TMI Blog2022 (11) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... of further investigation. This aspect was also emphatically asserted by the Learned counsel for the Appellant while making his pleadings - the Adjudicating Authority has also taken due cognisance of the observations made in the TAR that in respect of the alleged fraudulent transactions under Section 66 of IBC, no conclusive opinion could be given by them and that the matter required further investigation. There is clear convergence of opinion between the Transaction Auditor and the Adjudicating Authority that further investigation was warranted in the matter. The real nature of transactions in question requires deeper examination and the matter be put to rest only after the true character of the transactions is unravelled. The need for unearthing the true nature and character of these transactions has acquired special relevance in the present matter since the Adjudicating Authority has ordered initiation of criminal prosecution of the Appellant under Section 69 of IBC besides directing recovery of Rs. 2687.27 lakhs jointly and severally including from the present Appellant while fore-closing his right to reply, which prima-facie militates against the principles of natural justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme was stopped abruptly without repayment of the deposit collected from public leading to an application being filed before Adjudicating Authority for initiation of CIRP of the Corporate Debtor by Shri Ashoksing L Rajaput, representing a group of financial creditors. The above applicant had arrayed a total of 21 respondents in the matter including the present Appellant. The Adjudicating Authority ordered initiation of CIRP proceedings of the Corporate debtor on 14.08.2018 and appointed an Interim Resolution Professional ( IRP in short). The IRP after perusal of the balance sheet of the Corporate Debtor and its transactions, chose to appoint a chartered accountant firm for carrying out Transaction Audit ( TA in short) of the accounts of the Corporate Debtor. The Transaction Auditor accordingly carried out audit for the period from the date of incorporation of the Corporate Debtor to the date of initiation of CIRP against the Corporate Debtor and submitted the Transaction Audit Report ( TAR in short) on 21.02.2020. The TAR besides providing details on the schedule of related party also contain findings on preferential transactions as per Section 43 of IBC, undervalue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned counsel that the Appellant, Birla Financial Distribution Ltd ( BFDL in short) had sent two letters dated 27.06.2015 and 24.08.2015 to HBN Dairies and Allied Ltd. ( HBND in short) which were contractual agreements to provide Advisory Services in relation to reverse merger of HBND. While sending these letters, the Appellant claims to have been unaware of the Corporate Debtor having any financial disputes with the financial creditors. Further pointing out that as per their Legal Service Mandate , the Appellant provided advisory legal services to HBND for which fees was levied and for this purpose invoices were raised for Rs.1.25 crores. While admitting that this sum was paid to them not by HBND but by HBN Foods Ltd., it was argued that there was nothing improper in this arrangement as HBND was a holding company of the HBN Foods Ltd. Moreover, the fact that these payments can be evidenced through banking transactions, hence it is wrong on part of the TAR and IRP to view the transactions as fraudulent withdrawal to defraud creditors. 5. The Learned counsel for the Appellant admitted delay on the part of the Appellant in furnishing their response before the NCLT on the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered the detailed arguments and submissions advanced by the Learned Counsel for both the parties and perused the records. 9. It is seen at pages 60-71 of the Appeal Paper Book that in the TAR, the Transaction Auditor has put in the disclaimer that our work was constrained on account of limited/inadequate/incomplete information and non-receivable data made available by IRP and available in the public domain. In respect of their findings on cash withdrawal by the Corporate Debtor, it has been qualified in the TAR that the utilisation of cash withdrawal could not be ascertained due to non-availability of information and hence cannot be commented upon. In respect of related party transactions, it has been stated in the TAR that in absence of availability of any agreement, document or information, audited financial statement, we are unable to comment upon the commercial aspect of these transactions or whether these transactions have taken place in the ordinary course of business of the Corporate Debtor or not. However, looking to the volume and frequency of these transactions, these transactions seems to be of suspicion nature of loan entries by Corporate Debtor to its group c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive a conclusive opinion that it as is a matter of further investigation is subject to availability of the information. ***** ***** ***** 23. When we consider the findings of the Auditor, in the light of the conduct of the respondents, who failed to file the reply, despite several adjournments then we are of the considered view that by not filing the reply the respondents number 2 to 21 have accepted the averments made in the application as well as the finding given by the auditors. ****** ****** ****** 24. A perusal of the provision shows that if during the corporate insolvency resolution process or liquidation process, it is found that any business of the corporate debtor has been carried out on with intent to defraud creditors of the corporate debtor or for any fraudulent purpose the Adjudicating Authority may on the application of the resolution professional or liquidator as the case may be pass an order. 25. In terms of the provisions and the Transaction Audit Report, when we consider the submissions of the applicant then we are of the considered view that the transactions referred to in the Transactions Audit Report, comes under the purview of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the recuperation period. The Appellant has also pointed out that even his office set-up faced work disruption due to Covid and hence the inability to send a timely response. The abnormal situation caused by the Covid pandemic at that point of time is well recognised and benefit of doubt could well have been extended to the Appellant. The plea of indisposition due to Covid as taken by the Appellant did not quite deserve to be brushed aside and ignored. In the light of these facts we feel that the foreclosure of the Appellant s right to file reply by the Adjudicating Authority on 13.07.2021 could have been pretty well avoided to enable proper and objective examination of the issue at hand so as to arrive at a conclusive determination on the nature of transactions. We also note that inspite of the fact that TAR had clearly suggested further investigation, we do not find any steps having been taken by the Resolution Professional after receipt of the TAR to conduct further investigations into the said transactions so as to conclusively determine the fraudulent nature of transactions and establish the possible diversion of funds with the intent to defraud the creditors of the corporate d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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