TaxTMI 
TaxTMI 
2026 (5) TMI 1239
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....25/- along with additional unquantified amount to the Corporate Debtor (CD). 2. Brief facts necessary for the disposal of the instant appeal appears to be that on an application moved by the financial creditor (State Bank of India) under Section 7of the Insolvency and Bankruptcy Code, 2016 (Code) insolvency resolution process (CIRP) was initiated against the CD Gajanan Solvex Ltd. Vide order dated 20.07.2022 of Ld. Adjudicating Authority passed in CP/1023/IBC(MB)/2021 and Mr. Vijendra Kumar Jain (Respondent No. 1) was appointed as the Interim Resolution Professional (IRP), who issued the public announcement and constituted the Committee of Creditors (CoC) on 12.08.2022 and was also appointed as Resolution Professional (RP) in the first meeting of the CoC held on 18.08.2022. 3. It is further reflected that in the 2nd CoC meeting dated 03.09.2022 the CoC appointed Mr. Parekh Shah and Lodha as the Forensic Auditor of the CD to carry out the transaction audit of the books of the accounts of the CD for the last 5 years, however it was noted by the CoC in its meeting dated 29.09.2022 that Suspended Directors had failed to furnish the audited financials and tally Back-up of accounts....
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....ended Board of Management regarding this and it was informed that on 20.02.2019 the CD transferred the above mentioned 19,00,000 shares to Amogh Malviya and Mr. Chee Teng Joo the new Directors of M/s Bellwether International Trade PTE. Ltd. while in the books of accounts of the CD this investment of Rs. 8,84,91,725/- clearly reflected as the investment in the shares of M/s Rio Resource PTE. Ltd. under the head Investments in the subsidiary. 7. It is further reflected that the Suspended Board of Director vide its email dated 12.01.2023 stated that they have entered into a contact with Aero Steel Resources Ltd. (Aero Steel), UAE and a share transfer agreement with Bellwether, according to which the CD had sold its shares in M/s Rio Resource PTE. Ltd. to Bellwether. While as per the audited balance sheet of the CD of the year 2021-2022 the CD still holds the investment in M/s Rio Resource. 8. It is further reflected that the RP has stated in his application that through share transfer agreement the above mentioned shares of the CD are shown to have been transferred for a consideration of Rs. 19.95 Crores and an explanation has been given by the CD that a penalty of 1.8 million U....
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....e Bank of India vs. Dommeti Surya Ramakrishna Saibaba and Ors., CA (AT) (CH) (Ins) No. 461 of 2023. 12. It is further submitted that the transaction with Aero Steel Resources Ltd. was a genuine commercial settlement and could not be termed as a sham agreement and the RP has failed to establish any nexus between the CD and Aero Steel and that was a genuine transaction. 13. It is further submitted that keeping in view the law laid by this Appellate Tribunal in Union of India vs. Maharashtra Tourism Development Corporation and Anr., (2019) SCC Online NCLAT 1414 submits that the Adjudicating Authority has no jurisdiction to direct investigation by the SFIO. 14. It is further submitted that the Ld. Adjudicating Authority has passed the impugned order without attributing any role or involvement to the appellants in the transaction in question and the application moved by the RP is silent with regard to any specific acts or omission by the appellant. Reliance in this regard has been placed on Gopal Kalra vs. Akhilesh Kumar Gupta CA (AT) (Ins) No. 567 of 2024. 15. While highlighting the phraseology of Section 66(1) of the Code it is submitted that a high degree of proof is requ....
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....ing the investment of Rs. 8,84,91,725/- in Rio Resources and the fact of sale of shares could only be disclosed by the Suspended Board of Directors of the CD only on 12.01.2023 while the CIRP against the CD was initiated on 20.07.2022. 20. It is further submitted that the forensic auditor in its report has analysed the whole of the transactions and found the sale of shares and consequent transfer of the consideration to Aero Steel at Dubai directly by the Bellwether is a fraudulent transaction which was executed only for the purpose of diverting the assets of the CD. 21. It is further submitted that sales and purchase agreement dated 15.10.2017 executed between the CD and Aero Steel was a sham agreement wherein a clause has been shown that in case of breach the CD would be liable to compensate the buyer to the extent of 5% of the Contract value and it is under this sham agreement the consideration of the sale of the shares in Rio Resources has been diverted to a sham company namely Aero Steel. 22. It is further submitted that the Aero Steel and the CD did not transact any business in the past there is no communication of any kind between them and keeping in view the fact t....
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....tner 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". The requirement of Section 66(1) is that if during the Corporate Insolvency Resolution Process or in liquidation process it is found that any business of the CD has been carried on with the intent to defraud creditors of the CD or for any fraudulent purpose the adjudicating authority, on an application by the RP may pass an order that any persons who were knowingly parties to the carrying on the business in such manner would make such contributions to the assets of the CD as it may deem fit. 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 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 ....
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.... 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 may deem fit. We observe that the first provision (section 66(1)) is very broad but not the second one (Section 66(2)) ...... 45. From a bare reading of Section 66(1) and Section 66(2) of the IBC we find that both have self-contained provisions, with clear mechanisms for their invocation during a CIRP. Further, a perfunctory glance at Section 67 of the IBC will make it abundantly clear that the draftsmen and legislators clearly intended for Sec 66(1) and Section 66(2) to operate independently, as the opening line of Section 67(1) and 67(2) of the IBC would reflect, " 46. Appellant places its reliance on decision of this Appellate Tribunal in the judgement of 03.07.2025 in Gopal Kalra v. Akhilesh Kumar Gupta [2025 SCC Online NCLAT 1129], wherein the Bench framed the issue to be adjudicated upon as - "I. Whether the transactions undertaken by the Appellant in the LED Bulb business during FY 2016-17 constituted fraudulent trading under Section 66(1) of the Code?". We find that the bench proceeded to adj....
