2023 (6) TMI 194 - AT - Insolvency and Bankruptcy

Fraudulent/wrongful trading - related party transaction of not - Lands sold at a Higher Amount than at which the same was purchased - intent of defrauding its Creditors - HELD THAT - The expression Party to the carrying on business indicates taking positive steps in carrying on company s business in a fraudulent manner. The intent to defraud is to be judged by its effect on a Person who is the object of conduct in question - A preponderance of probability suffices but the degree of probability must be such that the Tribunal is satisfied and further that under Section 66 of the I B Code 2016 it is not essential to attract that there ought to be a Debtor and a Creditor relationship. It must be borne in mind that for proving a Fraudulent Trading needs meeting the High Standard 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 - The Appellant has a duty to establish to the satisfaction of this Tribunal that a person is knowingly carrying on the business with the Corporate Debtor with an dishonest intention to defraud the Creditors. For a Fraudulent Trading / Wrongful Trading necessary materials are to be pleaded by a Litigant / Stakeholder by furnishing Requisite Facts so as to come within the purview of the ingredients of Section 66 of the I B Code 2016. Suffice it for this Tribunal to pertinently point out that the ingredients of Section 66 (1) and 66 (2) of the I B Code 2016 operate in a different arena. It is crystalline clear that the transaction of Transfer of Assets among / within the Group Companies ex-facie will not come within the umbrage of the Fraudulent Trading as per Section 66 (1) of the Code as opined by this Tribunal. Furthermore in the instant case the Appellant / Applicant has made an fervent endeavour to converse the transactions allegedly made by the Respondents as per Section 66 of the Code. On a careful consideration of the contentions advanced on behalf of the Appellant and keeping in mind of the facts and circumstances of the case in an integral manner and also on going through the impugned order of dismissal passed by the Adjudicating Authority (National Company Law Tribunal Division Bench II Chennai) comes to a conclusion that the Appellant / Applicant had not established the Aspect of Fraud or Dishonest Intent on the Respondents side to the subjective satisfaction of this Tribunal. As such the view taken by the Adjudicating Authority (National Company Law Tribunal Division Bench II Chennai) preferred by the Appellant / Applicant in dismissing the application is free from any legal errors. Consequently the Appeal fails. Appeal dismissed.

Summary

Issues Involved:
1. Whether the transfer of assets within group companies constitutes 'fraudulent trading' under Section 66(1) of IBC, 2016.
2. Whether the transactions were conducted with fraudulent intentions to defraud creditors.
3. Whether the adjudicating authority erred in dismissing the application without considering the documentary evidence presented.

Summary:

Issue 1: Transfer of Assets Within Group Companies
The Adjudicating Authority observed that the transfer of assets within group companies does not per se constitute 'fraudulent trading' under Section 66(1) of IBC, 2016. The transaction appeared plausible as it occurred within the Regen Group, and the funds were provided by RPPL to the Corporate Debtor, which then provided them to the 3rd Respondent.

Issue 2: Fraudulent Intentions
The Appellant contended that the adjudicating authority ignored documented evidence such as sale deeds, bank statements, and financial statements indicating that the lands were purchased using the Corporate Debtor's funds but registered in the name of the 3rd Respondent. The Appellant argued that this transaction was not in the ordinary course of business and provided no profit or gain to the Corporate Debtor. However, the Adjudicating Authority found no merits in the allegations of fraud or dishonest intention on the part of the Respondents, as there was no substantial evidence to prove fraudulent trading.

Issue 3: Consideration of Documentary Evidence
The Appellant argued that the adjudicating authority failed to consider the overwhelming documentary evidence and accepted the unsubstantiated defense of the Respondents. The Appellant referred to various judgments to support the need for documentary proof in civil suits and the duty of the Resolution Professional to form an opinion and present evidence of fraudulent transactions. Despite these arguments, the Adjudicating Authority concluded that the Appellant had not established the aspect of fraud or dishonest intent to the satisfaction of the Tribunal.

Conclusion:
The Tribunal affirmed the decision of the Adjudicating Authority, stating that the transfer of assets among group companies did not constitute fraudulent trading under Section 66(1) of IBC, 2016. The Appellant failed to prove fraudulent intent or dishonest actions by the Respondents. Consequently, the appeal was dismissed without costs.