Worldwide Online Services Private ... vs Nandkishor Vishnupant Deshpande And ...

IN THE MATTER OF: WORLDWIDE ONLINE SERVICES 1. PRIVATE LIMITED 11, 3rd Floor, 81, Chandra Darshan Building, Dhanji Street, Parsi Gully, Zaveri Bazar, Mandvi, Mumbai - 400 003 ...Appellant Versus

1. Mr. Nandkishor Vishnupant Deshpande (Resolution Professional for Royal Refinery Private Limited) IBBI Reg. No. IBBI/IPA- P01399/2018-19/12181 Having Office at: Headway Resolution & Insolvency Services Private Ltd. 708, Raheja Centre, 7th Floor, Nariman Point, Mumbai-400021 ..Respondent No.1 2. Mr. Vishal Choudhary Room No. 501, 5th Floor, Harlalka Heights, 2nd Fanaswadi, Mumbai 400002. ...Respondent No. 2 3. Mr. Gaurav D. Panwar Makan No. 171/172, Anjani Dham, Barbar Road, Ratlam - 457001 (M.P.) ...Respondent No. 3 4. Mr. Manish Panwar 401, Lotus Business Park, Behind H.P Petrol Pump, S.V. Road, Malad (West), Mumbai 400064 ...Respondent No. 4 5. Mr. Arihant Nenawati (official Liquidator-Royal Refinery Pvt. Ltd.) IBBI Regd. No. IBBI/IPA-001/IP- P00456/2017-2018/10799 Having office at: B-201, Sharaton Classic Charat Singh Colony Chakala Andheri East Mumbai- 400093 ...Respondent No. 5 Present: For Appellant : Mr. Om Prakash Sr. Adv. with Mr. Apoorv Singhal, Mr. Tanuj Agarwal, Mr. R. Venkatarman, Mr. Alok Kumar, Ms. Ritika A & Mr. Md. Ashfaq, Advocates For : Mr. Saurabh Ajay Gupta & Mr. Ritik Gupta, Advocates Respondent for R-2 & 3 Mr. Kaustav Som, Mr. Garvish Jain, Mr. Arpit Lahoti & Mr. Abhijeet Singh, Advocates for R-5

JUDGMENT

(Hybrid Mode)

[Per: Justice Mohd. Faiz Alam Khan, Member (Judicial)]

The instant Appeal has been preferred by the Appellant under Section

61 of the Insolvency and Bankruptcy Code, 2016 (in short 'Code') read with

Rule 19 of the NCLAT Rules, 2016 assailing the impugned order dated

29.01.2021 passed by the NCLT, Mumbai (in short 'Adjudicating Authority')

in IA No. 1624 of 2020 in CP No. 2556/IB/MB/2019 under Section 66 of the

Code read with Section 26 of the Code whereby the application moved by the

resolution professional has been allowed and the appellant who was

respondent no. 1 before the Adjudicating Authority has been directed to pay

Rs. 98,96,82,438/- to the CD.

2. Brief facts necessary for the disposal of the instant appeal are that

Corporate Insolvency Resolution Process (CIRP) was initiated against the

corporate debtor vide order dated 13.11.2019 moved by the operational

creditor under Section 9 of the Code against the corporate debtor i.e Royal

Refinery Private Limited and the respondent no. 1 i.e. Mr. Nandkishor

Company Appeal (AT) (Ins) No. 510 of 2021 2 of34 Vishnupant Deshpande was appointed as an Interim Resolution Professional

(IRP) who was later on confirmed by the CoC of the CD as RP vide resolution

passed in the first CoC meeting held on 17.12.2019. It is stated that

corporate debtor i.e Royal Refinery Private Limited (RRPL) was engaged in

the business of trading in bullion i.e importing gold and then exporting the

same after performing manufacturing activity over the imported gold. The

corporate debtor was also engaged in sale, purchase of gold in the local

market.

3. It is in May, 2019 RRPL and its associated concerns and other entities

including persons were searched by the Department of Revenue Intelligence

(DRI) and it is stated that the business operation of the corporate debtor had

virtually come to a standstill since May, 2019.

4. It is further reflected that during the course of the resolution of the

CD an IA No. 1624 of 2020 was filed by the Resolution Professional under

Section 66 read with Section 26 of the Code before the Adjudicating

Authority and it was submitted that the transaction of Rs. 98,96,82,438/-

between the corporate debtor and the appellant - Worldwide Online Services

Private Limited (WOSPL) are covered under the provisions of Section 66 of

the Code and the Adjudicating Authority was requested to pass necessary

directions to the respondents to make good the potential loss suffered by the

other creditors of the value of Rs. 98,96,82,438/-. The Adjudicating

Authority gave a finding and direction requiring the appellant herein to

return to the corporate debtor's accounts sum of Rs. 98,96,82,438/- vide

impugned order dated 29.01.2021.

Company Appeal (AT) (Ins) No. 510 of 2021 3 of34

5. The Adjudicating Authority noted in the judgment that as per the

documents seized by the DRI and provided to the Resolution Professional,

there was a balance of Rs. 98.97 Cr. which was receivable from the

appellant herein to the corporate debtor i.e RRPL.

6. It was also noted by the Learned Adjudicating Authority that as per

the documents seized by the DRI and provided to the RP, there were three

ledger accounts of the appellant maintained by the CD as reflected in the

books of accounts of the corporate debtor and these accounts were up to

May, 2019 and is still the date of search of the DRI.

