TaxTMI 
TaxTMI 
2026 (1) TMI 1275
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....g Authority allowed an application filed by the Resolution Professional of the Corporate Debtor (CD) under Section 43,44,66 and 60(5) of the Insolvency and Bankruptcy Code, 2016 (Code) and allowed all the prayers of the application filed by the Resolution Professional except prayer 6 (f) and (g). 2. Brief facts necessary for disposal of this appeal are that on a petition filed by the outlook Tracom Pvt. Ltd. under Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) the Insolvency Process was initiated against the Corporate Debtor (CD) vide order dated 22.11.2019 of the Ld. Adjudicating Authority passed in CP No. (IB) 1175/KB/2019 and Mr. Kamal Nayan Jain was appointed as Interim Resolution Professional (IRP), who was subsequently confirmed as the Resolution Professional (RP). 3. During the course of CIRP, the RP in the first meeting of the CoC held on 19.12.2019 informed the members of the CoC that he would be taking steps for filing of an application under Section 19(2) of the Code against the Suspended Directors of the CD, including the appellants as they are not rendering any cooperation to him and thereafter an application bearing CA IB No. 07/KB/2020 was filed b....
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....4th meeting of the CoC held on 02.09.2020, and in pursuance of the decision taken therein the interim transaction audit report was shared with the suspended directors in order to solicit their response pertaining to some objectionable transactions. However, no explanation was submitted by the suspended directors and thereafter on 25.09.2020, the transaction auditor prepared the final transaction audit report on the basis of the information and documents retrieved from public domain or from the CD and also on the basis of information/documents collected from third party. 8. It is also evident that the RP considered the final transaction audit report and being satisfied that there are certain transactions which are preferential and fraudulent in nature and in pursuance of the decision taken in the 5th CoC meeting held on 06.10.2020, filed the IA 1253/ KB/2020 which has been disposed of by Ld. adjudicating authority by passing the impugned order where by all the prayers of the application has been allowed except prayer (f) and (g). 9. It is also to be recalled that during the pendency of the aforesaid application moved by the Resolution Professional the CoC in its 17th meeting h....
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....the report are taken as true and correct reflection of facts. Thus the report has been submitted only on the basis of presumptions. That all documents collected by transaction auditor are truthful. Therefore, the basis on which satisfaction of the RP has arrived is itself doubtful. 12. It is further submitted that the Transaction Auditor was not provided with the requisite documents by the Resolution Professional (RP) and thus he failed to discharge his duty as specified under Section 25(1) & (2) of the Code and Rules specified thereunder and he has also not taken any steps for obtaining the documents which were seized by the Police, even after specific directions from the Ld. NCLT, Kolkata vide Order dated 05.03.2020 whereby the SHO, Muchipara P.S. was also directed to provide all necessary facilities/assistances so that the Resolution Professional in the presence of the suspended Director can extract soft copy from the laptop kept in the custody of police. The RP also failed to file any application before the concerned Magistrate to obtain permission to access the seized documents, thereby depriving the Transaction Auditor of necessary record for a fair, unbiased, and reliable....
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....torship concern. It is also highlighted that the said Late Kamal Kishore Toshniwal is survived by one son i.e. Appellant No. 1 and two daughters, all of whom are independent individuals and have no connection with the affairs of the said concern. Hence, the unilateral attribution of responsibility upon Appellant No. l is wholly misconceived and baseless. 16. It is also submitted that the Resolution Professional in Prayer 6 (c) of the application prayed for passing an order directing Respondent No. 7, M/s Holdwell TradecomPvt. Ltd. to pay Rs. 1,12,000/- (Rupees One Lakh Twelve Thousand only) in the account of the Corporate Debtor. However the Resolution Professional, while computing the amount referred to in Prayer 6(c), has selectively relied upon the figure reflected under the column titled "Amount Debited", while deliberately and/or negligently omitting to account for the corresponding entry under the column "Amount Credited", thus conduct of the Resolution Professional, in suppressing material credits while projecting a distorted debit balance, is in clear violation of the standards of integrity, objectivity, and care mandated under Section 208 of the Insolvency and Bankruptc....
