TaxTMI 
TaxTMI 
2026 (2) TMI 135
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.... Code, 2016 (in short 'Code') read with Rule 19 of the NCLAT Rules, 2016 assailing the impugned order dated 29.01.2021 passed by the NCLT, Mumbai (in short 'Adjudicating Authority') in IA No. 1624 of 2020 in CP No. 2556/IB/MB/2019 under Section 66 of the Code read with Section 26 of the Code whereby the application moved by the resolution professional has been allowed and the appellant who was respondent no. 1 before the Adjudicating Authority has been directed to pay Rs. 98,96,82,438/- to the CD. 2. Brief facts necessary for the disposal of the instant appeal are that Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor vide order dated 13.11.2019 moved by the operational creditor under Section 9 of the Code against the corporate debtor i.e Royal Refinery Private Limited and the respondent no. 1 i.e. Mr. Nandkishor Vishnupant Deshpande was appointed as an Interim Resolution Professional (IRP) who was later on confirmed by the CoC of the CD as RP vide resolution passed in the first CoC meeting held on 17.12.2019. It is stated that corporate debtor i.e Royal Refinery Private Limited (RRPL) was engaged in the business of trading in bullion i.e ....
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....hority that in the copy of the ledger provided by the respondents no. 1, 2 and 3 unilateral purchase entries were passed in a debtor customer account amounting to approximately Rs. 54.37 Cr. and unilateral sales entries (four in numbers) were deleted from the ledger aggregating approximately to Rs. 35.41 Cr. and these entries were available and could be seen in the accounts of the CD as seized by the DRI and therefore, the remaining balance is stood nullified by passing unilateral journal entries of approximately Rs. 14.31 Cr. It is thus emphasized by Learned Adjudicating Authority that the entire balance of Rs. 98.97 Cr. which was receivable by the appellant was wiped out and on the other hand, the appellant claimed that Rs. 1.27 lakh are now payable to it by the corporate debtor. The ledger statement as filed by suspended directors of the CD has been extracted by the Adjudicating Authority in the impugned judgment and we also reproduce the same as under: - 9. The Adjudicating Authority also noted that in the replies filed by the respondent no. 2 and 3 (suspended directors of the CD) in IA No. 1212 of 2020 which was moved by RP seeking cooperation from the erstwhile directors u....
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....to 31st March, 2019 and 1st April, 2019 to 13th November, 2019 as produced in IA 1212/2020 filed by the Resolution Professional and copies of unaudited balance sheets for the same year, as produced/filed in the present IA, it can be said that, both the unaudited balance sheets relates to the same year, but contains different data, it is evident that there has been a clear falsification/fabrication of accounts of the corporate debtor. These unaudited balance sheet, evidenced that an outstanding balance of Rs. 57.72 crores was receivable from Respondent No. 1. In order to escape the wrath of provisions of Section 66 r/w 69, 70, 71 and 72 of the Code, the Respondent Nos. 2 and 3 created new book entries and hence the tally data shows that the entire outstanding receivable of Rs. 98.97 Crores stood reversed". 34. The mere purchase entries in the ledger accounts without description of invoices and purchase orders does not substantiate the claim of purchase made by and between Respondent No. 1 and Respondent No. 2 and 3 herein. Further no record is produced to show payment of GST towards the said sales. Hence it is concluded that the above transactions are fraudulent in nature a....
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....r submitted that the casual approach with which the issue has been taken by the RP as well as by Learned Adjudicating Authority is not commensurate with the scheme of the Code especially when the matter is pertaining to the huge amount and directions are being given for return of the same. It is further submitted that a wrong fact has been recorded by the NCLT, that only unaudited daily data has been produced by the appellant while in fact the appellant has produced audited financial statement of itself before the Adjudicating Authority. 20. It is further submitted that the IRP has also not performed his statutory duties under Section 25 read with Section 29 of the Code and therefore it was the duty of the RP to prepare the information memorandum and to appoint accountants and legal professionals or transaction auditors in order to ascertain the correct financial position of the corporate debtor as well as the impugned transactions but this exercise has not been done by the IRP or the RP. 21. It is further submitted that despite the correct facts placed before the Adjudicating Authority the matter has not been adjudicated in right aspect and therefore, the judgment is liable ....
