NCLT Mumbai-II (11.08.2023) In Mr. Anuj Bajpai, RP of Tollways (Ujjain) Private Limited. Vs. Surendra Lodha, Suspended Director & Anr.. [IA/2874/2021 In CP(IB)4106/MB/2018, (2023) ibclaw.in 479 NCLT] held that;
We are of the view that the Applicant/RP has placed no proof on record to satisfy the ingredients of Section 66.
Further, the Resolution Professional solely relies upon the forensic report to substantiate alleged fraud wherein, the transaction auditor’s itself states that the report should not be considered a definitive pronouncement on the individual or the company.
From, the veracity of the report is not even affirmed by the auditor itself. Therefore, such a report cannot be relied upon solely to prove the case under section 66 of the code.
It is settled proposition of law that to prove the transaction to be fraudulent in nature, the degree of proof and evidence required should be of unimpeachable nature and a transaction cannot be dubbed as fraudulent, on the basis of inadequate and tentative findings, as recorded in the forensic audit report relied upon by the applicant.
Excerpts of the Order;
1. It is an application filed by Anuj Bajpai, RP of Topworth Tollways (Ujjain) Private Limited under section 66 read with section 25(j) of the Insolvency and Bankruptcy Code, 2016 against Surendra Lodha, Suspended Director of Corporate Debtor and Shree Balaji Tradelinks, Partnership Firm for seeking following reliefs:
i.) Direct the Respondent no. 2 to make such contributions to the account of the Corporate debtor aggregating to sum of Rs. 1.78 Crores as stated in this Application with regard to the financial benefit fraudulently derived by the Respondent no. 2 which falls within the ambit of provisions of section 66 of the Code;
ii.) Pass appropriate directions/orders in terms of Section 67, of the code including for recovery/restoration of legitimate amounts due to the Corporate Debtor;
iii.) Issue orders that recovery, if any, made pursuant to this Application, shall form part of the liquidation estate as per section 36 of the Code and shall be exclusive right of the CoC/stakeholders of the Corporate Debtor. iv.) Impose such fine under section 71, 72 and 73 of the Code upon the Respondent No 2 as this Hon’ble Tribunal may deem fit.
Facts of the IA
2. On perusal of the Application, it reveals that during the course of CIRP, transaction auditor viz. BDO India LLP was appointed to undertake the transaction audit of the books of the Corporate debtor for the period from 10.10.2018 to 09.10.2020. The Transaction Auditors filed their Forensic Audit Report in July 2021. Considering the findings of the Transaction Audit Report, the Applicant submits that the transactions so identified are covered under the provisions of section 66 of the Code. The Applicant submits that there are certain transactions which have been entered into with a clear intent to defraud the creditors and to siphon off the money from the Corporate Debtor.
The Applicant submits that based on the financial records and information available with him it is clear that the Respondent No 2 has managed to siphon off an amount of Rs. 75 Lakhs from the Corporate Debtor which was against the interests of the stakeholders of the Corporate Debtor and such 3 transactions squarely fall under the provisions of section 66 of the Code. The Applicant submits that a tripartite agreement was signed between Corporate debtor (Party A), Rajmal Goercha and Sons (Party B) and Shri Balaji Tradelinks/Respondent no.2 (Party C) on 08.10.2019. The relevant contents of the said Tripartite Agreement is provided hereunder:
Party A confirms that it will pay an amount to the extent of Rs. 75,00,000/- to party C on behalf of Party B against the work order no. TTUPL/18-19/005 dated 27.03.2019.
Based on discussions and mutual consent of Party A, Party B and party C, all parties to this agreement confirm the following:
A sum to the extent of Rs. 75,00,000/- will be paid by Party A to party C on behalf of Party B, all parties to pass necessary accounting entries in their books of accounts based on this confirmation letter.
The Applicant submits that this is a clear case of fraudulent transaction where the document itself states that the dues of Respondent no. 2 was towards another partnership firm (Party B in the said Triparty Agreement- Rajmal Gorecha & sons) where Respondent no. 1 is also a partner while the amounts have been withdrawn from the Corporate Debtor which itself have been declared as NPA and was under financial turmoil and struggling to service its own debt. The Applicant also submits that overall Respondent no. 2 has received an amount of Rs. 1.78 Crores (including Rs. 75 Lakhs). There are no business Transactions between the Corporate Debtor and Respondent no. 2 nor any justifications for making such exorbitant payments to Respondent no. 2. Under such circumstances, the Applicant has filed the present application for seeking appropriate orders against the Respondents.
