TMI Blog2021 (8) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... , Central Government is empowered to direct the Registrar or any inspector appointed by, for the purpose to carry out the enquiry under this sub-section. It is essential to mention that the proceeding under the Insolvency and Bankruptcy Code, 2016, is initiated by the Corporate Debtor/Corporate Applicant itself. Serious irregularities are reported in the Forensic Audit Report against the Corporate Debtor. However, the power of the NCLT to order an investigation under the Companies Act, 2013 can not be denied. But whether the Adjudicating Authority under the I B Code is empowered to order inquiry and investigation about affairs of the Company or not is to be observed - Based on the Forensic Audit Report and Application filed by the RP, the Adjudicating Authority noticed that the Corporate Debtor had diverted a sum of ₹ 541.58 lakh to a related party viz., Trinity Papers India P. Limited., the attention is drawn to the Financial Statements as enclosed for the period 2016-17, 2017-18 and 2018-19. Under Section 210(1)(b) of the Act, the Central Government can investigate independently. As per Section 210(3), the Central Government has no option but to direct an investigati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned Order. Appeal dismissed. - Company Appeal (AT) (CH)(Insolvency) No. 27 of 2021 - - - Dated:- 13-8-2021 - [Justice Venugopal M.] Member (Judicial) And [V. P. Singh] Member (Technical) For the Appellant : Mr J. Manivannan, Advocate For the Respondent : Mr B. Dhanaraj, Advocate JUDGMENT [ Per; V. P. Singh, Member (T) ] This Appeal emanates from the Order dated 25th January 2021 passed by the Adjudicating Authority/National Company Law Tribunal, Chennai Bench, Chennai in IA/539/IB/2020, in Company Petition IBA/370/2019, whereby the Adjudicating Authority had directed the Registrar of Companies to inspect the books and conduct inquiries as provided under Section 206 and Section 207 of the Companies Act, 2013, and to furnish the report to the Appropriate Authority for necessary action under Section 208 of the Companies Act, if any required. Further, the Adjudicating Authority directed the Respondents to contribute a sum of ₹ 12.31 lakh to the Corporate Debtor's assets under Section 66 of the IBC, 2016, within four weeks from the date of Order. Accordingly, being aggrieved by the said Order, this Appeal is preferred. However, the original pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 31st March 2019 have been considered by the Applicant and in the same has not been considered the reason thereof have also not been given in the Application. In the light of the above, even though the Applicant has been able to demonstrate by way of a comparative chart, the alleged inconsistency in relation to figures pertaining to the stocks, the Applicant has failed miserably to demonstrate the manner as to how the variance resulting in a stock diversion to the extent of ₹2,70,46,147 has been computed. 52. In the circumstances, we direct the Registrar of Companies, Coimbatore, to exercise its power as available to it under section 206 and 207 of the Companies Act, 2013 as is the case with reliefs sought for in other clauses of the relief portion, save Clause (c), for which we have held the respondents to be accountable and that they are required to contribute a sum of ₹ 12.31 lakh to the assets of the corporate debtor. 53. To sum up in relation to Clause (a), (b), (d),(e) and (f) of the relief portion as contained in the Application; we direct as follows; (i) let the Registrar of Companies, Coimbatore under whose jurisdiction the corporate debtor is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport. Respondent's contention 9. The Resolution Professional contends that the Corporate Applicant has initiated the Corporate Insolvency Resolution Process under Section 10 of the Code. Based on a resolution passed in the 2nd CoC meeting, dated 5th August 2019, during the Corporate Insolvency Resolution Process, the Forensic Auditor was appointed to identify whether any activities were carried out in violation of the provisions of the Code viz, Preferential Transaction, Undervalued Transactions, Fraudulent Transactions or Extortionate Transactions. 10. After receiving the Forensic Audit Report, it was evident that the Corporate Debtor had carried on business to defraud the creditors of the Corporate Debtor. Based on the Forensic Auditor Report, five discrepancies were pointed out; these are; a. The Corporate Debtor has diverted ₹ 41.85 lakhs to a related party: the Trinity Papers India Private Limited ₹ 378.73 lakh to the related party M/S Sivshakti International attract preferential transaction as per Section 43 of the IBC 2016. b. Former Directors did not hand over the cash balance of ₹ 12.31 lakhs to the IRP when the CIRP commenced. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon by the Registrar through a notice served on them in writing, shall also furnish such information or explanation to the best of their knowledge. (3) If no information or explanation is furnished to the Registrar within the time specified under sub-section (1) or if the Registrar on an examination of the documents furnished is of the opinion that the information or explanation furnished is inadequate or if the Registrar is satisfied on a scrutiny of the documents furnished that an unsatisfactory state of affairs exists in the Company and does not disclose a full and fair statement of the information required, he may, by another written notice, call on the Company to produce for his inspection such further books of account, books, papers and explanations as he may require at such place and at such time as he may specify in the notice: Provided that before any notice is served under this sub-section, the Registrar shall record his reasons in writing for issuing such notice. (4) If the Registrar is satisfied on the basis of information available with or furnished to him or on a representation made to him by any person that the business of a company is being carried on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r inspector in connection with such inspection. (2) The Registrar or inspector, making an inspection or inquiry under Section 206 may, during the course of such inspection or inquiry, as the case may be,- 13. (a) make or cause to be made copies of books of account and other books and papers; or (b) place or cause to be placed any marks of identification in such books in token of the inspection having been made. (3) Notwithstanding anything contained in any other law for the time being in force or in any contract to the contrary, the Registrar or inspector making an inspection or inquiry shall have all the powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit in respect of the following matters, namely:- (a) the discovery and production of books of account and other documents, at such place and time as may be specified by such Registrar or inspector making the inspection or inquiry; (b) summoning and enforcing the attendance of persons and examining them on oath; and (c) inspection of any books, registers and other documents of the Company at any place. (4)(i) If any director or o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - The Tribunal may,- (a) on an application made by- (i) not less than one hundred members or members holding not less than one-tenth of the total voting power, in the case of a company having a share capital; or (ii) not less than one-fifth of the persons on the Company's register of members, in the case of a company having no share capital, and supported by such evidence as may be necessary for the purpose of showing that the applicants have good reasons for seeking an order for conducting an investigation into the affairs of the Company; or (b) on an application made to it by any other person or otherwise, if it is satisfied that there are circumstances suggesting that- (i) the business of the Company is being conducted with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to any of its members or that the Company was formed for any fraudulent or unlawful purpose; (ii) persons concerned in the formation of the Company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to take notice that no specific pleadings have been made against the Appellant's either under Section 66 (1) or Section 66 (2) of the Insolvency and Bankruptcy Code 2016, but passed an order under Sections 206 and 207 of the Companies Act, 2013 insofar as Prayers Clauses (a), (b, (d), (e) and (f) are concern directing the concerned Registrar of Companies for further inspection/enquiry/investigation since Respondent has failed to demonstrate the said allegations levelled against the Appellants. About the Prayer Clause (c), the Adjudicating Authority has directed the Appellant's to contribute the ₹ 12.31 lakhs to the assets of the Corporate Debtor without determining whether the said allegations were covered under Section 66 (1) or 66 (2) of the Code and without providing any opportunity to the Appellants as to how the said amounts were utilised for the operational purpose of the Company. The entire proceedings conducted by the Adjudicating Authority were flawed in law that vitiated and violated natural justice principles. The Adjudicating Authority had not heard the Appellants before recording its prima facie opinion for directing further inquiries under Sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter reasonable opportunity given to the opposite party on these aspects. 21. They learned Counsel for the Appellant emphasised that if it is presumed for the sake of argument that the NCLT had powers under section 210 (2) and 213 of the Companies Act 2013 and applicable provisions of IBC, if any, it can also be considered as flawed in law since roving/fishing inquiries are not permitted given the law laid down by the Hon'ble Supreme Court in the matter of Barium chemicals limited versus Company Law Board, (1966) 36 Company Cases 639. Since the IA is filed based on the forensic audit report and the investigation has been carried out about the affairs of the Corporate Debtor by the Resolution Professional against this backdrop, there was no justification for ordering 3rd investigation. If permitted, it will give fishing and roving inquiries, which become an endless process and lead to the Corporate Debtor's destruction. 22. This Appellate Tribunal in case of Neeta Shrinivas Zanvar and Another vs Nagarjuna Agro Chemicals Private Limited and Others, 2021 SCC OnLine NCLAT 135 has held that: 26. Further, as stated (supra), the Learned the NCLT has also been granted pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Companies to investigate into the affairs of Respondent No. 1 Company violates the provisions of the statute, in as much as in terms of Section 210 (2) of the Companies Act, 2013, such a direction can be given only to the Central Government and not to the Registrar upon the satisfaction of the conditions precedent specified therein. 24. However, it is made clear that under Sub-section (4) of Section 206 of the Companies Act 2013, if the Registrar is satisfied based on information available or furnished to him or on a representation made to him by any person that the business of a company is being carried on for a fraudulent or unlawful purpose, the Registrar may, after informing the Company of the allegations against it by written Order, call on the Company to furnish in writing any information or explanation the matters as specified in the Order and carry out such enquiry as he deems fit after providing the Company with a reasonable opportunity of hearing. 25. It is pertinent to mention that under proviso to Sub-section (4) of Section 206, Central Government is empowered to direct the Registrar or any inspector appointed by, for the purpose to carry out the enquiry under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elated party M/S' Shivsakti International'. Further, former directors did not hand over the cash balance of ₹ 12.31 lakhs to the IRP when the CIRP commenced. 31. It is further submitted that receivables that were written off arbitrarily ₹ 649.39 lakhs from Sakal Papers Private Limited are to be recovered from the Promoter Director for causing wrongful loss to the Corporate Debtor. 32. Payments made to customers and written off for a sum of ₹ 50.28 lakhs is recoverable from the promoter director for causing wrongful loss to the Corporate Debtor. 33. Loans given to parties and written off for ₹ 43.49 lakhs is recoverable from the Promoter Director for causing wrongful loss to the Corporate Debtor. 34. In the written submissions on behalf of the Respondent, it is contended that the CoC provided an opportunity to the Appellants during the Forensic Audit. However, except denial, the Appellant's response failed to substantiate their stand with documentary evidence for the cited transactions, including cash balance expenditure. Furthermore, the Appellant's were provided with an opportunity during the argument to explain the transactions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Capital Requirements', the Section 10 Petition under IBC, 2016 is filed by the Corporate Debtor itself. However, no efforts have been taken to recover the amount outstanding and reflected as received from the said Trinity Papers India P. Ltd. to the extent of ₹ 541.58 lakh. As such, the Forensic Auditor concluded that there had been a diversion of funds. 40. Of a similar effect, the transaction with another related party viz., M/s. Sivasakthi International adopting the similar modus Operandi by the Corporate Debtor is also brought forth in the Forensic Audit Report and the Application filed by the Applicant / RP. However, the amount which is reflected is to the extent of ₹ 378.73 lakh as compared to the one as given to Trinity Papers India P. Ltd. After analysing the Financial Statements of the Corporate Debtor for the Financial Years 2016-17; 2017-18 and 2018-19 and the Forensic Auditor again concludes it about the said M/s. Sivasakthi International that there has been a clear case of diversion of funds. 41. The Forensic Audit Report states that the receivables were written-off arbitrarily of ₹ 649.39 lakh from one M/s. Sakal Papers Pvt. Ltd., Pune and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils of the amount paid had also been given. 