Harvinder Singh vs Anjan Jain & Ors.

PER: ATUL CHATURVEDI, MEMBER (TECHNICAL)

The present Application has been filed by Mr. Harvinder Singh, Resolution Professional (RP) of Siti Broadband Services Private Limited (‘Corporate Debtor’) under the provisions of Section 66 of the Insolvency & Bankruptcy Code, 2016 (‘the Code’) seeking the following reliefs: a) Allow the present application;

The National Company Law Tribunal, New Delhi vide its Order dated 31.10.2023 had initiated Corporate Insolvency Resolution Process ("CIRP") against the Corporate Debtor under the provisions of the Code and appointed Mr. Harvinder Singh as the Interim Resolution Professional ("IRP") of the Corporate Debtor.

The Applicant made a public announcement in stipulated FORM A on 05.11.2023, inviting claims from several creditors of the Corporate Debtor in terms of provisions of the Code and Regulations thereof. Pursuant thereto, the Creditors of the Corporate Debtor filed their respective claims before the Applicant wherein, after collation and due verification, the said claims were admitted by the Applicant and subsequently, Committee of Creditors (“CoC”) was constituted by the Applicant herein.

The 1^st meeting of CoC was convened on 09.01.2024 wherein, the Applicant apprised the members of CoC with developments in the CIRP of the Corporate Debtor. The Applicant was confirmed as the Resolution Professional in terms of Section 22(3) (a) of the Code, 2016 unanimously. in the 1^st meeting only, the CoC members, pursuant to Regulation 39(2) & 35A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, approved the agenda for appointment of transaction auditor, PVR N & Co. with the requisite voting share. The Transaction Auditor appointed to review the accounts of the corporate debtor submitted its final report to the Applicant on 20.11.2024 for the review period (“Audit Period”) commencing from 01.04.2018 till the initiation of CIRP of the Corporate Debtor vide the order dated 31.10.2023 and the Applicant based on the findings of the Transactional Auditor and basis his opinion, determined various transactions which falls under the scope of Section 43,45,50 and 66 of the Code. Upon receiving the final transaction audit report, the Applicant is filing the present application under Section 66 of the Code.

While the CIRP of the Corporate Debtor was commenced vide the Order dated 31.10.2023, the CIRP Process of the Corporate Debtor was subsequently stayed by the order dated 10.11.2023 passed by the National Company Law Appellate Tribunal. That as a result of the stay operating between the period commencing from 10.11.2023 till 20.12.2023, the Applicant could not take any steps pursuant to the initiation of the CIRP of the Corporate Debtor. It is submitted that despite of the fact that the Applicant herein had proceeded to appoint the Transaction Auditor on 15.01.2024 (37^th Day of Commencement of CIRP) pursuant to the Resolution being passed by the CoC during the course of the 1^st Meeting of the CoC). However, as a result of the continued non-cooperation of the ex-management of the Corporate Debtor in providing requisite documents, there has been an inadvertent delay in finalizing of the Audit Report by the Transaction Auditor. In order to be able to make conclusive determination and for adequate categorization of the Transactions in terms of the Section 66 of the Code, additional time was required by the Applicant.

It is to be noted that in terms of Section 66(1) of the Code, fraud shall be deemed to have been committed by the Corporate Debtor when the business of the Corporate Debtor has been carried out with an intention to defraud the creditors of the Corporate Debtor or for any fraudulent purpose. The Applicant is duty bound to report to this Hon’ble Adjudicating Authority about the fraudulent transactions as determined where the persons who were knowingly parties to carry on the business in such a manner and to hold them liable to make such contributions to the assets of the Corporate Debtor. Furthermore, under the provisions of Section 66(2) of the Code, the director or partner of the Corporate Debtor shall be held jointly and severally liable to make a contribution to the assets of the Corporate Debtor, if such director or partner knew or ought to have known that there was no reasonable prospect of avoiding the commencement of CIRP and if such director or partner did not exercise due diligence in minimising the potential loss to the creditors of the Corporate Debtor.

It is submitted that the Corporate Debtor was in a state of financial distress at the time when the Application under Section 7 of the Code was filed by Aditya Birla Finance Limited for initiation of CIRP. Rather than acting in the best interests of the Corporate Debtor and its stakeholders, the Respondents with a fraudulent intention engaged in activities such as fraudulent trading, failing to address recovery of outstanding advance balances, ignored and siphoned the collection of overdue debts from outstanding debtors and conducted interparty transactions performed to misappropriate funds from the creditors of the CD. The same can be clearly identified in the books of the Corporate Debtor and the accounting statement. Therefore, the actions of the Respondents attract liabilities under Section 66 of the Code, which addresses fraudulent trading.

It is submitted that, there are total 24 Respondents arrayed in the captioned Application and the following are their roles and the transactions involved for the convenience of this Adjudicating Authority:

TRANSACTION 1: OUTSTANDING BALANCE OF ADVANCE GIVEN TO SUPPLIERS AS ON 31.10.2023 AMOUNTING TO Rs. 6,53,54,848/-:

a. The Corporate Debtor was engaged in the business of providing Internet Services. To further its business objectives, the Corporate Debtor had entered into arrangements with various service providers like Bharti Airtel Limited, Reliance Jio Infocom Limited and other local Service Providers, who provide Bandwidth, point-to-point links and Internet Lease Lines ("ILL") to the Corporate Debtor, which in turn it distributed to the end customers in the form of Internet Services.

b. As on 31.10.2023, the Corporate Debtor had outstanding advances receivable from its debtors totalling up to Rs. 6,53,54,848/-(Six Crores Fifty-Three Lakhs Fifty-Four Thousand Eight Hundred and Forty-Eight Only).

c. Upon reviewing the accounts, it was determined that advances to suppliers totalling Rs. 6,53,54,848/- were unrecovered and outstanding as of the commencement date of the CIRP. The examination revealed that multiple ledgers were linked to the same party code, each indicating a balance exceeding Rs. 10,00,000/-. Given the substantial volume of data, reconciling these ledgers was deemed impractical. In the absence of reasonable justification and supporting documentation, the total outstanding balance of Rs. 6,53,54,848/- has, therefore, been classified as falling within the ambit of a Fraudulent Transaction under Section 66 of the Insolvency and Bankruptcy Code, 2016.

1.1. Transaction with Central Bombay Cable Network:

a. Central Bombay Cable Network is a related party of the Corporate Debtor. As on date a sum of Rs. 5,68,30,000/- (Rupees Five Crores Sixty-Eight Lakhs Thirty Thousand Only) stands recoverable from the Central Bombay Cable Networks.

b. The intent of the Respondent No. 1, 2 and 14-16 being the directors of the Corporate Debtor during the relevant period, as inferred from the circumstances, appears to be questionable given the absence of transparency and accountability regarding the advances made to Central Bombay Cable Network Limited (Respondent No. 17). The management's failure to provide any reasonable justification or supporting documentation, despite formal requests, raises concerns about whether these advances were made in good faith and for legitimate business purposes or not. Their reluctance or inability to demonstrate efforts toward the recovery of the substantial outstanding amount of Rs. 5,68,30,000/- (Rupees Five Crores Sixty-Eight Lakhs Thirty Thousand Only) coupled with the lack of disclosure regarding any agreements or contracts that might justify such advances, suggests that the management may have been engaged in activities that could be construed as either negligent or intentionally deceptive. Hence, the said Transaction is liable to be classified as fraudulent transaction as defined under Section 66 (1) of the Insolvency and Bankruptcy Code, 2016.

