TMI Blog2023 (1) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... of fraudulent conduct does not require the same standard of proof as in criminal trial. It is not necessary that each instance of fund being siphoned needs to be established from inception to the end and even one conduct of director of CD can depict an act of fraud. It is very much clear that it is the intention to defraud creditors at that stage Section 66 is applicable. This section empowers the Adjudicating Authority to pass an order for recovery from such fraudulent parties as contribution to the assets of the CD - we are constrained to uphold the hand of the Adjudicating Authority and is not able to agree with the Appellant. Appeal dismissed. - COMPANY APPEAL ( AT ) ( INSOLVENCY ) NO. 95 / 2021 - - - Dated:- 2-1-2023 - ( Dr. Ashok Kumar Mishra ) Member ( Technical ) And ( Justice Rakesh Kumar ) Member ( Judicial ) For the Appellant : Mr Vishesh Kalra , Ms Deepti , Advocates For the Respondent : Mr. Arjun Krishnan , Mr Kaustav Som , Advocates for R1 . Ms Srishti Prabhakar , Advocate for R2 and R3 JUDGEMENT This appeal has been filed under Section 61 of the Insolvency Bankruptcy Code, 2016 (hereinafter referred to as IBC ) against the impugned ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said redevelopment project. 27.04.2011 The appointment of the Appellant was ratified by the Assistant Registrar of Cooperative Societies. 2012-2016 Accordingly, the appellant took steps towards redevelopment of Kirti CHSL and ensured that requisite plans are sanctioned so that redevelopment can be effectively carried out. Subsequently, the appellant circulated the Draft Development Agreement but the same could not be executed for no fault on part of the Appellant. 2017 The Corporate Debtor extended a loan facility to the Appellant for its business activities and specifically for the purposes of redevelopment project of Kirti CHSL. 19.07.2018 The Appellant repaid a part of loan amount aggregating to Rs.50,00000/- to the Corporate Debtor. It is pertinent to note that the said repayment is reflected in the Ledger Account of both the parties. 24.09.2018 Further, the Appellant made part payment of Rs.55,00,000/- to the Corporate Debtor and the same is reflected in the accounts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.01.2021 Accordingly, the Ld. Adjudicating Authority passed the Impugned order in IA 1124/2020 in CP No.2556/MB/2019 and onerously directed the Appellant to make the payment within a period of two days of pronouncement of the said order. 01.02.2021 Hence, the present Appeal. 4. The Learned counsel for the appellant took us to the provisions of Section 66 of the Code and made an emphatic attempt to prove that the Resolution Professional has failed to establish any fraudulent or wrongful transaction. It was submitted by learned Counsel that the provisions of Section 66 (1) and 66(2) are against the director and partners of the CD and not against the third party. Section 66 of the Code is not a recovery provision to seek repayment of loan and has cited a few judgements as numerated hereunder to substantiate his claim that fraud must be not only pleaded but also be pleaded alongwith necessary evidence:- 1. Sevenska Handels Bunken Vs Indian Charge Chrome and Ors (Reported in (1944) 1 SCC (504) (paras 41 and 42) 41.Again it spears that the High Court found a strong prima facie case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal in its application and there may be an exception thereto. The learned trial court and the High Court proceeded on the basis that the defendant was in a dominating position (2006) 5 SCC 558 and there had been a fiduciary relationship between the parties. The appellant in his written statement denied and disputed the said averments made in the plaint. 10. Pleading is not evidence, far less proof. Issues are raised on the basis of the pleadings. The defendant appellant having not admitted or acknowledged the fiduciary relationship between the parties, indisputably, the relationship between the parties itself would be an issue. The suit will fail if both the parties do not adduce any evidence, in view of Section 102 of the Evidence Act. Thus, ordinarily, the burden of proof would be on the party who asserts the affirmative of the issue and it rests, after evidence is gone into, upon the party against whom, at the time the question arises, judgment would be given, if no further evidence were to be adduced by either side. 11. The fact that the defendant was in a dominant position must, thus, be proved by the plaintiff at the first instance. xxx xxx xxx 14. But bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted or acknowledged the fiduciary relationship between the parties, indisputably, the relationship between the parties itself would be an issue. The suit will fail if both the parties do not adduce any evidence, in view of Section 102 of the Evidence Act. Thus, ordinarily, the burden of proof would be on the party who asserts the affirmative of the issue and it rests, after evidence is gone into, upon the party against whom, at the time the question arises, judgment would be given, if no further evidence were to be adduced by either side. 11. The fact that the defendant was in a dominant position must, thus, be proved by the plaintiff at the first instance. xxx xxx xxx 14. But before such a finding is arrived at, the averments as regards alleged fiduciary relationship must be established before a presumption of undue influence against a person in position of active confidence is drawn. The factum of active confidence should also be established. 