7. Since the Adjudicating Authority has noted the ledger copies as

shared by the DRI to the Resolution Professional, we also reproduce the

same for convenience: -

Company Appeal (AT) (Ins) No. 510 of 2021 4 of34 Company Appeal (AT) (Ins) No. 510 of 2021 5 of34 Company Appeal (AT) (Ins) No. 510 of 2021 6 of34 Company Appeal (AT) (Ins) No. 510 of 2021 7 of34 Company Appeal (AT) (Ins) No. 510 of 2021 8 of34

8. The Adjudicating Authority has also noted that respondent no. 2 and

3 vide their replies submitted an unaudited amended tally data, whereby the

entire outstanding receivable of Rs. 98.97 Cr. is stood reversed and no sum

remained payable by respondent no. 1 to the CD. It is highlighted by the

Adjudicating Authority that in the copy of the ledger provided by the

respondents no. 1, 2 and 3 unilateral purchase entries were passed in a

debtor customer account amounting to approximately Rs. 54.37 Cr. and

unilateral sales entries (four in numbers) were deleted from the ledger

aggregating approximately to Rs. 35.41 Cr. and these entries were available

and could be seen in the accounts of the CD as seized by the DRI and

therefore, the remaining balance is stood nullified by passing unilateral

journal entries of approximately Rs. 14.31 Cr. It is thus emphasized by

Learned Adjudicating Authority that the entire balance of Rs. 98.97 Cr.

which was receivable by the appellant was wiped out and on the other hand,

the appellant claimed that Rs. 1.27 lakh are now payable to it by the

corporate debtor. The ledger statement as filed by suspended directors of the

CD has been extracted by the Adjudicating Authority in the impugned

judgment and we also reproduce the same as under: -

Company Appeal (AT) (Ins) No. 510 of 2021 9 of34 Company Appeal (AT) (Ins) No. 510 of 2021 10 of34

9. The Adjudicating Authority also noted that in the replies filed by the

respondent no. 2 and 3 (suspended directors of the CD) in IA No. 1212 of

2020 which was moved by RP seeking cooperation from the erstwhile

directors under Section 19(2) of the Code also annexed the copies of the

unaudited balance sheet for the period from 1st April 2018 to 31st March

2019 and 1st April 2019 to 13th November 2019. These unaudited balance

sheets evidenced that an outstanding balance of Rupees 57.72 Cr. was

receivable from respondent no. 1 (appellant).

Company Appeal (AT) (Ins) No. 510 of 2021 11 of34

10. The Adjudicating Authority further stated that the unaudited balance

sheet shows certain purchase entries in the customer ledger accounts and

there was no explanation regarding the invoices, description of goods and

purchase orders being no reference to any purchase orders. The ledger

account only goes to show that goods to the value of Rs. 54.37 Cr. were

purchased from the respondent no. 1 and there is no physical inventory to

corroborate such purchase entries. Thus, in the opinion of the Adjudicating

Authority this is a clear plain case of apparent falsification of the books,

ledgers and accounts of the corporate debtor.

11. The Adjudicating Authority has also stated that no record pertaining

to the payment of the GST etc. has been produced towards the sale as at

that point of time when the matter was before the Adjudicating Authority the

appellant has not produced any invoice or invoices of the GST and the same

has been produced at the appellate stage before us and we will deal this

aspect of the matter at an appropriate place in the judgment.

12. The Adjudicating Authority was further of the view and stated that in

view of the transactions the same were carried on by the erstwhile directors

of the CD with the intention to defraud the creditors of the corporate debtor,

and the parties were well aware of the fact that no goods were purchased by

the corporate debtor and simply entries were created in the books of

accounts to clear the liability of any fraudulent transaction between the

appellant and suspended directors of the CD.

13. The Adjudicating Authority thereafter discussing the scope of Section

66 came to a conclusion that the transactions impugned before it were only

an eyewash and has been recorded in the books of the accounts by doing

Company Appeal (AT) (Ins) No. 510 of 2021 12 of34 paper work only and goes on to conclude that these were fraudulent

transactions, and ultimately, direction was given in para 33 to 36 of the

impugned judgment, which are being reproduced as under: -

"33. Upon perusal of the unaudited balance sheets for the year 1st April 2018 to 31st March, 2019 and 1st April, 2019 to 13th November, 2019 as produced in IA 1212/2020 filed by the Resolution Professional and copies of unaudited balance sheets for the same year, as produced/filed in the present IA, it can be said that, both the unaudited balance sheets relates to the same year, but contains different data, it is evident that there has been a clear falsification/fabrication of accounts of the corporate debtor. These unaudited balance sheet, evidenced that an outstanding balance of Rs. 57.72 crores was receivable from Respondent No. 1. In order to escape the wrath of provisions of Section 66 r/w 69, 70, 71 and 72 of the Code, the Respondent Nos. 2 and 3 created new book entries and hence the tally data shows that the entire outstanding receivable of Rs. 98.97 Crores stood reversed".

34. The mere purchase entries in the ledger accounts without description of invoices and purchase orders does not substantiate the claim of purchase made by and between Respondent No. 1 and Respondent No. 2 and 3 herein. Further no record is produced to show payment of GST towards the said sales. Hence it is concluded that the above transactions are fraudulent in nature and there has been no sale of gold by Respondent No. 2 and 3 to Respondent No. 1 and therefore Respondent No. 1 is liable to refund the monies outstanding in the books of accounts of the corporate debtor.

35.This is the serious offence committed by the Respondent No. 1, Respondent No. 2 and Respondent No. 3 and the Respondent No. 1 being beneficiary of falsification of documents.

36. This Tribunal doth orders as follows:

a)The Respondent No. 1 is directed to refund Rs. 98,96,82,438/- immediately forthwith.

b)The IA is allowed and disposed off with the above direction".

14. Ld. Counsel for the appellants submits that the Adjudicating

Authority has committed manifest illegality in passing the impugned

Company Appeal (AT) (Ins) No. 510 of 2021 13 of34 judgment and the whole judgment has been passed on the basis of the

unaudited financial statements of the corporate debtor and the statements

being not audited, no weightage could be given to them.

15. It is further submitted that unaudited financial statements cannot be

used by the RP to form the basis of opinion / determination, as required

under Regulation 35A of the CIRP Regulations, 2016.