1.2. Failure to recover the debt amount despite of the fact that the Corporate Debtor was in a state of Financial Distress:

a. The outstanding dues of a sum of Rs. 1,04,10,000/- (One Crore Four Lakhs ten thousand Only) can be seen in the accounts of the Corporate Debtor as on 31.10.2023:

b. The unsubstantiated Transactions amounting to a sum of Rs. 1,04,10,000/- (Rupees One Crore Four Lakhs Ten Thousand Only) was undertaken by the Corporate Debtor during the period between 20.11.2015-01.01.2016. Not only no efforts to recover the said amounts were taken by the present Directors of the Corporate Debtor, but additionally, no documents to substantiate on the said Transactions were provided by the Corporate Debtor.

c. The intent of the Respondent No. 1, 2, 11, 14-16 and 18-20 being the directors of the Corporate Debtor during the relevant period, as inferred from the circumstances, appears to be questionable given the absence of transparency and accountability regarding the advances made in the form of advances to vendors, and additional transactions with Gupta Trading Company, Castlenet Technology Inc.

d. Further, the present suspended management's failure to provide any reasonable justification or supporting documentation, despite formal requests, raises concerns about whether these advances were made in good faith and for legitimate business purposes or not. Their reluctance or inability to demonstrate efforts toward the recovery of the substantial outstanding amount of 1,04,10,000/- (Rupees One Crore Four Lakhs Ten Thousand Only) coupled with the lack of disclosure regarding any agreements or contracts that might justify such advances, suggests that the management may have been engaged in fraudulent transaction in terms of Section 66(1).

e. Further, no attempts were made by the present directors of the Corporate Debtor (powers suspended) (Respondent 1-2), hence such act of the Respondent No. 1-2 could be construed as either negligent or intentionally deceptive and therefore Respondent No. 1-2 are liable to be prosecuted in terms of Section 66(2) of the Code, 2016. Relevant Respondents are provided hereinbelow:

f. Further, despite of the fact that the Corporate Debtor was in a state of Financial Distress and a Loan Recall Notice had been issued against the Corporate Debtor on the Respondents as mentioned above being the directors during the relevant period have failed to exercise due diligence and recover the debts owed to the Corporate Debtor. Arguendo, even if it is contended that the said transactions were carried out without any mala-fide intent, no steps were taken by the Respondent to recover any amounts. Accordingly, even then the Respondents are liable to be prosecuted in terms of the Section 66 (2) of the Code. It is also significant to note that Respondent as mentioned hereinabove have failed to place on record relevant Documents, Annexures to substantiate on the said Transactions.

TRANSACTION 2: OUTSTANDING BALANCE OF DEBTORS/ CUSTOMERS AMOUNTING TO Rs. 3,19,17,157.54 AS ON 31.10.2023:

During the course of the CIRP, the Applicant undertook a detailed review of the books of accounts and financial statements of the Corporate Debtor. Upon such review, it was observed that certain balances, amounting to Rs. 3,19,17,157.54/-(Rupees Three Crores Nineteen Lakhs Seventeen Thousand One Hundred and Fifty-Seven Only) were recoverable from various customers as on 03.10.2024. These balances pertain to transactions with individual parties where the amounts exceed Rs. 0.50 lacs.

The ledgers for parties with balances exceeding the specified threshold were reviewed. However, due to the extensive volume of data and the presence of multiple ledgers for the same entities, it was not feasible to reconcile these accounts accurately. The Applicant requested that the management of the Corporate Debtor/Respondents provide the current status of the recoverability of these outstanding balances, along with any supporting documentation detailing efforts made to recover the amounts, including any legal actions initiated against parties deemed doubtful. Despite repeated requests, the management failed to provide satisfactory explanations or supporting documents regarding the recoverability of the aforementioned amounts.

In the absence of reasonable justification and the lack of supporting documents, the Applicant is of the considered view that the outstanding debtor balance of Rs. 3,19,17,157.54 represents a transaction performed with a fraudulent intent, falling under the purview of Section 66 of the IBC, 2016.

The Respondents, being responsible for the affairs of the Corporate Debtor, carried out these transactions with intent to defraud the creditors of the Corporate Debtor and to siphon off the funds, which is evident from the inability to substantiate the recoverability of the said balances. The Respondents failed to exercise due diligence in the conduct of business and failed to take appropriate measures to recover the outstanding amounts, thereby acting in a manner detrimental to the interests of the creditors.

The details of the outstanding balance of Debtors or Customers. 31.10.2023 are as follows:

II. Upon scrutiny of these transactions and after viewing the Final Audit report, the Applicant made repeated requests to the management for supporting documents and justifications regarding the above inter-party and inter-customer transactions amounting to Rs. 2,05,50,000 (Rupees Two Crores Five Lakhs Fifty Thousand Only) (comprising Rs. 24,70,000 inter-party adjustments and Rs. 1,80,80,000 in inter-customer vouchers), no satisfactory response or justification has been provided by the Respondents till date to the Applicant. Therefore, the Applicant was of the view that these creditors shown in the books could be fake creditors and have simply been entered in order to deceive the Financial Creditors of the Corporate Debtor. The same is also substantiated by the fact that no recovery efforts were made by the Respondents in order to collect the amount receivable from these parties.

III. Taking note on the observations of the Auditor, it can be inferred that the management may have acted with questionable intent regarding the inter-party and inter-customer transactions totalling Rs. 2,05,50,000. Despite repeated requests, the management's failure to provide necessary supporting documents or justifications for these transactions raises concerns about transparency and accountability. The lack of documentation and justification suggests a possible attempt to conceal or misrepresent financial activities, potentially indicating fraudulent intent. This behaviour aligns with the characteristics of those transactions that could be classified as fraudulent under Section 66 of the Insolvency and Bankruptcy Code, 2016, which specifically deals with fraudulent trading or wrongful trading by the management.

IV. In the light of the absence of reasonable justification and supporting documents, as well as failure on part of the directors of the corporate debtor to recover the said amounts, these inter-party transactions amounting to Rs. 2,05,50,000 are reported as falling within the ambit of fraudulent transactions under Section 66 (2) of the Insolvency and Bankruptcy Code, 2016 and thereby rendering Respondent No. 1,2,9, and 10 severally and jointly responsible to make contributions to the assets of the Corporate Debtor accordingly.

