2025 (6) TMI 1884 - AT - IBC

Fraudulent transactions - issuance of directions to the Appellant to file an affidavit confirming the accuracy of transactions as shown in the ledger account for the period pertaining to the financial year 2017-2018 2018-2019 - applicability of time limitation - HELD THAT - The facts that emerges from the records is that the accuracy of the transactions as per the ledger entries in the accounts of the Corporate Debtor for the years 2017-18 and 2018-19 of which the Appellant is the erstwhile director has been disputed by forensic audit and this was brought before the Ld. NCLT by the liquidator and accordingly Ld. NCLT issued directions that in order to overcome any doubt with regards to the truthfulness of the entries made into the books of account of the Corporate Debtor the Appellant is to file an Affidavit. In this case proceedings were drawn by the Respondent under Section 66 of the I B Code alleging commission of a certain fraudulent transactions by the Appellant inter alia and a prayer for a direction to the Appellant to repay to the liquidation Estate a sum of Rs. 27, 07, 470/- inclusive of Rs. 20, 44, 411/- being underreported in ledger balances and Rs. 6, 63, 059/- being missing cash balance based on the findings of the forensic audit. The Appellant had denied the said allegations before Ld. NCLT on the grounds that the said allegations are unsubstantiated that there is a flaw in the methodology adopted in the said audit that the CD s statutory independent auditors will attest the legitimacy of the transactions and the aforesaid transactions were done in the ordinary course of business. As a matter of fact the nature of the direction which has been issued by the Tribunal was exclusively a fact-finding direction only for the purpose of ensuring the truthfulness of the ledger entries pertaining to the Financial Year 2017-2018 and 2018-2019 which was attempted to be established by filing of an affidavit by the Appellant for the purposes of confirming the accuracy of the transaction in the ledger - Rather the nature of the order is meant to ensure the sanctity of the ledger entries which were appearing into the accounts of the Appellant which was sought to be confirmed by filing of an affidavit on the directions issued by the Learned Adjudicating Authority. Since the order takes the shape of being a procedural order in nature and the implication flowing from the affidavit which has been directed to be filed is yet to be considered by the Tribunal to be decided on merits this appeal is not required to be ventured into while exercising our Appellate Jurisdiction under Section 61 of the I B Code 2016. This Appellate Tribunal declines to venture into the appeal on merits qua the propriety of the Impugned Order and the same would stand affirmed - Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the delay in filing the appeal beyond the prescribed limitation period is condonable under Section 61(2) of the Insolvency and Bankruptcy Code (I&B Code), 2016.

- Whether the direction issued by the Learned NCLT to the Appellant to file an affidavit confirming the accuracy of transactions recorded in the ledger accounts for the financial years 2017-2018 and 2018-2019 is proper and sustainable.

- Whether the appeal against the procedural order directing the filing of an affidavit should be entertained on merits or dismissed as premature.

2. ISSUE-WISE DETAILED ANALYSIS

Delay in Filing the Appeal and Condonation under Section 61(2) of I&B Code

The legal framework governing limitation for filing appeals under the I&B Code is stipulated in Section 61(2), which prescribes a 30-day period from the date of the order, with a proviso allowing condonation of delay up to 15 days. The Court referred to the recent authoritative precedent laid down by the Hon'ble Apex Court in the matter of Sanjay Pandurang Kalate Vs. Vistra (India) Ltd dated 04.12.2023, which clarified that limitation may be computed from the date of uploading the order rather than the date of pronouncement, in specific circumstances.

The Appellant contended that the limitation should be counted from the date of uploading the order (10.03.2025), not the date of pronouncement (06.03.2025), resulting in a delay of 14 days, which falls within the condonable period of 15 days.

The Tribunal accepted this contention, holding that since the order was uploaded on 10.03.2025 and the appeal was filed on 23.04.2025, the delay of 14 days is condonable under the proviso to Section 61(2). The delay was attributed to the Appellant seeking professional advice and preparation of appeal papers, which was neither intentional nor wanton. Thus, the condonation application was allowed, and the delay was excused.