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....the third category is of the purported transactions of sale between Appellant and CD after May, 2019 between July to October,2019. 27. It is submitted that the appellant has not challenged or refuted any entry in the account of the CDs as obtained from the DRI for the period prior to May, 2019 and in this regard, the ledgers produced before the Adjudicating Authority by the appellant in reply and ledgers produced by the suspended directors of the CD reflect the same closing balances as on 31.03.2019 as has been shown in the ledgers provided by the DRI. 28. It is further submitted that there are four transactions of sale with the CD as seller and the appellant as purchaser in the RP's ledger from 07.05.2019 to 20.05.2019 for a total value of Rs. 35.41 Cr. However, these transactions have been fraudulently removed in the ledgers produced by the appellant and the suspended directors. Similarly, another transaction for sale dated 02.05.2019 for Rs. 7.09 Cr. in the RP's ledger do not feature in the ledgers submitted by the appellant or the suspended directors of the CD deliberately to shield this transaction. 29. It is further submitted that it is the case of the Appell....
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....ble Supreme Court in Aditya Kumar Tibrewal vs Om Prakash Pandey, 2022 SCC Online NCLAT 142 may be referred and the law laid down by this Appellate Tribunal in the case of the same CD reported in Shri Baiju Trading and Investment Private Limited versus Arihant Nenawati, 2023 SCC Online NCLAT 845 may be recalled. It is further submitted that directions under Section 66(1) of the Code can be issued against third parties also. In this regard, the law laid down by this Appellate Tribunal in Tridhaatu Kirti Developers LLP versus Arihant Nenawati may be recalled and so far as the order in Glukrich Capital Private Limited versus State of West Bengal, 2023 SCC Online SC 1187 is concerned, the same is confined to its own facts and in this regard, the law laid down in Mohandas Issardas versus A. N. Sattanathan, reported in ILR (1955) 55 Bombay 318 may be referred. 34. Ld. Counsel for the respondent/ liquidator has also relied on the law laid down by this Appellate Tribunal in the case emerging from the same corporate debtor i.e Royal India Corporation Limited versus Nandkishor Deshpande, 2024 SCC Online NCLAT 640 as also on the law laid down in Sangeeta Jitender Mehta versus Kailash Shah, ....
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....notice that in the application moved by the Resolution Professional before Ld. Adjudicating Authority it was categorically stated that the management of the CD was totally non- cooperative with the RP and whatever documents the RP could collect were perused by him and he found that the CD is a company which is engaged in the business of importing and exporting gold as well as also indulged in sale/purchase of the Gold in local market and generally no credit is offered to the purchaser of the gold items and keeping in view the critical evaluation of data and desktop searches he observed certain creditors, appellant being one of them, to whom fraudulent preference has been given in business transactions and thus labelled certain transactions as fraudulent. 41. We also notice that the CD was keeping three ledger accounts of the Appellant in the name of World Wide Online Services Pvt. Ltd. (purchase ledger), World Wide Online Services Pvt. Ltd. (Jewellery) and World Wide Online Services Pvt. Ltd. (Sales) and the entries in these ledgers pertaining to the period 01.04.2015 to 20.05.2019 were assessed which shows that about Rs. 98,96,82,438/- were outstanding for more than two years w....
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....audited balance sheets for the period from 01.04.2018-31.03.2019 and 01.04.2019 to 13.11.2019 were filed and these Balance Sheets shows an outstanding balance of Rs. 57.72 crores receivable from Respondent No. 1 and thus it has been rightly held by Ld. Adjudicating Authority that fraudulent new book entries have been made in the financial statements of the CD to clear the balances which otherwise were payable by Appellant No. 1 to CD. 45. It is also to be recalled that the premises of the CD were raided by the DRI in the month of May, 2019 and thereafter the RP has not found any inventory of gold etc. which was also discussed in the meeting of the COC and after the DRI raids the business of the CD was almost shut down and thus there was no reason for the appellant to have entered into any transaction with the CD. 46. In a case relied on by Ld. Counsel for Respondent No. 5 namely Royal India Corporation Ltd. vs. Nand Kishor Vishnupant Pandey and Ors., CA (AT) (Ins) No. 137 of 2021 which is an appeal concerning the transaction mode with the same CD, this tribunal has noted the order dated 04.02.2021 passed by the Joint Commissioner of Customs as under: "3. I find from ....
