Indian Renewable Energy Development Agency Ltd vs Saradambika Power Plant Pvt Ltd

The Respondent Nos.1 to 7 herein i.e., Mr. Satya Srinivasa Boyina (hereinafter referred to as the “Respondent No. 1” or “R-1”), Mrs. Sarada Boyina (hereinafter referred to as the “Respondent No.2” or “R-2”), Ms. Saiswapna Boyina (hereinafter referred to as the “Respondent No. 3” or “R-3”), Mr. Venkateswara Rao Vanapalli (hereinafter referred to as the “Respondent No. 4” or “R-4”), Mr. Govindharajulu Boyina (hereinafter referred to as the “Respondent No. 5” or “R-5”), Mr. Pallaiah Vanapalli (hereinafter referred to as the “Respondent No. 6” or “R-6”), and Mr. Narayana Vanapalli Rao (hereinafter referred to as the “Respondent No. 7” or “R-7”) are the Suspended Directors i.e., the erstwhile management of the Corporate Debtor. The Respondent No. 8 and 9 herein i.e. Mr. Anantha Patnaikuni Ravi Shankar Kanakrao (hereinafter referred to as the “Respondent No. 8” or “R-8”) and M/s. Sai Baba Agro Fuels (hereinafter referred to as the “Respondent No. 9” or “R-9”) are the beneficiaries of the fraudulent transactions. The designations of the R-1 to R-7 are reflected in the master data of the Corporate Debtor as available on the Ministry of Corporate Affairs (hereinafter referred to as the “MCA’) website.

A Petition under Section 7 of the IBC was filed by Indian Renewable Energy Development Agency Limited (hereinafter referred to as the “IREDA” or the “Financial Creditor”). The said Petition was admitted by this Adjudicating Authority vide order dated 18.04.2022, thereby initiating the Corporate Insolvency Resolution Process (hereinafter referred to as the “CIRP”) of the Corporate Debtor. The Applicant was appointed as the IRP under the same order and was subsequently confirmed as the RP by the Committee of Creditors (hereinafter referred to as the “CoC”) in its 1^st meeting held on 17.05.2022.

During the 1^st CoC meeting held on 17.05.2022, the RP apprised the CoC about communications addressed to the erstwhile Board of Directors through emails dated 23.04.2022 and 01.05.2022, informing them of the admission order passed by this Adjudicating Authority vide which the RP informed the erstwhile Board that consequent upon admission of the CIRP, the powers of the Board of Directors stood suspended and vested in him and also sought cooperation from the suspended management and requested furnishing of relevant data and records necessary for the conduct of the CIRP. The RP further informed the Board of Directors that a public announcement was made on 21.04.2022 in Business Standard (English Daily) and Sakal (Marathi Daily), circulating in the vicinity of the plant location, calling upon creditors to submit their claims in accordance with the CIRP Regulations. The copies of the aforesaid emails and the public announcement are annexed as Annexure A-4 (Colly.) to of the present IA.

In terms of Regulation 35A(3A) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as the “CIRP Regulations”), the RP is required to form an opinion on preferential, undervalued, extortionate and fraudulent transactions within 75 days, determine such transactions within 115 days, and file an appropriate application before this Adjudicating Authority within 130 days from the insolvency commencement date.

In discharge of his statutory duties under Section 25 of the IBC, particularly Section 25(2)(j), the RP examined the available books of accounts and records of the Corporate Debtor and formed a prima facie view that certain irregular transactions were undertaken by the Corporate Debtor prior to commencement of the CIRP and within the relevant look-back period prescribed under the Code. The suspicion of irregular and fraudulent conduct was further strengthened due to the consistent non-cooperation of the erstwhile management, who failed to provide requisite documents and information, thereby obstructing the smooth conduct of the CIRP.

Consequently, the RP filed IA No. 235 of 2022 under Section 19(2) of the Code seeking directions for cooperation, which was allowed by this Adjudicating Authority vide its Order dated 23.11.2022 (copy annexed as Annexure A-5 of this IA), pursuant to which the RP informed all concerned parties and reiterated requests for submission of documents and information, however, the Respondents failed to comply the aforesaid Order and have not furnished the required records till date..

In the matter at hand, the delay in filing the present IA has occurred solely due to non-availability of relevant information and documents, which were required to be furnished by the Respondents, as the RP struggled to collate the relevant documents/ information pertaining to the fraudulent transactions and such circumstances were entirely beyond the control of the Applicant. In this regard, the reliance is placed on the Judgement of the Hon’ble Supreme Court, in the matter of Arcelor Mittal India Pvt. Ltd. vs. Satish Kumar Gupta & Ors. (Civil Appeal Nos. 9402–9405 of 2018), wherein it has been categorically held that the model timelines prescribed under the IBC are required to be followed as closely as possible; however, the same are not mandatory but directory in nature, keeping in view the legislative intent. Considering the said judgment, it is averred that the timelines prescribed under Regulation 35A of the CIRP Regulations are directory in nature and cannot be construed as a deadline. Further, in the matter of, Aditya Kumar Tibrewal vs. Om Prakash Pandey & Ors., [Company Appeal (AT) Insolvency No.583 of 2021], the Hon'ble National Company Law Appellate Tribunal, New Delhi Bench, held that:

Further, the Andhra Bank also sanctioned loan assistance of Rs.2,50,00,000/- to the Corporate Debtor vide sanction letter dated 29.06.2007. The Corporate Debtor thereafter intimated MSEDCL about the TRA vide letter dated 06.08.2007. A document dated 07.08.2007 issued by R-5 was addressed to the MSEDCL to directly deposit the amount in the TRA. The MSEDCL agreed to credit the proceeds of the power purchased by the MSEDCL to the said account vide letter dated 10.09.2007. The copies of the sanction letter dated 29.06.2007 and letters dated 06.08.2007, 07.08.2007 & 10.09.2007 are annexed as Annexure A-7 (Colly.) of the IA.

The suspended management of the Corporate Debtor issued a letter dated 09.06.2015 to the MSEDCL directing that monthly power bill payments be credited directly into the Corporate Debtor’s current account maintained with State Bank of India, Chimur Branch (hereinafter referred to as the “SBI Chimur”. Subsequently, Andhra Bank, vide letter dated 27.06.2017 addressed to the MSEDCL, categorically stated that as per the TRA Agreement, the authorized account for deposit of monthly payments was the TRA maintained with Andhra Bank and that crediting amounts to the SBI Chimur account constituted a violation of the TRA terms.

Further, vide another letter dated 27.06.2017 addressed to the SBI Chimur, the Andhra Bank intimated about the Cash Credit accounts in the names of the Corporate Debtor, R-8, and R-9. The Andhra Bank specifically stated that the sale proceeds from the MSEDCL were required to be credited only into the TRA and requested the SBI to close the said accounts. Additionally, Andhra Bank issued a letter dated 28.06.2017 to the MSEDCL stating that due to wrongful credit of amounts into SBI Chimur account instead of the TRA, the higher authorities sought details of bill realizations from June 2015 onwards. The copies of the letters dated 09.06.2015, 27.06.2017 (two letters), and 28.06.2017 are annexed as Annexure A-8 (Colly.) of the IA.

During the 3^rd CoC meeting held on 09.09.2022, the RP informed the CoC that the suspended Directors had disclosed details of only one bank account of the Corporate Debtor, whereas other bank accounts through which funds were routed and utilized during the period of IREDA-funded operations had not been disclosed. The RP emphasized that all bank accounts and its transactions were material for effective administration of the CIRP. It was further stated that the dues of Andhra Bank were settled by the suspended Directors in December 2019 and January 2020 through a Compromise/ One Time Settlement (hereinafter referred to as the “OTS”). The Andhra Bank issued a letter dated 13.02.2020 confirming that the Corporate Debtor had repaid its entire liability and that no dues were outstanding, followed by issuance of a ‘No Objection Certificate’ (hereinafter referred to as the “NOC”) dated 24.02.2020. Despite this, the erstwhile management contended that only one bank account existed and that other accounts had been closed. The RP submitted that even transactions of closed accounts were required to be examined for forming a view thereon. However, till date, the suspended Directors failed to disclose details of various bank accounts. The copies of the minutes of 3^rd CoC meeting, OTS documents, letter dated 13.02.2020, NOC dated 24.02.2020 and email dated 08.09.2022 are annexed as Annexure A-9 (Colly.) of the IA.

In the 5^th CoC meeting held on 13.10.2022, the RP informed the CoC that the Transaction Auditor had shared the Draft Audit Report. The report revealed that the suspended Directors had opened a Bank account bearing No. 30349806862 with SBI Chimur (IFSC: SBIN0011422) on 17.03.2008, subsequent to the creation and registration of charges in favour of IREDA and Andhra Bank. The Draft Report highlighted several transactional irregularities committed by the erstwhile management. In view thereof, the CoC authorized the RP to initiate appropriate proceedings under the provisions of the Code. A copy of the 5^th CoC meeting minutes is annexed as Annexure A-11 of the IA.

Clause 3.02(m) of the TRA Agreement expressly prohibits the Corporate Debtor from opening or operating any bank account other than the designated TRA for credit of sale proceeds arising from the project.

The final Transaction Audit Report i.e., Special Audit Report dated 05.12.2022, was shared by the Transaction Auditor. The said report categorically records that the bank account maintained with SBI, Chimur, bearing Account No. 30349806862, was opened by the suspended Directors without the knowledge or consent of either of the lenders, namely IREDA and Andhra Bank, thereby constituting a clear breach of the TRA Agreement. It further reveals that until June 2015, power sale proceeds were duly credited into the designated TRA maintained with the Andhra Bank, Srikakulam Branch. However, pursuant to a letter dated 09.06.2015 issued by the suspended Directors to the MSEDCL, the payments were credited into the SBI Chimur account from June 2015 to September 2017 aggregating to Rs.57,21,54,822/- without being routed through the TRA.