Propriety of the Direction to File Affidavit Confirming Accuracy of Ledger Transactions

The factual matrix reveals that the forensic audit report disputed the accuracy of ledger transactions of the Corporate Debtor for financial years 2017-2018 and 2018-2019. The liquidator brought these discrepancies before the NCLT under Section 66 of the I&B Code, alleging fraudulent transactions and seeking recovery of approximately Rs. 27 lakhs, comprising underreported ledger balances and missing cash balances.

The Appellant, an erstwhile director, denied these allegations, challenging the forensic audit's methodology and asserting that the transactions were legitimate and conducted in the ordinary course of business, supported by statutory auditors' attestations.

The NCLT observed that ledger entries did not conform to accounting standards, and the statutory auditor's affidavit confirmed alterations in ledger balances, indicating inconsistencies. To resolve doubts regarding the truthfulness of these entries, the Tribunal directed the Appellant to file an affidavit confirming the accuracy of the transactions recorded in the ledger accounts and bank accounts for the relevant period.

The Tribunal's direction was procedural and fact-finding in nature, aimed at ensuring the sanctity and veracity of the ledger entries. It did not adjudicate on merits or affect substantive rights but sought to elicit a sworn statement from the Appellant to clarify discrepancies highlighted by forensic audit and statutory audit findings.

Appellate Jurisdiction over Procedural Direction

The Appellant challenged the direction to file the affidavit through the present appeal. The Tribunal analyzed whether it was appropriate to entertain the appeal on merits at this stage.

It was held that since the order was procedural and fact-finding, and the implications arising from the affidavit were yet to be considered by the NCLT on merits, the appellate forum should not interfere prematurely. The appeal did not raise substantive questions of law or challenge final adjudication but pertained to an interlocutory procedural direction.

The Tribunal clarified that dismissal of the appeal and the consequent filing of the affidavit would not prejudice the Appellant's rights in the ongoing proceedings before the NCLT. The affidavit would be considered independently by the NCLT in conjunction with the forensic audit report and books of accounts to arrive at a reasoned conclusion on the correctness of the ledger transactions.

Hence, the appeal was dismissed without examining the merits of the allegations or the accuracy of the ledger entries.

3. SIGNIFICANT HOLDINGS

"In this case, if the limitation is determined from the date of the uploading of the Judgment, i.e., from 10.03.2025, when the Judgment came into the public domain, the delay in filing the appeal will be 14 days and the same would be falling well within the upper limit of 15 days as prescribed under the proviso to Sub-Section (2) of Section 61 of I & B Code, 2016. Hence, the delay which has chanced in preferring the appeal would stand condoned."

"The nature of the direction, which has been issued by the Tribunal was exclusively a fact-finding direction only for the purpose of ensuring the truthfulness of the ledger entries pertaining to the Financial Year 2017-2018 and 2018-2019, which was attempted to be established by filing of an affidavit by the Appellant for the purposes of confirming the accuracy of the transaction in the ledger."

"Since the order takes the shape of being a procedural order in nature, and the implication flowing from the affidavit which has been directed to be filed is yet to be considered by the Tribunal to be decided on merits, this appeal is not required to be ventured into while exercising our Appellate Jurisdiction under Section 61 of the I & B Code, 2016."

Core principles established include:

• Limitation for filing appeal under I&B Code may be computed from the date of uploading of the order where applicable, aligning with Apex Court precedent.
• Condonation of delay is permissible within the statutory limit where delay is bona fide and not intentional or deliberate.
• Procedural directions aimed at fact-finding, such as filing affidavits to confirm ledger accuracy, are interlocutory and not subject to appellate interference before adjudication on merits.
• Filing of affidavits under direction of the Tribunal does not prejudice substantive rights and is a tool to ensure truthfulness and transparency in liquidation proceedings.

Final determinations:

• The delay of 14 days in filing the appeal was condoned.
• The direction to file an affidavit confirming ledger transactions was upheld as a valid procedural measure.
• The appeal challenging the procedural direction was dismissed without going into merits.