Reply filed by the Respondents
3. In response to this, the Respondents have filed a detail separate reply and have submitted that the application is based on the forensic audit submitted in July 2021, which has not taken the material facts into consideration and overlooked certain crucial details before making the erroneous conclusion that the Respondents have siphoned off money from the Corporate Debtor.
The Respondent no.1 who is the suspended director has submitted that there is no averment in the application, which establishes the role of the Respondent No. 1 in the alleged fraudulent transactions. Additionally, no prayer has been sought against the Respondent no.1. The Respondent no.1 has further submitted that the entire application is based on the transactions between the Corporate Debtor and Respondent no.2. The Resolution Professional ought to have brought forth the role and contribution of the Respondent no.1 before making such serious allegations of fraud.
4. The Respondent no. 2 has also submitted a detailed reply and has submitted that the tripartite agreement executed between the Corporate Debtor, Ramal Gorecha & Sons and Respondent No. 2 on 08.10.2019 is the foundation of the baseless allegations put forth by the Applicant. It is alleged that the amount of Rs. 75 lakhs paid in pursuant to the agreement is the siphoning off the money which is adversarial to the interests of the stakeholder. The Respondent no. 2 submits that the events that occurred prior to the execution of the tripartite agreement are required to be looked into in order to truly understand the nature of transaction which is wrongly presented as “fraudulent”. Rajmal Gorecha & Sons (“Rajmal”) is a partnership firm which was allotted work order No. TTUPL/18-19/005 by the corporate debtor for the maintenance of the toll road after the continuous following up by the Madhya Pradesh Development Corporate Limited (“MPRDC”). The allotment of work order was a crucial business decision taken in ordinary course of business to circumvent the liabilities that may arise due to non-compliance of the conditions of the Concession Agreement executed between the Corporate Debtor and MPRDC. The payments to Rajmal during the work were necessary to ensure the continuance of work without any disruption.
It is submitted that during the audit period for the work order issued by the corporate debtor to Rajmal, Respondent No.2 paid an amount of Rs. 74,20,000/- to Rajmal on behalf of the corporate debtor. Hence, pursuant to this transaction the tripartite agreement was entered between the parties, wherein, the corporate debtor agreed to pay the amount extent to Rs. 75 Lakhs to Respondent No.2 against the work order done by Rajmal. Thus, there was legitimate reason to make payment to the Respondent No.2 by the Corporate Debtor.
5. The Respondent no.2 further submits that as per transaction audit, the Respondent No.2 made TDS payments on behalf of the corporate debtor and supporting document for such documents were not made available to the auditor. Moreover, no such request was received by the Respondent No.1 from the Applicant. Respondent no. 2 has given challan wise details of payments made by the Respondent no. 2 on behalf of the Corporate Debtor: . . . . .
The Corporate Debtor was not able to make TDS payments from the bank accounts maintained by the Corporate Debtor as they were not linked with tax departments website, hence to pay the statutory dues, the Corporate Debtor requested Respondent No.2 to pay the tax obligations of the corporate debtor to the tune of Rs. 52,91,834/-. The corporate debtor sought financial assistance of Rs. 51 lakhs from one of its vendors which Respondent No.2 in the present case. The amount paid by the Respondent No.2 on behalf of corporate debtor at aforementioned occasions warranted payments to be made to it. A summary table is produced highlighting the transactions conducted between the concerned parties:
Amount received by CD from Respondent No.2 for expenses Rs. 51,00,000 TDS & other charges paid by Respondent No.2 on behalf of CD (Details as mentioned in the above point) Rs. 52,91,834 Payment made by Respondent no.2 on behalf of CD to Rajmal Gorecha & Sons Rs. 74,20,000 Total Amount Received Rs. 1,78,11,834 Total payment to respondent no.2 by CD Rs. 1,78,00,521 Balance amount payable by CD to Respondent no.2 on Insolvency Commencement Date Rs. 11,313
6. While arguing the matter, the Ld. Counsel for the Applicant has submitted that neither the transaction auditor nor the Resolution Professional sought any information from the Respondent No.1 before making serious allegations of fraud. The auditor classified the transactions with the Respondent No.2 as fraudulent basis on non-receipt of the supporting documents for the TDS payments. That now the necessary details have been provided, the application is liable to be dismissed.