The bank transactions along with the dates of credit to bank account with SBI, Chimur, which should have been credited to TRA as per Agreement dated 07.09.2006, among IREDA, Corporate Debtor and Andhra Bank for the period of May 2015 - June 2017 are mentioned in the table below:

The above amounts are only from 25.08.2015 and any amount prior to the said date is not available due to the non-availability of bank statements for the period prior to 2015 and hence, the Applicant reserves his right to bring to the notice of this Adjudicating Authority about the said transactions prior to 2015 as and when the Applicant lays his hand on.

According to the Special Audit Report, other irregularities in the finances were also found and the financials for the financial years 2016-17, 2017-18, 2018-19, 2019-20 and 2020-21 show that certain amounts are recoverable from the following parties by the Corporate Debtor as on 31.03.2018:

The dues are standing in the Balance Sheet without any movement, which raises a question on its recoverability.

M/s. Sonal Industries has lodged a claim of Rs. 27,41,150/- pursuant to the notice in newspaper. The ledger provided by the Sonal Industries in support of this claim do not reconcile with the books of the Company.

Assets (Brick Machine, probably) are sold by the Corporate Debtor in the financial year 2017-18, without permission and monies are still receivables as per the Balance Sheet for the financial year 2020-21, shared by the Corporate Debtor.

CDM receivables, are the Carbon Credit Certificates, only book entry and no efforts for timely realization are made by the Corporate Debtor. These certificates are also not handed-over by the Corporate Debtor to the RP.

As per the Financial Statement and Auditors Report, all these matters are not observed by the Auditors of the Corporate Debtor, in their report for the financial year 2015-16 despite being substantial in nature. This raises an alarm on the process followed by the Auditors.

Shri Anantha Patnaikuni Ravi Shankar Kanakrao, PAN: АНІРА3222D, SBI Chimur Account No. 30496632317, resident of Andhra Pradesh.

Sai Baba Agro Fuels (Prop. Shri. Imtejaj Ahmed, PAN: ARWPA6734C, SBI Chimur Account No. 32327399904, resident of Chimur.

If, during the CIRP, it is established that the business of the Corporate Debtor has been carried on with intent to defraud creditors or for any fraudulent purpose, this Adjudicating Authority is empowered to pass suitable orders under Sections 66 and 25(2)(j) of the Code. In view of the facts and circumstances established hereinabove, the Applicant is of the opinion that the business of the Corporate Debtor has been carried with a fraudulent intent, thereby warranting the instant Application.

This IA has been filed by the Applicant by placing reliance on the Transaction Audit Report dated 05.12.2022 issued by M/s. SVSG & Associates, which contains numerous disclaimers and some of the disclaimers, which are reproduced herein below, will clearly establish that the complete reliance on the said report by the Applicant for filing the instant IA under Section 66 of the Code is fallacious and moreover, this Adjudicating Authority cannot solely rely upon the said report for granting of reliefs prayed for in the instant IA. Some of the disclaimers set out in the Transaction Audit Report dated 05.12.2022 are given hereunder:

The reliefs sought by the Applicant in this IA are vague, hypothetical, and legally untenable. The Applicant has arrayed the suspended Directors of the Corporate Debtor as parties without attributing any specific role in relation to the impugned transactions. In the absence of clear pleadings or particulars establishing individual liability, the reliefs sought are vague, incomprehensible, and unsubstantiated, rendering the application liable to be dismissed at the threshold.

The Respondents have discharged their duties with due care, prudence, and integrity, and have overseen and executed the entrusted projects in accordance with established business practices. The IA is based solely on allegations and presumptions, without any cogent evidence to substantiate the alleged wrongdoing or to demonstrate the involvement of the Respondents. In the absence of any material evidence, the allegations should be rejected and set aside for the reasons mentioned hereunder.

This IA has been filed by the RP, and this Adjudicating Authority vide order dated 03.02.2023 has passed a liquidation order. Upon passing of the liquidation order, the role of RP ceases, and in the absence of substitution of the Liquidator, the RP lacks locus standi and competence to prosecute this IA. Further, the IA is barred by limitation, having been filed beyond the timelines prescribed under Regulation 35A of CIRP Regulations. The IA essentially alleges breach of the TRA Agreement dated 07.09.2006 and fails to disclose any ingredients of Section 66 of the Code, and is therefore not maintainable.

As per Clause 6.4 of the TRA Agreement, the consequences for breach of any conditions are as follows:

Assuming without admitting that any breach of the TRA Agreement dated 07.09.2006 was committed by the Corporate Debtor, the remedy for such alleged breach lies exclusively with the Financial Creditor or the concerned bank in terms of Clause 6.4 of the said Agreement. As the RP is not a party to the Agreement therefore, he lacks locus standi. In any event, the allegations raised by the RP do not attract the provisions of Section 66 of the Code.