TRANSACTION 4: SALE OF GOODS AND SERVICES FOR AN AMOUNT OF RS. 55,69,60,000/- IN THE FY 2017-18, FY 2018-19, FY 2019-20, FY 2020-21, FY 2021-22, FY 2022-23 AND FY 2023-24:

a. In the books of Siti Networks Limited (Related Party), an amount of Rs. 26,12,00,000 (Rupees Twenty-Six Crores Twelve Lakhs Only) was recognised as revenue from the Sale of Goods and services during the FY 2017-2018. In the financial statements of the Corporate Debtor, total revenue from Operations for FY 2017-2018 amounted to Rs. 29,66,00,000/- only, against which Siti Network Limited had charged Rs. 26,12,00,000/- (Rupees Twenty-Six Crores Twelve Lakhs Only).

b. Similarly in subsequent Financial Years i.e. FY 2018-19, FY 2019-20, FY 2020-21, FY 2021-22, FY 2022-23 and FY 2023-24 an amount of Rs. 6,00,00,000/-(Rupees Six Crores Only), Rs. 6,00,00,000/- (Rupees Six Crores Only), 6,50,30,000/- (Rupees Six Crores Fifty Lakhs Thirty Thousand Only). 8,77,20,000/- (Rupees Eight Crores Seventy-Seven Lakhs Twenty Thousand Only), 1,78,80,000/- (Rupees One Crores Seventy-Eight Lakhs Eighty Thousand Only) and 51,30,000/-(Rupees Fifty-One Lakhs Thirty Thousand Only) respectively were recognised as revenue from the Sale of Goods and Services.

c. Taking note of the observations of the Forensic Auditor, it is inferred that the management has acted with questionable intent regarding the Related Party transactions amounting to Rs. 55,69,60,000/- Rupees Fifty-Five Crores Sixty-Nine Lakhs Sixty Thousand Only). No documentation, Agreement has been placed on record to substantiate on the nature of goods and services and the terms dictating the Transaction. Further, the Applicant has failed to place on record the calculation and computation elaborating on the said Transaction. Further a bare perusal of the analysis of the Transaction shows that while the Annual Turnover of the Corporate Debtor in the year 2018-2019 was Rs. 29,65,90,000/- (Rupees Twenty Nine Crore Sixty Five Lakhs Ninety Thousand Only) a sum of Rs. 26,12,20,000/- (Rupees Twenty Six Crores Twelve Lakhs Twenty Thousand) was advanced as management fees expense.

d. In absence of a valid Agreement, documents supporting the said Transaction, the Applicant herein of the opinion that the said Transaction has been carried out in an attempt to conceal or misrepresent financial activities, indicates fraudulent intent. This behaviour aligns with the characteristics of those transactions that could be classified as fraudulent under Section 66(1) of the Insolvency and Bankruptcy Code, 2016, which specifically deals with fraudulent trading or wrongful trading by the management, thereby rendering Respondent No. 1, 2 and 3 severally and jointly responsible to make contributions to the assets of the Corporate Debtor accordingly. That the Applicant has only been able to locate a document related to a Transaction pertaining to a sum of Rs. 8 Crore transaction between the Corporate Debtor and Siti Networks, the said agreement is not valid and has been signed by only one party.

e. It is pertinent to note that upon reviewing the Balance sheets of the Corporate Debtor for the FY 2017-18 to FY 2023-24, the Applicant noted that the sale amounting to a total sum of Rs. 55,69,60,000/-Rupees Fifty-Five Crores Sixty-Nine Lakhs Sixty Thousand Only) was disclosed in the notes to accounts section..

f. In purview of above explained transaction the Applicant has observed that following transactions of the company attracts the provisions of section 66 of IBC, 2016:

g. While the creditors of the Corporate Debtor were struggling with their recovery process and will have to undertake significant write-off on their stakes, the funds of the Corporate Debtor have been diverted through transactions assailed in this application to the prejudice of the financial creditors and other stakeholders.

h. The above transactions clearly demonstrate that the Respondents have made a misstatement in their balance sheets by not disclosing or providing proper justification the transactions performed with the Related Parties of the Corporate Debtor. The said concealment on the part of the Respondents clearly indicate malicious intent to defraud the creditors under section 66(1) of the Code, the Respondent No. 1, 2, 3, 7, 9, 10, 14, 15, 16, 21, 22, 23 and 24 are liable qua the above-stated Transactions.

TRANSACTION NO.5: UNDERVALUED TRANSACTION WITH DISH TV INDIA LTD (RELATED PARTY):

a. The Corporate Debtor provides broadband/ internet services under the Unified License No. 821-154/2014-DS dated January 28, 2015, for ISP (Category A) granted by the Department of Telecommunication, Ministry of Communications, Government of India. Dish TV India Ltd is a related party as defined under Section 5(24)(A) of the Code since both the Corporate Debtor and Dish TV India Limited are companies of the same corporate group i.e., Essel Group sharing common directorship hence Dish TV is a related party of the Corporate Debtor, is one of the debtors of the Corporate Debtor where an amount of Rs 6,31,00,000/- was outstanding in the books of the Corporate Debtor for the cable and network services provided to Dish TV India Limited by the Corporate Debtor.

b. The Respondent No.1 and 2 were appointed as the Directors in the Corporate Debtor on 17.06.2022 and 27.01.2023 and were responsible for conducting all the transactions on behalf of the Corporate Debtor. Their appointment was done well within the relevant period of two years preceding the date of commencement of the Corporate Insolvency Resolution Process of the Corporate Debtor. It is submitted that upon perusal of the available Ledger Balances for the Financial Year 2021-22, it was observed that the director of the Applicant (powers suspended), had written off certain balances of debtors. The details of the amount written off as evident from ledger of the Corporate Debtor is as follows:

c. Despite of the fact that the Corporate Debtor was in a state of financial distress, instead of proceeding with the recovery of the outstanding amount, the Respondent No.1, 2 proceeded to write-off of a sum of Rs. 6.31 Lakhs existing in the books of the Corporate recoverable from M/s Dish TV India Ltd, a related party of the Corporate Debtor, since both the Corporate Debtor and Dish TV India Ltd, are a part of the same corporate group, i.e., Essel Group. This relationship heightens the presumption of fraudulent intent of the Corporate Debtor in proceeding with the said Write-Off.

d. Therefore, evidently, the directors/ promoters of the Corporate Debtor despite being fully aware of the said factum of default admittedly failed to exercise due diligence in minimizing the potential loss to its creditors and entered into transactions as enumerated above, which on the face of it are transactions to defraud its creditors, with a clear intent to defraud its creditors.

e. Under no circumstances the said transactions can be considered in the normal course of business by any company, which leads to only one conclusion that the above said transactions were carried out with a clear intent to defraud its creditors. The relief as sought shall create equilibrium of assets and liabilities in the fold of the Corporate Debtor. That the reliefs as sought are quintessential to further the object of maximization of value enshrined in the preamble of the Insolvency and Bankruptcy Code, 2016 by salvaging the value of assets entangled in vicious corporate structures designed to defraud creditors.

f. The deliberate attempt of the director of the Corporate Debtor to proceed with the Write-Off is liable to be categorized a Fraudulent Transaction in terms of Section 66(2) of the Code. Hence Respondent No. 1 and 2 are liable to pay a sum of Rs. 6.31 Lakhs to the Corporate Debtor/Resolution Professional.

In lieu of the afore-stated facts and circumstances, the Applicant is filing the present application under Section 66 of the Code seeking avoidance of above stated fraudulent transactions. That it is settled position of law that once the transaction is shown to be fraudulent, sham, circuitous or a device designed to defeat the interest of the stakeholders including shareholders, investors, financial creditors, other parties to the contract and also for tax evasion, the court can always lift the Corporate Veil and examine the substance of the transaction. The Hon'ble Supreme Court in catena of decisions has lifted the veil where the device of incorporation is used for some illegal or improper purpose.

From the aforesaid facts and circumstances, it is a prima facie case of fraudulent transactions under Section 66 of the Code, 2016 and the Respondents are liable to make the contribution in the assets of the Corporate Debtor for an amount of Rs. 63,71,40,000 as deem fit by this Hon'ble Tribunal.