Findings:
7. The present application has been filed under section 66 of the IB Code, 2016, which reads as follows: . . . . .
From a bare perusal of the aforementioned Section 66 of the Code it is clear that in order to attract the aforementioned Section, the following ingredients are to be fulfilled:
a.) That the business of the company undergoing insolvency has been carried on with the intent to defraud the creditors of the company or for any other fraudulent purpose;
b.) That the defendant sought to be made liable participated in the carrying on of the business of the company in that manner; and
c.) That it did so knowingly i.e. with knowledge that the transactions it was participating in were intended to defraud the creditors of the company or were in some other way fraudulent.
8. After hearing both the parties and on perusal of the application and section 66 of the Code, we are of the view that the Applicant/RP has placed no proof on record to satisfy the ingredients of Section 66. Further, the Resolution Professional solely relies upon the forensic report to substantiate alleged fraud wherein, the transaction auditor’s itself states that the report should not be considered a definitive pronouncement on the individual or the company. From, the veracity of the report is not even affirmed by the auditor itself. Therefore, such a report cannot be relied upon solely to prove the case under section 66 of the code. Moreover, no case has been made against the Respondent no.1/ Suspended Director as all the challenged transactions took place between the Corporate Debtor and Respondent no.2. Further, the work order was issued by the corporate debtor to Rajmal. The Respondent No.2 paid an amount of Rs. 74,20,000/- to Rajmal on behalf of the corporate debtor. Hence, pursuant to this transaction the tripartite agreement was entered between the parties, wherein, the corporate debtor agreed to pay the amount of Rs. 75 lakhs to Respondent No.2 against the work order done by Rajmal. Thus, it seems to be legitimate reason to make payment to the Respondent No.2 by the Corporate Debtor. It is settled proposition of law that to prove the transaction to be fraudulent in nature, the degree of proof and evidence required should be of unimpeachable nature and a transaction cannot be dubbed as fraudulent, on the basis of inadequate and tentative findings, as recorded in the forensic audit report relied upon by the applicant. Therefore, we are of the considered view that the applicant has not able to establish the transactions questioned in the application are fraudulent in nature. In the light of the same, the IA No. 2874/2021 is dismissed being without any merits.
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NCLT Mumbai-II (11.08.2023) In Mr. Anuj Bajpai, RP of Tollways (Ujjain) Private Limited. Vs. Surendra Lodha, Suspended Director [IA/2717/2021 In CP(IB)4106/MB/2018] held that;
1. It is an application filed by Anuj Bajpai, RP of Topworth Tollways (Ujjain) Private Limited under section 66 read with section 25(j) of the Insolvency and Bankruptcy Code, 2016 against Surendra Lodha, Suspended Director of Corporate Debtor for seeking following reliefs:
i.) Direct the Respondent to make such contributions to the account of the Corporate debtor aggregating to sum of Rs. 4.15 Crores as stated in this Application with regard to the financial benefit fraudulently derived by the Respondent which falls within the ambit of provisions of section 66 of the Code;
ii.) Pass appropriate directions/orders in terms of Section 67, of the code including for recovery/restoration of legitimate amounts due to the Corporate Debtor;
iii.) Issue orders that recovery, if any, made pursuant to this Application, shall form part of the liquidation estate as per section 36 of the Code and shall be exclusive right of the CoC/stakeholders of the Corporate Debtor.
iv.) Impose such fine under section 71, 72 and 73 of the Code upon the Respondent No 2 as this Hon’ble Tribunal may deem fit.
Facts of the IA
2. On perusal of the Application, it reveals that during the course of CIRP, transaction auditor viz. BDO India LLP was appointed to undertake the transaction audit of the books of the Corporate debtor for the period from 10.10.2018 to 09.10.2020. The Transaction Auditors filed their Forensic Audit Report in July 2021. Considering the findings of the Transaction Audit Report, the Applicant submits that the transactions so identified are covered under the provisions of section 66 of the Code.