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....allowed by the Adjudicating Authority. The RP has not challenged the rejection of Prayer 6 (f) and (g) refused vide impugned order. It is therefore evident that the Resolution Professional has failed to clearly segregate and articulate the reliefs sought, thereby inflating the total claim multiple times. This reflects a serious failure of due diligence on the part of the Resolution Professional, as well as an oversight by Ld. Adjudicating Authority in not identifying such duplication and inflation. 19. It is further submitted that the Resolution Professional has ignored the Disclaimers/ and Limitation Clause of the Transaction Audit Report and without application of mind filed the application alleging preferential and fraudulent transactions against the appellant and suspended board of directors. The Resolution Professional instead of providing the necessary documents to the Auditor, had filed the Application on basis of the incomplete and unreliable Transaction Auditor Report given by the Auditor and the impugned order based on such report is liable to be set aside. 20. Ld. Counsel for the Respondent No. 1 on the other hand submits that an application was filed under Section....
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....ra PS stating that the copy of the order dated 05.03.2020 was not available and inspite of the order dated 05.03.2020 being made available to Appellant in the evening of 05.03.2020, he refused to accompany RP to Muchipara PS and send his unauthorized representative to the Muchipara PS despite the categorical direction in the order dated 05.03.2020 for Appellant to accompany RP to the Muchipara PS and thereafter, despite repeated requests form RP, none of the suspended Directors, including the Appellants, expressed any desire to accompany the RP to the Muchipara PS for retrieval of the seized CD records. 23. It is also submitted that in the 3rd CoC Meeting held on 11.06.2020, RP appraised the CoC about the continued non-cooperation by the suspended Directors of the CD and appointment of M/s. S. Poddar & Co., to conduct a forensic / transaction audit of the CD. On 19.05.2020, the M/s. S. Poddar & Co., (Transaction Auditor / TA) issued an Interim Transaction Report (TAR) wherein the it was opined that there were several questionable transactions carried out by the CD with its related parties. 24. It is further submitted that in the meantime, due to the continued non-cooperation ....
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....ipation in the process of retrieval of information / documents seized by the Muchipara PS, thereby disentitling the Appellants from claiming prejudice in any manner whatsoever. 27. It is further submitted that Appellants attempting to espouse the case of non-contesting parties without any documentary support and they cannot be permitted to do so and the typo error in the figure mentioned in prayer (d) sought in IA 1253 was categorically pointed out by RP and the same is also recorded in Para 6.5 of the Impugned Order and categorically noted in Para 21 of the Impugned Order. The typo error in the figure mentioned in prayer (d) sought in IA 1253 pertains to a party who is not in appeal and RP at the time of filing IA 1253 had not contemplated that prayer (f) and (g) sought in IA 1253 would not be granted by the Adjudicating Authority. Since the reliefs sought in IA 1253 was partly allowed, thereby there is automatic adjustment of the figures wrongly mentioned in the prayers of IA 1253 and Notwithstanding the above, this Appellate Tribunal is fully empowered to correct such inadvertent error and the Appellants cannot be allowed to take advantage of any error in the Impugned Order, ....
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....s Adjudicating Authority may deem fit; (i) That this Adjudicating Authority may be pleased to pass an order or orders as may be deemed necessary for investigation into the affairs of the corporate debtor; (j) For such further and other reliefs as this Adjudicating Authority may deem fit and proper in the facts and circumstances of this case". 29. It is also evident that by passing the impugned order Ld. Adjudicating Authority did not find sufficient evidence to grant prayers 6 (f) and (g) of the application and as such the reliefs sought in paragraph 6 (f) and (g) were not granted while the other prayers of the application were granted with a clarification that the relief sought by the applicant in paragraph 6(d) of the application was granted to the extent of Rs. 1,16,79,000/-. 30. We also notice that the Resolution Professional on the basis of transaction audit report has made up his mind and being satisfied by the conclusions drawn therein, has filed the application before Ld. Adjudicating Authority. The said Transaction Audit Report has been placed on record. Ld. Counsel for the appellant has criticized this Transaction Audit Report on the basis that the....