Any transaction which has an adverse bearing on the financial health of a distressed Corporate Person has to be viewed with considerable disfavour. Reliance has been placed on the decision of the Hon’ble Supreme Court in the matter of Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited V. Axis Bank Limited passed in Civil Appeal No. 8512-8527.

Further it is submitted that Regulation 35A of the CIRP Regulations, 2016 has been held to be ‘directory’ in nature. Reliance has been placed on the decision of Hon’ble NCLAT in Aditya Tibrewal v. Om Prakash Pandey & Ors., Company Appeal (AT) (Insolvency) No. 583 of 2021.

The Respondents submitted that the application is mere reiteration of the transaction audit report and fails to meet the test of regulation 35A. An application under Section 66 of the Code must adhere to specific preconditions stipulated under Regulation 35A which mandates:

The provision does not permit the Resolution Professional to mechanically rely on the findings in a forensic or transaction audit report and proceed to file an application under Section 66 without conducting a meaningful assessment. The Resolution Professional, in line with the Transaction Audit Report, has impleaded many respondents in transactions which occurred when those Respondents were not even associated with the Corporate Debtor. This reflects that the Resolution Professional has shown no application of mind in the present case, and has merely reproduced the Transaction Audit Report as an application. Reliance has been placed on Mr. Anuj Bajpai, RP of Tollways (Ujjain) Private Limited v. Surendra Lodha, Suspended Director & Anr., IA No. 2874 of 2021 in CP No. 4106 of 2018

It is well established in law that for the provisions of Section 66 of the Code to be invoked, the Resolution Professional must necessarily demonstrate that:

In this regard, reliance is placed on Suresh Kanan, RP/Liquidator of M/s Scope Properties Private Limited v. Narapa Mohan Reddy & Ors., MA No. 1408 of 2019 in CP No. 1055 of 2018, Union of India v. M/s Chaturbhai M. Patel & Co. [Civil Appeals Nos. 972-973 of 1968], Mr. Shibu Job Cheeran and Ors. v. Mr. Ashok Velamur Seshadri, Company Appeal (AT) (CH) (Ins.) No. 350 of 2021 & IA No. 727/2021.

However, none of the requirements outlined by the Supreme Court or the Hon’ble NCLAT have been satisfied in the present case:

a. First, apart from making sweeping statements, the Resolution Professional has not shown how any of the Respondents had any ‘intent to defraud’ the creditors or ‘knowingly engaged in carrying on the business of Corporate Debtor with such intent’;

b. Second, the Resolution Professional has not even addressed the issue that if the Corporate Debtor had no loans until 26.02.2020, how could any of the Respondents have conducted the business with an ‘intent to defraud’ prior to February 2020. Despite this, without any explanation, transactions prior to February 2020 have been included in the application, any in many case, Respondents having no association to a transaction have been named against the same.

c. Third, apart from naming various respondents against each of the transactions, the Resolution Professional has indicated no role to these individuals. For instance, at page 21 of the application (Volume 1), all that the Resolution Professional has done is state that he has ‘inferred from the circumstances’ that the role of some Respondents was ‘questionable’.

d. Fourth, it is a common feature of the entire application that individuals have been named merely based on ‘suspicion’ without any explanation of the circumstances or evidence.

Several of the Answering Respondents have been implicated for transactions or time periods during which it would have been impossible for them to foresee or anticipate the initiation of the Corporate Insolvency Resolution Process. In certain instances, the transactions in question occurred as much as five years prior to the commencement of CIRP. To attribute knowledge of an eventual insolvency process to individuals so far removed in time is entirely speculative and devoid of any legal or factual basis.

Several of the Answering Respondents have been implicated for transactions or time periods during which it would have been impossible for them to foresee or anticipate the initiation of the Corporate Insolvency Resolution Process. In certain instances, the transactions in question occurred as much as five years prior to the commencement of CIRP. To attribute knowledge of an eventual insolvency process to individuals so far removed in time is entirely speculative and devoid of any legal or factual basis.

The table below demonstrates the mismatch between the tenure of various Respondents and the transactions they are sought to be implicated for:

A bare reading of Section 66(2)(a) of the Code makes it clear that liability under this provision arises only if a director, at the relevant time, knew or ought to have known that there was no reasonable prospect of avoiding the commencement of the Corporate Insolvency Resolution Process. The attempt to attribute liability to Respondents for transactions that occurred well before their tenure demonstrates a glaring lack of application of mind by the Applicant. Despite this, no evidence has been shown in the application, or justification given, as to how these individuals had / or continued to have, any role towards defrauding any creditor.

It is submitted that the transactions were bona fide and in ordinary course of business.

Regarding transaction 1.1 - Advance to Central Bombay Cable Network Limited (CBCNL), it is submitted:

a. The advance in question was originally extended by Siti Networks Limited to CBCNL pursuant to a bona fide commercial expansion strategy aimed at acquiring broadband businesses from Local Cable Operators. Subsequently, upon incorporation of SITI Broadband, the said advance was assigned to SITI Broadband, which was specifically tasked with executing the broadband expansion.

b. The failure to achieve the intended commercial outcomes arose solely due to genuine business hurdles such as mismatches in valuation expectations, a limited subscriber base, and more competitive offers available from rival market players. The resulting non-recovery of the advance is a consequence of commercial realities and not of any fraudulent conduct. The Resolution Professional has failed to furnish any evidence or proof as to how the said transaction was fraudulent, or intended to defraud any creditor. For the Respondents impleaded in this transaction, the Resolution Professional has not even shown, or even alluded to any role that could be attributed to any of those Respondents.

Regarding transaction 1.2 - Advance to Vendors during Financial Distress, it is submitted:

a. The allegation that advances to vendors constitute fraudulent conduct is wholly misconceived. The advances were made between November 2015 and January 2023 in the ordinary course of business for legitimate operational requirements. A substantial portion of the amount was paid to Alcatel Lucent International for obtaining the VBNG application license, which was critical for business operations. A payable balance also remains outstanding to Alcatel Lucent, clearly demonstrating that these were ongoing commercial arrangements and not sham transactions.

b. The Applicant has also deliberately suppressed the fact that in many cases outstanding balances were settled with the efforts of some of the Respondents, which included some entities mentioned in the Transaction Audit Report. This further shows that there was no fraudulent transaction involved.

c. The outstanding nature of these advances arose due to continuing negotiations with vendors regarding service fulfilment. The Respondents were actively engaged in adjusting these balances against services to be rendered. Mere non-recovery of advances, absent any material showing dishonest intent, does not meet the threshold of fraud under Section 66 of the Code. Nothing to contradict these submissions has been demonstrated by the Resolution Professional.

Regarding transaction 2 - Outstanding Customer Balances, it is submitted:

a. The mere existence of outstanding balances from customers does not establish fraud. As on 31.10.2023, more than 200 customers had outstanding balances, which is a normal commercial occurrence in any business operation. The inability to recover the entire amount does not automatically render the transactions fraudulent. From the table of 'customers' at Paragraph 44 of the Application, it is clear that barring a few, most of the outstanding amounts were largely in the range of INR 50,000 to INR 1,00,000/-. Litigation to recover these amounts could have not only resulted in additional expenditure, many times exceeding that debt itself, but it would have also adversely affected commercial relationships with the said entities. This aspect has been completely ignored by the Resolution Professional.