The Applicant has failed to establish even a prima facie case of fraudulent trading or wrongful trading. The present IA is malafide, vexatious, oppressive, and is nothing, but a dressed-up attempt to convert an alleged contractual dispute into proceedings under Section 66 of the Code. The averments in the IA predominantly relate to alleged breaches of the TRA Agreement dated 07.09.2006, for which the appropriate remedy lies before the Civil Court.

Further, the lenders were fully aware of the SBI Chimur account. The Corporate Debtor raised invoices on the MSEDCL and submitted the same to the Andhra Bank for bill discounting. The Andhra Bank credited the discounted amounts to the Corporate Debtor’s account after deducting commission, and upon receipt of payments from the MSEDCL, the same were adjusted towards the loan account. These facts clearly demonstrate that the Corporate Debtor opened the account with SBI Chimur with the knowledge and consent of the lenders, and hence there is no breach of the TRA Agreement as alleged.

The Corporate Debtor has repaid substantial loan amounts to the tune of Rs.22,83,34,069/- during the financial year 2015-16 and Rs.36,41,64,300/-during the financial year 2016-17, the details of which are given hereunder:

The Corporate Debtor cleared the dues of Andhra Bank under OTS in the year 2020. The promoters of the Corporate Debtor have, since inception, invested substantial funds and had made several efforts to sustain and revive the Corporate Debtor. During the financial years 2015-16 and 2016-17, the promoters and their relatives infused significant funds into the Corporate Debtor in the form of loans amounting to Rs.5,08,98,211/- and Rs.7,51,28,309/- respectively. These infusions were made with the sole intention of keeping the Corporate Debtor operational. However, despite such efforts, the escalating burden of interest and principal repayments, coupled with inadequate revenues, rendered the Corporate Debtor unable to service its debts. It is not even the Applicant’s case that the Respondents siphoned off the funds of the Corporate Debtor. On the contrary, the promoters acted bona fide and made all honest efforts to run the Corporate Debtor.

The allegation that the R-8 and R-9 are beneficiaries of the transactions is false and unsubstantiated. No particulars of any such alleged benefit have been furnished. In fact, the R-8 and R-9 are suppliers of raw materials to the Corporate Debtor, to whom substantial amounts are due, and the allegations are baseless and misleading.

Regulation 35A of the CIRP Regulations mandates a three-step process, whereby the RP must first form an opinion, thereafter determine, based on records and evidence, whether transactions fall under Sections 43, 45, 50 or 66 of the Code, and only thereafter approach the Adjudicating Authority for appropriate relief. The reliance is placed on the Judgement of the Hon’ble NCLAT, New Delhi, in the matter of Shri Baiju Trading and Investment Private Limited vs. Nandkishor Vishnupant Deshpande (RP for Royal Refinery Private Limited), Company Appeal (AT) (Ins.) No. 699 of 2021 dated 29.03.2023, wherein it has been reiterated that under Regulation 35A of the CIRP Regulations, the RP must first form an opinion, thereafter make a determination, and only then apply to the Adjudicating Authority for appropriate relief in respect of transactions under Sections 43, 45, 50 and 66 of the Code.

In the present case, the RP has failed to comply with the mandatory requirement of forming an independent opinion prior to filing the IA under Section 66 of the Code. The IA has been filed mechanically and solely on the basis of the Transaction Audit Report, without any independent application of mind by the RP. There is no averment anywhere in this IA to demonstrate that the RP had formed an opinion regarding the existence of any fraudulent transactions. Such application of mind is a sine qua non for invoking Section 66 of the Code.

The grounds raised in the IA are feeble and fictitious. The Applicant has failed to establish that the affairs of the Corporate Debtor were conducted with any fraudulent intent to defraud its creditors. The reliefs sought are totally vague, incomprehensible, unsubstantiated, and founded purely on conjectures and surmises, without specific pleadings or material particulars.

Bank statement of the SBI, Chimur account from the date of its opening till the date of commencement of the CIRP of the Corporate Debtor;

Income Tax Returns for the Assessment Years 2015-16 and 2016-17, along with the Audited Balance Sheets enclosed therewith.

Any attempt to introduce new facts, grounds, or reliefs by way of subsequent memos, without seeking a formal amendment of pleadings, is impermissible in law. A case must stand or fall on the basis of its original pleadings and cannot be improved, altered, or supplemented through subsequent filings, as such a course would amount to an indirect and unlawful amendment. By filing the above Memo, the Applicant is attempting to set up an entirely new and inconsistent case from what was originally pleaded in the IA, which is legally untenable and liable to be rejected on this ground alone.

The Applicant’s original case is based on the allegation that under the TRA Agreement, the sale proceeds received from the MSEDCL were required to be credited into the designated TRA account with the Andhra Bank, whereas the Corporate Debtor allegedly diverted such proceeds to its account with SBI, Chimur, aggregating to Rs.57,21,54,822/-. As per the terms of the Agreement, 40% of the said receipts, i.e., Rs.22,88,61,929/-, ought to have been utilized towards repayment of IREDA’s loan. The said diversion of funds constitutes a fraudulent transaction under Section 66 of the Code.