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....uthority and the documents given by the DRI to the RP clearly suggests that fraudulent entries have been made with the intention to defraud the genuine creditors of the CD and for the benefit of the Appellant. Thus the fraudulent mental state of the appellant and directors of the CD is apparent. 50. So far as the contention of the appellant pertaining to the fact that there are GST invoices filed on the record of this appellate tribunal with regard to the impugned transaction, is concerned, we are in agreement with the submissions made by Ld. Counsel for the Respondent No. 5/liquidator in terms that the fraud may be committed even by raising GST invoices as by spending few lakhs in GST invoices, Crores of Rupees have been siphoned. It may be recalled that some of these transactions are shown to have been executed just after the raids of the DRI at the premises of the CD and the CIRP of the CD was very much in contemplation. It also appears that application under Section 9 of the IBC was filed by the operational creditor for initiation of the CIRP of CD on 12.06.2019 and order has been passed by Ld. Adjudicating Authority on 13.11.2019. It is also to be recalled that we are in an....
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....ct of Dishonesty', is to be established and it cannot be inferred in any manner. Whether a `Director', had exercised his skill, experience and general knowledge, to be expected of a person, in carrying out the `duties of his functions', is to be determined for a `Liability', in the considered opinion of this `Tribunal'." 53. In Piramal Capital and Housing Finance Limited v. Moons Technologies Ltd. & Ors. [2025 SCC Online SC 690], observations made by the Hon'ble Supreme Court are reproduced as under: - "56. Thus, there is a clear distinction 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 ....
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....as 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 and pass the orders in terms of the provisions of IBC." 54. This appellate tribunal in Swapan Kumar Saha v. Ashok Kumar Agarwal, (2025) ibclaw.in 911 NCLAT, while considering various cases on the subject held as under: "28......b. Can Section 66(1) of the Code be interpreted or invoked or made operational without recourse to Section 66(2) of the Code? Do they operate independent of each other or jointly?" 44. We further note that the next subsection 66(2) relates to specific provisions for a Director or partner of the CD for which CIRP is going on. This subsection provides that if before the insolvency commencement date, a director or partner knew or ought to have known that CIRP could 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 m....
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.... as fraudulent or not. 55. What is also evident from the record is that during the search action conducted by DRI in May 2019, on the premises of the CD and its Directors various documents/financial accounts were seized the DRI and on the request of RP, were made available to him, which shows that the appellant owed Rs. 98,96,82,438/- to the CD and it is established by the material placed on record that the CD was almost closed since May, 2019 and was not doing any business, because of the raids conducted by the DRI. 56. It is also established and has also not been challenged by the Appellant that in the financial statements seized by the DRI, outstanding amount of Rs. 98,96,82,438/- of the appellant was reflected but through entries made subsequently the outstanding amount was brought down to Nil. In this regard the contention of the statutory auditor may also be recalled when he stated that he was not provided any financial statements. It is also evident that RP had also reported to the CoC of the CD that no inventory corresponding to the transactions shown by the Appellant was found by the RP at the premise of the CD. Thus, it is a crystal clear case where false entries ha....
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....to be a third party, as both RICL and RRPL are under the control of same person. " 58. This Appellate Tribunal in Company Appeal (AT) (Insolvency) No.104 of 2024, Sangeeta Jatinder Mehta & Anr. vs Kailash Shah RP of New Empire Textile Processor Pvt. Ltd., 2025 SCC OnLine NCLAT 795 held as under: - "8. The judgment, which has been relied by learned Counsel for the Respondent in Royal India Corporation Ltd. (supra) of this Tribunal supports the submission of Respondent that action under Section 66, sub-section (1) can be taken against any person. The judgment of this Tribunal in Tridhaatu Kirti Developers LLP also supports the submission of learned Counsel for the Respondent. We, thus, do not find any error in the judgment of Adjudicating Authority insofar as it has held that transaction of payment of consultancy charges to Appellant Nos.1 and 2 were not bona-fide transaction. 9. The judgment of Tripura High Court in Smt. Sudipa Nath vs Union Of India, 2023, SCC OnLine Tri 79 has been relied by the Appellant. In paragraph 19 of the judgment, following was laid down: "(19) Therefore, in legislature wisdom and as apparent from the text of 66(1) it is clear that fir....