Regarding transaction 3 - Inter-Party Adjustments, it is submitted:

a. Appnit Technologies: The transaction pertained to commission dues payable by the Corporate Debtor, which were settled by Siti Networks Limited (the holding company) due to insufficient funds in the 14 Corporate Debtor's bank account. The transaction was transparently recorded through proper book entries. The same is verifiable from the Corporate Debtor's Bank Statement as on 30.03.2018 and 31.03.2018.

b. FM Aman Cable: This was an inadvertent accounting error caused by similarity in party names, promptly rectified through a journal adjustment with zero impact on the Profit and Loss account. As such, there could not have been any fraud or intent to defraud involved with respect to the case of FM Aman Cable.

Regarding Transaction 3(B) – Inter-Customer Voucher Adjustment, it is submitted:

a. The allegation that inter-customer voucher adjustments amounting to Rs.1,80,80,000/- constitute fraudulent transactions is entirely baseless. The Corporate Debtor operates as an Internet Service Provider under a Unified License and provides services strictly on a pre-paid basis, making it commercially impossible to have outstanding subscription receivables or excess advances.

b. During routine ledger reconciliation, human accounting errors were identified where excess advances appeared against some customers while outstanding receivables appeared against others. To rectify these errors, a knocking-off adjustment was carried out by debiting and crediting corresponding customer accounts. The exercise had zero impact on the Profit and Loss Account and involved no fund movement or diversion. Such bona fide accounting rectifications cannot, by any stretch, be characterised as fraudulent trading under Section 66 of the Code.

Regarding Transaction 4 - Payments to SITI Networks Limited, it is submitted:

a. The payments made to the parent company represented legitimate reimbursements of substantial capex (approximately 124.42 crores) and operational expenses incurred for the subsidiary's broadband business after the transfer of business in 2015. The gradual decline in invoiced amounts corresponds with SITI Broadband's increasing financial independence. These were routine parent-subsidiary transactions, transparently recorded with no evidence of fraudulent intent. The above is proven by a copy of the invoices raised by Siti Networks Limited to the Corporate Debtor. The Corporate Debtor had no infrastructure of its own and had operated based on the infrastructure, expenditure and facilities supplied by Siti Networks Limited.

Regarding Transaction 5 - Dish TV India Limited, it is submitted:

a. The Applicant's claim that Dish TV India Limited is a related party of the Corporate Debtor is factually and legally incorrect. Following the 2008 Essel Group separation, Dish TV came under the Jawahar Goel Group, while the Corporate Debtor remained under the Subhash Chandra Group, with no overlap in promoters, management, or control. The unpaid Internet Leased Line charges arose from unresolved technical issues (PTR/Reverse DNS configuration) that prevented service utilization, a genuine operational impediment, not refusal to pay. The link, though installed, could not be utilised and concerns could not be addressed, resulting in the billing not being honoured. The non-payment thus arose from a genuine technical impediment.

The Respondents were actively engaged in efforts to recover the outstanding amounts, which had accrued in the ordinary course of business. At no point was there any intent to cause loss to the Corporate Debtor or to confer an undue advantage upon any party. This is substantiated by the successful settlement of advances pertaining to many entities.

With respect to the draft Transaction Audit Report dated 13.06.2024, it is submitted that neither the draft report nor the preliminary findings were shared with the Answering Respondents for their comments or to enable them to furnish relevant documents. In fact, no request for information or documents was made to the Answering Respondents prior to 20.06.2024, i.e., subsequent to the date of the draft audit report. The conclusions drawn in the Transaction Audit Report labeling the transactions as fraudulent appear to be based primarily on the alleged non-availability of documents and information. The Applicant's contention that a fraudulent transaction can be inferred solely from the absence of reasonable justification or supporting documents is wholly speculative and legally unsustainable. Reliance is placed on Mr. Anuj Bajpai, RP of Tollways (Ujjain) Private Limited v. Surendra Lodha, IA No. 2874 of 2021 in CP No. 4106 of 2018.

a. The title of the Audit Report gives impression the audit exercise was Transaction Review Audit however, the Auditor himself has admitted that he did not perform any transaction audit.

b. The auditor has inconsiderately accepted the inputs provided by the Applicant without even verifying with the Books of Accounts of the corporate debtor and included deceptive statement in the Transaction Audit Report.

c. However, bare perusal of the Audit Report indicate that the Auditor was working on the directions of the Financial Creditor (Bank) instead of the Resolution Professional.

d. At page 7 of the Transaction Audit, it is stated that the transaction auditor discussed his observations with the Corporate Debtor and the applicant Resolution Professional and appropriately considered their replies while finalizing his Report. Neither the auditor nor the applicants have placed on record any documents confirming such discussions and the replies of the Corporate Debtor. Moreover, in incase the Applicant considered the Respondent No. 16 to be responsible person for alleged fraud then he should have sought reply before making a conclusive determination. Neither the Applicant nor the Auditor ever sought any comments/response of the Respondent.

e. The auditor was appointed on 09.01.2024 and the Transaction Audit Report was finalized on 20.11.2024 yet the auditor chose to perform superficial audit without performing basic audit procedures.

f. On page 90, 91 and 93 of the Transactions Audit Report (page 199, 200 and 201 of the Application under consideration), the Auditor confirmed that he did not find any Preferential Transactions, Undervalue Transactions and Extortionate Transactions.

g. This clearly shows that neither the applicant nor the auditors have applied their mind to determine Avoidance and/or Fraudulent Transactions.

a. The advance was originally extended by Siti Networks Limited ("SNL") to the Answering Respondent with the specific bona fide objective of acquiring Local Cable Operators (LCOs) and facilitating the expansion of broadband business an advance subsequently transferred to the Corporate Debtor after its incorporation.

b. The intended objective, however, could not materialize owing to genuine commercial realities, such as disparities in valuation expectations, a limited subscriber base, and competitive offers from rival providers; consequently, the inability to repay arose solely from these business constraints rather than any fraudulent intent. However, Since the advance was not originally extended by the Corporate Debtor, the inability to recover the same did not have a financial impact on the Corporate Debtor.

c. It is respectfully submitted that the inability to fulfill the commercial objectives and repay the advance arose solely due to these business constraints, and not from any fraudulent act or mala fide intent on the part of the answering Respondent.

d. The Resolution Professional has failed to provide any evidence to substantiate allegations of fraud, making the claims purely speculative and unsubstantiated. In the absence of cogent evidence along with reasons to establish fraudulent intent, this allegation remains baseless and must be rejected.

e. The Resolution Professional's allegations regarding this transaction are entirely misconceived and fail to establish the 'intent to defraud creditors of the corporate debtor or any 'fraudulent purpose' under Section 66 of the Code.

It is submitted that Section 66 of the Code does not provide any look back period for transactions to be investigated and filed for its reversal. The Resolution Professional has to prove the fraudulent intent of the suspended-Ex-directors of the Corporate Debtor behind the transactions and the same can be filed under Section 66 of the Code. A perusal of the captioned Application preferred by the Applicant before this Adjudicating Authority along with the filed Annexures, shows that the Respondents had entered into the transactions with an intent to defraud its creditors and hence the same is maintainable under Section 66 of the Code. Reliance has been placed on the decision of Hon’ble NCLAT in Mr. Thomas George versus K. Easwara Pillai and Ors. Company Appeal (AT) (Ins) No. 293 of 2021 and Amardeep Singh Bhatia versus Abhishek Nagori and Ors. Company Appeal (AT) (Ins) No. 671 of 2020.