The Applicant has deliberately omitted the material and crucial fact that a substantial sum of Rs.41,65,47,866/- from the SBI Chimur account was subsequently transferred to the TRA. This omission renders the allegations of diversion and misappropriation untenable. Once the funds were transferred to the TRA in accordance with the agreed mechanism, no adverse inference can be drawn. The suppression of this material fact amounts to misrepresentation before this Adjudicating Authority, and on this ground alone, the application deserves to be rejected. The amounts transferred from SBI Chimur account to the TRA are given below:

The bank statement annexed to the above Memo clearly shows that the SBI Chimur account of the Corporate Debtor was closed on 10.07.2017. However, the Applicant has erroneously shown, at page 29 of the IA, that an amount of Rs.1,17,57,382/- was credited to the said account after its closure, which is factually impossible. This glaring discrepancy reflects a lack of due diligence and care in the preparation of the IA and renders the allegations unreliable and misleading, thereby undermining the credibility of the Applicant’s case.

Out of the alleged amount of Rs.57,21,54,822/-, a substantial sum of Rs.42,83,05,248/- has already been credited to the TRA. This clearly establishes that the Corporate Debtor substantially complied with the agreed fund flow mechanism and that there was no misappropriation or diversion of funds as alleged. Without admitting the Applicant’s contentions, the Respondents place the below facts for the consideration:

The balance amount of Rs.14,38,49,574/- was duly accounted for and utilized towards legitimate business purposes of the Corporate Debtor, including payments to vendors, repayment of loans and working capital facilities, and settlement of raw material dues, as reflected in the bank statements and books of accounts, leaving no scope for any allegations.

The contention of the Applicant that 40% of the revenue was required to be applied exclusively towards repayment of IREDA loan is wholly misconceived. The agreed mechanism does not mandate exclusive appropriation of 40% of revenue towards IREDA alone. The Corporate Debtor was entitled, in the ordinary course of business, to utilize revenues to meet multiple financial obligations.

The Applicant’s allegation rests on the incorrect premise that funds were diverted exclusively away from IREDA. Neither the Applicant nor IREDA has alleged or established that the funds were siphoned or misappropriated. No documentary evidence has been produced to substantiate any allegation of diversion. On contrary, the conduct of the IREDA itself negates such allegations. Notably, the IREDA after due diligence, sanctioned further financial assistance to the Corporate Debtor on 31.03.2017 (copy of sanction letter annexed with the Memo). Had there been any fraudulent activity or misuse of funds, the IREDA would not have sanctioned additional facilities. This clearly establishes that the allegation of fraudulent diversion is speculative, baseless, and contrary to the record.

A mere alleged breach of contractual terms does not, by itself, amount to a fraudulent transaction under Section 66 of Code. Non-compliance with certain contractual stipulations, procedural deviations, or delays in payments cannot ipso facto be equated with fraud. Fraud under Section 66 of the Code requires clear proof of dishonest intent or mens rea, which the Applicant has failed to plead or establish. Even assuming any technical or administrative deviation, the same cannot be elevated to the level of fraudulent trading.

The Applicant has ignored the substantial financial support extended by the Directors and their relatives, who infused significant funds into the Corporate Debtor in the form of equity, loans, and other financial assistance. These infusions were made to sustain operations, meet liabilities, and keep the business running, and demonstrate bona fide conduct rather than fraudulent intent.

A substantial portion of the revenue was credited to the TRA, significant payments were made to the IREDA, and the remaining funds were utilized for legitimate business purposes. The allegation that 40% of revenue must be exclusively applied to the IREDA is legally and commercially untenable. There is no evidence of misappropriation or fraud, and the IA, therefore, deserves to be dismissed.

By way of Memo dated 23.09.2025, the Applicant has filed a table purportedly showing alleged diversion of funds of Rs. 25,67,66,912/- from the Corporate Debtor to R-8 and R-9, which is absolutely false, baseless, and devoid of any supporting evidence. The said table appears to have been prepared on mere assumptions and presumptions without any verification of the books of accounts or bank statements of the Corporate Debtor.

It is a well-settled principle of law that mere preparation or filing of a tabular statement, without any cogent documentary evidence or material proof, does not bring the case within the purview of Section 66 of the Code. The Applicant has not produced a single piece of admissible evidence to establish any element of fraud or wrongful trading, and therefore, the allegations made are wholly untenable and unsustainable in law.

The R-8 and R-9 have been long-standing business associates of the Corporate Debtor, functioning both as regular raw material suppliers and as unsecured financial creditors. Over the years, they have maintained a continuous and bona fide commercial relationship with the Corporate Debtor.