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....espect to Appellant No.2. We direct Appellant Nos.1 and 2 to deposit the aforesaid amount in the account of CD within a period of 30 days from today. (Emphasis Ours) 59. We also notice that on identical facts with regard to the same CD and same Directors, in the case of Baiju Trading and investment Pvt. Ltd. vs. Mr. Arihant Nenawati (liquidator for RRPL & Ors.) the orders passed by the NCLT under Section 66 of the IBC, was upheld by this Appellate Tribunal vide order dated 29.03.2023, and similarly in case of Tridhaatu Kriti Developers LLP vs. Arihant Nenawati (liquidator for RRPL & Ors.) (2023) SCC online NCLAT 1583 against the same Respondents the order of NCLT passed under Section 66 of the Code was affirmed and the order of this Appellate Tribunal was challenged before the Hon'ble Supreme Court by filling Civil Appeal No. 914 of 2023 and the order of this Appellate Tribunal was upheld by the Hon'ble Supreme Court. 60. Therefore, keeping in view all the facts and circumstances of the case and for the reasons given herein before we are not having any iota of doubt in our mind that simply by making fraudulent entries in the accounts books and statements the receivables to....
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....AI 1-Apr-2018 10 13-Nov-2018 Date Particulars Vich Type Von No. Dehet Page 609 Creche 24-12-2516 Gr Union Bank of Isdle JA/t 408101018136700} Payment 11.00,000.000 11,00,000 000 Dr Closing Balance 11,00,000 000 11,00,000.000 11,00,000.000 35 Royal Refinery Pvt Ltd 3-E Triuhla Premies Co-Op Society Ltd Ng Una D/328 TTG, Industrial Estate MIDC Turthe, Navi Mumbai -400703 Company'a Val TIN :27480909736 V Company's Vat TIN 37480608736 ℃ C.Ex Rejn No AAFCR76BEEE M003 NIC Code 27305 World Wide Online Services Pvt Ltd. (Sales) Ledger Ancourt 11. and Pine 81, Chandra Darshan Buitre Ohangi Street Pars Guly, Zaveri Bazaar, Mandy MLMIJAI - 400003 Sige 2018 10 13 No 2019 Doluit Opening Balance 20.31.78.777.000 63.32,448 600 Sales GST COST 13.62014 Cr tas por details? 30 31,000.000 Sales GSY COST BOST .. . . Is Cr tas per detaile) 84.78 918.000 CONT ------. 48.51,300.000 Sales GST 47.10,000,000 Ge 26.77 472.000 CONT SGST 37,436.000 OF (as per details) 12016.1997 2.02.27.720 000 Sales GST 2,01.24.000.000 Of OGST SORT tas por details) ....
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.... 38 BuptFours 1-42018 C: Dyming Budace 15:00 000 000 --------- Document 5 "EXHIBIT-A" (Colly.) Royal Rafinery Put. Ltd. Final World Wide Online Services Pvt. Lad. (Salee) ------- --- Opening Balance 83.12.480.000 26.77.472:000 8.07.33.730 000 304.000 17,120.000 17.00.584.000 8.50.000.000 2:03.00.000.000 01.40.000:900 12 4.A20.000 18.488.000 Comed Over 32.03.36.447 000 OF Document 6 Royal Rafinery Put. Lad- Final 1-Apr-2018 ta 13-Nov-2019 Ledger Account Page 2 Particulars Vch Tige Vch N Debil Credit 3.36.58.600.000 Brought Formand 32,02.20 487.500 12-55-2018 To Sales GST 32.17,722.000 Racuigt 2,58,000.000 48.51,300.000 PIPL/2018-19/216 21-12-2018 To Sales GST $1,00,000.000 32,44,502.000 To Balan GST 1,20.30.400.000 2,46.20.500.000 70:30,500 000 Raceyt 20-3-2016 To Beles GST 3.28.47.300.000 20-3-2018 To Sales GST RAPL/2018-19371 6.30,21 333.000 Tu Sales GST 4.93.31.850 000 40.37,22,515.000 8,04,18.000.000 Closing Balance 48,17,22,515.000....