Mr. Sunil Tangri & Anr vs Mrs. Ashu Gupta Resolution ...

(Arising out of the Order dated 12.11.2021 passed by the National Company Law Tribunal, New Delhi (Court-II) in IB-984 (ND)/2019)

IN THE MATTER OF:

1. Mr. Sunil Tangri 210, Sukhdev Vihar, New Delhi- 110025. ...Appellant No. 1.

2. Mrs. Ramni Tangri, 210, Sukhdev Vihar, New Delhi- 110025. ...Appellant No. 2.

Versus

Mrs. Ashu Gupta, Resolution Professional, Web Tec Packaging's (Undergoing CIRP)

Office No. 204 A, 2nd Floor, 23, SBI Buildings, Najafgarh Road Indl Area, Shivaji Marg, New Delhi - 110015. ...Respondent

Present

For Appellants: Mr. Abhijeet Sinha, Mr. Rajiv Virmani & Mr. Arjun Agarwal, Advocates.

For Respondent: Mr. Vinod Khanna, Adv. for Liquidator / Respondent. Ms. Ashu Gupta, Liquidator.

With

COMPANY APPEAL (AT) (Insolvency) No. 1121 of 2023

(Arising out of the Order dated 02.08.2023 passed by the National Company Law Tribunal, New Delhi (Court-II) in I.A. No. 5756/ 2020 in C.P. (IB) No. 984 (ND) of 2019

IN THE MATTER OF:

1. Mr. Sunil Tangri 210, Sukhdev Vihar, New Delhi- 110025. ...Appellant No. 1. -2- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

Versus

Mrs. Ashu Gupta, Resolution Professional, Web Tec Packaging's (Undergoing CIRP)

Office No. 204 A, 2nd Floor, 23, SBI Buildings, Najafgarh Road Indl Area, Shivaji Marg, New Delhi - 110015. ...Respondent

Present

For Appellants: Mr. Abhijeet Sinha, Mr. Rajiv Virmani & Mr. Arjun Agarwal, Advocates.

For Respondent: Mr. Vinod Khanna, Adv. for Liquidator/Respondent. Ms. Ashu Gupta, Liquidator.

JUDGEMENT

(10.10.2023) NARESH SALECHA, MEMBER (TECHNICAL)

1. These two Appeals i.e., Company Appeal (AT) (Insolvency) No. 1070 of

2021 & Company Appeal (AT) (Insolvency) No. 1121 of 2023 have arisen from

two different orders dated 12.11.2021 and 02.08.2023 passed by the same

Adjudicating Authority i.e., National Company Law Tribunal, New Delhi

Bench, Court-II. The subject matter, the background and the facts of the

case are by and large similar and both the Impugned Orders as well as the

Appeals are interconnected. Hence, we shall deal both these appeals jointly

in subsequent discussion and a common judgement shall be pronounced. -3-

Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

COMPANY APPEAL (AT) (Insolvency) No. 1070 of 2021

(Arising out of the Order dated 12.11.2021 passed by the National Company Law Tribunal, New Delhi (Court-II) in IB-984 (ND)/2019)

2. This Appeal has been filed against the Impugned Order dated

12.11.2021 passed by the National Company Law Tribunal, New Delhi Bench,

Court-II (the 'Adjudicating Authority') in IB- 984 (ND)/2019 in IA/102/2021,

whereby, the Adjudicating Authority allowed the application preferred under

Section 66 of the Insolvency & Bankruptcy Code, 2016' (in short 'Code') by

the Respondent and directed the Appellants to make total contribution of Rs.

29,75,73,550/- to the assets of Corporate Debtor. The Respondent was also

directed to institute a criminal prosecution against the Appellants under

relevant provisions of the law. The Adjudicating Authority further requested

the IBBI to make necessary amendments in Regulation 35A and 40 A of the

IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

(hereinafter referred to as 'IBBI Regulations, 2016') in terms of Section 12 of

the Code.

The Appellants are the Suspended Directors of the Corporate Debtor.

Aggrieved by the same, the Present Appeal under Section 61 of the Code has

been preferred before this Appellate Tribunal.

COMPANY APPEAL (AT) (Insolvency) No. 1121 of 2023

(Arising out of the Order dated 02.08.2023 passed by the National Company Law Tribunal, New Delhi (Court-II) in I.A. No. 5756/ 2020 in C.P. ()

3. This Appeal has been filed under Section 61 of the Code against the

Impugned Order passed by the Adjudicating Authority in IA 5756 whereby -4- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

the Adjudicating Authority rejected the application for approval of resolution

plan and ordered liquidation of the Corporate Debtor.

4. Heard Counsel for Appellants and Respondent and perused the

records made available including cited judgments in both the above Appeals.

5. M/s AC Goel Paper Distributing Company Pvt. Ltd., an Operational

Creditor of the Corporate Debtor, filed the Application under Section 9 of the

Code which was admitted on 25.07.2019. On 05.11.2019, M/s Siemens

Financials Services Pvt. Ltd., the Financial Creditor of the Corporate Debtor,

became the sole member of the Committee of Creditors (in short 'CoC').

6. It is the case of the Appellant that initial Resolution Plan submitted by

the Appellant, Mr. Sunil Tangri, was rejected on the ground of non-payment

of Earnest Money Deposit of Rs. 15 Lacs despite the Appellant requesting the

CoC as well as the Respondent/Ex-RP to grant time till 07.07.2020 on

account of the prevailing economic conditions in the country caused due to

COVID-19.

7. The Respondent filed an application bearing I.A No. 2853 of 2020

under Section 33(2) of the Code on 20.02.2020 for liquidation of the

Corporate Debtor. The Adjudicating Authority, however, on 28.09.2020

directed the Respondent to convene fresh meeting of CoC to avoid liquidation,

Corporate Debtor being MSME, with direction to the Respondent to file report

on the outcome of CoC meeting.

8. The Appellant submitted that on 13.10.2020, the 9th Meeting of CoC

was held when a Resolution Plan submitted by the Appellant was approved -5- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

by the CoC subject to all the changes to be done as proposed by Respondent

and the CoC.

9. The Appellant stated that the 10th Meeting of the CoC held on

18.11.2020, pursuant to changes suggested by the Respondent and the CoC,

the Appellant submitted the revised Resolution Plan on 18.11.2020, which

was approved by the CoC.

10. It is the case of the Appellants that in the meantime, the Respondent

also got forensic audit of Corporate Debtor conducted in accordance with

Section 25 (2)(d) of the Code and Regulation 35 A of the IBBI Regulation,

2016 and accordingly M/s VMRS & Association, Chartered Accountants were

appointed to conduct forensic audit of the Corporate Debtor, who gave the

Forensic Audit Report on 22.09.2020. It is the case of the Appellants that

they submitted their detailed response on 20.11.2020 to the Respondent vis-

à-vis finding of Forensic Audit Report, bringing out fallacies and inaccuracies

in the Forensic Audit Report.

11. The Appellants are aggrieved by the fact that the Respondent has

failed to apply her mind while considering the Forensic Audit Report and has

ignored the replies and clarification of the Appellants and further did not form

an opinion, the Appellants also alleged that the Respondent did not consider

the Statutory Audit Report which did not point out any such irregularities in

the Independent Statutory Auditors Reports of the annual financial statement

of the Corporate Debtor.

12. On 29.12.2020, the Respondent filed IA 5756 under Section 30(6) of

the Code for approval of Resolution plan before the Adjudicating Authority. As -6- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

per the Appellant, this act of the Respondent/Ex-RP of filing the Application

for resolution after the Application of Section 66 makes it obvious that the

Respondent had no intention of reviving the Corporate Debtor and wanted its

corporate death by sending it into liquidation.

13. The Appellant brought out that the Adjudicating Authority, vide Order

dated 06.01.2021, dismissed the I.A. No.2853 of 2020 filed by the

Respondent (which was filed for liquidation of the Corporate Debtor) as well

as I.A. No.5398 of 2020 filed by the Appellant as dismissed as withdrawn.

14. It is further the case of the Appellants that the Respondent filed I.A.

No. 102 of 2021 before the Adjudicating Authority under Section 46, 49, 66,

69 and 72 of the Code on 04.12.2020, whereas the Corporate Insolvency

Resolution Process (in short 'CIRP') had commenced on 25.07.2019, thus the

delay was of more than 500 days and as per extant rules, such application

could not have been considered by the Adjudicating Authority. The

Adjudicating Authority, however, allowed L.A. No. 102 of 2021 filed under

Section. 66 and directed the Appellant to make total contribution of

Rs. 29,75,73,550/- Crores to the assets of Corporate Debtor as well as

directed the Respondent to initiate criminal prosecution against the

Appellants under Section 69 of the Code.

15. The Appellant stated that on 07.12.2021, the Appellant (along with

Mrs. Ramna Tangri) preferred an appeal under Section 61 of the Code being

Company Appeal (AT) (Ins.) No. 1070 of 2021.

16. The Appellant has argued that the Adjudication Authority has failed to

appreciate that the Section 66 the matter was sub-judice before this Appellate -7- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

Tribunal in an appeal and the outcome of the same has a crucial direct

impact on the outcome of the CIRP/Liquidation of the Corporate Debtor and

passed the Impugned Order in Company Appeal (AT) (Ins.) No. 1121 of 2023

in haste on 02.08.2023.

17. The Appellant is also aggrieved by the fact that the Adjudicating

Authority further requested the IBBI to make necessary amendments in

Regulations 35A and 40A of the IBBI (Insolvency Resolution Process for

Corporate Persons) Regulations, 2016 (hereinafter referred to as "IBBI

Regulations, 2016") in terms of Section 12 of the Code.

18. The Appellants also assailed the Adjudicating Authority who failed to

adhere to the timelines as stipulated in the Code & Regulations and without

application of mind, allowed the Application of the Respondent under Section

66 of the Code, ignoring the fact that the Corporate Debtor is a MSME and

the intent of the Code is for the revival of the Corporate Debtor and not for

liquidation of the same.

19. It is the case of the Appellants that application under Section 66 of

the Code is not permissible, since there has been delay of 502 days since the

was due in initiation of the CIRP was done on 25.07.2021 and cited the

judgment of Delhi High Court passed in WP (C) No. 8705 of 2019 titled as M/s

Venus Recruiters Pvt. Ltd. vs. Union of India & Ors., wherein the High

Court adjudicated that if the timelines of the Code are not followed, the

purpose of the Code will be defeated and therefore it is the case of the

Appellant that as such the application under Section 66 should not have

been allowed.

-8-

Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

20. The Appellants cited case of Committee of Creditor Essar Steel

India Vs. Satish Kumar Gupta & Ors. [(2020) 8 SCC 531] to point out that

relaxation in continuation of CIRP beyond 330 days is rule nisi. Similarly,

Appellants mentioned that the Adjudicating Authority wrongly interpreted the

judgment of Brilliant Allowance Pvt. Ltd. S. Rajagopalan which was in

connection with withdrawal of application under Section 12A of the Code r/w

Regulation 30A of Regulation, 2016. In this connection, it is the case of the

Appellants that the view taken by the Adjudicating Authority is contrary to

model timelines as stipulated under Regulation 40A of the IBBI Regulation

2018.

21. The Appellants further assailed the Adjudicating Authority for passing

Impugned Order dated 12.11.2021 mechanically without application of mind

and solely relying on the Forensic Audit Report without making an

independent determination to the alleged fraudulent transaction. It is also the

allegation of the Appellants that the Adjudicating Authority has not taken

into consideration the fundamental ingredient of Section 66 of the Code i.e.,

the acts should be with intent to defraud the Creditors and also ignored the

fact that the Independent Statutory Auditors did not find any such alleged

frauds. It has been pointed out that the Forensic Audit Report, at best can be

taken as indicative and cannot be taken to be conclusive proof of alleged

frauds.

22. The Appellants submitted that the Forensic Audit Report did not

consider the submissions made by the Appellants and the Report is

inaccurate and misleading.

-9-

Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

23. The Appellants have given detailed averments regarding Forensic

Audit Report. During the hearing, the Respondent also gave her side about

scientific approach adopted in Forensic Audit Report and basis for forming an

opinion by the Respondent regarding fraudulent transactions and

determinations of frauds leading to application under Section 66 to the

Adjudicating Authority. Since, Forensic Audit Report is the crux of the matter

in both the Appeals, this Appellate Tribunal will deal the Forensic Audit

Report along with averments of the Appellants, and the Respondent and our

own findings on the same in independently at later stage after noting other

averments of both the Appellants and Respondent. At present, it will be

sufficient to observe that we have taken note of the averments of the

Appellants on Forensic Audit Report along with the written submissions of

the Appellants.

24. It has been alleged by the Respondent that the Appellant is habitual

in misleading the stakeholders as well as this Appellate Tribunal and the

direction Mr. Sunil Tangri has been giving false address of his residence in all

the affidavits to this CA (AT) (Ins.) No. 1121 of 2023 and pleading in the

connected Appeal bearing CA (AT) (Ins.) No. 1070 of 2021 which was listed

before this Appellate Tribunal on 01.09.2023. In response to this, the

Appellants stated that the this happened due to inadvertent clerical error

while drafting the affidavit and there was no intention of the Appellant to

mislead this Appellate Tribunal.

25. The Appellants alleged that onus is on Resolution Professional/ the

Respondent to prove the financial transactions as fraudulent transactions -10- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

without any reasonable doubts which has not happened in the present case.

It has also been stated that the Respondent has acted negligently by not

incorporating corrected tally data and explanations furnished by the

Appellants. It is further case of the Appellants that the Respondent did not

make out any opinion and blindly relied on the Forensic Audit.

26. The Appellants also assailed for Forensic Auditors who did not

perform according to draft Forensic Accounting Investigation Standards (in

short 'FAIS'), which has been issued by Institute of Chartered Accountant of

India recently. The Appellants stated that at best the findings could have

been termed as red flags and but same could not be blindly relied upon

unless supported by reliable documents and evidence or through

independent investigations, which has not happened in the present case.