At various critical stages of the Corporate Debtor’s operations, when the Corporate Debtor faced liquidity constraints and required urgent working capital infusion, the R-8 and R-9 had extended substantial financial assistance to ensure uninterrupted operation of the power plant and smooth conduct of business activities. The transactions between the Corporate Debtor and the R-8 and R-9 were therefore, purely in the ordinary course of business, duly recorded in the books of accounts, and supported by valid documentation. Hence, any allegation that funds were siphoned off or diverted to the R-8 and R-9 is wholly misconceived, devoid of merit, and contrary to the true nature of the business relationship between the parties.

The R-8 had made financial contributions of Rs.10,24,95,096/- to the Corporate Debtor during the financial years 2015–2016, directly into the Corporate Debtor’s SBI, Chimur account as shown below:

The Corporate Debtor, in the ordinary course of business, made repayments and reimbursements of Rs.749,16,112/- to the R-8 from time to time, as shown in table below, which represent legitimate discharge of financial obligations arising out of funds earlier advanced by the R-8, and other operational expenses incurred on behalf of the Corporate Debtor:

Even after adjusting the repayments made to the R-8, the Corporate Debtor continued to owe substantial amounts to him, which clearly establishes that the R-8 was a genuine financial creditor, who had extended financial assistance to the Corporate Debtor in good faith, rather than being a recipient of any siphoned or misappropriated funds. The financial trail unmistakably demonstrates that the inflows from the R-8 far exceeded the outflows, thereby negating any allegation of diversion of funds or fraudulent transactions as contended by the Applicant.

Even after adjusting all repayments, the Corporate Debtor continues to owe an outstanding sum to the R-9, which clearly shows that the R-9 is a creditor of the Corporate Debtor, having extended genuine financial assistance and business support, and not a recipient of any siphoned or diverted funds as wrongly alleged by the Applicant.

The nature and flow of transactions conclusively establish that these were legitimate business dealings undertaken in the ordinary course of trade, duly reflected in the Corporate Debtor’s books of accounts and supported by proper banking records. For the purpose of clarity and brevity, only the major transactions have been presented and if all minor and small-value transactions are also taken into account, the total inflows from the R-8 and R-9 to the Corporate Debtor would be even higher, thereby increasing the net payable amount from the Corporate Debtor to the said Respondents. This further reinforces the position that both the R-8 and R-9 are bona fide creditors of the Corporate Debtor, and not recipients of any siphoned or diverted funds, as alleged by the Applicant.

The Applicant has deliberately and selectively presented the financial data in a distorted manner purposely omitting and suppressing the substantial payments made by the R-8 and R-9 to the Corporate Debtor, while conveniently highlighting only the outflows made by the Corporate Debtor to them. This selective disclosure and concealment of material facts clearly demonstrate the Applicant’s mala fide intention to mislead this Adjudicating Authority. Such suppression of crucial inflow transactions fundamentally undermines the credibility of the Applicant’s allegations. Therefore, the allegations of fund diversion, siphoning, or fraudulent trading as alleged under Section 66 of the Code are baseless, misconceived, and therefore needs to be rejected as being devoid of merit and contrary to the documentary evidence on record.

It was submitted by the Applicant that the suspended management of the Corporate Debtor wrote a letter dated 09.06.2015 to the Superintending Engineer, MSEDCL, O&M Circle, Chandrapur requesting to release the payment of monthly energy bills through RTGS in the current account with SBI Chimur of the Corporate Debtor. Subsequent to that, the Andhra Bank vide its letter dated 27.06.2017 informed the Superintending Engineer, MSEDCL, that as per the TRA Agreement and Power of Attorney executed by the Corporate Debtor in favour of the Andhra Bank, the monthly bill amount is required to be credited to the TRA and crediting directly into the SBI Chimur account is the violation of the TRA Agreement. He further submitted that on the basis of MSEDCL reply at Page 264 of the Memo dated 02.08.2025, the net amount of the monthly bills paid by the MSEDCL into the SBI Chimur account amounts to Rs.57,21,54,822/-.

The Applicant further submitted that Suspended Management of the Corporate Debtor siphoned off funds into the accounts of the R-8 and R-9 amounting to Rs.25,67,66,912. He further submitted that in addition to the above, Rs.3,27,92,216/- was also credited into the accounts of the R-8 and R-9 from the Corporate Debtor’s SBI Chimur Account through various transactions for the period 26.08.2015 to June, 2017.

The Counsel for the Suspended Directors submitted that the Corporate Debtor in the ordinary course of business made certain payments and reimbursements amounting to Rs.7,49,16,112/- to the R-8 for discharge of financial obligation arising out of funds advanced by the R-8 and other operational expense incurred on behalf of the Corporate Debtor. He also submitted that the R-9 made substantial payments to the Corporate Debtor to support its operational requirements and to ensure uninterrupted functioning of the power plant and Rs.18,18,50,800/- was paid to the R-9 towards settlement of amount received from time to time from the R-9. He further submitted that at no point of time, the amounts transferred from the Corporate Debtor’s SBI Bank account to R-8 and R-9 were in excess of the funds transferred by the R-8 and R-9 to the Corporate Debtor, and therefore, the question of any fraudulent transaction under Section 66 of the Code does not arise.