The Applicant submits that there are certain transactions which have been entered into with a clear intent to defraud the creditors and to siphon off the money from the Corporate Debtor. The Applicant submits that Mr. Surendra C Lodha (respondent and suspended Director) has blatantly misused his fiduciary position as a “director” and pocketed an amount of Rs. 2.57 Crores for his personal financial gains. The Corporate Debtor was under tremendous financial stress but the Respondent callously and without keeping in mind the interest of the Corporate Debtor and its stakeholders conveniently increased his monthly remuneration by 100% i.e from Rs. 5,00,000/- to Rs. 10,00,000/-. The Applicant submits that the financial situation of the Corporate Debtor was bleak and it was not a case where any major project or supernormal profits were earned by the Corporate Debtor and hence such 100% increase in his own salary is a clear example of fraudulent transaction with an intent to defraud the creditors and siphon off the money for his own personal gains.
In addition to this, the Applicant came across a copy of the ledger of Mr. Surendra Lodha as per the records of Rajmal Gorecha & Sons (sub-contractor of the Corporate Debtor). The said ledger shows transactions made during the period from 01.04.2019 to 30.09.2020 (a month prior to insolvency commencement date i.e. 09.10.2020) which clears that the Respondent has also siphoned off an amount of Rs. 1.58 Crores in his personal capacity. In fact, the said ledger has also been signed off by the Respondent. The Applicant submits that the conduct and fraudulent intent of Respondent is evident from the face of the document itself wherein without any valid business reason the Respondent for his own personal financial gain started withdrawing a substantial sum under the guise of “monthly remuneration” which is squarely covered under the provisions of section 66(2) of the Code and has led to a substantial financial loss to the Corporate Debtor to the tune of Rs. 4.15 crores (Rs. 2.57 crores and Rs. 1.58 crores) which ought to be recovered from the Respondent. Under such circumstances, the Applicant has filed the present application for seeking appropriate orders against the respondent.
Reply filed by the Respondent
3. In response to this, the Respondent has filed a detail reply and submitted that the application is based on the forensic audit submitted in July 2021, which has not taken the material facts into consideration and overlooked certain crucial details before arriving at the erroneous conclusion that the Respondent have siphoned off money from the Corporate Debtor.
The Respondent, who is a suspended director, has submitted that out of Rs. 2.57 crores, Rs. 97,82,752/- was paid as a part director’s remuneration which was duly authorized in the Extra Ordinary General Meeting (“EGM”) of the Corporate Debtor held on 01.11.2019. The increase in the salary of the Respondent was duly authorized by the members. The Respondent has been instrumental in the sustenance of the Corporate Debtor that justified the increase in remuneration. The Respondent has further submitted that he reduced the traffic leakages which led to increase in toll collection revenues for the Corporate Debtor. He also successfully liaised with Madhya Pradesh Development Corporate Limited (“MPRDC”) and guided the Corporate Debtor through a very difficult financial time when the lenders were not supporting after the account of the company was declared as NPA. His success can be gauged from the fact that the toll road was successfully operational otherwise the project would have been terminated by MPRDC.
The Respondent has further submitted that out of the total payment to Respondent, Rs. 86,419/- was paid as reimbursements for travelling expenses against the bills submitted to Corporate Debtor and Rs. 1,58,48,000/- was paid as reimbursement for the payments made by the Respondent to Rajmal Gorecha & Sons on behalf of the Corporate Debtor against the work issued by the Corporate Debtor to Rajmal Gorecha & Sons. The payment was made due to non-availability of requisite funds with the Corporate Debtor required for maintenance and operation issues of toll road. Rajmal Gorecha & Sons was awarded the contract for maintenance of the toll road by the Company vide Work Order No. TTUPL/18-19/005 dated 27.03.2019. Before awarding work order to Rajmal Gorecha & Sons, their quotation was sought and meetings were held with them. Basis the work order and the revision of rates, the total work order value Res. 14.69 Crore (excluding GST). Their work was continuing with regular supervision of MPRDC.
Findings:
4. The present application has been filed under section 66 of the IB Code, 2016, which reads as follows: . . .
From a bare perusal of the aforementioned Section 66 of the Code it is clear that in order to attract the aforementioned Section, the following ingredients are to be fulfilled:
a.) That the business of the company undergoing insolvency has been carried on with the intent to defraud the creditors of the company or for any other fraudulent purpose;
b.) That the defendant sought to be made liable participated in the carrying on of the business of the company in that manner; and
c.) That it did so knowingly i.e. with knowledge that the transactions it was participating in were intended to defraud the creditors of the company or were in some other way fraudulent.