27. The Appellant asserted that the Forensic Auditors Report is based on

unaudited financial statements, incomplete tally data and incorrect

accounting entries as evident from the remarks made by the Forensic

Auditors in their 'Correspondence with Different Stakeholders', wherein it was

stated that the management of the Corporate Debtor as well as the Statutory

Auditors of the Corporate Debtor could not provide complete information. The

Appellants further alleged that the Resolution Professional has failed to

formulate an independent opinion before filing the avoidance application

before the Adjudicating Authority and has placed reliance only on the

findings of the Forensic Audit Report which is based on incomplete

information, incomplete tally data and incorrect accounting entries, as -11- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

completed accounts could not be finalized by the Appellants for few years due

to several unavoidable reasons beyond their control.

28. The Appellant raised issue about the Adjudicating Authority who vide

its Impugned Order dated 12.11.2021 directed the Appellants to make a total

contribution of Rs. 29,75,73,550/- which amount, even prima- facie, is an

exorbitant sum in comparison to claimed liabilities. It has been submitted by

the Appellants that the Corporate Debtor has total claims (provisionally

admitted) of Rs. 4,04,76,290/- against which the Appellants, after making

several bona fide efforts, submitted a Resolution Plan of Rs. 1,58,07,532/-

which offered approximately 40% of the total claim amount (including CIRP

cost at that time) and in offered better value than the liquidation value.

29. The Appellant stated that on 03.03.2023, I.A. 5756 was taken up for

hearing by the Adjudicating Authority whereby the counsel for the

Respondent sought dismissal of the said application in light of the ineligibility

of the Appellant as per the provisions of Section 29 A of Code. Upon hearing

the submissions made by the counsel of the Appellant as well as the

Respondent, the Adjudicating Authority granted liberty to the Respondent to

move an appropriate application in accordance with law.

30. The Appellant stated that on 02.08.2023, IA 5756 along with other

applications were again taken up for hearing, whereby the Adjudicating

Authority dismissed IA 5756 in light of the ineligibility of the Appellant to be a

resolution applicant as per the provisions of Section 29A of the Code and

further ordered the liquidation of the Corporate Debtor and appointed the

Respondent as the Liquidator of the Corporate Debtor. -12-

Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

31. It is the case of the Appellant that the Adjudicating Authority was

wrong in holding him to be ineligible under Section 29(A) (g) of the Code as at

the time of submission of Resolution Plan by him, no finding on Section 66

Application of the Respondent was available and it is much after submission

of his Resolution Plan, the Adjudicating Authority passed the Impugned

Order in Company Appeal (AT) (Insolvency) No. 1070 of 2021 on 12.11.2021.

The Appellant argued that the intent of the Code is clear argued that the

intent of the Code is clear that the Resolution Applicant should not be

disqualified under Section 29(A) of the Code at the time of submission of the

Resolution Plan. The Appellant further argued that the Corporate Debtor

being MSME is not covered under Section 29 A of the Code.

32. The Appellants, concluding his averments, requested this Appellate

Tribunal to set aside the Impugned Orders dated 12.11.2021 and 02.08.2023

and allow both the Appeals i.e. Company Appeal (AT) (Insolvency) No. 1070 of

2021 and Company Appeal (AT) (Insolvency) No. 1121 of 2023.

33. Per-contra, the Learned Counsel for the Respondent denied all the

averments made by the Appellants in both the Appeals i.e., Company Appeal

(AT) (Insolvency) No. 1070 of 2021 and Company Appeal (AT) (Insolvency)

No. 1121 of 2023, treating these to be malicious, misleading and with

intentions to avoid liquidation of the Corporate Debtor and submitted that

the Impugned Order was passed in Company Appeal (AT) (Insolvency) No.

1070 of 2021 on 12.11.2021 and due to several tactics of the Appellants, the

Resolution Professional/ Liquidator has not been in position to effect the

Liquidator order passed by the Adjudicating Authority even when three years -13- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

are almost getting over. The Respondent castigated the conduct of the

Appellant and emphatically submitted that such delay directly or indirectly,

erode the value of the Corporate Debtor and effects the rights of other

stakeholders and urged this Appellate Tribunal to dismiss the appeal with

exemplary lost in interest of justice.

34. The Respondent brought out that I.A. No. 102 of 2021 was filed by the

Resolution Professional before the Adjudicating Authority under Section 66 of

the Code, which was replied by the Appellants on 13.08.2021, however, the

Appellant had not made any objection/ reply to the allegations of

embezzlement of funds raised by the Resolution Professional in I.A. No. 102 of

2021 but raised mere question of maintainability on ground of limitation,

which tantamounted to non-denial of the facts brought out by the

Respondent in Section 66 application and the Appellants tried to avoid their

responsibilities of frauds on technical grounds. It is the case of the

Respondent that the Appellants have taken these pleas now raised in the

present appeal before the Appellate Tribunal for the first time in the present

appeal, and the same cannot be allowed in terms of the judgment of this

Appellate Tribunal in CA (AT) No. 147 of 2018 in the matter of Value Fab

Solutions Pvt. Ltd. vs. ROC [(2018) SCC OnLine NCLAT 280] dated

22.05.2018, where it has been held that the new grounds for the first time in

the Appeal cannot be allowed. It is the case of Respondent that on this

ground alone, the Appeal deserves to be dismissed.

35. The Respondent assailed the conduct of the Appellants, who after

commencement of CIRP, decided not to co-operate with the Respondent and -14- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

did not furnish requested information inspite of several e-mails and personal

requested by the Respondent persuading. It has been submitted that due to

non-submission of relevant records, data, information and non- cooperation

by the Appellants, the Respondent/ Resolution Professional was not able to

perform her duties efficiently especially in preparation of Information

Memorandum (in short 'IM'), issuance of Expression of Interest (in short

'EOI') etc.

36. The Respondent pointed out that she sent letters by speed post to the

Corporate Debtor as well as the Appellants as Suspended Directors of the

Corporate Debtor, at the address available at Ministry of Corporate Affairs

website, however, all such letters were returned with remark 'left'. The

Respondent submitted that this clearly shows wrong intention of the

Appellant. This was also followed by several e-mails requesting for

information and documents but the Appellant No. 1 in response supplied

initially only copy of PAN, Bank Account No. and cover pages of some legal

cases pending against the Corporate Debtor. In response to further emails by

the Respondent, the Appellant No. 1 replied on 15.09.2019 that there is no

employee in the company and the plant and machinery owned by the

Corporate Debtor is lying at the sold factory premises only and new owner is

not allowing entry. The Appellants also replied that accounts of 2017-18 and

2018-19 are under reconciliation and banks account have been blocked by

Sales Tax Department.