Per contra, the Applicant submitted that by virtue of TRA Agreement dated 07.09.2006, which was duly executed by the Financial Creditor, the Corporate Debtor and Andhra Bank, the sale proceeds receivable from the MSEDCL were required to be credited into the designated TRA of the Corporate Debtor with Andhra Bank. Out of these inflows, 60% was to be utilized for the Corporate Debtor’s operational requirements and the remaining 40% was to be earmarked for servicing the debt of the IREDA. However, the erstwhile management of the Corporate Debtor opened a new bank account with SBI Chimur, in clear violation of the TRA Agreement and the sale proceeds from the MSEDCL were deposited into the SBI Account instead of the designated TRA Account with Andhra Bank, and these monies were transferred to the R-8 and R-9, instead of being applied for servicing the loan of the IREDA. By referring to the letter dated 09.06.2015 (page 191 of IA) written by the Corporate Debtor to the MSEDCL, he further submitted that the Corporate Debtor had authorised the MSEDCL to release the payments to the Current Account of the Corporate Debtor, and this clearly evidences the mala fide intent of the Corporate Debtor in violation of the TRA Agreement. He, therefore, stated that such diversion of funds was carried out with the fraudulent intent and squarely attracts the provisions of Section 66 of the IBC. He further submitted that the existence of the SBI Account was not disclosed by the erstwhile management to the RP, and that the Respondents have not filed any documentary evidence as regards their admission of relationship of the R-8 and R-9.

The Counsel for the Suspended Board submitted that even as per the TRA Agreement dated 07.09.2006, after payment of the due amount to the IREDA as on the date of receipt in the TRA Account, the Corporate Debtor has right to utilize the surplus amount. In this regard, he referred to Clause 3.02(g) of the TRA Agreement dated 07.09.2006 (Page 97 of the IA).

At this juncture, the Bench has posed a query to both the parties that as per the terms of the Loan Agreement between the IREDA and Corporate Debtor and Clause 3.02(g) of the TRA Agreement, what amount would have been devolved on the IREDA, had the money paid by the MSEDCL been credited into the TRA. Both the Counsels sought two weeks’ time to work out the amount.

The Applicant sought two weeks’ time to place on record the legal propositions along with the relevant judgments of the superior Courts to demonstrate that, where a TRA/Escrow Account is mandated under an Agreement, the failure of the Corporate Debtor to route the funds through such TRA/ Escrow Account and the opening of an alternate Bank Account for the same would amount to a fraudulent transaction within the purview of Section 66 of the IBC.

At Annexure A-2, the Applicant has relied on the following decisions:

Mr. Anuj Bajpai, RP of Tollways (Ujjain) Pvt. Ltd. v. Surendra Lodha & Anr. (IA/ 2874/2021 in CP (IB) 4106/MB/2018);

Shri Baiju Trading and Investment Pvt. Ltd. v. Mr. Arihant Nenawati & Ors. (CA (CA) (Ins.) No.699 of 2021;

Shirley Matthew, Liquidator of M/s. Veracious Builders and Developers Pvt. Ltd. v. Kaluvoy Sreenivasulu Reddy & Anr. (2023) SCC OnLine NCLT 49754).

At Annexure A-3, the working computation of monies payable to the IREDA between June 2015 and May 2017 has been given as under:

The IREDA vide sanction letter dated 16.01.2006 (page no.74 to 86 of the IA) had sanctioned a term loan of Rs.2223 Lakhs to the Corporate Debtor and as per the Clause 8(vi) of the terms and conditions enclosed at Annexure-I of the said sanction letter, the Corporate Debtor was required to open a TRA for servicing the IREDA repayment, interest, liquidated damages and other monies and deposit the sale proceeds of the power and other monies in respect of the project/ business. The relevant extracts of the aforesaid sanction letter are reproduced below:

In terms of the above sanction letter, a Loan Agreement dated 28.02.2006 was entered into between the Corporate Debtor and IREDA.

The Corporate Debtor entered into the Biomass Energy Purchase Agreement (hereinafter referred to as the “BEPA”) with the MSEDCL on 25.09.2006 for sale of power generated by the plant (page no.113 to 184 of the IA).

The Andhra Bank, Srikakulam Branch vide its sanction letter dated 26.09.2007 (page no.185 to 187 of the IA), sanctioned the open cash credit limit of Rs.250 lakhs to finance working capital requirements of the Corporate Debtor.