5. We have heard the counsel for the parties and gone through the record. Keeping in view the requirements of the provision of section 66 of the Code, we are of the considered view that the applicant has not able to satisfy the requirements of the provision of Section 66. The applicant/resolution professional has wholly relied upon the forensic report to substantiate the allegations of fraud. So far as the allegation with regard to enhancement of salary by the Respondent from Rs. 5 Lakhs to 10 Lakhs per month with effect from 01.11.2019, the same cannot be treated to be a fraudulent at on the part of the Respondent, especially, when the enhancement of the remuneration was duly approved by the shareholders in the EoGM held on 01.11.2019. The second part of the allegations are with regard to the reimbursement of travel expense of Rs. 86,419 which can also not be termed as fraudulent by any stretch of imagination. In the forensic audit report relied upon by payment, the applicant has alleged that the Respondent had diverted funds of the Corporate Debtor. It is mentioned in the audit report that the payment of INR 2.57 crores was made to Surender Lodha against Director’s remuneration of INR 1.56 crores and payment made by Surender Lodha to Vendor (Rajmal Gorecha and Sons) on behalf of Topworth Tollways. In the conclusion part of the report, it has been mentioned that the payments were made by the Respondent on behalf of the company and the same were reimbursed to the Respondent later on. It is further concluded in the report that such payment appears to questionable in nature. However, in the report no clear-cut finding have been recorded. In the disclaimer part, it has been mentioned that the finding and the report should not be interpreted as documentary evidence, nor the report should be considered a definite pronouncement on any individual or the company. Therefore, whatever has been stated in the audit report, the only inference that can be drawn is that report is tentative in nature and cannot be relied upon to hold that the questioned transactions are fraudulent in nature. It is settled proposition of law that to prove the transaction to be fraudulent in nature, the degree of proof and evidence required should be of unimpeachable nature and a transaction cannot be dubbed as fraudulent, on the basis of inadequate and tentative findings, as recorded in the forensic audit report relied upon by the applicant. Therefore, we are of the considered view that the applicant has not able to establish the transactions questioned in the application are fraudulent in nature. In the light of the same, the IA No. 2717/2021 is dismissed being without any merits.
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NCLT Mumbai-II (11.08.2023) In Mr. Anuj Bajpai, RP of Tollways (Ujjain) Private Limited. Vs. Surendra Lodha, Suspended Director & Anr.. [IA/2907/2021 In CP(IB)4106/MB/2018] held that;
1. It is an application filed by Anuj Bajpai, RP of Topworth Tollways (Ujjain) Private Limited under section 66 read with section 25(j) of the Insolvency and Bankruptcy Code, 2016 against Surendra Lodha and Deepak Manohar Katakwar, Suspended Director of Corporate Debtor for seeking following reliefs:
i.) Direct the Respondent no. 1 and 2 to make such contributions to the account of the Corporate debtor aggregating to sum of Rs. 23.37 Crores as stated in this Application with regard to the financial benefit fraudulently derived by misusing his fiduciary powers which falls within the ambit of provisions of section 66 of the Code;
ii.) Pass appropriate directions/orders in terms of Section 67, of the code including for recovery/restoration of legitimate amounts due to the Corporate Debtor;
iii.) Issue orders that recovery, if any, made pursuant to this Application, shall form part of the liquidation estate as per section 36 of the Code and shall be exclusive right of the CoC/stakeholders of the Corporate Debtor.
iv.) Impose such fine under section 71, 72 and 73 of the Code upon the Respondent No 2 as this Hon’ble Tribunal may deem fit.
Facts of the IA
2. On perusal of the Application, it reveals that during the course of CIRP, transaction auditor viz. BDO India LLP was appointed to undertake the transaction audit of the books of the Corporate debtor for the period from 10.10.2018 to 09.10.2020. The Transaction Auditors filed their Forensic Audit Report in July 2021. Considering the findings of the Transaction Audit Report, the Applicant submits that the transactions so identified are covered under the provisions of section 66 of the Code.
The Applicant submits that there are certain transactions which have been entered into with a clear intent to defraud the creditors and to siphon off the money from the Corporate Debtor.