37. The Respondent elaborated various endeavours taken by her to reach

out to the Appellants in order to obtain their cooperation in getting annual -15- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

accounts, books, statutory records, tally data and other information

documents and despite all efforts of the Respondent, the Appellants did not

provide the required cooperation, even despite request to provide the

correspondence address the Appellants, the Appellants categorically denied

the same and stated that the Appellant would be available on telephone and

e-mail. The Respondent also cited one example of such non-cooperation to

buttress her point, where after several attempts and confirmation and

commitments from the Appellants, a factory visit was planned for 11.11.2019

for valuers for the purpose of valuation of the Corporate Debtor and despite

confirmation, the Appellants did not turn up and their mobile number were

also found in switch off mode. The Respondent stated that there was no

cooperation from the Appellants, whatsoever and clearly the strategy of the

Appellants were to delay and derail the CIRP/ Liquidation process.

38. The Respondent also assailed the conduct of Mr. Pradeep Nagpal of

Nagpal, Nagpal & Associates, the Statutory Auditors of the Corporate Debtor

who also did not give cooperation. The Statutory Auditor through e-mail

dated 02.06.2020 intimated Respondent that sufficient and appropriate audit

evidence for an audit opinion is not available with them. Due to non-

cooperation of the Statutory Auditors M/s VMRS & Associates, Chartered

Accountant were appointed on 14.08.2020 to conduct the forensic audit in

order to analyse financial transactions of the Corporate Debtor and their

related parties. The Forensic Audit Report was submitted on 22.09.2020 for

the financial year 2016-17, 2017-18 & 2018-19 and for the period from

01.04.2019 to 02.09.2019.

-16-

Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

39. The Respondents submitted that based on Forensic Audit Report,

which was an expert opinion, the Respondent/Resolution Professional formed

an independent and unbiased opinion and made determination of fraudulent

transactions and filed an application on 08.12.2020 under Section 66 of the

Code before the Adjudicating Authority vide I.A. No. 102 of 2021, which was

allowed by the Adjudicating Authority.

40. The Respondent strongly refuted the allegation of the Appellants that

she has not performed her duties diligently and blindly relied upon the

Forensic Audit Report. It is the case of the Respondent that even the

Statutory Auditors have given adverse remarks in their independent Auditors

Report of the Corporate Debtor for the financial year 2016-17, 2017-18 &

2018-19, which clearly demonstrate that the records of the Corporate Debtor

were entirely unreliable and therefore only way to understand the true and

fair picture of the Corporate Debtor was through an expert agency which was

conducted by way of Forensic Audit.

41. The Respondent took strong exceptions to the baseless allegations of

the Appellants and unfortunate remarks about the Adjudicating Authority

regarding non-application of mind. It is the case of the Respondent that the

Impugned Order was passed by the Adjudicating Authority after hearing all

the parties at length and after ascertaining the complete positions in fair,

transparent and independent manner, resulting into judicial speaking order.

The Respondent refuted the allegation regarding breach of model

timelines for CIRP especially regarding determination on preferential and

other transactions including fraudulent transactions in accordance with -17- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

Regulation 14A of IBC (Resolution Process for Corporate Persons) Regulation,

2016 r/w Regulation 35A. It is submitted that the Regulation 35 A is not

mandatory in nature and only directory as held by Hon'ble Supreme Court of

India in the case of Surendra Trading Company vs. Juggilal Kamlapat

Jute Mills Company Limited & Ors. in Civil Appeal No. 8400 of 2017 and

also in PT. Rajan vs. T.P.M. Sahir & Ors. [(2003) 8 SCC 498).

42. The Respondent refuted the allegations that the she was determined

to send the Appellant MSME Company into liquidation without considering

the Resolution Plan of the Appellants. In this regard, it has been submitted

that that during the course the proceeding on the said application for

approval of the liquidation of the Corporate Debtor, the Adjudicating

Authority considering all facts at that time directed the Respondent to

convene fresh meeting of the CoC to consider the representation of the Ex-

management of the Corporate Debtor cum resolution applicant along-with

their Resolution Plan and thereafter the revised Resolution Plan of the

Appellant No. 1 was approved by the CoC and the Respondent/Resolution

Professional has filed the application for the approval of resolution plan vide

I.A. No 5756/2020 before the Adjudicating Authority which was pending at

that time for consideration of the Adjudicating Authority (since then rejected

vide Impugned Order dated 12.11.2021 by the Adjudicating Authority)

against which there is a separate appeal which was filed before this Appellate

Tribunal and is being dealt separately. Thus, the revised plan has been

considered by the CoC only after the best efforts by the Adjudicating

Authority otherwise the liquidation of the Corporate Debtors would have -18- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

happened much earlier. Thus, the Adjudicating Authority was not turning

blind eye and was trying to revive the Company.

43. The Respondent strongly supported the decision of the Adjudicating

Authority on ineligibility of the Appellants to submit the Resolution Plan in

terms of Section 29A of the Code. It is the case of the Respondent that it

became evident from the records and on the basis of Forensic Auditor Report

that there has been an embezzlement of funds and thereafter the appropriate

judgement was passed by the Adjudicating Authority.

The Respondent refuted all the averments of the Appellant and

reiterated background of the case. As per the Respondent, she filed the

application for avoidance of fraudulent transactions on 08.12.2020 bearing

no. I.A. 102/2021 and the Adjudicating Authority passed order dated

12.11.2021, wherein the Adjudicating Authority determined the fraudulent

transactions of Rs. 29,75,73,550/- and an order to erstwhile directors/

Appellant to make contribution of Rs. 29,75,73,550/- to the assets of the

Corporate Debtor within 2 months of the date of the order.

It is the case of the Respondent that thus, the erstwhile

director/resolution applicant (RA) became ineligible in terms of section 29A(g)

of the Code, but till date no contribution received from the Appellant to the

assets of the Corporate Debtor.

44. The Respondent stated that under Section 29A is a restrictive

provision that specifically lists down the person who are not eligible person to

be a resolution applicant to prevent defaulting promoters from buying back

the corporate debtor, at steep discounts. The Respondent stated that the plan -19- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

submitted by the Appellant could not be considered by the Adjudicating

Authority.

45. The Respondent stated that the argument of the Appellants that

Section 29A provides that 'the person shall not be eligible to submit a

resolution plan, if ineligible on date for submitting the Resolution Plan would

mean that the bar under sec 29A of the Code is to be seen only at the time of

submission of plan and not thereafter is misplaced. It has been submitted by

the Respondent that once the provision provides a bar for a promoter to file a

plan under Section 29A, the same will apply for all times to come and not

only at the time of submissions only. It is the case of the Respondent that the

legislature has used the words 'to submit a plan' for reason that as per model

timelines of the Code, it is presumed that by the time plan is to be submitted,

the issue of preferential and fraudulent transactions would have been

decided. In this regard the reference is drawn to Reg. 40A of CIRP

Regulations, where the decision of preferential and fraudulent transaction

has to be made in 15 days and only thereafter form G is to be submitted and

plan has to be considered in 135 days. The Respondent elaborated that in the

present case due to non-cooperation of the Appellants neither document and

records of the Corporate Debtor were given on time, nor records were

available with the Respondent as Resolution Professional to start the forensic

audit. The appellants cannot take benefit of their own wrong doings. Thus,

the language as used in the provisions and regulations have to be read

harmoniously and the same can't be a ground for the appellants to challenge -20- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

the liquidation order passed by Adjudicating Authority under section 33 of

the Code.