16. After drawing our attention towards the Section 66 of the Code and

Regulation 35A of the CIRP Regulations, 2016 it is vehemently submitted by

Learned Counsel for the appellant that Section 66(1) uses the word

knowingly, which attributes intention or mens rea to the parties to indulge

in defrauding of creditors. However, in the present case, the Adjudicating

Authority has incorrectly held that there was no requirement for proving of

intention or mens rea.

17. It is further submitted that the intention to defraud the creditors has

to be based upon some substantial evidence whereas the Adjudicating

Authority has only relied on unaudited financial statements of the corporate

debtor. Further, the appellant had enclosed his own statutory auditor's

report before the Learned Tribunal but the same was ignored and not

appreciated in right perspective.

18. It is further submitted that in the case pertaining to the DRI, still the

charges have not been framed and this aspect of the matter has also not

been considered by Learned Adjudicating Authority and in any case, if

anything which has been received by the DRI is to be considered, the DRI

must have been impleaded as a party by the Adjudicating Authority.

Company Appeal (AT) (Ins) No. 510 of 2021 14 of34

19. It is further submitted that the casual approach with which the issue

has been taken by the RP as well as by Learned Adjudicating Authority is

not commensurate with the scheme of the Code especially when the matter

is pertaining to the huge amount and directions are being given for return of

the same. It is further submitted that a wrong fact has been recorded by the

NCLT, that only unaudited daily data has been produced by the appellant

while in fact the appellant has produced audited financial statement of itself

before the Adjudicating Authority.

20. It is further submitted that the IRP has also not performed his

statutory duties under Section 25 read with Section 29 of the Code and

therefore it was the duty of the RP to prepare the information memorandum

and to appoint accountants and legal professionals or transaction auditors

in order to ascertain the correct financial position of the corporate debtor as

well as the impugned transactions but this exercise has not been done by

the IRP or the RP.

21. It is further submitted that despite the correct facts placed before the

Adjudicating Authority the matter has not been adjudicated in right aspect

and therefore, the judgment is liable to be set aside.

22. Here we state for the purpose of keeping it on record that while

concluding submissions we have granted liberty to learned counsel for the

parties to file the written submissions and since the respondent no.

5/liquidator of CD has filed his written submissions, no written

submissions have been filed by the appellant in pursuance of our order

within the time stipulated and it was after the expiry of the period, despite

permission to file the written submission was not given by us, the written

Company Appeal (AT) (Ins) No. 510 of 2021 15 of34 submissions have been filed by the Counsel for the Appellant. The judgment

at that point of time was prepared, however we have also considered the

written submissions filed by the Appellant.

23. Learned counsel for the respondent no. 5 i.e liquidator of the CD

submits that the RP had confirmed after physical verification that the CD's

operations stood suspended from 23.05.2019 after the raids done by the

DRI, and the CD had no employees and the details of the raids conducted by

the DRI at the CD's premises are contained in the show cause notices issued

by the DRI, which are on record.

24. It is further submitted that the contention of Resolution Professionals'

regarding absence of any relevant assets or inventory with the CD has been

affirmed by this Appellate Tribunal in Royal India Corporation Limited

versus Nand Kishore Deshpande reported in 2024 SCC Online NCLAT 640

in paragraph nos. 10.1 and 10.5 and also the appellant had in fact admitted

that DRI had seized all the records of the CD and even the business

premises and arrested the directors of the CD. Reference in this regard may

be taken to paragraph no. 16(a) of the rejoinder affidavit filed by the

appellant.

25. It is further submitted that it is also admitted to the directors of the

CD, that the affairs of the CD were affected due to the raids conducted by

the DRI and it may be taken that when the business activities have come to

a halt, there was no room left for the CD to carry its import export activity of

gold.

26. It is further submitted that the transactions impugned herein held

between the appellant and the CD may be divided into three categories and

Company Appeal (AT) (Ins) No. 510 of 2021 16 of34 one of the category is with regard to the transactions held prior to the month

of May, 2019 and another category is pertaining to the transactions which

have been held by CD with the appellant in May, 2019 and the third

category is of the purported transactions of sale between Appellant and CD

after May, 2019 between July to October,2019.

27. It is submitted that the appellant has not challenged or refuted any

entry in the account of the CDs as obtained from the DRI for the period prior

to May, 2019 and in this regard, the ledgers produced before the

Adjudicating Authority by the appellant in reply and ledgers produced by the

suspended directors of the CD reflect the same closing balances as on

31.03.2019 as has been shown in the ledgers provided by the DRI.

28. It is further submitted that there are four transactions of sale with the

CD as seller and the appellant as purchaser in the RP's ledger from

07.05.2019 to 20.05.2019 for a total value of Rs. 35.41 Cr. However, these

transactions have been fraudulently removed in the ledgers produced by the

appellant and the suspended directors. Similarly, another transaction for

sale dated 02.05.2019 for Rs. 7.09 Cr. in the RP's ledger do not feature in

the ledgers submitted by the appellant or the suspended directors of the CD

deliberately to shield this transaction.

29. It is further submitted that it is the case of the Appellant that the

outstanding owed to CD were squared off on account of purported sale of

gold by the Appellant to the CD for Rs. 56.45 Cr. for a quantity of 153.68

Kg. of gold between 26.07.2019 to 25.09.2019, however, these purported

sale transactions are not supported from the fact that the CD had ceased its

operation after the Raid of the DRI in May 2019 and the RP did not find any

Company Appeal (AT) (Ins) No. 510 of 2021 17 of34 inventory of gold or physical verification at the site or any of the premises of

the CD despite increase on paper and there are no similar transactions of

sale occurred between the appellant as seller and the CD as a buyer for the

relevant period between 01.04.2018 to 20.05.2019. Therefore, the purported

sale from July, 2019 onwards is fictitious and a sham transaction.

30. It is further submitted that there is no proof of actual delivery of gold

by the appellant to the CD and no corresponding inventory of gold was

found with the CD and these facts clearly establish that these transactions

recorded in the statements submitted by the appellant and suspended

directors of the CD are fictitious and false.

31. It is further submitted that similar fraudulent conduct on the part of

the CD and its suspended directors pertaining to the gold is also the subject

matter of proceeding under Customs Act 1962 and the findings in the

customs penalty order dated 04.02.2021 also noted that the CD was used as

a front company to fraudulently and illegally obtained duty-free gold under

the CD's gold import Authorization. In this regard, the para 62 to 64 of the

custom penalty order may be perused.

32. It is further submitted that the appellant has filed certain documents

with the additional affidavit. However, the same could not be taken on

record for the reason that ample opportunity was provided to the appellant

to produce these documents by the Adjudicating Authority and despite

ample time given, he did not file any document before the Adjudicating

Authority and no documents in the shape of additional evidence could be

permitted to be filed only to fill the lacuna of the case of the appellant.

Company Appeal (AT) (Ins) No. 510 of 2021 18 of34

33. It is further submitted that Regulation 35A of the Regulations, 2016

has been complied and followed by the resolution professional and

moreover, it is a settled law that the Regulation 35A requirement is directory

in nature and is not mandatory. In this regard, the law laid down by the

Hon'ble Supreme Court in Aditya Kumar Tibrewal vs Om Prakash Pandey,

2022 SCC Online NCLAT 142 may be referred and the law laid down by

this Appellate Tribunal in the case of the same CD reported in Shri Baiju

Trading and Investment Private Limited versus Arihant Nenawati, 2023 SCC

Online NCLAT 845 may be recalled. It is further submitted that directions

under Section 66(1) of the Code can be issued against third parties also. In

this regard, the law laid down by this Appellate Tribunal in Tridhaatu Kirti

Developers LLP versus Arihant Nenawati may be recalled and so far as the

order in Glukrich Capital Private Limited versus State of West Bengal,

2023 SCC Online SC 1187 is concerned, the same is confined to its own

facts and in this regard, the law laid down in Mohandas Issardas versus A.

N. Sattanathan, reported in ILR (1955) 55 Bombay 318 may be referred.

34. Ld. Counsel for the respondent/ liquidator has also relied on the law

laid down by this Appellate Tribunal in the case emerging from the same

corporate debtor i.e Royal India Corporation Limited versus Nandkishor

Deshpande, 2024 SCC Online NCLAT 640 as also on the law laid down in

Sangeeta Jitender Mehta versus Kailash Shah, RP of New Empire

Textile Processor Private Limited, 2025 SCC Online NCLAT 795 and

Vistara (ITCL) India Limited versus Satara Properties India Limited,

2025 SCC Online NCLAT 1116 as well as on the law in Anubhav Anil

Company Appeal (AT) (Ins) No. 510 of 2021 19 of34 Kumar Agarwal versus Rajinder Kumar Giradhar, 2025 SCC Online

NCLAT 1953.

35. It is submitted that the Adjudicating Authority has given ample

reasons and findings after considering all the evidence/ material available

on record and therefore, the same may not be interfered with.

36. So far as the invoices of some GST payment has been filed by Learned

Counsel for the appellant along with the Appeal, no permission with regard

to the same has been taken. It is vehemently submitted that the fraud may

also be committed while paying the requisite GST and as by paying the GST

with regard to few lakhs, huge amount of crores of rupees may be siphoned

and misappropriated. Therefore, the submission of the GST invoices may not

be of any help to the appellant.

37. It is further submitted that with regard to the identical corporate

debtor earlier few appeals have been decided by this Appellate Tribunal and

one of such appeal Tridhaatu (Supra) has travelled up to the Honourable

Supreme Court and the Honourable Supreme Court has decided the appeal

while rejecting the appeal preferred by the appellant and the order of this

appellate tribunal has been affirmed whereby the impugned transactions

were directed to be repaid to the corporate debtor.

38. It is further submitted that there is no illegality or to say any infirmity

so far as the impugned order is concerned and therefore, no interference is

required therein.

39. Having heard Ld. Counsel for the parties and having perused the

record it is reflected that by passing the impugned order on an application

moved by the Resolution Professional under Section 66 of the Code, Ld.

Company Appeal (AT) (Ins) No. 510 of 2021 20 of34 Adjudicating Authority has directed the Appellant to pay Rs. 98,96,82,438/-

to the CD as the transactions of Rs. 98,96,82,438/- held between the CD

and the appellant- World Wide online Services Pvt. Ltd. (WWOSPL) were

found fraudulent and covered under Section 66 of the Code.

40. Amongst other Ld. Counsel for the appellant had highlighted

Regulation 35A of the CIRP Regulations, 2016 in order to show that there

was no material with the RP to have formed an opinion with regard to the

impugned transactions being fraudulent. We notice that in the application

moved by the Resolution Professional before Ld. Adjudicating Authority it

was categorically stated that the management of the CD was totally non-

cooperative with the RP and whatever documents the RP could collect were

perused by him and he found that the CD is a company which is engaged in

the business of importing and exporting gold as well as also indulged in

sale/purchase of the Gold in local market and generally no credit is offered

to the purchaser of the gold items and keeping in view the critical evaluation

of data and desktop searches he observed certain creditors, appellant being

one of them, to whom fraudulent preference has been given in business

transactions and thus labelled certain transactions as fraudulent.