The Applicant submits that concession agreement dated 06.05.2010 was essential between Madhya Pradesh Road Development Corporation Limited and the Corporate Debtor (“concessionaire”). As per the aforesaid agreement, the Corporate Debtor was supposed to deposit the following inflow and receipts into Escrow Account:
a. All funds constituting the financial package
b. All fees and other revenue from or in respect of the Project Highways, including the proceeds of any rentals, deposits, capital receipts or insurance claims; and
c. All payments by the MPRDC, after deduction of any outstanding Concession Fees.
3. The Applicant submits that based on the financial records and the transaction audit report, it is clear that there is clear violation of the terms of the concession agreement and the amount to the tune of Rs. 23.37 crores has been siphoned off which is adversarial to the interests of the stakeholders, primarily the Secured Financial Creditors of the Corporate Debtor and such transactions squarely fall under the provisions of section 66 of the Code.
The Applicant further submits that on review of ledgers, we noted that, Revenue for the review period amounted to Rs. 31.56 crores which was the total cash collection. Out of total cash proceeds, Rs. 23.37 crores (74% of total deposit) was deposited in Jila Sahkari Bank (ac. No. 174001171624) and INR 8.02 crores (26% of total deposit) was deposited in SBI Escrow bank (ac. No. 30630221933) which is the designated escrow account of the Corporate Debtor where all of the toll collection needs to be deposited. Further, the amount of Rs. 23.37 crores was transferred to another bank account of Respondent No. 2 maintained with Wardhaman Urban Cooperative Bank and this account was under the control and management of Respondent No. 1 being the key managerial personnel at the relevant time. The Applicant submits that it is important to considering the manner in which the said transactions aggregating to Rs. 23.37 crores were entered into, goes on to show that this is nothing else but a fraudulent transaction entered into with a clear intent to defraud the secured financial creditors of the Corporate Debtor, who were relying for repayments primarily from this Escrow Account and did not have any other significant security in this BOT project.
Reply filed by the Respondents
4. In response to this, the Respondents have filed a detail replies and have submitted that the application is based on the forensic audit submitted in July 2021, which has not taken the material facts into consideration and overlooked certain crucial details before arriving at the erroneous conclusion that the Respondents have siphoned off money from the Corporate Debtor.
The Respondent no.1, who is the suspended director has submitted that the entire application is premised on the opening of an account with the Jila Sahkari Bank. The Resolution professional ought to have brought forth the role and contribution of the Respondent no. 1 before making such serious allegation of fraud other than a mere feeble averment that the Respondent 1 is in the control and management of the Corporate Debtor. Further submits that the forensic auditor appointed by SBI has concluded that there has been no diversion of funds from Jila Sahakari Kendriya Bank account to Wardhaman Co-operative Bank controverting the allegation that the transactions are fraudulent.
5. The Respondent no. 2 has also submitted that it is pertinent to take consideration of the events that unfurled prior to the transfer of the amount to the account other than the escrow account of the Corporate Debtor. Respondent No. 2 has submitted that a concession agreement was executed between the corporate debtor and Madhya Pradesh Road Development Corporation (“MPRDC”). The genesis of the issue dates back to 2016 when two months suspension of toll collection was imposed by MPRDC vide its order dated 31.03.2016 due to Simhasth Mela. The corporate debtor represented to MPRDC vide its letter dated 12.04.2016 that the toll collections have been lower than projections which were not enough to even service the debt and hence for the 2 months period of suspended toll collection, compensation should be given to the corporate debtor. However, MPRDC rejected the demand of compensation and extended the toll collection period by 2 months towards the end of the concession period vide its letter dated 03.09.2016. The immediate requirement of the corporate debtor was compensation to pay the bank liabilities and other fixed costs however MPRDC choosing to extend the concession period instead of payment resulted in death blow to the corporate debtor and the accounts of the Company were declared as Non-Performing Asset by its lenders.
Due to declaration of account as NPA by its lenders, the Corporate Debtor started facing difficulties in realizing payments for operations and maintenance from the escrow account maintained with State Bank of India (“SBI’) and SBI stopped all operational payments after last payment on 29.12.2016.
Considering difficulties in operating the toll road operations and noncooperation of lenders in releasing the funds from Escrow Account for the operations of the corporate debtor led to opening Jila Sahakari Kendriya Bank account in November 2017. The Respondent no. 2 further submitted that in order to keep the toll road operational, the corporate debtor was forced to open this account to facilitate payments to vendors and meet other payment/expense obligations which was utmost necessary considering the warning letters from MPRDC for the maintenance of road and overlaying work as also communicated to State Bank of India.