46. The Respondent also pointed out that due to non-cooperation of the

Appellant as well as the Statutory Auditors despite her all efforts, she has no

choice but to file an application No. CA 1531 of 2019 under Section 19(2) of

the Code against the Appellants and Statutory Auditors of the Corporate

Debtors.

47. It is the case of the Respondent that based on Forensic Audit Report,

she filed I.A. No. 102 of 2021 under Section 66 of the Code before the

Adjudicating Authority but the Appellants wilfully chose not to contest or

deny any allegations and rather took lame technical plea of limitation and the

Adjudicating Authority after going in all details allowed the I.A. No. 102 of

2021.

48. It is the case of the Respondent that the Forensic Auditors submitted

that their report was based on findings of Forensic Audit Report who were

specifically appointed to finding affairs of the Corporate Debtor review

independent auditors and only thereafter the Respondent/Resolution

Professional identified few transactions falling within the purview of Section

43,45, 49 and 66 of the Code and also duly informed to the IBBI vide e-mail

dated 10.12.2020 as required under regulation 35 A of IBBI (IRPCP).

Regulation, 2016. It has been submitted that after due diligence and detailed

deliberations on the identified transactions, the Respondent/ Resolution

Professional has given due opportunity to the Appellants herein vide e-mail

dated 15.10.2020 to present their comments/case, however, the Appellants -21- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

did not give any satisfactory response vide his e-mail dated 20.11.2020

thereafter the respondent/Resolution Professional had filed application vide

I.A. No102/2021 for fraudulent transaction with the Adjudicating Authority.

49. Concluding her arguments, the Respondent again requested the

Appellate Tribunal to dismiss both the Appeals i.e., Company Appeal (AT)

(Insolvency) No. 1070 of 2021 and Company Appeal (AT) (Insolvency) No.

1121 of 2023 with exemplary cost.

50. After hearing all the parties and noting all details submissions and

cited judgments in both the Appeals as pointed out by us in initial

discussions, we find that the crux of the case is subject matter regarding

application under Section 66 of the Code, which is primarily based on

Forensic Audit Report, an independent expert agency, it would be necessary

for us to go into details, in following discussions and also the aspect of

ineligibility of the Appellants under Section 29 (A) (g) of the Code based on

which the Resolution Plan of the Appellant was refuted and the Liquidation

order was issued.

Analysis of Forensic Audit Report

51. The Respondent brought out that the total embezzlement of funds by

the Appellants through various means & modes has been assessed, worth

amounting to Rs. 29,75,73,550/- with following details -

S.No. Particulars/ Heads of Amount embezzlement of funds 01. Diversion of Stock 5,48,50,824/- -22- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

02. Fund Misappropriation 24,02,726/- worth under related transaction 03. Non-Recovery from 2,20,46,314/- Sundry Debtor 04. Excessive Remuneration 1,89,14,000/- 05. Excessive charged other 5,91,60,261/- expenses 06. Negative balance of cash 15,92,574/- in hand 07. Miscellaneous Balances 1,85,31,876/- written-off 08. Saurabh Tangri 57,22,478/- director's son of Corporate Debtor 09. Sunil Tangri current 3,13,178/- account 10. Sunil Tangri loan 1,24,99,000/- account 11. Sunil Tangri Imprest 57,18,641/- account 12. Ramani Tangri account 54,54,000/- is recoverable 13. Entries post CIRP date 8,53,67,678/- 14. Non-showing of actual 50,00,000/- sales consideration of plant Total Fraudulent 29,75,73,550/- Transactions

Since above break up of alleged frauds are under several heads, we

will endeavor to examine the relevant and significant points of alleged frauds,

in an item-wise-item approach.

(i) On the first findings of Forensic Audit Report, the Respondent

pointed out that there has been diversion of stock of Rs. 5,48,50,824/-

due to excessive consumption of material compared to previous years.

The Appellants submitted that he has given detailed reasoning

regarding this issue which, inter-alia, clarification that the raw material

accumulated over the previous years were destroyed due to non-receipt -23- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

of any fresh orders, change in design or specification, quality issues,

shelf life expired, non-usable, etc. The Appellants stated that the

Respondent did not consider all these reasons for depletion of stock

and failed to form an independent and fair opinion on these aspects

and took easy course of relying blindly on Forensic Audit Report.

The Appellants further stated that this mis-apprehension of

Forensic Audit Report was due to fact that proper records were not

available by the Corporate Debtors which does not mean that there was

illegal diversion of stock for fraudulent purposes. The Appellants stated

that the Statutory Auditors have not pointed out any such diversion of

stock.

Per-contra, the Respondent pointed out that with regard to

diversion of stock of Rs. 5,48,50,824, on perusal of finding No. 1 of the

Forensic Audit Report, it is clear that the Corporate Debtor

manipulated the Stock Valuation and Material consumption including

their Opening and Closing stock which consist of Work in Progress and

rest is Finished Stock Inventory. The Corporate Debtor excessively

consumed 193% as compared to previous year trend i.e. 73%, 79%,

70% raw material in financial year 2018-2019 and further also the

excessive consumption of finished goods i.e. 97% in financial year

2018-2019 as compared to previous year trend i.e, 22%, 19% thus it is

clear that the stock has been manipulated to the tune of Rs

5,48,50,824/-, which was sold by the Corporate Debtor in cash and the

amount received was pocketed in cash by the Appellants, hence a wilful -24- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

attempt was made by the Appellant No. I and 2 (Suspended directors)

to harm the various stakeholders. The Respondent pointed out this was

backed by Forensic Auditors in their detailed technical analysis from

page no. 9 to 22 of the Forensic Audit Report.

Moreover, it has also been pointed out by the Respondent that if

any stocks were destroyed, then the Appellants should have booked the

same as damages/scrap sales etc., in the financial statements, which

was never done by the Appellants.

After going through all above details, we find the reasonings and

submissions of the Appellants that stock worth of Rs. 5,48,50,824/-

were destroyed, are not convincing to us and we tend to agree that such

diversion of stock has been done by the Appellants with clear intent to

divert funds from the Corporate Debtor to personal pockets of the

Appellants with illegal intentions.

(ii) As regarding allegation of misappropriation of funds under

related party transactions, the Respondent as well as Forensic Audit

Report pointed out that M/s S Arthah Trading Company is owned by

Mr. Aditya Tangri son of the Appellants and the address of both this

company as well as Corporate Debtor is same i.e., 163, 2nd Floor,

Kailash Hill, New Delhi and these are clearly related parties and credit

balance accumulated are not genuine funds for which detailed

technical analysis has been done by the Forensic Auditors.

The Appellants submitted that the findings have been based on

incorrect accounts, which were due to errors in tally data. The -25- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

Appellants further submitted that these transaction were conducted at

arm's length and there cannot be considered as fraudulent.

