it will depend on the facts and evidence placed in each case to asses as to whether the particular transaction may be treated as fraudulent or not. Thus we now ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....taken out of the CD and significantly this whole transaction was done on credit, which is an alien word in gold bullion trading because of their margin of profit and in this way the fraudulent intention of the appellants was crystal clear. 49. Ld. Tribunal on the basis of the record available before it i.e. ledger account of M/s Swastik Diamonds (Respondent No.2) found that the first payment of only Rs. 6 lakhs was received from Respondent No. 2 on 15.09.2020 while the sale was amounting to Rs. 160974720/- which had taken place up to 17.08.2020. From the same ledger it is reflected that a sum of Rs. 24 lakhs were received by the appellants up to November, 2020 and thereafter an aggregate sum of Rs. 4610000/- was received in the year 2021-2022. 50. It also appears to be an admitted situation and has been correctly recorded by Ld. Tribunal in the impugned order that even when there was an outstanding amount of Rs. 154364720/- (Rs. 160974720- 4610000=154364720/-) on 06.06.2020, which is a period of more than 20 months the CD again made a sale of Rs. 10567800/- on that day without receiving any further money. 51. It is to be highlighted that the first tranche of Rs. 24 lakhs p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....benefitted of this largesse without any explainable rhyme or reason". 54. At this juncture, we also notice the transaction audit report wherein the transaction auditor after inspecting the financial statements of the CD and Respondent No. 2 so far as the sale of gold to Swastik Diamond/Respondent No. 2 is concerned, has opined that the audited financials of the CD for the financial year 2020-2021 shows sales revenue of Rs. 16.48 Crores and 98% of the aforesaid sales amounting to Rs. 16.10 Crores were made to the single party (M/s Swastik Diamond) in just five transactions held from 11.08.2020 to 17.08.2020. 55. It is also highlighted in the said report that the Company made sales of total of 29.885 kilograms of 995 gold aggregating sales of Rs. 16.10 Crores as per the narration of the ledger entries and out of this sale i.e. 16.10 Crores the CD only received Rs. 24 lakhs in financial year 2020-2021 resulting in outstanding receivable of Rs. 15.86 crores at the end of financial year 2020-2021. It is also highlighted that the CD received another Rs. 42.10 lakhs in financial year 2021-2022 leaving thereby an outstanding receivable of Rs. 15.44 crores at the end of financial year....