6. The Counsel for the Respondent no. 2 argued that there was no ill-intention of the corporate debtor behind opening Jila Sahakari Kendriya Bank account as the toll collection after meeting out operational expense and maintenance expense was getting deposited in the escrow account as indicated from the statement of escrow account. If this account had not been opened by the Corporate Debtor, this would have resulted in stopping of all operations of the company due to non-availability of any account for payment of dues (including salaries, taxes, vendor payments etc.) by the Corporate Debtor. Both the lenders to the corporate debtor were well aware of the accounts of the corporate debtor. The same can be also understood from the fact that the corporate debtor is carrying out the maintenance of road and overlaying work as directed by MPRDC in order to continue the concession agreement. The Corporate Debtor had also submitted the financial statement on regular basis to the banks where the bank balance has been disclosed. Further, audit report had also mentioned to the State Bank of India that the corporate debtor had carried out expenditure of approximately Rs. 3+ Cr from 2017-2019, whereas no such payments were made from State Bank of India. Also as mentioned in the draft transaction audit report, the majority of the payments were made to the contractors/vendors of the corporate debtor and hence considered to be essential for the smooth running of toll without any hindrance from MPRDC.
Further submitted that the present application is liable to be dismissed as the allegations made by the Applicant are based on mere assumptions, conjectures and hypothetical. The Applicant has failed to satisfy the ingredients of Section 66 of the Code and hence failed to make out a case.
Findings:
7. The present application has been filed under section 66 of the IB Code, 2016, which reads as follows: . . . . . . .
From a bare perusal of the aforementioned Section 66 of the Code, it is clear that in order to attract the aforementioned Section, the following ingredients are to be fulfilled:
a.) That the business of the company undergoing insolvency has been carried on with the intent to defraud the creditors of the company or for any other fraudulent purpose;
b.) That the defendant sought to be made liable participated in the carrying on of the business of the company in that manner; and
c.) That it did so knowingly i.e. with knowledge that the transactions it was participating in were intended to defraud the creditors of the company or were in some other way fraudulent.
8. After hearing both the parties and on perusal of the application and section 66 of the Code, we are of the view that the Applicant/RP has placed no substantial proof on record to satisfy the ingredients of Section 66. The Resolution Professional has solely relied upon the forensic report to substantiate the alleged fraud whereas, the transaction auditor itself states that the report should not be considered a definitive pronouncement on the individual or the company. The veracity of the report is not even affirmed by the auditor itself. Therefore, such a report cannot be relied upon solely to prove the case under section 66 of the code. Moreover, no case has been made against the Respondent no.1/ Suspended Director as all the challenged transactions took place between the Corporate Debtor and Respondent no.2. As regards the allegation that the toll cash amounting to Rs. 23.37 crores were deposited in bank account of Jila Sahkari Bank, though, it was required to be deposited in the Escrow account in terms of the concession agreement, it is worthwhile to mention that in the reply it is stated that circumstances forced the Corporate Debtor to open a new bank account to carry on its business. It has further been claimed by the Respondent that after MPRDC rejected the demand of the Corporate Debtor for compensation, it required funds to pay the bank liabilities and other fixed costs. The Corporate Debtor was facing difficulties in realising payments for operations and maintenance from the escrow account maintained with State Bank of India, as the said bank had stopped all operational payments after 29.12.2016. Therefore, merely on the basis that the funds were not deposited into the Escrow account and were instead deposited in the Jila Sahkari Bank account from where the required expenses were met with by the Corporate Debtor from time to time it cannot be said that some fraud was committed in terms of Section 66 of Insolvency and Bankruptcy Code,2016. It is settled proposition of law that to prove the transaction to be fraudulent in nature, the degree of proof and evidence required should be of unimpeachable nature and a transaction cannot be dubbed as fraudulent, on the basis of inadequate and tentative findings, as recorded in the forensic audit report relied upon by the applicant. Therefore, we are of the considered view that the applicant has not able to establish the transactions questioned in the application are fraudulent in nature. In the light of the same, the IA No. 2907/2021 is dismissed being without any merits.
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