Per-contra, the Respondent pointed out that with regard to Fund

Misappropriation worth Rs 24,02,726- under related party transaction;

the Forensic Audit Reports finding No. 2 clearly demonstrate that M/S

Arthah Trading Company owned by Mr. Aditya Tangri (Ex-Director of

Corporate Debtor) and son of the Appellants i.e., Mr. Sunil Tangri &

Ms. Ramani Tangri (Erstwhile Directors of Corporate Debtor) and his

registered office showing under tally record is 163,2nd Floor, Kailash

Hill, New Delhi which is a common address of Corporate Debtor i.e.

(Webtech Packagings India Private Limited) and M/s Arthah Trading

Company. This proprietorship firm is a related party .

This Appellate Tribunal notes that the alleged transaction are

prima-facie of the related parties as noted above and also note that the

Registered Address of both the Corporate Debtor and related parties is

same, hence the conclusion of the Respondent based on Forensic Audit

Reports is acceptable.

(iii) As regarding allegation of non-recovery from Sundry Debtors

and & making these as doubtful, the Respondent/ Forensic Audit

Report pointed out that Sundry Debtor as on 31.03.2018 was Rs.

2,20,46,314/-, out of which 95% were outstanding for more than six

months and these were evidently but doubtful. The Corporate Debtor

has not made any provisions in their financial statement with malafide

intentions to defraud the stakeholders. The Appellant submitted that -26- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

this happens in any type of business when financial challenges emerge

and many assets including trade receivable become doubtful and could

not have been considered as alleged frauds.

We observe from the submissions that 95% of debts were more

than six months and the Corporate Debtor did not make any provision

in their annual financial statements. This clearly is against basic

commercial and accounting norms and therefore we tend to agree with

the Respondent on this aspect of non-recovery and non provision of

doubtful debts from Sundry Debtors of Rs. 2,20,46,314.

(iv) The Appellants also denied the charge regarding excessive

remuneration worth Rs. 1,89,14,000/- to his family member including

his wife, the Appellant No. 2 herein who was sleeping/ dormant

partner.

The Respondent pointed out that from the Forensic Audit

Report Finding no. 5 it has been established that the key managerial

personnel including their relatives diverted money from the Corporate

Debtor account in the name of remuneration. The Respondent

submitted that as per written statement of Mr. Sunil Tangri vide e-

mail on 02.08.2020 where he stated that his wife is a sleeping partner

and their son Mr. Saurabh and Mr. Aaditya Tangri played no role in

the affairs of the Corporate Debtor and in the background it is strange

that how board of directors has shown the remuneration of Rs.

36,06,000/- in financial year 2011-2012 to 2013-2014 and Rs.

41,52,000/- to Mr. Saurabh and Mr. Aaditya Tangri and as well as -27- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

director remuneration of Rs 1,11,56,000/- to Mr. Sunil Tangri which

was far to excessive as compared to the profit of the Corporate Debtor.

The said amount has been booked with mala-fide intention to

withdraw the money form the account of Corporate Debtor. In

response, it is the case of the Appellants that the remuneration paid

cannot be case of fraud.

We find logic in the finding of Forensic Audit Report and

submission of the Respondent that when there is no commensurate

profits, accounts of Corporate Debtor itself are not maintained due to

so called financial crunch of the Corporate Debtor, then how such huge

amount of Rs. 1,89,14,000/- have been paid as remuneration to wife

and sons, who allegedly did not contribute to day to day conduct of the

Corporate Debtor. We are in agreement with the averments of the

Respondent as this issue.

(v) The Respondent based on Forensic Audit Report has also alleged

that the Corporate Debtor has excessively charged other fund as

excessive. expenses worth Rs. 5,91,60,261/- which was found as

excessive based on trend analysis and such other expenses were found

to be abnormal and doubtful behaviour which includes charge of

expenses like computer expenses of Rs. 96.32 Lakhs, discounts rebate

Rs. 4.32 Crores, other expenses of Rs. 21.35 Lakhs, bad debts of Rs.

38.86 Lakhs etc.

It is the case of the Appellants that these entries related to beyond look

back period and in any case such transactions happened in normal -28- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

business course and the assumptions of Respondent is not correct. On

face of these facts including activity level of the Corporate Debtor and

profitability of the Corporate Debtor, it is just not clear how such

expenses can be justified which may be will purpose to reduce the

profit of the Corporate Debtor and divert funds. We tend to accept the

contentions of the Respondent in this account.

(vi) The Respondent has also alleged regarding negative balance of

cash in hand between 01.04.2017 to 02.04.2019 which indicate

misappropriation by the Directors of the Corporate Debtor. It is further

reiterated that the report/ observation is based on tally data submitted

by the Appellants, thus no question for fresh consideration of updated

tally data.

The Appellants submitted that since 2016-17, the accounts

were pending as on commencement of CIRP w.e.f. 02.09.2019 and cited

reasons for such non completion of accounts due to non- availability of

regular accountant, due to financial crunch of the Corporate Debtor,

refusal to complete Statutory Audit by the Statutory Auditors due to

non-payment to Auditors etc. It is the case of the Appellants that the

inferences made by the Respondent based on Forensic Auditors Report

was in fact due to incomplete accounts and should not be treated as

frauds.

The arguments of the Appellants that this happened due to non

maintenance of accounts due to financial crunch is not palatable and -29- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

convincing to us and we find allegation of the Respondent to be more

convincing.

(vii) The Respondent has alleged that the Corporate Debtor has written

off miscellaneous balance amount of Rs. 1,85,31,876/- between the

period from 01.04.2017 to 02.09.2019 from the books of the Corporate

Debtor and several fraudulent entries have been made which does not

give true and fair picture of the Corporate Debtor and tantamount to

frauds.

It is the case of the Appellants that the debit balances which

have been written off were no more recoverable, similarly write back of

credit balances which were no more payable as per normal business

decisions and as such these cannot be treated as alleged frauds.

We find such write off huge amount of Rs. 1,85,31,876/-

without any rationale and find contention of the Respondent to be fair.

(viii) The Respondent has also pointed out regarding diversion of funds

in the name of Directors and related party of Forensic Audit Report

finding Nos. 18, 19, 20, 21 & 22, as pointed out at Saurabh Tangri

director's son of Corporate Debtor amounting to Rs. 57,22,478/-, Sunil

Tangri current account amounting to Rs. 3,13,178/-, Sunil Tangri loan

account amounting to Rs. 1,24,99,000/-, Sunil Tangri Imprest account

amounting to Rs. 57,18,641/- and Ramani Tangri account is

recoverable amounting to Rs. 54,54,000/-. The Respondent pointed out

that with regard to allegation of diversion of funds in the name of

directors and related party, as evident from Forensic Audit Report that -30- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

the material amount of adjustments were deliberately made in the

accounts of Corporate Debtor to misappropriate the funds of Corporate

Debtor made between director of the Corporate Debtor and their family

member and to accommodate such entries just to withdraw the money

and the said account is also red flag account. It is further reiterated

that the report/observation is based on tally data submitted by the

Appellants, thus no question arises for fresh consideration of updated

tally data.

