TaxTMI 
TaxTMI 
2026 (9) TMI 1850
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....thin 21 days as to why the account of the appellant should not be categorized and reported as fraud, in terms of the R.B.I. Guidelines. 4) According to Mr. Kar, learned Senior Advocate, the learned Judge failed to take into consideration the fact that the show cause notice was entirely based on a Forensic Audit report. The Forensic Audit report was not conclusive. The disclaimer of the auditor clearly indicated that the report could not be treated to be complete in all respect. The report was prepared on key assumptions. The audit was carried out on limited information and explanations, which were made available by the lenders and from other sources. 5) In the final opinion category of the report, it had been stated that the conclusion was based on evidence available on the date of the report and was subject to further findings, upon production of complete financial records and cooperation by the borrower. 6) According to Mr. Kar, the appellant's Company was in liquidation, pursuant to a decision of Committee of Creditors (COC), approved by the adjudicating authority. The records and books of accounts were not in the control of the appellant. Thus, the findings in the Fore....
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.... the Company was in CIRP since 2018 and the Company went into liquidation sometime in 2019. When the Company was admitted into CIRP, the directors and erstwhile management lost control over the affairs of the Company. The management was superseded by the COC. The documents had already been seized by the Directorate of Economic Offences. Such facts are available from the orders of the NCLT as also from other records. The liquidator has also been asking the said Directorate for the books of account. Thus, the borrower did not have any document at the time of requisition by the auditor, and failed to supply adequate information. For such inability, the appellant could not have been faulted, in our, prima facie, view. 13) In the report, the auditor had incorporated a disclaimer to the effect that, in the absence of sufficient materials, the report was prepared. The lender's documents were taken into consideration. The corroborative materials justifying the allegation of the lender, were not available to counter-check the information that was supplied. Upon perusing these issues factual aspects, His Lordship had already held that the Forensic Audit Report could not be relied upon and....
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....arious parties. 21. Conclusion and Disclaimer and Limitations of the Forensic Audit report which reads as follows: "CONCLUSION Analysis of Management Comments The borrower, Pincon Spirit Limited (PSL), has categorically failed to provide any documentary evidence or verifiable supporting documentation in response to the observations raised during the forensic audit. The stated reason for non-submission-seizure of records by the Directorate of Economic Offences (DEO)- does not absolve the company from the responsibility of maintaining backups or duplicate records. As per standard accounting and statutory compliance practices, listed companies are required to maintain backups, digital records, audit trails, and file statutory returns (e.g., GST returns, ROC filings) which remain accessible through respective portals or backups. No such attempt to produce secondary or corroborative evidence has been made by the management. The management response provides broad, generic justifications about normal business transactions but fails to address specific transaction-level observations made in the forensic audit. Statements such as "transa....
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.... Confitech Dealtrade Private Limited 1,57,49,517 2. Mayukh Commodities Private Limited 49,99,903 3. Polpik Traders Private Limited 2,49,82,522 4. Slice Trading India Private Limited 96,49,850 5. Jagwani Creations Private Limited 24,99,900 6. Gurpreet Sales Private Limited 54,99,937 7. Dhanganga Traders Pvt. Ltd. 42,49,893 8. Gajgamini Mercantile Pvt. Ltd. 1,33,24,878 9. Gajrup Markcom Pvt. Ltd. 24,99,870 10. Mahavir Tradimpex Pvt. Ltd. 74,99,815 11. Jai Santoshi Tradimpex Private Limited 29,99,970 12. D L S Export Private Limited 8,13,49,300 13. Vaibhavlaxmi Distributors Private Limited 7,00,18,884 14. Venera Property Private Limited 2,50,17,848 Total 27,03,42,087 Such payments without any visible economic and directed towards non-operational, non-compliant and defunct entities represent a classis typology of fund siphoning and fraudulent activity conducted on the part of the Borrower. B) Questionable Payments to a Former Director: It has been observed that the Borrower have paid amount aggregating to Rs.40.00 lakhs to ....
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....e business and unrelated research services which are not required in the normal course of business of a liquor manufacturing company. This pattern of payment, in the absence of business rationale and supporting documentation, suggests possible diversion of funds or accommodation entries, and may fall under the ambit of fraudulent transactions D) Absence of Key Records & Obstruction in Audit Process: There are various suspicious transactions observed by us which could not be completely unearthed due to the absence of books of accounts. The Borrower has not provided its statutory books of accounts, ledger records, transactional invoices, agreements, etc. This non-cooperation hinders the transparency and traceability of financial conduct and itself raise red flags under forensic and regular scrutiny. FINAL OPINION In view of the foregoing, it is our categorical and professional opinion that the Borrower has engaged in a well-orchestrated scheme of financial misrepresentation, fraud and fund diversion, through a network of shell entities and through unauthorized individual payments, with the sole intention of defrauding institutional lenders. ....
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....ble to us by the lenders and from the sources indicated elsewhere in this report. Our firm shall by indemnified with respect to any legal cost & expenses, if any required to be incurred by us in this assignment due to any future litigations against us by any party. We have no obligation to update this report or revise our opinion because of events or transactions occurring subsequent to the date of this report. This report has been prepared solely for the purpose of providing selected information on a confidential basis to which it is issued and should not be used for any other purpose without our consent in writing. FOR R DAKONIA & CO. CHARTERED ACCOUNTANTS Sandeep Agarwal SANDEEP AGARWAL Dated: 04.06.2025 UDIN: 25064912BMMIIB9150." 24. Admittedly, Corporate Insolvency Resolution Process (CIRP) is initiated against the petitioner and Liquidator was appointed by the Learned Tribunal. Once liquidation proceeding is started, the power of the Board of Directors are suspended. The Liquidator is the sole custodian of the company's books of accounts, financial records and operational documents. The Forensic ....
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....e appellant demonstrated that he was in a position to answer to the show cause notice. Thus, there had been no violation of principles of natural justice. However, we find from paragraph 17 of the order dated July 2, 2026 passed in WPA 978 of 2026 that the petitioner therein had also filed a detailed reply to the show cause, but even then the proceeding was set aside. 18) In the reply, the appellant had informed the Deputy Zonal Head/Nodal Officer, Union Bank of India, Kolkata, that all the relevant documents had been seized by the DEO and all the business units, subsidiaries and associated companies of the appellant's company had been sealed. The Union Bank of India was requested to take steps from their end, to obtain such records. Admittedly, the Union Bank of India did not do so. 19) The specific contention of the appellant was that, the transactions which were mentioned in the show cause notice as the grounds demonstrating fraud, were all within the knowledge of the consortium of banks including the Union Bank of India. In the Annual General Meeting (AGM) of the Union Bank of India, such transactions were recorded in the minutes. It is an established fact that the record....