It is submitted that the Corporate Debtor was undergoing financial distress much prior to the initiation of the CIRP. The co-borrower, SITI Networks Limited (“SNL”), had admitted in writing its inability to service its financial obligations to other banks and financial institutions, as reflected in various letters and disclosures submitted by SNL to the National Stock Exchange and Bombay Stock Exchange. In light of such default, the Financial Creditor became entitled to recall the subject loan, and accordingly, the loan of Rs. 5 Crores was recalled on 24.05.2022, making the same immediately due and payable.

Respondent No. 1-2, 4 to 11 and 14 to 20, with Respondents No. 1-2 currently being members of the Suspended Board of the Corporate Debtor, were responsible for conducting the business and affairs of the Corporate Debtor at different time periods till the initiation of CIRP. During their respective tenures, rather than acting in the best interests of the Corporate Debtor and its stakeholders, the Respondents with a fraudulent intention engaged in activities such as fraudulent trading, failing to address recovery of outstanding advance balances, ignored and siphoned the collection of overdue debts from outstanding debtors and conducted interparty transactions performed to misappropriate funds from the creditors of the Corporate Debtor. The same can be clearly identified in the books of the Corporate Debtor.

Reliance has been placed on the decision of Hon’ble NCLAT Shibu Job Cheeran & Ors. Vs. Ashok Velamur Seshadri Liquidator of M/s. Archana Motors Ltd. 2023 SCC OnLine NCLAT 804.

The Respondents seek to cloak their wrongful and fraudulent transactions under the guise of Bonafide commercial activities undertaken in the ordinary course of business. Respondents have knowingly conducted the business and affairs of the Corporate Debtor in a manner detrimental to the interest of its creditors. They have allowed the value of the Corporate Debtor to depreciate and failed to exercise due diligence in minimising potential losses to the creditors of the Corporate Debtor. Respondents have failed in justifying their claims with supporting documentary evidences at the relevant time, despite repeated requests and representations from the Applicant. Their reluctance or inability to demonstrate efforts toward the recovery of the substantial outstanding advances, payments coupled with the lack of disclosure regarding any agreements or contracts that might justify such advances, suggests that the management may have been engaged in fraudulent transaction in terms of Section 66(1) of the Code. The Directors or Partners are expected to exercise reasonable apprehension and caution while conducting business of the Corporate Debtor and shall also endeavour to make diligent efforts in minimising losses to its creditors, even before insolvency commencement date when there’s no reasonable prospect of avoiding CIRP of the Corporate Debtor.

Below is the tabular rejoinder to the responses of the Answering Respondents:

With regards to transactions identified and categorised as “Transaction Nos. 1 to 5”, the reluctance or inability of Answering Respondents demonstrate efficacious efforts towards recovery of substantial outstanding dues, coupled with their failure to provide any reasonable justification and supporting agreements, despite repeated formal requests, rightly justifies the conclusion drawn by the Applicant in identifying such dealings as deceptive and conduct of the Respondents as negligent.

Furthermore, in addition to the aforementioned reasons, for wrongful and unsubstantiated transactions forming part of “Transaction No. 2 and 3” Answering Respondents have tried to veil their fraudulent dealings under the garb of ordinary commercial operations. For instance, Respondents claim that there were typographical and human errors while recording transaction in the books of account of the Corporate Debtor. Such similar defences adopted by the Respondents throughout their Reply are not only vague but lack substantial merit. The Respondents have failed to provide compelling and justifiable reasons to keep such substantial dues pending till date. Furthermore, no cogent efforts were made by the Respondents to recover even minimum sum of outstanding dues/ charges to tune of approximately Rs. 50,000/-.

With respect to the sale of goods and services identified as 'Transaction No. 4', the Answering Respondents have failed to furnish any computation or supporting documentation substantiating the transaction purportedly undertaken by SITI Network Limited (the parent company of the Corporate Debtor) on behalf of the Corporate Debtor and the corresponding repayments advanced in the consideration of the same. In the absence of a valid agreement or documentary evidence justifying the transaction, the Applicant formed the opinion that the same was executed with the intent to conceal or misrepresent the financial affairs of the Corporate Debtor.

For transactions recorded between the Corporate Debtor and Dish TV India Ltd that is identified and categorised as “Transaction No. 5”. Dish TV had been identified as a related party to the Corporate Debtor in terms of Section 5 (24)(a)(i) of the Code. Accordingly, it is submitted that, both the Corporate Debtor and Dish TV India Limited were companies of the same corporate group i.e., Essel Group sharing common directorship. That even though the group might have disintegrated in the year 2008, Directors of the respective groups continued to share familial ties and hence Dish TV is a related party of the Corporate Debtor. Furthermore, Dish TV is one of the debtors of the Corporate Debtor where an amount of Rs 6,31,00,000/- was outstanding in the books of the Corporate Debtor for the cable and network services provided to Dish TV India Limited by the Corporate Debtor. Thus, in view of the provisions of the Code, the Applicant has rightly identified the aforementioned transactions to be liable to be avoided under Section 66 of the Code.

The contention of Respondent No. 10 that he held the position of Director for only a limited duration is untenable and holds no merit in the present proceedings, particularly in view of the fact that the fraudulent transactions in question continued to be sanctioned and carried out during the tenures of both Respondents No. 9 and 10. They failed to discharge their fiduciary duties and did not act in the best interest of the Company or the Corporate Debtor.

The Corporate Debtor was in a state of financial distress much prior to the initiation of CIRP. In fact, the co-borrower, SITI Networks Limited, had admitted in writing its inability to repay financial indebtedness owed to other banks and financial institutions, as disclosed in its communications to NSE and BSE. Consequently, the Financial Creditor was constrained to recall the loan on 24.05.2022, rendering it immediately due and payable.

The Response Letter relied by the Answering Respondents is undated and serious doubts are cast over its veracity and reliability

Further, it is submitted that Respondent Nos. 11-12 and 22 to 24, with Respondents No. 1-2 currently being members of the Suspended Board of the Corporate Debtor, were responsible for conducting the business and affairs of the Corporate Debtor at different time periods till the initiation of Corporate Insolvency Resolution Process ("CIRP"). During their respective tenures, rather than acting in the best interests of the Corporate Debtor and its stakeholders, the Respondents with a fraudulent intention engaged in activities such as fraudulent trading, failing to address recovery of outstanding advance balances, ignored and siphoned the collection of overdue debts from outstanding debtors and conducted interparty transactions performed to misappropriate funds from the creditors of the Corporate Debtor. The same can be clearly identified in the books of the Corporate Debtor.

As per Section 66(1) of the Code, "any person" is liable who has been knowingly a party to the transaction, which was undertaken with the intent to defraud creditors or for any fraudulent purpose. Reliance has been placed on the decision of the Hon’ble NCLAT in Shri Baiju Trading and Investment Private Limited VS. Nandkishor Vishnupant Deshpande (Resolution Professional for Royal Refinery Private Limited), Company Appeal (AT) (Ins) No. 699 of 2021 and Royal India Corporation Limited versus Mr. Nandkishor Vishnupant Deshpande and Ors., Company Appeal (AT) (Ins) No. 137 of 2021. Even the judgment relied upon by the Respondent of Hon'ble Supreme Court in the matter of Gluckrich Capital Private Limited v. The State of West Bengal & Ors., SLP (Diary) No. 6732 of 2023, only provides that the Section 66 Application is not maintainable against the third parties who were not aware about the fraudul transactions. Hence, there is no bar to file Section 66 Application against any of the party which had the knowledge and intent to defraud the creditors.