Shorn of unnecessary discussing in the teeth of clear finding,

we are not in position to appreciate and accept such huge diversion

of funds by the Appellants and related parties, which seems for their

personal benefits and clearly to defraud creditors and other

stakeholders of the Corporate Debtor.

(ix) The Respondent based on Forensic Auditors Report finding No.

25 alleged manipulation of Rs. 8,53,67,678/- between 02.09.2019 to

31.03.2020 which has been adjusted in the books of the Corporate

Debtor even after initiation of the CIRP on 25.07.2019 and 17 entries

were manipulated to defraud various stakeholders.

The Respondent pointed out that from Forensic Audit Report

Finding no. 25 brought out that the tally books of Corporate Debtor

were manipulated by Appellant Nos. 1 and 2 through 17 entries

amounting to Rs. 8,53,67,678/- between 02.09.2019 to 31.03.2020 has

been posted/adjusted in the books of account even after the initiation

of CIRP i.e. 25.07.2019. These 17 entries are self-explanatory that the -31- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

Appellants has manipulated books of account to defraud the various

stake holders.

The Appellants asserts that in one of the Tally, Ex- Accountant

made memorandum entries like Plant & Machineries, Depreciation,

Projected Sales, Projected purchase, Advance from customers, Sundry

Creditors, Miscellaneous Balance written off etc., for the purpose of

deriving the projection figures. These memorandum entries do not have

any impact on CIRP Process. The Tally with these memorandum entries

were mistakenly shared by the Accountant with Resolution

Professional/ Forensic Auditors.

In this connection, this Appellate Tribunal is of view that the

post CIRP, any adjustment by the Corporate Debtor is not permissible

and contention of the Respondent are acceptable. The contention of

the Appellants that the Ex-Accountant wrongly gave such details to the

Respondent, does not carry any credence and is not acceptable.

(x) The Respondent has also pointed that there has been fund diversion

through non-shown of actual sales worth Rs. 50 Lakhs and has been

pointed out in detailed analysis in the Forensic Auditors Report in

various paragraphs which has analyzed various transactions of sales

and noted that the cash and cheque payment are also not matched

with the buyers Mr. Neeraj Gupta proprietor of Modern Trading

Company and based on analysis Forensic Auditors Report concluded

diversion of Rs. 50 Lakhs into cash mode by the Directors of the

Corporate Debtor amounting to fraud.

-32-

Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

The Respondent pointed out that from it has been noted that

table of payments made by the Appellants are not reconciled with each

other and it appears that the cash and cheque payment are also not

matching with the balance maintained by the buyer Mr. Neeraj Gupta,

Proprietor of Modern Trading & Mfg Co. It appears that the sale

between Corporate Debtor and buyer is over and above Rs. 2.25 Crore

and the Corporate Debtor under their books shown total transfer of

assets worth Rs. 1.75 Crore in place of actual sales consideration worth

Rs. 2.25 Corers by the buyer, it clearly appears that Corporate Debtor

diverted the Rs. 50 Lakhs which is evident from the records and said

sum diverted into cash mode by the directors of Corporate Debtor and

hence recoverable.

It is further pertinent to mention here that the Applicant/ RP

has also filed an application under Section 45 of the Code, 2016 for

declaring the above said undervalued transaction of the sale of property

being C.A. No. 327/2019. However, while adjudication the said

application, the Ld Lower Authority has observed/conclusion which is

herein for the sake of ready perusal.

"34. So far as the question of recovery differential amount of Rs. 50,00, 000.00/- is concerned, as per the Forensic Auditor's Report, the amount was diverted that shall be taken into consideration under section 66 of IBC, filed by RP being I.A no. 102/2021 and not under section 45 of the IBC. Hence, we are of the considered view that the applicant failed to convince that this transaction comes under section 45 IBC. Hence the applicant prayer to -33- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

declared the said transaction u/s 45 IBC is hereby rejected. But it shall be considered in LA. 102/202 1, filed u/s 66 of IBC, 2016.

35. Before parting with the order, since it has been brought to our notice that cash transaction of Rs. 50,00,000/- purported to have taken place between R-3 on the one side and R-1 & R-2 on the other side is not reflected in the IT Return of the R-3, and the cash transaction is also prohibited under the law, hence the Registry is directed to send a copy of this order to the concerned officer of the Income Tax Department for information and action in accordance with the provision of law."

The Appellants stated that the Respondent has failed to

appreciate that the Appellants have sold their personal assets as well

as factory premises to pay off the debts of the Corporate Debtor and

therefore the allegation of misappropriation and diversion of funds does

not seem to be convincing.

In backdrop of such detailed analysis by the Respondent and

Forensic Audit Report and skeptical response of the Appellants, the

contentions of the Respondent are acceptable.

(xi) With regard to Trade payable outstanding since long is also a red

flag, the Respondent based on Forensic Audit Report Finding no. 10

stated that the Corporate Debtor wifully held the creditors for long time

and was not interested to make the payment and settle the dues which

resulted in the court cases and the insolvency process against the

directors.

-34-

Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

(xii) The Respondent also submitted that the Appellants has not

provided any fixed assets register to the auditor showing the details of

the assets, thus the transfer of fixed assets indicates fraudulent trading

to defraud the stake holders.

52. It is seen CoC approved the resolution plan and accordingly the

application for the liquidation of the Corporate Debtor was withdrawn by the

Respondent/Resolution Professional. However, since the CoC at a later stage

authorised the Respondent to file the application under section 66 of the

Code, therefore the Respondent filed the said application after forming her

independent opinion. Therefore, it is incorrect submissions made by

Appellant that the Resolution Professional want to send the Corporate

Debtor into liquidation.

53. It is the contention of the Appellants that the Statutory Auditor did

not find any fraudulent transactions contrary to the Forensic Audit Report

submitted by M/s VMRS & Associates, Chartered Accountants and therefore

Forensic Audit Report was not correct. In this regard, we observe that the

role of Forensic Audit becomes relevant only when such situation occurs

about alleged preferential, undervalued, fraudulent and extortionate type of

transaction takes place and on most occasions the process of Forensic Audit

is required to be undertaken after the annual financial statement of the

Corporate Debtor are duly compiled and audited. In view of this, the

contention of the Appellant is not convincing. Moreover, we also take note of

the submissions of the Respondent that in the Statutory Auditors did not

provide suitable cooperation to the Respondent as Resolution Professional -35- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

and further the Statutory Auditors themselves gave qualified Audit Report.

In view of this, we are unable to accept the contention of the Appellant that

in absence of pointing out fraudulent transactions by the Statutory

Auditors, the alleged fraudulent transactions should not have been taken

into consideration by the Respondent or by the Adjudicating Authority.

54. In view of the above detailed analysis, we do not find any error in the

Impugned Order dated 12.11.2021 and do not find any merit in the Appeal.

