Mohan Lal Jain In The Capacity Of ... vs Lalit Modi & Ors

Mohan Lal Jain, In the capacity of Liquidator of Kaliber Associates Pvt. Ltd. ...Appellant

Versus

Lalit Modi & Ors. ...Respondents

Present: For Appellant: Mr. Arun Kathpalia, Sr. Advocate with Mr. Anirban Bhattacharya, Advocate. For Respondents: Mr. Sumesh Dhawan, Ms. Vatsala Kak, Ms. Geetika Sharma, Advocates.

ORDER

(Through Virtual Mode)

16.12.2020: Ministry of Corporate Affairs has been arrayed as party

Respondent No. 46 in terms of the direction given in order dated 6th November,

2020. However, there is no appearance on behalf of Respondent No. 46, though

Mr. Sanjay Shorey, Director (Legal), MCA has appeared previously.

2. Heard learned senior counsel representing the Appellant and learned

counsel representing for the Financial Creditor. Since the issue raised in this

appeal is limited to direction given in terms of impugned order by the

Adjudicating Authority (National Company Law Tribunal) New Delhi Bench in

regard to CA 1342/2019 only, we dispense with the appearance of Respondent

No. 2 to 45.

Cont'd.../ -2-

3. In terms of impugned order dated 27th February, 2020, apart from making

a modification in its earlier direction in respect of CA702/2019 which is not the

subject of challenge in this appeal, the Adjudicating Authority when approached

by the Liquidator for invoking the provisions of Sections 43/66 of the I&B Code

for taking action in regard to preferential transactions and fraudulent trading/

wrongful trading, the Adjudicating Authority having regard to different versions

in regard to such transactions emanating from both parties, observed that it

would be beyond the scope of powers of the Adjudicating Authority to look into

the transactions which attract the provisions of Sections 43/66 of the I&B Code

and explanation of the opposite party, if required, can be offered to the

Investigating Agency.

4. It is submitted on behalf of the Appellant that while the jurisdiction of the

Adjudicating Authority was rightly invoked by the Resolution Professional/

Liquidator as specifically provided by Section 43 and Section 66 of the I&B Code,

respectively, it was not permissible for the Adjudicating Authority to abdicate its

powers and refer the matter to the Ministry of Corporate Affairs or an

Investigating Agency. It is submitted that the allegations on the basis of which

jurisdiction of the Adjudicating Authority was sought to be invoked with

reference to preferential transactions and fraudulent trading/ wrongful trading

Company Appeal (AT) (Insolvency) No. 944 of 2020 -3-

falling within the ambit of Sections 43 and 66 of the I&B Code respectively, lies

within the domain of the Adjudicating Authority and the express provisions of

these sections leave no room for ambiguity in this regard. Shri Arun Kathpalia,

learned senior counsel representing the Appellant has referred to observations

of Hon'ble Apex Court made in "Embassy Property Developments Pvt. Ltd. vs.

State of Karnataka and Ors., 2019 SCC OnLine SC 1542", paras 51 and 52,

in this regard, which are extracted hereinbelow:-

"51. The objection of the appellants in this regard is well

founded. Section 65 specifically deals with fraudulent or

malicious initiation of proceedings. It reads as follows:

"65. Fraudulent or malicious initiation of

proceedings. - (1) If, any person initiates the

insolvency resolution process or liquidation

proceedings fraudulently or with malicious intent for

any purpose other than for the resolution of

insolvency or liquidation, as the case may be, the

adjudicating authority may impose upon such

person a penalty which shall not be less than one

lakh rupees, but may extend to one crore rupees.

Company Appeal (AT) (Insolvency) No. 944 of 2020 -4-

(2) If, any person initiates voluntary liquidation

proceedings with the intent to defraud any person

the adjudicating authority may impose upon such

person a penalty which shall not be less than one

lakh rupees but may extend to one crore rupees."

52. Even fraudulent tradings carried on by the Corporate

Debtor during the insolvency resolution, can be inquired into

by the Adjudicating Authority under Section 66. Section 69

makes an officer of the corporate debtor and the corporate

debtor liable for punishment, for carrying on transactions with

a view to defraud creditors. Therefore, NCLT is vested with the

power to inquire into (i) fraudulent initiation of proceedings as

well as (ii) fraudulent transactions. It is significant to note that

Section 65(1) deals with a situation where CIRP is initiated

fraudulently "for any purpose other than for the

resolution of insolvency or liquidation".

5. It is abundantly clear that allegations of preferential transactions as also

fraudulent trading/ wrongful trading carried on by the Corporate Debtor during

the insolvency resolution can be inquired into by the Adjudicating Authority.

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This being the settled position of law, we are of the considered opinion that it

was not open to the Adjudicating Authority to link the fate of CA-1342/2019

with CA-702/2019. All that the Adjudicating Authority was required to do was

to take cognizance of the complaint emanating from the Liquidator in regard to

the alleged preferential transactions and fraudulent trading/wrongful trading

having occurred qua the Corporate Debtor. Unfortunately, the impugned order,

to the extent of disposal of CA-1342/2019 is not in conformity with the statutory

provisions and the dictum of the Hon'ble Apex Court. The impugned order to

the extent indicated, cannot be supported and the same is modified by providing

that the Adjudicating Authority will inquire into such alleged dealings in

accordance with law with expedition, preferably within two months. Appeal is

accordingly disposed of.

6. A copy of this order be communicated to the Adjudicating Authority

forthwith.

[Justice Bansi Lal Bhat] Acting Chairperson

[Justice Anant Bijay Singh] Member (Judicial)

[V. P. Singh] Member (Technical) am/gc

Company Appeal (AT) (Insolvency) No. 944 of 2020