In terms of the sanction letter of the IREDA dated 16.01.2006, a TRA Agreement was entered into on 07.09.2006 amongst IREDA, the Corporate Debtor and Andhra Bank (page no.88 to 112 of the IA). As per the TRA Agreement, a Designated Account i.e. a Current Account or TRA is to be opened by the Corporate Debtor with the Andhra Bank and the IREDA shall have the exclusive rights over the receivables together with all other monies lying in the TRA. The TRA would be operated in terms of the TRA Agreement and all the receivables was required to be deposited in the TRA. The receivables deposited in the TRA is to be appropriated in the manner as provided in Clause 3.02(g). As per the said clause, 60% of the monthly revenues are to be utilised towards raw material expenditure, operations and maintenance expenses, and charges payable to the Trust Bank. The balance 40% of the monthly revenues is to be appropriated towards lender dues in the following order of priority: (i) payment of charges including interest on loan, liquidated damages and other dues payable to the lender; (ii) repayment of principal amounts under the loan agreement; (iii) topping up of the Debt Service Reserve Money (hereinafter referred to as the “DSRM”) equivalent to two instalments of principal and interest payable to the lender; and (iv) surplus, if any (other than DSRM), will be allowed to overflow to the borrower. Further, Clause 3.02(m) of the TRA Agreement expressly prohibits the Corporate Debtor from opening any other account or establish any other mode for the purpose of collection of receivables without the prior written consent of the IREDA. The relevant extracts of the TRA Agreement are reproduced below:

The Corporate Debtor could not pay the instalments of principal, interest and funded interest and requested the IREDA for reschedulement of interest, funded interest and principal dues. The IREDA vide its letter dated 14.03.2014 (page no.13 to 16 of Memo dated 08.01.2026) rescheduled the above term loan, according to which the repayment schedule of principal and interest is as below:

The suspended Director, namely, Satya Srinivasa Boyina, vide letter dated 09.06.2015 (page no.243 & 244 of Memo dated 04.08.2025) gave the payment instructions to the Superintending Engineer, MSEDCL to release the monthly energy bills to SBI, Chimur. The extract of the above letter is reproduced below:

In the present case, this Tribunal has already recorded a categorical finding that the routing of receivables outside the TRA, in deviation of Clause 3.02(g) of the TRA Agreement, was not in consonance with the agreed contractual framework governing the cash-flow mechanism. Such deviation, in the facts of the present case, attracts the mischief contemplated under Section 66 of the Code to the extent that it resulted in diversion of funds. However, the quantification of liability remains seriously contested.

The suspended Directors, in their reply filed vide Diary No.1870 dated 16.09.2025, in response to the Compliance Memo dated 04.08.2025 filed by the Liquidator, have contended that out of Rs.57,21,54,822/- received from MSEDCL during the relevant period, Rs.42,83,05,248/- has already been credited to the TRA. It is further contended by them that the differential amount would be Rs.1,96,65,524/- after considering the .sum of Rs.3,78,74,306/-, which is stated to have been paid to IREDA. The details of aforesaid working available in their reply is shown in Table below:

On the other hand, the Liquidator has disputed the correctness of this reconciliation and the computation methodology adopted by the suspended Directors and has sought contribution of 40% of the total receipts, amounting to Rs.22,88,61,929/-, placing reliance upon Clause 3.02(g) of the TRA Agreement. The Applicant’s contention is that the said percentage represents the contractual entitlement under the structured repayment arrangement.

This Adjudicating Authority is of the considered view that determination of liability under Section 66 cannot be reduced to a mechanical application of a contractual percentage on gross receipts, nor can it be conclusively restricted to the differential figure asserted by the suspended Directors in the absence of a comprehensive and verified reconciliation. The exercise necessarily requires examination of (i) actual inflows received during the relevant period, (ii) credits made to the TRA, (iii) the net shortfall, if any, attributable to the TRA.

The jurisdiction under Section 66, though remedial in nature, does not dispense with the requirement of factual crystallisation of the amount that can legitimately be directed as contribution. In the present case, the quantum payable has not yet crystallised and involves detailed reconciliation of accounts and verification of repayments, an exercise which is more appropriately undertaken by the Liquidator in the first instance, in his capacity as custodian of the assets and records of the Corporate Debtor.

In view of the foregoing, while holding that the conduct complained of attracts Section 66 of the Code to the extent recorded in the preceding paragraphs, this Adjudicating Authority refrains from quantifying the disputed amount in the present summary proceedings. Accordingly, the Liquidator is directed to undertake a comprehensive reconciliation and computation of the net shortfall, if any, strictly in accordance with terms of the TRA Agreement, and the duly verified payments already made. The Liquidator shall afford reasonable opportunity to the suspended Directors to furnish relevant records, statements of accounts, and explanations for the purpose of such reconciliation, and shall determine the net contribution, if any, payable after due verification.

At the same time, we cannot ignore the fact that the suspended Directors have admitted that the differential amount would be Rs.1,96,65,524/- even after considering the .sum of Rs.3,78,74,306/-, which is stated to have been paid to the IREDA.

Upon final determination of the quantified shortfall, if any, the Liquidator shall be at liberty to initiate or pursue appropriate proceedings for the balance amount, if any, from the suspended Directors, in accordance with law