55. After examining the issue of Company Appeal (AT) (Insolvency) No.

1070 of 2021, as discussed in details above, let us examine the issue raised

in Company Appeal (AT) (Insolvency) No. 1121 of 2023. The Adjudicating

Authority passed the Impugned Order dated 02.08.2023 disapproving the

Resolution Plan of the Appellant being ineligible under Section 29 (A) (g) of

the Code and also ordered for the Liquidation of the Corporate Debtor.

56. This Appellate Tribunal has taken into consideration relevant portion

of the Impugned Order dated 02.08.2023 and the relevant paragraphs are

reproduced herein under :-

"IA-5756/2020: As can be seen from the order dated 12.11.2021 passed in IA 102/2021 filed under Section 66 of IBC 2016, the Successful Resolution Applicant herein was found responsible for the fraudulent transactions. Para 46 to 50 of the said order reads thus:

"46. We further notice that as per the schedule of the amounts identified by the Forensic Audit and submitted by the RP/Applicant in para 7 discussed supra, a total amount of Rs.29,75,73,550/ has been misappropriated or written off or diverted by the respondents with intend to -36- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

defraud the creditors of the corporate debtor or for any fraudulent purpose.

47. Hence, we are of the considered view that the respondents/Suspended Board of Directors of the Corporate Debtor have carried on the business with intent to defraud the creditors of the Corporate Debtor or with fraudulent purpose. Accordingly, we direct the Respondents to make total contributions of Rs.29,75,73,550/- to the assets of the Corporate Debtor within two months from the date of the order.

48. Apart from that, the RP/Applicant is directed to institute a Criminal prosecution against the respondents under Chapter VII (Part II) of IBC under Section 69 and other relevant provisions, in accordance with the provisions of law.

49. Accordingly, the present application is hereby Allowed.

50. The Learned Registrar is directed to send a copy of this order to the IBBI with a request to make necessary amendment in Regulation 35A and 40A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016, in terms of Section 12 of the IBC, as referred in Para 26 of the Order."

As can be seen from the Section 29A(g) of IBC 2016, a person shall not be eligible to submit a resolution plan if such person or any other person acting jointly or in concert with a person has been a promoter or in the management of control of a Corporate Debtor in which the preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by this Adjudicating Authority under this code. The sub-Clause (g) of Section 29A reads thus:

-37-

Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

(g) "has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code:

Provided that this clause shall not apply if a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place prior to the acquisition of the corporate debtor by the resolution applicant pursuant to a resolution plan approved under this Code or pursuant to a scheme or plan approved by a financial sector regulator or a court, and such resolution applicant has not otherwise contributed to the preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction;"

Apparently, in the present case, the SRA is the promoter/ex-director of the Corporate Debtor and in terms of the aforementioned order dated 12.11.2021 passed by this Adjudicating Authority, he was found involved in the fraudulent transactions. We find from Section 240A of IBC 2016, that the MSME are exempted from application of certain clauses of Section 29A but the sub-Clause (g) is not one of the such clauses. In the wake, as the instant Resolution Plan having been submitted by an ineligible person, the Resolution Plan is liable to be rejected, since, the SRA is barred under Section 29A(g).

Accordingly, IA-5756/2020 praying for approval of the Resolution Plan is rejected.

In terms of Section 33(1)(b) of IBC, where the resolution plan is rejected by this authority, the -38- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

Corporate Debtor is required to be liquidated. Ordered accordingly."

(Emphasis Supplied)

57. The Adjudicating Authority has power under Section 33(1) of the Code

to reject plan and direct liquidation of Corporate Debtor, if any of the

requirement of not fulfilled by Resolution Applicant. In the present case the

Appellant/Resolution Applicant was declared ineligible under Section 29A(g)

of the Code after determination of fraudulent transactions of

Rs. 29,75,73,550/- by him along with related parties/ his family members

vide order dated 12.11.2021 in I.A. 102/2021.

58. It is seen that the Adjudicating Authority has exercised its power

in the light of Section 33(1) (a) for Initiation of Liquidation, where the

Adjudicating Authority has to consider the maximum period permitted

for completion of the CIRP under section 12 i.e., 330 days and in this

case, around 1,469 days already been lapsed (25.07.2019 CIRP to

02.08.2023 date of liquation order).

59. Coming to the issues regarding ineligibility under Section 29 (A)

(g) of the Code, we have already noted the detailed analysis done by the

Adjudicating Authority in quoted paragraphs.

60. In this connection, we will like to note Section 29(A)(c) and

Section 29(A)(g) of the Code which read as under :-

"29A. Persons not eligible to be resolution applicant.

-(c) [at the time of submission of the resolution plan has an account,] or an account of a corporate debtor under the management or control of such person or of whom such -39- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949) [or the guidelines of a financial sector regulator issued under any other law for the time being in force,] and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor:

Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non performing asset accounts before submission of resolution plan:

(g) has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code:

[Provided that this clause shall not apply if a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place prior to the acquisition of the corporate debtor by the resolution applicant pursuant to a resolution plan approved under this Code or pursuant to a scheme or plan approved by a financial sector regulator or a court, and such resolution applicant has not otherwise contributed to the preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction;]"

(Emphasis Supplied) -40- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

61. From above, it is evident that once the Resolution Applicant become

ineligible under Section 29 (A) (g) of the Code, the Adjudicating Authority is

bound to reject the Resolution Plan and consequently order for Liquidation

of the Corporate Debtor.

62. We note that 29A(c) of the Code is provision which and has been

added with clear intention to ensure that people who were at the helm of the

affairs of the Corporate Debtor, do not come back in some other guise to get

back the management/ control/ ownership of the Corporate Debtor without

clearing its outstanding debts. The Code defined such Promotors etc. of the

Corporate Debtor i.e., in clauses (c) of S. 29A of the Code. If a person has

been a promoter, or in the management, or control of the Corporate Debtor

in which a preferential, undervalued, fraudulent and extortionate

transactions have taken place, and in respect of which an order has been

made by the Adjudicating Authority under the Code, such person become

ineligible to submit any resolution plan under S. 29A(g) of the Code and

such eligibility cannot be restored back by paying off the debts of the

corporate debtor. Therefore, it becomes clear that persons who are not

covered under clause 29 A(g), will remain eligible to submit resolution plans

under clause (c) of Section 29A, else will become ineligible as in the present

Appeal. Therefore, we do not find any thing wrong on this point in findings.

63. We do not find any error in the Impugned Order dated 02.08.2023 in

CA (AT) (Insolvency) No. 1121/2023.

64. In fine, both the Appeals i.e., Company Appeal (AT) (Insolvency) No.

1070 of 2021 and Company Appeal (AT) (Insolvency) No. 1121 of 2023 -41- Comp. App. (AT) (Insolvency) No. 1070 of 2021 & Comp. App. (AT) (Insolvency) No. 1121 of 2023

challenging the Impugned Orders dated 12.11.2021 and 02.08.2023 are

found to be devoid of any merit and stand dismissed. No Costs.

Interlocutory Application(s), if any, are Closed.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

Simran