2023 (3) TMI 74 - AT - Insolvency & Bankruptcy

Fraudulent transactions (entries of Rs. 21.37 crores shown in the Audited Financial Statement for the year 2018) - distribution under Section 53 of the Insolvency and Bankruptcy Code, 2016 (liability to pay to liquidator) - HELD THAT:- Section 66 of the I & B Code, 2016, gives powers to the Adjudicating Authority to pass suitable orders, if it is found that any person has carried on the business of the Corporate Debtor with an intention to defraud its Creditors or other stakeholders. Section 66 also give powers to the Adjudicating Authority to give directions for making contribution to the assets of the Corporate Debtor. This also includes Directors of the Corporate Debtor, and their personal liability towards contribution, provided such Directors did not exercise due diligence or failed to take reasonable steps to minimize potential losses to the creditors when there was no possibility of avoiding the commencement of Corporate Insolvency Resolution Process. However, a director can be deemed to have exercised due diligence, if such diligence was exercised as expected reasonably of a director carrying out a business in ordinary course of business.

Thus, for establishing the fraudulent purpose, it must be shown that the Ex-Directors of the Corporate Debtor knew that the Company was insolvent but continued to run business with dishonest intentions. On a broader sense, concealment of true financial position of the Corporate Debtor can also be covered under such provisions.

This Appellate Tribunal after going through the averments of both the parties and the record made available, comes to the conclusion that onus was on the Appellants and difficult to accept that details of large number of 4,000 customers were not available. Similarly, it also not convincing that no payment has been received from any of such customers. On face of it, the finding of the Adjudicating Authority seems to be correct and no error is found in the impugned order on this account.

This Appellate Tribunal, is of the considered opinion that the Appellants, have not turned out to be clean in their explanations and submissions, and therefore cannot avoid their responsibilities towards non-available / non-verifiable Assets of Rs. 21.37 crores, as shown in the Balance Sheet for the Financial Year 2018. These Assets, have proved to be Fictitious / Fraudulent, in nature and seems to have been created in the Books of Accounts, with an intent to Defraud the Creditors - Appeal dismissed.