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2022 (10) TMI 207 - AT - Insolvency and BankruptcyFraudulent trading or wrongful trading - Direction to Appellants to jointly and severally pay to the Corporate Debtor certain amounts on account of having indulged in fraudulent and under-valued transactions - Applicability of time limitation - Section 66 of the IBC - HELD THAT:- The Adjudicating Authority in the present case took a view that the time-line mentioned in Regulation 35-A of CIRP Regulations is directory in nature because no consequential effect is mentioned therein for non-compliance of time limit and has relied on Madras High Court Judgement in Shahji Purushutom Vs. UOI [2020 (4) TMI 418 - MADRAS HIGH COURT]. Adjudicating Authority has therefore held that the Appellants themselves took time to provide accounts and gained time on the pretext of OTS proposal which led to the delay and hence the Appellants should not be allowed to take advantage of their own wrong-doing. The delay has therefore been condoned by the Adjudicating Authority on the ground that the delay is properly and satisfactorily explained by the Resolution Professional even though there is no formal application for delay condonation. There are no reason to interfere with the delay condonation allowed by the Adjudicating Authority in filing of the application beyond 135 days by the Resolution Professional. We hold that Regulation 35-A is directory and in the present case the application filed by the Resolution Professional cannot be rejected only on the ground of delay in filing beyond 135 days of ICD in view of explanation offered before the Adjudicating Authority justifying the delay. Whether the Appellants had indulged in fraudulent trade transactions and certain avoidance transactions and in the light of the findings thereon whether the Adjudicating Authority had committed any error while passing the impugned order dated 26.04.2022? - HELD THAT:- The defence taken by the Appellants cannot detract from the plain truth that the Appellants had wrongfully diverted funds which in turn had aggravated the financial liability of the Corporate Debtor and thus an unethical act to defraud creditor tantamounting to fraudulent trade practice - the TAR raised suspicion about the write-offs on the ground that the damaged stock was not shown separately in stock register and that the write-off started all of a sudden coinciding with the beginning of CIRP. Moreover, it has been noted that the carry over the damaged stocks/inventory have not been done across the years which was warranted by the accounting standards. Hence, the write-off was held to be unusual in nature. The Adjudicating Authority had sufficient and valid reasons to hold that these undervalued transactions were done with the intent to siphon off the amounts on the false pretext of advance. Thus, CIRP Regulations 35-A is not mandatory and the requirement for approaching the Adjudicating Authority for appropriate relief on or before 135th day of the ICD is only directory. Keeping in view the facts of this case, it is held that there were sufficient and genuine reasons, for the application under Section 66 to be considered by the Adjudicating Authority, even though it was filed beyond 135th day of ICD - the Resolution Professional having appraised the TAR, through his detailed and specific pleadings before the Adjudicating Authority has made out a proper case substantiating that the appellants have carried out certain fraudulent and under-valued transactions for fraudulent purposes and to defraud the creditors of the corporate debtor. In such circumstances, the IBC empowers the Adjudicating Authority to take decisions to maximise the assets of the Corporate debtor and in the present case, the Adjudicating Authority having been satisfied that the assets of the Corporate Debtor have been subjected to undervalued transactions/fraudulent transactions/ transactions to defraud the creditors, it has rightly issued directions for recovery of amounts from the Appellants jointly and severally for the benefit of the corporate debtor. Appeal dismissed.
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