41. We also notice that the CD was keeping three ledger accounts of the

Appellant in the name of World Wide Online Services Pvt. Ltd. (purchase

ledger), World Wide Online Services Pvt. Ltd. (Jewellery) and World Wide

Online Services Pvt. Ltd. (Sales) and the entries in these ledgers pertaining

to the period 01.04.2015 to 20.05.2019 were assessed which shows that

about Rs. 98,96,82,438/- were outstanding for more than two years which

is not a normal practice of the trade. It is also noticed that there were

Company Appeal (AT) (Ins) No. 510 of 2021 21 of34 invoices of unpaid amounts found with regard to these transactions and

these invoices were also placed before the Ld. Adjudicating Authority and

thereafter several emails are stated to have been written by the Resolution

Professional (RP) to the Suspended Management of the CD however no

response has been received and when the matter was followed up no

satisfying answer was given with regard to these entries and ultimately the

RP managed to get some information from the Director of Revenue

Intelligence (DRI), including financial statements of the CD which were

siezed by the DRI at the time of the raids conducted at the premises of the

CD and its directors.

42. It is also to be recalled that Respondent No. 4 was appointed as the

Statutory Auditor of the CD from 07.12.2019 to 13.02.2020 but he also

failed to provide any detail as well as the audited financial statements for

the period ending 31.03.2019 and he ultimately resigned and on the basis of

the material collected and being satisfied by the same an application was

moved.

43. We notice and also highlighted by the Adjudicating Authority that in

the replies filed by the Suspended Directors of the CD before Ld.

Adjudicating Authority financial statements were enclosed, wherein the

entire outstanding receivable of Rs. 98.97 Crores were reversed and no sum

payable by the appellant to the CD, remained. Glaring discrepancies have

been found by Ld. Adjudicating Authority in the financial accounts provided

by the DRI and those submitted by the Suspended Directors of the CD with

their replies, which shows that unilateral purchase entries were passed

amounting to Rs. 54.37 Crores and the sales entries of Rs. 35.41 Crores,

Company Appeal (AT) (Ins) No. 510 of 2021 22 of34 which were existing in the financial statements provided by the DRI have

been deleted and the rest of the balance of Rs. 14.31 Crores has been

nullified by passing unilateral journal entries and therefore the entire

balance of Rs. 98.97 crores which was receivable by Respondent No. 1 was

wiped out by doing fraudulent paper work.

44. So much so the Adjudicating Authority further noticed that in the

replies filed by the suspended director of the CD with regard to IA No. 1212

of 2020 which was moved by the RP for seeking cooperation from the

erstwhile Directors under Section 19 (2) of the Code, the copies of the

unaudited balance sheets for the period from 01.04.2018-31.03.2019 and

01.04.2019 to 13.11.2019 were filed and these Balance Sheets shows an

outstanding balance of Rs. 57.72 crores receivable from Respondent No. 1

and thus it has been rightly held by Ld. Adjudicating Authority that

fraudulent new book entries have been made in the financial statements of

the CD to clear the balances which otherwise were payable by Appellant No.

1 to CD.

45. It is also to be recalled that the premises of the CD were raided by the

DRI in the month of May, 2019 and thereafter the RP has not found any

inventory of gold etc. which was also discussed in the meeting of the COC

and after the DRI raids the business of the CD was almost shut down and

thus there was no reason for the appellant to have entered into any

transaction with the CD.

46. In a case relied on by Ld. Counsel for Respondent No. 5 namely Royal

India Corporation Ltd. vs. Nand Kishor Vishnupant Pandey and Ors., CA

(AT) (Ins) No. 137 of 2021 which is an appeal concerning the transaction

Company Appeal (AT) (Ins) No. 510 of 2021 23 of34 mode with the same CD, this tribunal has noted the order dated 04.02.2021

passed by the Joint Commissioner of Customs as under:

"3. I find from the instigation conducted by DRI and the statements of the Directors and employees of RRPL, that the RRPL was a front company run by Shri Manojkumar Babulal Punamiya. Shri Manojkumar Babulal Punamiya appears to have arranged finances for the company and recruited directors like Shri Vishal Harish Choudhary and Shri Gaurav Dilipraj Panwar. Both the directors acted under his instructions on front end and he was behind the curtain. Under the directions of Shri Manojkumar Babulal Punamiya both the above directors had planned to import duty-free gold bars under Advance Authorisation and divert the same to domestic market and further planned to fulfill export obligation by showing export of non-gold jewellery of alloys of copper and nickel, as gold jewellery".

47. Various submissions have been raised by the suspended directors of

the CD as well as by the Appellant pertaining to the sufficiency of material

with the RP for moving an application before the Adjudicating Authority and

it is argued that on the basis of unaudited financial accounts the application

for declaring certain transaction as fraudulent may not succeed.

48. We are not in agreement with the submissions made by Ld. Counsel

for the Appellant and are of the considered view that a decision pertaining to

the impugned transactions was required to be taken by Ld. Adjudicating

Authority on the basis of the evidence and material made available to it. The

financial accounts seized by the DRI and provided to the RP cannot be

brushed aside lightly and in absence of any purchase orders and also in

view that there was no inventory at all with the CD, as its Directors were in

Jail, the entries in the financial accounts relied on by the appellant and

suspended Directors of the CD may not have much substance and it is

evident that by making false entries in the accounts book the receivable of

Company Appeal (AT) (Ins) No. 510 of 2021 24 of34 respondent no. 1 have been wiped out to defraud the other creditors of the

CD.

49. We do not want to go in the question of presence of mens rea with the

appellant or suspended directors of the CD as it is very difficult for the RP to

have proved the same by tendering any direct and cogent evidence. The

mental state of a person may be gathered by his act and in this case having

regard to the impugned transactions found in the financial statements

submitted by the suspended directors of the CD before the adjudicating

authority and the documents given by the DRI to the RP clearly suggests

that fraudulent entries have been made with the intention to defraud the

genuine creditors of the CD and for the benefit of the Appellant. Thus the

fraudulent mental state of the appellant and directors of the CD is apparent.

