Dr. K.V. Srinivas (Liquidator) vs Mr. Ravi Srinivas & ors
IA No.568 of 2019 in CP(IB) No.172/10/HDB/2017
Facts:
1. Respondent No. 1 filed an application under section 10 of the IBC before this Authority. Subsequently vide order dated 06.09.2017 this Authority in C.P. (IB) No. 172/10/HDB/2017 admitted the Corporate Debtor (CD) into Corporate Insolvency Resolution Process (CIRP).
2. RP filed an application under section 19 of the IBC, 2016 vide CA No. 56 of 2018 dated 12.02.2018, seeking appropriate directions to the Respondent No. 1 to Respondent No. 3 and the said application was disposed of by this Authority along with the Order of Liquidation on 21.03.2018. Aggrieved by the said order, the Respondent No. 1 filed an appeal before the Hon’ble NCLAT vide Company Appeal (AT) (Insolvency) No. 124 of 2018, which was dismissed vide an Order dated 11.07.2018.
3. Respondent No. 1 and 3 have carried the matter further to the Apex Court vide Civil Appeal Nos. 11243 of 2018 & 11244 of 2018. The Apex Court, vide a common Order dated 07.12.2018, dismissed the both appeals. Thus, the CIRP of the CD had come to an end, and the Liquidation Orders passed by this Authority had attained its finality.
4. Applicant has filed the present application under section 66 (1) r/w sections 18, 68, 69, 70(1), 71 and 72 of Insolvency and Bankruptcy Code, 2016 (IBC) and section 213 of Companies Act, 2013., r/w Rule 11 of the NCLT rules, 2016, seeking various reliefs including directions to direct Respondent No.s 1 & 2 to contribute a sum of Rs. 206,39,88,341/- to the assets of the CD (CD) which has been illegally siphoned off from the coffers of the CD.
Issue: Whether the application be admitted ?
Arguments:
Applicant:
1. Applicant submitted that in the financial year ending 31.03.2017, there were huge debt in the form of trade receivables, security deposits, and advance receivables in cash or in kind, amounting to Rs. 99,92,84,640, 55,92,385, and 5,43,43,311 respectively. Respondent No. 1 showed questionable urgency in filing a malicious application under Section 10 of the IBC, 2016, before the Tribunal for the initiation of CIRP.
2. It was pointed out that debtors/trade receivables/stocks were charged to the financial creditor, State Bank of India, and by writing them off, the Respondents committed fraud against the financial creditors. Respondents misused the provisions of IBC 2016 by filing an application under section 10 before this Authority, aiming to commence CIRP. Their hidden agenda was to prevent State Bank of India from recovering its dues under SARFAESI, evade tax dues owed to the Government, and defraud creditors. Further, the Respondents did not fully cooperate.
3. It was submitted that loan amounts of Rs. 28 Crores were adjusted against the payables to the 38 poor farmers thereby cheating and defrauding them. Notably, ICICI Bank and RBL Bank have initiated recovery proceedings before DRT against all the poor farmers, who are now seeking justice. It clearly shows the misconduct of Respondents which attracts provisions under section 70(1) of IBC, 2016.
Respondents:
1. Respondent No. 1 submitted that since his appointment as RP, Applicant in collusion with SBI, sole member of CoC, has consistently harmed the CIRP process and acted contrary to the CD’s interests. He neglected the Information Memorandum prepared by Respondent No. 7 and mishandled meetings and resolution plan presentations before the CoC. M/s. Bhaskar Agro Agencies (Respondent No. 5) proposed a resolution plan that benefited all CoC members and the CD but Applicant suppressed this resolution plan.
2. Respondent No.3 submitted that he was never called to any CoC meetings throughout the CIRP and subsequent liquidation proceedings and further Applicant made baseless allegations of non-cooperation against the Respondent No. 2 to conceal his own misconduct.
3. Respondent No. 4 submitted that it only possesses a minority stake in the CD and has no control over the management. Financial records from 2015-2016 indicate that the CD was financially distressed subsequently Respondents 3 and 4 invested additional funds in 2015 and 2016 to safeguard the interests of creditors and farmers.
4. Respondent No. 5 submitted that the Applicant filed the present application against him with a malicious intent to avoid repaying the debts owed by the CD to him and further stated that the alleged provisions of the Code do not directly apply to Respondent No. 5, as he was a third-party distributor before CIRP.
Decision: NCLT dismissed the application.
Rationale:
1. NCLT noted that based on the information provided, neither the Applicant nor the Respondents were able to support their claims with evidence. The burden of proving the fraudulent intention of the Respondents falls on the Applicant; however, they failed to present substantial evidence beyond the Forensic Audit Report, which was conducted by an auditor appointed by the applicant.
2. It held that Upon examining the factual background and above observations it is clear that all the allegations made by the Applicant are mainly based on the Forensic Audit Report dated 31.05.2019 which clearly indicates only the opinion of the auditor and does not provide any evidence to prove that there was a fraudulent transaction. Consequently, the Forensic Auditor has merely expressed suspicions regarding the existence of fraud in the commercial activities of the CD, without providing conclusive evidence of fraudulent intent on the part of the Respondents.
Order:
