TaxTMI 
TaxTMI 
2026 (4) TMI 1090
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....ntribute Rs. 6,92,679/- to the Society within 15 days along with 12% interest p.a. from the date of the application. 2. Brief facts necessary for the disposal of this appeal are that the Insolvency Process was initiated against the CD/M/s Golden Tobacco Ltd. vide order dated 07.06.2022, in CP (IB) No. 268 of 2020 and Dr. Vichitra Narayan Pathak- Respondent was appointed as the IRP who was later on confirmed as RP. 3. It is stated that on 19.07.2022, the GTC Employees, Co-operative Credit Society Ltd. (Society) through its authorized representative informed the RP of the CD pertaining to the deduction of a sum of Rs. 6,33,735/- from the salary of its employees during the period September 2021 to May 2022 and further that the aforesaid money has not been deposited with the Society. The Society has also submitted claim in respect of the said amount and also for the interest accumulated thereon which has been admitted by the RP as other Creditors. 4. It is further reflected that an application under Section 66 of the Code being IA No. 652 of 2023 was moved by the RP before the Ld. Adjudicating Authority stating therein that appellants were Executive Directors of the CD and des....
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.... from September 2021 to May 2022 and of not depositing it with the Society, while the Society has not filed any application with regard to the same and the claim filed by the Society has been duly admitted by the RP. 11. It is further submitted that appellants were the Employee Directors of the CD who were not being paid their salaries and have therefore resigned from the Company and they were not the beneficiary of the transaction in question and further could not have gained anything through the alleged non-payment to the Society. 12. It is further submitted that the impugned order is based on a fallacy that the Appellants have used the amount deducted from the salary of the employees, however the CD was having a running account and the amount relying with the CD of the Company could have been used for its working capital requirements including payment of salaries of workers and employees however the misuse of the fund has not been substantiated from the record and the amount deducted from the salary from the employees/workmen has not been used by the appellants for their personal gains. 13. It is further submitted that Section 66 of the Code could only be invoked when t....
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.... helm of the affairs of the CD. 19. It is further submitted that the deduction of the amount from the salaries of the employees and workmen for a long period of time and not depositing it with the Society ipso facto suggest the requisite intention to de- fraud the employees and workmen of the CD who have filed the claim later on through the Society. Therefore, the requisite intention to de-fraud the creditors of the CD was implicit in the act of the appellants. 20. It is further submitted that the appellants have themselves admitted that they were at the relevant point of time were Directors in the CD and thus they were holding the deducted amount from the salaries of the employees and workmen in trust and therefore non-depositing of the same with the Society makes them liable from payment of the same and therefore no illegality has been committed by the Ld. Adjudicating Authority in allowing the application. 21. It is further submitted that after the appointment as IRP/RP the IRP/RP has assumed the duties to represent the CD and also to take charge of the affairs of it and since a communication was made to him by the Society through its authorized representatives and afte....
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....nt purpose the adjudicating authority may pass an order that the persons who are carrying on the business would make such contributions to the assets of the CD as it may deem fit. And sub-section 2 of this section also provides that on an application by a resolution professional during the Corporate Insolvency Resolution Process (CIRP) the adjudicating authority may direct the director or partner of the CD shall be liable to make such contribution to the assets of the CD if before the Insolvency Commencement date such director or partner knew or ought to have known that there was no reasonable prospect of avoiding the insolvency process in respect of the CD and such director or partner did not exercise due diligence in minimizing the potential loss to the creditors. 24. Thus the necessary ingredients of invoking this section appears to be that (i) the business of the CD has been carried on with intent to defraud creditors of the CD or for any fraudulent purpose. (ii) 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 CIRP and (iii)or such director or partner did not ex....
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....dard of Proof', which is attached to a 'Fraudulent Intent'. A 'Director', of a 'Company', may be proceeded against for a 'Wrongful Trading', because of the reason of 'Negligent Failure of Management'. Besides this, 'a person', knowingly a 'Party' to a 'Fraudulent Trading', by the 'Company' concerned, may be subject to the proceedings. 36. A 'Single Fraud', against 'a person', may result in Civil Action in the 'Realm of Tort'. It does not lie in the mouth of 'Directors of a Company', being accused of 'Fraudulent Trading', to allege that the 'Company's Claim', for recovery in Civil Action is barred. 37. 'Dishonesty', is an essential ingredient of 'Fraudulent Trading'. The 'Aspect 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'. 38. The Appellant has a 'duty', to establish to the satisfaction of this "Tribunal', that a 'pe....
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....r 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'. Thus the facts of the instant case are to be appreciated in the background of the abovementioned substantive law and legal precedents. 29. We have heard Ld. Counsel for the parties and have perused the record. 30. We notice that the Ld. Adjudicating Authority by passing the impugned judgement directed the appellants to contribute Rs. 6,92,679/- along with 12% interest from the date of application till realization. In order to arrive at this conclusion, the Ld. Adjudicating Authority has considered that Section 66 of the Code provides the liability for the Directors or Partners of the CD to make such contributions to the assets of the CD if the business of the CD was carried out by them to de-fraud creditors or in fraudulent manner. Ld. Adjudicating Authority found that the appellants have deducted a sum of Rs. 6,33,735/- from the salary of employees du....
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....the appellant. When the appellants have admitted to have deducted the amount in question from the salaries of the workmen and employees over a long period of time, the onus was on them to establish that this amount was utilized as the working capital for the CD. However, they have failed in their duty to establish so. No reliable evidence or material has been placed on record which may substantiate their claim. 34. So far as the contention of the submission of Ld. Counsel for the appellant with regard to the fact that the amount has not been used for their personal gain is concerned we notice that in Section 447 of the Companies Act, 2013 the fraud has been defined as under: "Explanation- For the purposes of this section- (i) "fraud" in relation to affairs of a company or any body corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss. 35. Pe....