50. So far as the contention of the appellant pertaining to the fact that

there are GST invoices filed on the record of this appellate tribunal with

regard to the impugned transaction, is concerned, we are in agreement with

the submissions made by Ld. Counsel for the Respondent No. 5/liquidator

in terms that the fraud may be committed even by raising GST invoices as

by spending few lakhs in GST invoices, Crores of Rupees have been

siphoned. It may be recalled that some of these transactions are shown to

have been executed just after the raids of the DRI at the premises of the CD

and the CIRP of the CD was very much in contemplation. It also appears

that application under Section 9 of the IBC was filed by the operational

creditor for initiation of the CIRP of CD on 12.06.2019 and order has been

passed by Ld. Adjudicating Authority on 13.11.2019. It is also to be recalled

that we are in an era where the conspiracies are hatched in isolation and

Company Appeal (AT) (Ins) No. 510 of 2021 25 of34 executed with precision and when some fraudulent transactions are made

with planning and prior homework, direct evidence of the same is seldom

available. It is evident in this case that, certain entries were deleted and

added in the financial accounts by CD whereby the appellant was benefitted

to the tune of Rs. 98,96,82,438/-would itself clearly established that by

making fraudulent entries the receivable by the appellant has been wiped

out.

51. The other submission of Ld. Counsel for the appellant is pertaining

to the fact that no direction under Section 66 of the Code to contribute to

the account of CD may be given to a third party and reliance has been

placed on Gluckrich Capital Pvt. Ltd. vs. The State of West Bengal and

Ors., (2023) SCC online SC 1187. The issue is now no more res integra

and has been settled by catena of judgments passed by this Appellate

Tribunal. A plain reading of Section 66 of the Code would demonstrate that

under Section 66(1) if during the corporate insolvency resolution process or

a liquidation process it is found that the business of the CD has been

carried on with the intent to defraud creditors of the CD or for any

fraudulent purpose the adjudicating authority on an application moved by

the resolution professional may pass an order directing any persons who

were knowingly parties to the carrying of the business in such manner to

make contributions to the asset of the CD as the tribunal may deem fit.

Sub-Section 2 of Section 66 also provides that on an application made by

the RP during corporate insolvency resolution process the Adjudicating

Authority may by an order direct that a director or partner of the CD shall

be liable to make such contribution to the assets of the CD if, before the

Company Appeal (AT) (Ins) No. 510 of 2021 26 of34 insolvency commencement date such director or partner knew or ought to

have known that there was no reasonable prospect of avoiding the

commencement of CIRP and they did not exercise due diligence in

minimising the potential loss to the creditors of the CD.

52. In Renuka Devi Rangaswamy v. Mr. Madhusudan Khemka

Suspended Director of M/s. Regen Infrastructure and Services Pvt. Ltd.

[Company Appeal (AT)(CH)(Ins) No. 356 of 2022], this appellate tribunal

held in paragraph No.37 as under; -

"Para 37 `Dishonesty', is an essential ingredient of `Fraudulent Trading'. The `Aspect of Dishonesty', is to be established and it cannot be inferred in any manner. Whether a `Director', had exercised his skill, experience and general knowledge, to be expected of a person, in carrying out the `duties of his functions', is to be determined for a `Liability', in the considered opinion of this `Tribunal'."

53. In Piramal Capital and Housing Finance Limited v. Moons

Technologies Ltd. & Ors. [2025 SCC Online SC 690], observations made

by the Hon'ble Supreme Court are reproduced as under: -

"56. Thus, there is a clear distinction between the Avoidance Applications that may be filed by the Resolution Professional in view of Section 25(2)(j), for avoidance of transactions in accordance with Chapter III of the Code, and the Applications that may be filed by the Resolution Professional in respect of the Fraudulent trading or Wrongful trading under Section 66, which falls under Chapter VI of the Code. The legislature has consciously kept the Applications in respect of Fraudulent trading or Wrongful trading falling in Chapter VI, outside the purview of Section 25(2), which requires the Resolution Professional to undertake the actions and file applications for the avoidance of transactions in accordance with Chapter III. Both, the Avoidance Applications under Chapter III and the Applications in respect of Fraudulent trading or Wrongful trading under Chapter VI, operate in different situations. The powers of the Adjudicating Authority in respect of the Avoidance Applications filed under Chapter III and the powers of the Adjudicating Authority in respect of the

Company Appeal (AT) (Ins) No. 510 of 2021 27 of34 Applications pertaining to the Fraudulent and Wrongful trading filed under Chapter VI, have also been separately circumscribed.

60. However, in cases of "Fraudulent or Wrongful trading"

in respect of the business of the CD as contemplated Civil Appeal Nos. 1632-1634 of 2022 Page 94 of 145 in Section 66, the properties and the persons involved may or may not be ascertainable and therefore the Adjudicating Authority is not empowered to pass orders to avoid or set aside such transactions, but is empowered to pass orders to the effect that any persons, who were knowingly parties to the carrying on of business in such manner, shall be liable to make such contributions to the assets of the CD, as it may deem fit. The Adjudicating Authority in such applications may also direct that the Director of the CD shall be liable to make such contribution to the assets of the CD as it may deem fit, as contemplated in Section 66(2). In case of Fraudulent trading or Wrongful trading, it would be a matter of inquiry to be made by the Adjudicating Authority as to whether the business of CD was carried on with intent to defraud creditors of the CD or was carried on for any fraudulent purpose.

61. In view of the above, the Applications filed in respect of "Fraudulent and Wrongful trading" carried on by the CD, could not be termed as "Avoidance Applications" used for the Applications filed under Sections 43, 45 and 50 to avoid or set aside the Preferential, Undervalued or Extortionate Civil Appeal Nos. 1632-1634 of 2022 Page 95 of 145 transactions, as the case may be. There is clear demarcation of powers of the Adjudicating Authority to pass orders in the Avoidance Applications filed by the Resolution Professional under Section 43, 45 and 50 falling under Chapter III and the Applications filed by the Resolution Professional in respect of the Fraudulent and Wrongful trading of CD, under Section 66 falling under Chapter VI of the IBC. If the Resolution Professional has filed common applications under Sections 43, 45, 50 and also under Section 66, the Adjudicating Authority shall have to distinguish the same and decide as to which provision would be attracted to which of the Applications, and then shall exercise the powers and pass the orders in terms of the provisions of IBC."