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....ng perused the report prepared by the Transaction Auditors we are satisfied that cautious and diligent exercise has been done by the Transaction Auditors. So far as the objections raised by the appellants with regard to the insufficiency of the material available with the Transaction Auditors and various disclaimers given by the Transaction Auditors in their report, is concerned the same in our considered opinion are not sufficient to discard the otherwise diligent report prepared by the transaction auditor. 35. It is also to be recalled that since beginning of the CIRP, the suspended directors of the CD were non-cooperative with the IRP/RP and it is also evident from the record that they did not provide relevant documentary evidence to the IRP/RP and even did not make any effort to retrieve the data contained in the laptops seized by the police and therefore, in this background the RP was constrained to provide the documents which he could collect from the banks and other third parties. Since, the Suspended Directors of the CD including the appellants were at fault, in not providing the documents/financial statement of the CD to the IRP/RP, they cannot take this defense that th....
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.... the sole objection which has been raised, is that the appellant no. 1 alone is not liable, nor any other legal heir of late Kamal Kishore Toshniwal is responsible, as they were not having any connection with the sole proprietorship owned by the deceased. 39. It appears to be an admitted fact that M/s Toshniwal Enterprises was a party before Ld. Adjudicating Authority and it chooses not to contest the application before it and proceedings were drawn ex-parte against it and no appeal has either been filed by the aforesaid entity. 40. It is also to be recalled that in the application moved by the RP before the Ld. Adjudicating Authority it has been stated that payment of Rs. 7182600/- was made to the proprietorship firm of Mr Kamal Kishore Toshniwal who was arrayed as Respondent No.6 to the application and also that when RP was made aware of the death of him on 19.10.2020 by the Appellant No.1, who is the son of the deceased. 41. It is further stated in that application that vide email dated 28.10.2020 Appellant No.1 stated that they have not received the requisite certificate from the Court and on this the applicant arrayed the appellant No.1 as the representative of the sa....
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.... is a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and (b) the transfer under clause (a) has the effect of putting such creditor or a surety or a guarantor in a beneficial position than it would have been in the event of a distribution of assets being made in accordance with section 53. (3) For the purposes of sub-section (2), a preference shall not include the following transfers- (a) transfer made in the ordinary course of the business or financial affairs of the corporate debtor or the transferee; (b) any transfer creating a security interest in property acquired by the corporate debtor to the extent that- (i) such security interest secures new value and was given at the time of or after the signing of a security agreement that contains a description of such property as security interest and was used by corporate debtor to acquire such property; and (ii) such transfer was registered with an information utility on or before thirt....
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....of any financial debt or operational debt under the order, and such security or charge to have the same priority as a security or charge released or discharged wholly or in part by the giving of the preference; and (g) direct for providing the extent to which any person whose property is so vested in the corporate debtor, or on whom financial debts or operational debts are imposed by the order, are to be proved in the liquidation or the corporate insolvency resolution process for financial debts or operational debts which arose from, or were released or discharged wholly or in part by the giving of the preference: Provided that an order under this section shall not- (a) affect any interest in property which was acquired from a person other than the corporate debtor or any interest derived from such interest and was acquired in good faith and for value; (b) require a person, who received a benefit from the preferential transaction in good faith and for value to pay a sum to the liquidator or the resolution professional. Explanation I.-For the purpose of this section, it is clarified that where a person, who has acquired an interest in pro....
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....thereof, when the liquidator or the resolution professional, as the case may be, is of the opinion that the corporate debtor has, at a relevant time, given a preference in such transactions and in such manner as specified in sub- section (2), to any person/persons as referred to in 35 Note: Here the expression 'offending' is only to denote the unacceptability of such transaction and not any criminality. 65 sub-section (4), he is required to apply to the Adjudicating Authority for avoidance of preferential transactions and for one or more of the orders referred to in Section 44. If twin conditions specified in sub-section (2) of Section 43 are satisfied, the transaction would be deemed to be of preference. As per clause (a) of sub-section (2) of Section 43, the transaction, of transfer of property or an interest thereof of the corporate debtor, ought to be for the benefit36 of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and as per clause (b) thereof, such transfer ought to be of the effect of putting such creditor or surety or guarantor in beneficial position than it wo....
