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TMI Blog2023 (7) TMI 958X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication under Section 9 of the I & B Code, 2016 in C.P. (I.B.) 2556/MB/2019 in the matter of Raksha Bullions Vs. Royal Refinery Pvt. Ltd. ('Corporate Debtor') on account of default of Rs. 4,90, 01,183/- . The said application was admitted, the 'Corporate Insolvency Resolution Process' (in short 'CIRP') against the 'Corporate Debtor' was initiated on 13.11.2019 and Mr. Nandkishor Vishnupant Deshpande ('Respondent No. 1') was appointed as 'Interim Resolution Professional' (in short 'IRP'). 3. The 'Adjudicating Authority' on 16.04.2021 passed the order of liquidation of the 'Corporate Debtor' in I.A. No. 59/2021 filed by Mr. Nandkishor Vishnupant Deshpande, Resolution Professional in C.P. 2556/I&B/MB/2019 titled as 'Raksha Bullion vs. Royal Refinery Private Limited', and wherein Mr. Arihant Nenawati was appointed as Liquidator as provided under Section 34(1) of the I & B Code, 2016. In the light of the aforementioned liquidation order dated 16.04.2021 as passed by the 'Adjudicating Authority', the 'Respondent No. 1' in the present Appeal i.e. Mr. Nandkishor Vishnupant Deshpande, Resolution Professional in C.P. 2556/I&B/MB/2019 has become "Functus officio" and therefore, Mr. Arihan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dated 15.09.2020 to the 'Appellant' and they filed their 'Reply/Written Submissions' before the 'Adjudicating Authority'. The 'Appellant' stated that they also pleaded before the 'Adjudicating Authority' that the application was misconstrued and without any substance, however, the 'Adjudicating Authority' admitted the application of the 'Respondent No. 1', which has placed the 'Appellant' in jeopardy. 9. The 'Appellant' submits that the 'Respondent No. 1' has not brought out any supporting documentary evidence to establish that transactions between the 'Appellant' and the 'Corporate Debtor' were fraudulent in nature. The 'Appellant' further submits that they have availed financial assistance to overcome their financial distress and therefore transactions should have been treated as normal commercial transaction. The 'Appellant' also submits that after 16.05.2018, no transaction took place between the 'Appellant' and the 'Corporate Debtor' and the outstanding dues towards the 'Corporate Debtor' was pending for more than one year. As per the 'Appellant', they admit receipt of the money which could not be paid due to their own financial problems which were aggravated by pandemic. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and finally there should be concrete 'finding' as final milestone. As per the 'Appellant' these milestones were not met herewith. The 'Appellant' further submitted that in addition the Regulation 35A of the IBBI (Insolvency Resolution Process for Corporate Person) Regulations, 2016 has also not been complied with and no mens-rea was established and therefore the 'impugned order' was illegal. The 'Appellant' referred to Para 16 of the 'impugned order' dated 29.01.2021 wherein in the findings, the 'Adjudicating Authority' termed the transaction as 'suspicious transaction'. Similarly, in Para 17 the 'Adjudicating Authority' has noted that the 'Appellant' is a principal beneficiary of 'fraudulent transaction'. The 'Appellant' submitted that these findings are without application of mind and without examining or establishing transaction to be fraudulent and therefore on this ground alone the 'impugned order' need to be set aside. 15. The 'Appellant' argued that 'Respondent No. 1' purely on assumption basis has classified and treated transaction of Rs. 41.03 crores between the 'Appellant' and the 'Corporate Debtor' of fraudulent in nature, which was also wrongly accepted by the 'Adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions don't fall under the provisions of Section 66 of the I & B Code, 2016. The 'Respondent Nos. 2 & 3' further stated that all the transactions, between the 'Appellant' and the 'Corporate Debtor' were entered into in good faith and during the ordinary course of business. 21. Concluding arguments, the 'Appellant' urged this 'Appellate Tribunal' to allow the appeal and set aside the 'impugned order' dated 29.01.2021. 22. The 'Respondent No. 1' vehemently opposed all the averments made by the 'Appellant' as misleading, mischievous, devoid of any merit and pure abuse of process of law and therefore the 'Appeal' need to be dismissed. 23. Per-contra, the 'Corporate Debtor' was in business of trading in Bullions' i.e. importing and exporting gold and sale/ purchase of gold in local markets. The 'Respondent No. 1' submitted that subsequent to initiation of the 'CIRP', he detected certain bogus and sham transactions. The 'Corporate Debtor' was also raided by 'Department of Revenue Intelligence' ('DRI') and operation of the 'Corporate Debtor' ceased from May 2019. 24. The 'Respondent No. 1' amplified that the 'Corporate Debtor' was in Bullion business and not in business of lending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar business transaction between the Appellant and the Corporate which had been mislabelled as a fraudulent transaction by the Respondent No. 1 in I.A. No. 1125 of 2020 in C.P. No. 2556/I&B/MB/2019. 