54. This appellate tribunal in Swapan Kumar Saha v. Ashok Kumar

Agarwal, (2025) ibclaw.in 911 NCLAT, while considering various cases on

the subject held as under:

Company Appeal (AT) (Ins) No. 510 of 2021 28 of34 "28......b. Can Section 66(1) of the Code be interpreted or invoked or made operational without recourse to Section 66(2) of the Code? Do they operate independent of each other or jointly?"

44. We further note that the next subsection 66(2) relates to specific provisions for a Director or partner of the CD for which CIRP is going on. This subsection provides that if before the insolvency commencement date, a director or partner knew or ought to have known that CIRP could not have been avoided and failed to exercise due diligence in minimising potential loss to the creditors, AA may direct the erring director or partner to be liable and make such contributions to the assets of the CD as it may deem fit. We observe that the first provision (section 66(1)) is very broad but not the second one (Section 66(2)) ....

45. From a bare reading of Section 66(1) and Section 66(2) of the IBC we find that both have self-contained provisions, with clear mechanisms for their invocation during a CIRP. Further, a perfunctory glance at Section 67 of the IBC will make it abundantly clear that the draftsmen and legislators clearly intended for Sec 66(1) and Section 66(2) to operate independently, as the opening line of Section 67(1) and 67(2) of the IBC would reflect, ........"

Thus the above placed cases would sufficiently lay down the proposition that

Section 66 of the IBC, 2016 deals with two different situations. Section 66(1)

of IBC, 2016 deals with 'Fraudulent Trading' and Section 66(2) of IBC, 2016

deals with 'Wrongful Trading'. Section 66(1) of IBC, 2016 imposes liability on

'any person' who were knowingly parties to the carrying on the business

with a dishonest intention to defraud the creditors, to make contribution to

the assets of the Corporate Debtor. Therefore to qualify under Section 66(1)

of IBC, 2016, the transaction should be knowingly transacted with a

dishonest intention to defraud the creditors of the CD, while under Section

66(2) of IBC, 2016 , which deals with 'Wrongful Trading', Liability can only

be fixed upon only 'Director' or 'Partner' and for a transaction to qualify

under this Sub Section it must be shown that the parties to such Company Appeal (AT) (Ins) No. 510 of 2021 29 of34 transaction knew, or ought to have concluded that there was no reasonable

prospect of avoiding insolvency proceedings and they did not take due

diligence with a view to minimizing the potential loss to the creditors of the

company. Thus both these sub sections of Section 66 of the Code takes care

of two different situations and also the scope of sub - section (1) and (2) of

Section 66 of IBC, 2016 is different. No need to say that the facts alleged

and evidence produced must satisfy the ingredients of this section and the

facts from which the intention to defraud may be deduced must be proved to

satisfy of the conscience of the 'Tribunal' certainly on the scale of

'preponderance of probability'. However, no strait jacket formula can be

formulated to fit in all factual situations and it will depend on the facts and

evidence placed in each case to asses as to whether the particular

transaction may be treated as fraudulent or not.

55. What is also evident from the record is that during the search action

conducted by DRI in May 2019, on the premises of the CD and its Directors

various documents/financial accounts were seized the DRI and on the

request of RP, were made available to him, which shows that the appellant

owed Rs. 98,96,82,438/- to the CD and it is established by the material

placed on record that the CD was almost closed since May, 2019 and was

not doing any business, because of the raids conducted by the DRI.

56. It is also established and has also not been challenged by the

Appellant that in the financial statements seized by the DRI, outstanding

amount of Rs. 98,96,82,438/- of the appellant was reflected but through

entries made subsequently the outstanding amount was brought down to

Company Appeal (AT) (Ins) No. 510 of 2021 30 of34 Nil. In this regard the contention of the statutory auditor may also be

recalled when he stated that he was not provided any financial statements.

It is also evident that RP had also reported to the CoC of the CD that no

inventory corresponding to the transactions shown by the Appellant was

found by the RP at the premise of the CD. Thus, it is a crystal clear case

where false entries have been made in the financial statements of the CD in

collaboration with the Appellant and in this background the financial

accounts of the appellant and CD, which appears to have been made

subsequently may not be given much weightage and appears to be only

paper work.

57. In Royal India Corporation Limites vs Mr NandKishor Vishnupant

Pande (RP of RRPL), dated 06.05.2024 passed in Company Appeal (AT)

(Insolvency) No. 137/2021, wherein the same set of CD and Directors were

parties and the transaction was similar, a coordinate Bench of this Appellate

Tribunal opined as under: -

"10.3 The Appellant had relied on the judgment of the Hon'ble Supreme Court in the matter of Gluckrich Capital Pvt. Ltd. vs. State of West Bengal & Ors.- 2023 SCC OnLine SC 1187 and in the case Usha Ananthasubramanian vs. Union of India- (2020) 4 SCC 132. On perusal of the judgment of the Hon'ble Supreme Court in the case of Gluckrich Capital Pvt. Ltd. vs. State of West Bengal & Ors.- 2023 SCC OnLine SC 1187 quoted by the Appellant it is seen that the application seeking clarification of Judgment and order dated 24.02.2023 passed by the Hon'ble Supreme Court in SLP (Crl.), diary no. 6723/23, filed by Applicant was dismissed and the said judgment related to transit anticipatory bail in a criminal case.

10.4 The judgment of the Hon'ble Supreme Court, relied upon by the Appellant in the case Usha Ananthasubramanian vs. Union of India; (2020) 4 Company Appeal (AT) (Ins) No. 510 of 2021 31 of34 SCC 132 the facts were entirely different. The said appeal was filed by Usha Ananthasubramanian, former MD & CEO, Punjab National Bank wherein the judgment of NCLT and NCLAT was set aside. In this case, the allegation was that the Appellant had failed to take preventive steps to prevent fraud perpetuated by Mr. Nirav Modi and thereby committed mischief and conspiracy with the other accused person. ............

