TaxTMI 
TaxTMI 
2026 (1) TMI 1356
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....2016 (in short 'Code') whereby a direction of contributing Rs. 6,56,25,806 /- has been given to the Appellant. 2. Brief facts necessary for disposal of the appeal appears to be that the CD was admitted into CIRP vide order dated 10.06.2022 on a petition i.e. CP (IB) No. 3755/MB/2019 filed by the Canara Bank under Section 7 of the Code and one Shri Ajay Marathe was appointed as the Resolution Professional of the CD. 3. It is also reflected that the CoC was constituted by the RP after collating the claims and the same was comprising of only one member i.e. Respondent No. 2. 4. It is also reflected that in the 1st CoC meeting held on 13.07.2022, Dharkar and Kothari, Chartered Accountant was appointed as the transaction auditor to conduct transaction audit of the CD and to prepare the transaction audit report of the CD for the period commencing from 01.04.2017 to 10.06.2022 in order to identify transaction which may be preferential, undervalued or made for defrauding creditors as well as fraudulent under Section 43, 45, 49, 50 and 66 of the Code. 5. The aforesaid CA/transaction auditor conducted audit of the CD for the aforesaid period and prepared and submitted its report ....
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....he Respondent under the Code: b. This Tribunal be pleased to declare the transaction with Respondent as undervalued transaction as under Section 45 of the Code and take necessary action under Section 47 of the Code. c. That this Tribunal be pleased to pass orders to declare that the amount of Rs. 2.04 crores and Rs. 0.38 crores is a transaction under Section 45 of the Code and direct the Respondent to return the stock and/or pay the amount of Rs. 2.04 crores and Rs. 0.38 crores to the Corporate Debtor, d. That this Tribunal be pleased to pass orders to declare that the amount of Rs. 6.56,25,806/-is a transaction under Section 66 of the Code and direct the Respondent to repay the amount to the Corporate Debtor: e. That this Tribunal be pleased to pass such further and other directions as it may deem fit under the provisions of Sections 44, 45, 66. 67 and 69 of Code:" 10. The Adjudicating Authority after providing an opportunity of being heard to the parties held that the business of the CD has been carried on with an intent to defraud the creditors and found the case under Section 66 of the Code and directed the Respondent No. 1 to make contrib....
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....ted report as the requisite documents were not available with the stock auditor at the relevant time and this fact can be ascertained from a copy of email sent by the appellant to stock editor on 22.07.2019. 18. It is also submitted that the CD has filed income tax return for the year 2019-2020 wherein a loss of Rs. 8 Cr has been shown which considers the loss of stock in question and the said ITR has also been accepted by the income tax department. Therefore, there was no cogent evidence which may reflect that the inventory has been misappropriated by the appellant. 19. Ld. Counsel for the Respondent No. 1 on the other hand submits the short issue which arises for adjudication of this appellate tribunal is, as to whether the appellant as the Promoter and Director of the CD has indulged in the fraudulent transaction to defraud the creditors of the CD. 20. It is submitted that after not getting any cooperation from the appellant the Resolution Professional of the CD appointed Dharkar and Kothari, Chartered Accountants as the Transaction Auditor to conduct the audit of the CD for the period from 01.04.2017 to 10.06.2022 and they submitted a detailed Transaction Audit Report ....
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....ate 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 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 p....
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....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 and pass the orders in terms of the provisions of IBC." 27. This Appellate Tribunal again in Shibu Job Cheeran & Ors. v. Ashok Velamur Seshadri Liquidator of M/s. Archana Motors Ltd. (2023 SCC OnLine NCLAT 804), held as under: "43. It is therefore clear that for establishing the fraudulent purpose, it must be shown that the Ex-Directors of the 'Corporate Debtor' knew that the Company was insolvent but continued to run business with dishonest intentions. On a broader sense, concealment of true financial position of the 'Corporate Debtor' can also be covered under such provisions. 44.This 'Appellate Tribunal', therefore, observes that the following elements need to be established for 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'." 28. This appellate tri....
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....ndent No. 3 is the sole beneficiary of the said fraud and it, as much, must be presumed that he was a party thereto.: (emphasis supplied) 49. It is seen that the intent to defraud the creditors", under Section 66(1) of the I & B Code, 2016 is further established by the fact that the 'Respondent Nos. 2 & 3' had provided different books of accounts in different proceedings before the 'Adjudicating Authority' with a clear intent to fraudulently deprive the creditors of the 'Corporate Debtor' from the admitted amounts. 50. This 'Appellate Tribunal' observed that the 'Appellant' is a principal beneficiary of fraudulent and wrongful trading and therefore the 'Adjudicating Authority' has rightly held this transaction as fraudulent under Section 66 of the I & B Code, 2016." Section 66 of the IBC, 2016, thus 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 the creditors, to make contribution to the assets of....
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....cial year 2019-2020, however no separate note in the financial statement of the relevant year describing the reasons leading to writing of the stock was available. It is also contended therein that the value of the physical stock was not appropriate and thus there is possibility that the value of closing stock has been inflated/misreported. 32. It is further stated in the application that the aforesaid transaction is fraudulent and appellant was the Director of the CD at the relevant time and have indulged in the above transactions which are not in the ordinary course of business and were also not in the interest of the CD and these transactions have benefitted the related parties and also put the management in a beneficial position and therefore the appellant is required to bring back this amount of Rs. 6,56,25,806/- as the said transaction squarely falls within the ambit of Section 66 of the Code. 33. In the reply filed by the appellant it is stated that while making aforesaid allegation of making fraudulent transactions the Resolution Professional has not exercised due diligence and merely made an averment that transaction of write off the perished stock is fraudulent in n....
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....03.01.2018. On perusal of audited financial statement for year ended 31.03.2020 we find that the Corporate Debtor was carrying an inventory of Rs. 7,41,99,136.00 as on 31.03.2019 and Rs. 7,96,65,854.00 as on 31.03.2018. If we look at the explanation in the backdrop of these financial data we find it difficult to accept the contention because the Corporate Debtor was already carrying an inventory of Rs. 7,96,65,854.00 as on 31.03.2018, when its account was classified as NPA immediately thereafter, and the shelf life of the Cashew is stated to be one year while the Corporate Debtor continued to hold inventory of Rs. 7,41,99,136.00 as on 31.03.2019 also even though the total purchases during the Financial Year 2018-19 are stated to be of Rs. 36,68,982.33. An application under Section 7 was filed by the lender Canara Bank on 11.10.2019, accordingly, the stock write off was in order to wash away non-existent of inventory, which was also observed in the unit visit reports ad stock audit reports as alleged by the Transaction Auditor. In view of these facts, we have no hesitation to hold that the inventory write off was an act of cleaning the books to wipe of non-existent inventory in view....
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....eduction in stock in trade amounting to Rs. 6,56,25,806/- and there is no separate note regarding the reason for reduction of such stock in the financial statements and also that the same was not matching with the stock records maintained in tally. 40. It is also highlighted that as per the unit visit report and stock audit report it is evident that value of physical stock was not appropriate and there may be a possibility that the value of the closing stock was inflated or misreported in the financial statements. 41. It is also opined that write off of the stock in trade merely in the books of accounts without having its physical existence amounting to Rs. 6.56 Crore is considered as activity carried on with fraudulent purpose and is squarely covered within the ambit of Section 66 of the Code. 42. It was highlighted by the transaction auditor that the stock records which were maintained by the CD are not proper and no records were found for physical verification of the same and the same was also noticed by the stock auditors and bankers at the time of Unit Visits and Inspection done by them and the transaction auditor in support of this conclusion has enclosed the unit vi....