15. Section 111 of the Evidence Act will apply when the bona fides of a transaction is in question but not when the real nature thereof is in question. The words active confidence indicate that the relationship betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the learned counsel for the Respondent No.1 that the CD advanced a loan in the year 2017 to the appellant, the builder/developers, for redevelopment of residential apartment known as Kirti CSH. For this purpose the CD advanced a loan in the year 2017 to the Appellant. Some payments were made by the Appellant from time to time towards loan repayment. 7. As per audited financial Statement an amount of Rs.8.95 crore was admittedly due to be paid by the Appellant to the CD on 31.03.2019. It was also stated by the Learned counsel for the Respondent No.1 that the Appellant has done fraudulent transaction by setting up a fraudulent and sham transaction to evade its dues under the loan advanced by the CD. The Learned Counsel for the Respondent No.1 also submitted followings and alleged that these stands of Appellant is prima facie illogical and fraudulent. a) The Appellant claimed that in 2018, an understanding was arrived at between the parties that it would repay Rs.45 lakhs and the rest of the dues would remain in the project and the CD would invest further in the project; b) The Appellant alleged that the CD would invest a further Rs.20 crores, and in the event such inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action was entered into for a prohibited purpose (i.e. to defraud creditors of the corporate debtor, or for any fraudulent purpose, as per Section 66 of the IBC) and the fact that the transaction was also for some other purpose is of no relevance. 13 In this case reference can also be made the following judgemnets: i) S.P. Chengalvaraya Naidu Vs Jagannath (1994) 1 SCC 1, para 5 and 6 5. The High Court, in our view, fell into patent error. The short question before the High Court was whether in the facts and circumstances of this case, Jagannath obtained the preliminary decree by playing fraud on the court. The High Court, however, went haywire and made observations which are wholly perverse. We do not agree with the High Court that there is no legal duty cast upon the plaintiff to come to court with a true case and prove it by true evidence . The principle of finality of litigation cannot be pressed to the extent of such an absurdity that it becomes an engine of fraud in the hands of dishonest litigants. The courts of law are meant for imparting justice between the parties. One who comes to the court, must come with clean hands. We are constrained to say that more o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the fraudulent Directors of the company, but also to provide relief to the victims of the fraud, it seems that the establishment of the fraudulent conduct for attracting the provision of Section 542 of the Companies Act does not require the same standard of proof as in a criminal trial and the rigours of the law of evidence as apply to a criminal trial would not apply to establish the commission of fraudulent acts and omissions by the Directors and managers of a company. It has also to be kept in mind that by its very nature, fraud is not easy to establish. This is even more so, when the fraudulent conduct is undertaken by the Directors of a company, sitting in their own office, with a view to defraud the creditors/investors who, though the victim of the fraud, are not involved in the transactions which constitute such conduct, and may have no personal knowledge of the same. In K.T. Dharanendrah v. R.T. Authority the Supreme Court, while dealing with a case under the Customs Act, 1962 observed that An economic offence is committed with cool calculation and deliberate design with an eye on personal profit regardless of the consequence to the Community. A disregard for the intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofessional during the corporate insolvency resolution process, the Adjudicating Authority may by an order direct that a director or partner of the corporate debtor, as the case may be, shall be liable to make such contribution to the assets of the corporate debtor as it may deem fit, if- (a) before the insolvency commencement date, such director or partner knew or ought to have known that the there was no reasonable prospect of avoiding the commencement of a corporate insolvency resolution process in respect of such corporate debtor; and (b) such director or partner did not exercise due diligence in minimising the potential loss to the creditors of the corporate debtor. Explanation.-For the purposes of this section a director or partner of the corporate debtor, as the case may be, shall be deemed to have exercised due diligence if such diligence was reasonably expected of a person carrying out the same functions as are carried out by such director or partner, as the case may be, in relation to the corporate debtor. (3) Notwithstanding anything contained in this section, no application shall be filed by a resolution professional under sub-section (2), in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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