10.5 The facts of the present case are different and distinguishable from the cases cited by the Appellant. In the present case, there is a finding that Manoj Punamia was running several companies in its business of gold refinery. The finding of the Customs Department was that both the Appellant Company (RICL) and Corporate Debtor (RRPL) were being managed by Mr. Manoj Punamia. Mr. Manoj Punamia and his wife were said to be shareholders of the Appellant Company. In these circumstances, the appellant cannot be said to be a third party, as both RICL and RRPL are under the control of same person. "

58. This Appellate Tribunal in Company Appeal (AT) (Insolvency)

No.104 of 2024, Sangeeta Jatinder Mehta & Anr. vs Kailash Shah RP of

New Empire Textile Processor Pvt. Ltd., 2025 SCC OnLine NCLAT 795

held as under: -

"8. The judgment, which has been relied by learned Counsel for the Respondent in Royal India Corporation Ltd. (supra) of this Tribunal supports the submission of Respondent that action under Section 66, sub-section (1) can be taken against any person. The judgment of this Tribunal in Tridhaatu Kirti Developers LLP also supports the submission of learned Counsel for the Respondent. We, thus, do not find any error in the judgment of Adjudicating Authority insofar as it has held that transaction of payment of consultancy charges to Appellant Nos.1 and 2 were not bona-fide transaction.

9. The judgment of Tripura High Court in Smt. Sudipa Nath vs Union Of India, 2023, SCC OnLine Tri 79 has been relied by the Appellant. In paragraph 19 of the judgment, following was laid down: "(19) Therefore, in legislature wisdom and as apparent from the text of 66(1) it is clear that firstly it confers no jurisdiction but declaring any transaction as void, even if fraudulent, but confers jurisdiction on NCLT to fix the liabilities on the persons Company Appeal (AT) (Ins) No. 510 of 2021 32 of34 responsible for conducting business of corporate debtor which is fraudulent or wrongful. Secondly section 66(1) contemplates an application thereunder only by the resolution professional and by none other. Thirdly section 66 (1) also restricts the power of NCLT subject to being satisfy with pre-requisite that any business of the corporate debtor has been carried on with intent to defraud creditors or the corporate debtors or for any fraudulent purpose and if satisfied it powers to pass an order is only against such person who are responsible for the conduct of such fraudulent business of the corporate debtor with mens rea to make them personally liable to make such contributions to the assets of the corporate debtor as it may deem fit."

10. learned Counsel for the Appellants has also relied on the judgment of Hon'ble Supreme Court in Gluckrich Capital Pvt. Ltd. (supra), which proceedings arose out of interim order dated 30.11.2022 passed by Delhi High Court in Criminal M.C. No.6408 of 2022 extending the transit anticipatory bail granted to the Respondent, who were stated to be Suspended Directors of CD. Vide judgment dated 24.02.2023, Special Leave Petition (Criminal) filed by the Applicant was rejected holding that it has no locus, it being neither the informant nor a party to the proceedings. Subsequently, an Application for clarification was filed, which ultimately was rejected. In paragraph-7 of the judgment, the Hon'ble Supreme Court in Gluckrich Capital Pvt. Ltd. laid down following:

"7. In our considered opinion, in the name of seeking a clarification, the endeavor of the applicant herein is to indirectly get over with the judgment and order dated 18.01.2023 in WP(C) (PIL) 04 of 2023 passed by Tripura High Court. Such an endeavor, in the guise of a clarification, cannot be permitted."

In result, we partly allow the Appeal and set-aside the direction of the Adjudicating Authority in the impugned order, insofar as it declared the transfer of Flats by CD in favour of the Appellants, void. We, however, uphold the direction of the Adjudicating Authority with respect to consultancy charges of Rs.13.74 lakhs with respect to Appellant No.1 and Rs.13.80 lakhs with respect to Appellant No.2. We direct Appellant Nos.1 and 2 to deposit the aforesaid amount in the account of CD within a period of 30 days from today.

(Emphasis Ours)

Company Appeal (AT) (Ins) No. 510 of 2021 33 of34

59. We also notice that on identical facts with regard to the same CD and same Directors, in the case of Baiju Trading and investment Pvt. Ltd. vs. Mr. Arihant Nenawati (liquidator for RRPL & Ors.) the orders passed by the NCLT under Section 66 of the IBC, was upheld by this Appellate Tribunal vide order dated 29.03.2023, and similarly in case of Tridhaatu Kriti Developers LLP vs. Arihant Nenawati (liquidator for RRPL & Ors.) (2023) SCC online NCLAT 1583 against the same Respondents the order of NCLT passed under Section 66 of the Code was affirmed and the order of this Appellate Tribunal was challenged before the Hon'ble Supreme Court by filling Civil Appeal No. 914 of 2023 and the order of this Appellate Tribunal was upheld by the Hon'ble Supreme Court.

60. Therefore, keeping in view all the facts and circumstances of the case and for the reasons given herein before we are not having any iota of doubt in our mind that simply by making fraudulent entries in the accounts books and statements the receivables to the appellant to an amount of Rs. 98,96,82,438/- has been wiped out and in this way the genuine creditors of the CD has been defrauded without any actual sale of gold. Thus, we do not find any good ground on the basis of which any interference in the impugned judgment may be made.

61. Resultantly, the appeal lacks merit and is hereby dismissed. No order as to costs.

62. Pending IA's if any, are hereby closed.

[Justice Mohd. Faiz Alam Khan] Member (Judicial)

[Arun Baroka] Member (Technical)

New Delhi.

28.01.2026.

sr/sc

Company Appeal (AT) (Ins) No. 510 of 2021 34 of34