27. The 'Respondent No. 1' elaborated that alleged loan of Rs. 41.03 crores was given by the 'Corporate Debtor' to the 'Appellant' whereas the 'Corporate Debtor' was functioning as a Gold Bullion Trader and not in business of lending money. The 'Respondent No. 1' further alleged that by no stretch of imagination such huge amount can be written off without any reasons and therefore cannot be treated anything other than the fraudulent and sham transaction. 28. The 'Respondent No. 1' also referred to the 'impugned order' dated 29.01.2021 which mentioned that the I & B Code, 2016 does not require pre-existence of mens-rea as wrongly pleaded by the 'Appellant'. The 'Respondent No. 1' further denied the allegation that Regulation 35A of the IBBI (Insolvency Resolution Process for Corporate Person) Regulations, 2016 was not complied with. The 'Respondent No. 1' submitted that it only requires the 'Resolution Professional' to file such an application once the 'Resolution Professional' forms an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... desirable to look into the provisions of Section 66 r/w Section 26 of the I & B Code, 2016 and Regulation 35A of the IBBI (Insolvency Resolution Process for Corporate Person) Regulations, 2016. These are as under:- "26. Application for avoidance of transactions not to affect proceedings. - The filing of an avoidance application under clause (j) of sub-section (2) of section 25 by the resolution professional shall not affect the proceedings of the corporate insolvency resolution process." "66. Fraudulent trading or wrongful trading. - (1) If during the corporate insolvency resolution process or a liquidation process, it is found that any business of the corporate debtor has been carried 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 pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit. (2) On an application made by a resolution professional during the corporate insolvency resolution process, the Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing in the books of accounts of i) Corporate Debtor collected from the DRI in May, 2019 where it shows as Rs. 41.24 crores, ii) ledger account produced by R1 where it shows the same amount as unpaid and ii) ledger account produced by R2 and R3 where the due amount is about Rs 41.03 crore but the same has been written off by making a write off entry and iv) balance sheet as submitted by the R2 and R3 (the suspended directors) as part of their reply in a separate I.A. No. 1212 of 2020 where R2 and R3 have disclosed that there is an outstanding balance from of R1 of Rs. 41.24 crore as receivable by the Corporate Debtor from." "24. The Bench is aware that section 66 (1) of IBC imposes a liability on any person who knowingly becomes party in carrying out the business with a dishonest intent to defraud the creditors have to make a contribution to the assets of the Company. Therefore, the Bench is of the considered view that the R1 i.e. Baiju Trading investment Private Limited who is the principal beneficiary of this fraudulent transaction has to return at least Rs. 41.03 crores into the account of Corporate Debtor Company. The Bench is also of the view that R2 and R3 are the Suspend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38. This 'Appellate Tribunal' notes that the business of the 'Corporate Debtor' was related to trading in Bullion i.e. import/ export/ dealing in local markets by way of sale/purchase of gold and the 'Corporate Debtor' was not at all connected with business of financial services or lending money. It has also been brought to our notice that as per normal business practice in gold business, the transaction and dealing occur on spot payment basis and in such business there is hardly any scope for lending money. It also transpires that the bullion/ gold business is conducted on 'thin margins' and cash flow of the such business is required to be regulated/ maintained strictly in order to sustain and for growth of the business by way of purchase of gold on continuous basis. In this background, this 'Appellate Tribunal' finds it quite unusual on the part of the 'Corporate Debtor' to lend such huge amount of Rs. 41.03 crores and similarly unusual on point of the 'Appellant' to have benefitted of this largesse without any explainable rhyme or reason. 39. We also observe that the money was admittedly long overdue and as per the 'Appellant' it was overdue for more than one year. From the av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ledger accounts and therefore cannot be treated as fraudulent transaction. On the face of it, the non-discloser and evasive replies on the part of the 'Appellant' on pointed queries raises adequate suspicion and genuine doubts about the transaction and prima facie cannot find fault in the 'impugned order' on this account. 