Respondent No. 16 is attempting to get away from his liability under Section 66 of the Code by making wrong submissions that the Answering Respondent was not aware about the fraudulent acts. Hence, the bogus averment of being a non-executive director to get away from his liability deserves to be outrightly rejected by this Adjudicating Authority.

It is submitted that Independent / Non-executive Director can be held liable for any omission or commission by a company. It is submitted that as per Sub Section 12 of Section 149 of the Companies Act, 2013, an independent director / a non-executive director not being promoter or key managerial personnel, shall be held liable, in respect of such acts of omission or commission by a company which had occurred with their knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently. It is pertinent to mention that as far as the issue with respect to the role of the independent directors in the acts done by the Corporate Debtor which are contrary to law. Reliance has been placed on the decision of the Hon’ble NCLAT in Shailesh Chawla v. Vinod Kumar Mahajan, Company Appeal (AT) (Ins) No. 571 of 2020.

While Section 66(2) primarily focuses on directors or partners who knew or should have known about the inability to avoid insolvency and failed to exercise due diligence, it doesn't differentiate between executive, independent, or shadow directors. Therefore, independent non-executive directors can also be held liable if the conditions of Section 66 of the Code are met.

It is submitted that the Respondent No.16 was director in the Corporate Debtor during the period of 04.07.2016-21.08.2017 and the fraudulent transactions were done during the tenure of the Answering Respondent with his knowledge wherein he failed to perform any due diligence or acted in manner which is against the provisions of the Companies Act.

In the captioned Interlocutory Application, the date relating to the transaction with Central Bombay Cable Network Limited has been inadvertently mentioned as 31.03.2017, instead of the correct date, 31.03.2018.

Apart from this, the transaction as detailed in Transaction No. 4 of the Application included the fraudulent transaction for the period of Financial Year 2017-2018, during which the Answering Respondent was director of the Corporate Debtor.

It is submitted that in Paragraph No. 21 of the reply filed by the Respondent No. 17, it is admitted that an amount of Rs. 5,68,30,000.00/- was advanced by the Corporate Debtor to the Answering Respondent, a related party of the Corporate Debtor, and that the said amount was never recovered. The explanation provided by the Answering Respondent clearly reflects its knowledge of the transaction and fails to justify the non repayment, thereby supporting the Applicant's contention that the transaction was fraudulent in nature. The Respondent No. 17 has simply said that the amount which was invested by it for expanding the business was a bad investment due to various reasons like disparities in valuation expectations, a limited subscriber base, and more attractive offers available from competing service providers and hence was never paid back to the Corporate Debtor. The defence taken by the Answering Respondent is nothing but a mere attempt to avoid its liabilities. The amount advanced to the Answering Respondent was never meant to come back to the Corporate Debtor as the whole intention of the parties was to defraud its creditors by transferring the amount to the related party.

The Authorize Representative of the Respondent No. 17 i.e., Mr. Brijesh Goyal, who has signed the Affidavit in the Reply is an employee of the Siti Network Limited, the parent company of both the Corporate Debtor and the Respondent No. 17 which shows that the persons acting on behalf of the Respondent had knowledge and involvement by having association with the parent company of both the Corporate Debtor and the Answering Respondent and are not third party of the Corporate Debtor.

Further, upon taking note of the observations of the Forensic Auditor, it is evident that the management of the Corporate Debtor acted with questionable and non-bona fide intent in relation to the aforesaid related-party transactions. It is submitted that: a) no agreement, contract or contemporaneous documentation has been placed on record explaining the nature of goods and services allegedly rendered; b) no basis or computation has been furnished to justify the quantum charged; and c) the transactions lack any arm’s-length character. It is further submitted that a bare perusal of the financials reveals that while the annual turnover of the Corporate Debtor in FY 2018-19 was Rs. 29,65,90,000/-, an amount of Rs. 26,12,20,000/- was charged as management fees / services expense, which is grossly disproportionate and commercially untenable.

The Applicant has been able to trace only one purported agreement pertaining to a transaction of Rs. 8 Crores between the Corporate Debtor and Siti Networks Limited. The said agreement is invalid and unenforceable, having been signed by only one party.

The Respondents have also relied upon a purported agreement dated 07.11.2024 in I.A. No. 511 of 2025 filed by them, wherein this Hon’ble Adjudicating was pleased to reserve orders. The CIRP in respect of the Holding Company was initiated on 22.02.2023. As per the provisions of the Code, once CIRP is initiated, only the Resolution Professional is authorized to execute any agreement on behalf of the Corporate Debtor or the Holding Company, subject to necessary approvals.

In the present case, it is unclear who has signed the alleged agreement on behalf of the Holding Company, and notably, the agreement bears no signature of the Corporate Debtor. Further, the document post-dates the commencement of CIRP, raising serious questions regarding its validity and enforceability. The absence of due authorization, and with the backdated and unsigned nature of the agreement, clearly indicates that the said document is nothing but a fraudulent and fabricated attempt to mislead this Hon’ble Adjudicating Authority. Such conduct further reinforces the mala fide intentions of the Respondents and clearly falls under Section 66 of the Code.

xxviii. It is pertinent to note that upon review of the balance sheets of the Corporate Debtor for FY 2017-18 to FY 2023-24, the aforesaid sale transactions aggregating to Rs. 55,69,60,000/- were merely disclosed in the notes to accounts, without proper explanation or justification.

a. Respondents whose tenure does not coincide with the impugned transactions, or against whom no specific role has been attributed, cannot be held liable under Section 66. However, this protection cannot extend to those who were actively involved in decision-making during the relevant period and against whom circumstances indicate knowledge or participation.

a. The next issue relates to whether the mere existence of outstanding advances, receivables, or commercial losses would fall within the ambit of Section 66. It is well settled that the threshold under Section 66 is significantly higher and requires clear evidence that the business of the Corporate Debtor was carried on with an intent to defraud creditors or for a fraudulent purpose. Reliance is placed on Renuka Devi Rangaswamy vs. Mr. Madhusudan Khemka [CA (AT) (CH) (Ins) No. 356 of 2022]. The provision does not seek to penalise every act of commercial imprudence or business failure, but is attracted only where the conduct is tainted with dishonesty, deceit, or a conscious disregard for the interests of creditors.

b. In this context, mere non-recovery of dues, howsoever large, cannot by itself lead to an inference of fraud. In the ordinary course of business, it is not uncommon for companies to extend advances, face delays in receivables, or even suffer bad debts due to market conditions, counterparty defaults, or failed commercial strategies. Similarly, unsuccessful investments or expansion decisions, even if they ultimately result in losses, do not automatically assume the character of fraudulent transactions unless it is shown that such decisions were taken without any commercial basis or were structured to deliberately siphon or divert funds.

c. However, this does not mean that all such transactions are immune from scrutiny. Where the surrounding circumstances show that advances were made without any reasonable expectation of recovery, particularly to related or connected parties, or where receivables were deliberately allowed to remain uncollected despite the Corporate Debtor being in financial distress, or where losses are a consequence of transactions lacking arm’s length character, an adverse inference may be drawn.