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....iii) preference is given, either during the period of two years preceding the insolvency commencement date when the beneficiary is a related party (other than an employee), or during the period of one year preceding the insolvency commencement date when the beneficiary is an unrelated party. 19.2. By way of these statutory provisions, legal fictions are created whereby preference is deemed to have been given; and is deemed to have been given at a relevant time, if the stated requirements are satisfied. 19.3. On a conspectus of the principles so enunciated, it is clear that although the word 'deemed' is employed for different purposes in different contexts but one of its principal purpose, in essence, is to deem what may or may not be in reality, thereby requiring the subject-matter to be treated as if real. Applying the principles to the provision at hand i.e., Section 43 of the Code, it could reasonably be concluded that any transaction that answers to the descriptions contained in sub-sections (4) and (2) is presumed to be a preferential transaction at a relevant time, even though it may not be so in reality. In other words, since sub-sections (4) and (2) are de....
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....e term legal representative has not been defined in the Code, therefore reference of it may safely be borrowed from the definition provided to it under Section 2(11) of the Code of Civil Procedure, which provides as under: - "2(11) legal representative" means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased and where a party sues or is sued in a representative character the person on whom the estate devolves on the death of the party so suing or sued;" According to the aforesaid provision, a person who in law represents the estate of a deceased person and the person who inter meddles with the estate of the deceased are his LRs. The RP after the death of late Kamal Kishore Toshniwal get the heirs of the deceased impleaded as legal representative, including the appellant No.1 and since he is to inherit the property and asset from the deceased father he could be held liable to part that much of the amount by which the deceased/ Proprietor Kamal Kishore Toshniwal was benefited by the impugned preferential transaction. 50. It has been stated by the Appellant No.1 in the Email dated 28.....
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....o pay Rs. 112,000/- and Rs. 37,059,000/- respectively and these two entities did not contest the application before the Ld. Adjudicating Authority and have not filed any appeal before this appellate tribunal also, therefore, these findings have become final so far as these entities are concerned and the appellant cannot argue on their behalf, in the appeal preferred by appellants with regard to their own grievances. It is also submitted that on the day of hearing it was indicated and brought in the notice of the Ld. Tribunal by Ld. Counsel for the RP that figure of Rs. 37,059,000/- has inadvertently been wrongly mentioned due to typographical mistake and the same be read as Rs. 1,16,79,000/- and this submission of the counsel was duly recorded in the judgment. 54. Having considered the rival submissions made by Ld. Counsel for the parties we find force in the submissions made by Ld. Counsel for the Respondents as the appellants may not be aggrieved by the grant of prayer 6 (c) and (d) of the application which were pertaining to the other entities and those entities neither contested the application before the Ld. Adjudicating Authority nor has filed any appeal against the impugn....
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....ibunal in appeal. Thus, in our considered view the figure of Rs. 74,907,638/- shall be read only to the extent the reliefs have been granted by the Ld. Adjudicating Authority, as affirmed by this Appellate Tribunal. 59. Ld. Counsel for the appellant has also touched upon the infirmities in prayer 6 (f) and (g) but we are not inclined to enter into the discussion for the same on the ground that these prayers have not been granted by Ld. Tribunal and therefore there is no reason that the appellants may be aggrieved by the same, more so when no appeal has been preferred by the Resolution Professional against the impugned order. 60. Ld. Counsel for the appellant in the last has placed much emphasis on the insufficiency of material available with the transaction auditor as well as before the ld. Tribunal and submits that keeping in view the insufficiency of material/evidence no conclusions could have been drawn with regard to the preferential transactions with related party. At the cost of repetition we reiterates that the transaction auditor in its report has classified the entities as related parties which has not been disputed by the appellants and the transactions which have b....