41. On a serious note, this 'Appellate Tribunal' observes that in 2019 such huge loan was all of a sudden written off by the 'Respondent Nos. 2 & 3' from the books of the 'Corporate Debtor' and evidently the 'Appellant' is the principal/sole beneficiary. The plea of the 'Appellant' made before us that it is a 'Corporate Debtor' who has written off and not by the 'Appellant' and therefore the 'Appellant' should not be held liable for fraudulent transactions under Section 66 is not convincing at all. It is a matter of common prudence that if the money is written off from the books of the 'Corporate Debtor', there is hardly any chance for the management/ successor/ Resolution Professional to recover the same from the 'Appellant'. There is no explanation which we can take into account either from the submissions of the 'Appellant' or Respondent Nos. 2 & 3 as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , must be presumed that he was a party thereto.: (emphasis supplied) 44. It cannot be the case of the Appellant's that the 'Appellant' is not a party to the subject fraudulent and wrongful trading, despite being the sole beneficiary of the same and beyond any acceptable logical conclusion. 45. This 'Appellate Tribunal' also examined the issue raised by the 'Appellant' regarding outside investigation/ forensic audit not done by the 'Respondent No. 1' and therefore as per the 'Appellant', their transaction cannot be clarified as fraudulent transaction. This 'Appellate Tribunal' notes that this aspect was suitably decided by this 'Appellate Tribunal' earlier in case of Nitin Bharal, Ex-Director &Ors. vs. Stockflow Express Private Limited [2022 SCC OnLine NCLAT 179]. The relevant paras read as under:- "21. Now we address ourselves to the contention of the Appellant Counsel that the amounts were written off as bad debts only because they could not be recovered. The Adjudicating Authority after discussing in detail the Bank Account Statements (for the sake of brevity, the same is not being reproduced here) of Yes Bank, ICICI Bank and Axis Bank has observed as follows: "27. Now com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned under the Code, have a recourse to approach the Adjudicating Authority for necessary action. At the cost of repetition, it is specifically averred by the IRP that there was no cooperation from the Appellant/Promoters and hence an Affidavit was filed by him with a detailed analysis. We find merit in the submission that not having cooperated in giving information to the IRP, the contention of the Appellants that the Adjudicating Authority has in the absence of any Audit Report, has given these findings, which cannot be relied upon, has no legs to stand. To reiterate, the debts written off to defraud the Creditors, the cash transaction post their resignation evidencing their financial control in the affairs of the 'Corporate Debtor', clearly establish that they are 'fraudulent transactions' done with a wilful intention of financial gain at the cost of negatively effecting the Creditors. (emphasis supplied) 46. This 'Appellate Tribunal' is aware that above judgment has been challenged in the Hon'ble Supreme Court of India in Civil Appeal No. 4496/2022 and notice was issued but no stay was granted. This read as under:- "Issue notice on the civil appeal as well as on the applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecovery 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. 5. It was also attempted to be explained by the learned counsel of the appellant that there is no case against the appellant on fact. Learned counsel for the appellant submitted that the material facts pertaining to the dispute are briefly summarized as under: a) On 13.11.2019, CIRP was initiated against one Royal Refinery Pvt Ltd, where Mr. Nandkishore V Despande was appointed as the Resolution Professional. The CD is now under liquidation, which order was passed during the pendency of this Appeal. b) The Appellant is a real estate developer who intended to develop a society by the name of Kirti CHSL, in Santacruz Mumbai. The Appellant was given loans by the CD in the year 2017 much prior to any CIRP being initiated. It is pertinent to highlight that the loans were received by way of bank transfers which are reflected in the ledger accounts maintained by both the CD and the Appellant. Part of these loans were repaid from time to time. c) The Appellant has no relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions under Section 50 IBC The IBC recognises that for the success of an insolvency regime, the real nature of the transactions has to be unearthed in order to prevent any person from taking undue benefit of its provisions to the detriment of the rights of legitimate creditors." 16. In view of the above stated fact and circumstances we are constrained to uphold the hand of the Adjudicating Authority and is not able to agree with the Appellant." (emphasis supplied) 48. We find above finding of this 'Appellate Tribunal' as seen above as directly connected and relevant and therefore need to be taken into account. Incidentally, this has attained finality as it was challenged in the Hon'ble Supreme Court of India vide Civil Appeal No. 914 of 2023 and dismissed. "Heard learned counsel for the appellant. We find no merit in this appeal. Admission is refused and the civil appeal is, accordingly, dismissed." 49. It is seen that the intent to defraud the creditors", under Section 66(1) of the I & B Code, 2016 is further established by the fact that the 'Respondent Nos. 2 & 3' had provided different books of accounts in different proceedings before the 'Adjudicating Authority' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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