d. Thus, the distinction lies between bona fide commercial decisions that turn adverse, and transactions that are inherently lacking in commercial rationale and are demonstrably prejudicial to the interests of creditors. Only the latter would warrant invocation of Section 66.

a. It is the case of the Respondents that no opportunity was given to them to explain the transactions and that the Application is merely based on the audit report. While Regulation 35A requires formation of opinion and determination by the Resolution Professional, it does not mandate a quasi-judicial hearing prior to filing the Application.

b. The record indicates that the conclusions in the Transaction Audit Report are based on absence of documentation or lack of response. Such absence, by itself, cannot be equated with proof of fraud. The Resolution Professional is required to independently assess the material and place sufficient evidence before the Adjudicating Authority. Our attention is also drawn to the material placed on record by the Respondents, particularly Response Letter sent by the Respondent to the Transaction Auditor, which shows that before finalizing the Transaction Audit Report, the draft copy of said report was not shared with the Directors of CD and no opportunity was given to the Directors of CD to clarify the observations recorded in said report. Thus, the comments in the Transaction Audit report implying that the management did not share relevant details and classifying the transactions under section 66 in absence of the details run contrary to the material placed before us.

c. Thus, while the Application cannot be rejected solely on this procedural ground, the evidentiary value of such findings must be tested cautiously by this Adjudicating Authority by taking into account surrounding circumstances that could corroborate the such findings and adverse conclusions cannot be drawn merely due to non-availability of documents.

a. The allegation pertains to an advance extended to CBCNL which remained unrecovered. While the Applicant has questioned the commercial prudence of the transaction and the lack of recovery, the Respondents have explained that the advance formed part of a business expansion strategy and failed due to market conditions.

b. This Tribunal finds that apart from the fact of non-recovery, no cogent material has been placed on record to demonstrate that the transaction was entered into with fraudulent intent. There is no evidence showing diversion of funds for personal gain, sham nature of the transaction, or collusive arrangement. The absence of recovery, by itself, cannot elevate a commercial decision into a fraudulent act.

a. The Applicant has alleged that advances to vendors during financial distress were fraudulent. However, the Respondents have demonstrated that such payments were made for operational purposes, including licensing and service procurement, and that some balances were adjusted or remained subject to ongoing negotiations.

b. This Tribunal notes that vendor advances are a routine feature of commercial operations. No material has been placed to show that these vendors were fictitious, related entities used for diversion, or that services were never intended to be procured. In the absence of such evidence, the allegation remains speculative.

c. Accordingly, Transaction 1 is not covered under Section 66.

Transaction 2 : Outstanding Customer Balances:

a. The allegation relates to non-recovery of receivables from customers. The Respondents have explained that these were numerous small-value balances and that recovery proceedings would have been commercially imprudent.

b. This Tribunal finds merit in the said explanation. Non-recovery of trade receivables is an ordinary business risk and cannot, in the absence of evidence proving otherwise of collusion cannot be treated as fraudulent trading.

c. Accordingly, Transaction 2 is not covered under Section 66.

Transaction 3A and 3B: Inter-Party Adjustments and Inter-Customer Voucher Adjustment

a. The Applicant has questioned certain inter-party as well as inter-customer adjustments being irregular. The Respondents have explained that these were either accounting entries reflecting settlements or inadvertent errors subsequently rectified.

b. There are Service Provider Agreements on record which point that the creditors and the transactions were genuine and not fictitious. This Tribunal finds that there is no material demonstrating fund diversion or wrongful gain. The entries appear to be reconcilable accounting adjustments without impact on the financial position of the Corporate Debtor.

Transaction 4: Sale of goods and services for an amount of Rs. 55,69,60,000:

a. The Applicant alleges that payments made by the Corporate Debtor to its parent company, SITI Networks Limited (SNL), under the head of management fees were disproportionate, unsupported by agreements, and amounted to diversion of funds.

b. The Respondents have explained that the Corporate Debtor, being a wholly-owned subsidiary, was initially dependent on SNL for infrastructure and operations following the transfer of broadband business in 2015. SNL incurred substantial capital and operational expenditure (approx. ₹124.42 crores) on behalf of the Corporate Debtor, which was subsequently recovered through phased invoicing. It is submitted that these payments represent legitimate cost reimbursements, duly recorded in the books and supported by invoices, and not fraudulent transactions.

c. Upon consideration, this Adjudicating Authority finds that the parent-subsidiary relationship and the operational dependence of the Corporate Debtor provide a plausible commercial basis for such payments. The Applicant has failed to establish that the expenditure claimed was fictitious, inflated, or intended for siphoning of funds. Accordingly, Transaction 4 does not meet the threshold under Section 66 of the Code.

Transaction 5: Undervalued transaction with Dish TV India Ltd (related party):

a. The Applicant alleges that the outstanding receivable from Dish TV constitutes a fraudulent transaction on the basis that it is a related party and that non-recovery reflects diversion of funds.

b. The Respondents have disputed the related-party status, submitting that post the 2008 Essel Group separation, Dish TV and the Corporate Debtor operate under distinct promoter groups with no common control. They further contend that the non-payment arose due to unresolved technical issues affecting service utilisation, and not due to any fraudulent intent.

c. Upon consideration, this Adjudicating Authority finds that the Applicant has failed to establish that Dish TV is a related party. The material on record indicates a clear separation in ownership and control. Further, the non-recovery of dues, which had to be written off, is supported by a plausible commercial explanation, and there is no evidence of collusion or siphoning of funds.

d. Accordingly, in the absence of proof of fraudulent intent or knowing participation, Transaction 5 does not fall within the ambit of Section 66 of the Code.

This Adjudicating Authority is cognizant of the fact that Section 66 of the Code requires a clear finding that the business of the Corporate Debtor was carried on with intent to defraud creditors or for any fraudulent purpose, and that the persons sought to be made liable were knowingly parties to such conduct. This is a stringent threshold and cannot be met by mere suspicion, conjecture, or inference based solely on adverse financial outcomes.

Further, Regulation 35A mandates the Resolution Professional to form an opinion, followed by determination, and thereafter filing of an application. In the present case, a perusal of the Application indicates that it substantially reproduces the findings of the Transaction Audit Report, without demonstrating any independent analysis or correlation of facts to the legal ingredients of Section 66. This procedural lapse assumes significance, particularly when serious civil consequences are sought to be imposed.

The issue of tenure and role attribution also assumes greater significance in the present case. Liability under Section 66 cannot be imposed in a blanket manner. The Application fails to clearly delineate the role of each Respondent in each transaction, and in several instances, Respondents have been impleaded despite their tenure not coinciding with the impugned transactions.

The judgments relied upon by the Applicant do not advance its case, as the foundational requirements of Section 66 of the Code have not been established in the present matter.

In view of the foregoing discussion, this Adjudicating Authority is of the considered opinion that the Applicant has failed to discharge the burden of proving that the impugned transactions were undertaken with intent to defraud creditors or for a fraudulent purpose, or that the Respondents were knowingly parties to such conduct. The Application is largely premised on presumptions arising from non-recovery of dues, accounting entries, and perceived irregularities, without establishing the essential ingredients of Section 66. The absence of specific role attribution, the mismatch of tenure, and the lack of independent application of mind by the Resolution Professional further weaken the case.

Accordingly, the present Application bearing I.A. 397 ND 2025 under Section 66 of the Code is dismissed.

No order as to costs.