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....nd 66(2) of the I & B Code, 2016, operate in a different arena." 28. This appellate tribunal again in Nalinesh Kumar Paurush and Others v. Arvind Mittal and Another, 2025 SCC OnLine NCLAT 1537, after considering, Regen Powertech Pvt. Ltd, Renuka Devi Rangaswamy, Shibo Job Cheeran (Supra) opined in paragraph no. 44 that to attract section 66 of the Code though the standard of proof would be preponderance of probability but the same is subject to the heavy proof to the applicant, as each and every commercial transaction which has resulted in the loss may not be labelled as fraudulent. This observation is in the background that the party who is alleging the existence of a fact is obliged to prove the same and it cannot be taken as proved without any substantial material or evidence produced before the court. Thus the applicant of an application under section 66 of the Code is obliged to prove the contents of the application by placing adequate material and evidence on record and in addition the Court may also take into consideration the attending facts and circumstances in consideration on the principle that a fact may also be proved by leading circumstantial evidence. it is also t....
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....that date there were no shares of the CD were found in the subsidiary and the 100% shareholding of the same was held with one M/s Bellwether and also that the name of the company has been changed with effect from June 2022 to Aspira Company Pte. Ltd. and some other persons have been appointed as the Directors of the same while the audited financials of the CD as on 31.03.2022 were still showing the investment of the CD in subsidiary Rio Resources for an amount of Rs. 8,84,91,725/- while as per the DNB report these shares have already been transferred on 20.02.2019 and no consideration for the same has been received by the CD and despite multiple reminders to the Suspended Board of Directors about this consideration it was on 12.01.2023 the CD came up with a contract with Aero Steel Resources Ltd. and share transfer agreement with Bellwether and stated that the CD has sold its share in M/s. Rio Resources to Bellwether for consideration approximately Rs. 19.95 Crores which is only 3.45% of the net worth of the Rio Resource as on 23.11.2022 as Rs. 282 Crores and with regard to the non-receipt of consideration by the CD it was stated that a penalty of Rs. 1.8 million USD was to be paid....
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....or. 35. Ld. Adjudicating Authority has also noticed that falsification of books of the accounts has also been made by the Suspended Board of Director by concealing the transaction of sale of shareholding in Rio Resource as they continue to show the investment of Rs. 8,84,91,725/- in Rio Resource while it was sold much earlier and also notice that after the issuance of notice under Section 13(2) of the SARFAESI Act on 29.08.2018, sensing the insolvency this fraudulent transaction has been shown as there was no reasonable prospect of avoiding the CIRP. 36. The Ld. Adjudicating Authority also noticed that so much so the consideration of the sales of the shareholding in Rio Resource was not brought into the CD and to keep that amount out of the CD and away from the reach of the creditors of the CD an agreement is shown to have been executed with Aero Steel Resources UAE and the transaction made by Bellwether to Aero Steel allegedly in discharge of penalty was never brought on record and the same was revealed for the first time after the admission of the CD into CIRP and thus hold that the entire transaction with respect to the Aero Steel is fake and false so as to take away the f....
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....s never been brought on record, before the CD was placed under insolvency. 42. During the course of deliberations, we made a pointed query to Ld. Counsel for the appellant as to whether any transaction has been held by the CD with the Aero Steel in the past and we did not get any satisfactory answer. No satisfactory explanation has been given by the Suspended Director of the CD pertaining to the payment of the penalty from the proceeds of the sales of share to the Bellwether to the Aero Steel. 43. We are of the considered view that the initial onus to prove the facts attracting Section 66 of the Code is on the RP/IRP but when this burden has been discharged by the IRP/RP the onus shifts to the Suspended Directors to explain the transactions which have been labelled as fraudulent and it is on the basis of the evidence/material brought on record by the parties just adjudication could be made by the Adjudicating Authority. Keeping the sale proceeds of the shareholding in Rio Resource (Singapore) out of the reach of the CD in the facts and circumstances of the case appears to be an attempt on the part of the Suspended Directors of the CD to keep that amount away from the CD so th....
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....cts and circumstances of the case. We notice that by passing the impugned order apart from directing the appellants to contribute (19.95 Crore to the asset of the CD, which in our considered opinion is justified) direction has also been passed to investigate the matter by SFIO and the copy of the order has also been forwarded to SFIO for compliance. We are in agreement with the submissions made by Ld. Counsel for the Appellant. Admittedly the procedure for investigation in the affairs of the company has been provided under Section 212 and 213 of the Companies act, 2013 and keeping in view the provisions contained under Section 213 of the Companies Act, 2013 the discretion to get the matter investigated by the SFIO only vests in Central Govt., and if after the investigation ordered by the Central Govt., it is of the opinion that the matter further required to be investigated by SFIO, it can do so. However, the discretion lies solely with the Central Govt. and the Tribunal cannot order straightaway investigation by SFIO. We do not want to devote pages on this issue as the matter has been sent at rest by a co-ordinate Bench of this Appellate Tribunal in Maharashtra Tourism Development....