47. The Applicant Resolution Professional submits that the ledger statement of M/s. VKS Agencies (India) Pvt. Ltd. in the books of the Corporate Debtor shows that the amounts as stated to have been paid have not come into the hands of the Corporate Debtor; on the other hand, it is also seen that the amount of ₹ 30.78 Lakh seems to have been diverted to the personal accounts, that too post commencement of the CIRP, i.e., after 15th April 2019 or without the knowledge of the IRP / RP and in violation of IBC, 2016. 48. Similarly, about M/s. Golden Note Books, Sivakasi, it is alleged that the Respondents had paid a sum of ₹ 15 lakh on 05th January 2018 as an advance paid for the purchase of waste papers. However, as per the statements for the Financial Year 2018-2019, the same seems to have been written off without any documentary proof. 49. About Mr K. Viswanathan, it is alleged that a sum of ₹ 4.50 lakh had been remitted to his account for the Financial Year 2016-2017. However, the nature of transactions have not been specified and, as in the previous instance, is similar to M/s. VKS Agencies (India) Pvt. Ltd. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een from the table, as the above position of stock on various dates, whereby there is a precipitous decline in the amount of stock to ₹3,63,13,889.91 while the value of the same as per the balance sheet as on 31st March 2019 is ₹ 4,11,12,248/-, which is stated in the report of the Statutory Auditors of the Company dated 23rd December 2019. 55. It is also pointed out that there is a sudden decrease in the value of stocks, as evidenced from the above table as of 28th February 2019 compared to the stock position as of 31st March 2019. It is also pointed out that the stock position reflected on 28th February 2019 is from the statement of affairs filed by the Respondents along with the Application under Section 10 seeking the initiation of the CIRP. 56. It is also submitted by the RP that a valuer was appointed to value the stocks. As per the valuation report dated 30th September 2019, the value of stocks is revealed to be ₹ 55.80 lakh as available with the Corporate Debtor while taking over possession. 57. It is submitted that there has been a diversion of stock on the part of the Respondents. Thus the Respondents are guilty of knowingly making false statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his report. The Inspectors are empowered to scrutinise the materials gathered from a Company and prepare the report. Section 210 of the Act specifies a procedure for an investigation by SFIO. As per Section 60(1) of the Code, National Company Law Tribunal is an Adjudicating Authority possessing concurrent jurisdiction under the Companies Act, 2013 and also under the I B Code, 2016. The Tribunal/Adjudicating Authority on receipt of an Application/complaint of breach of the relevant provisions of the IBC, 2016 and the Companies Act and after satisfying itself that there are attendant circumstances pointing out fraudulent/wrongful trading has been committed then, it is well within jurisdiction to refer the matter to Central Government for an investigation by Inspectors to be appointed by the Central Government. If an investigating Authority after completion of the investigation concludes that any offence punishable in terms of Section 213 read with 447 of the Companies Act or Sections 68, 69, 70, 71, 72 and 73 of the Code is made out then, the Central Government may refer the matter to the Special Court itself or may even require the IBBI or to authorise any person as per Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficant importance in coming to a conclusion on the existence of insolvency of the Corporate Debtor and initiating the Corporate Insolvency Resolution Process. Thus, furnishing any misleading, wrongful or fraudulent information will in itself vitiates the petition and the proceedings if any initiated thereunder. 67. It would not be out of context to mention that the Hon'ble Delhi High Court in case of Venus Recruiters Private Limited vs Union of India, 2020 SCC OnLine Del 1479 held that if the CoC or the RP are of the view that there are any transactions, which are objectionable in nature, the Order in respect thereof would have to be passed before the approval of the Resolution Plan. 68. It is also evident that serious irregularities have been found in the forensic audit report. Given the judgement of Hon'ble Delhi High Court, the Order in respect of objectionable Transactions would have to be passed before the approval of the Resolution Plan. Based on the above, the Adjudicating Authority ordered that the companies' Registrar exercise its power as available to it under Sections 206 and 207 of the Companies Act 2013. It is also important to mention that under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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