Premraj Ramratan Laddha vs Kirtikumar Bhupatlal Sejpal & Ors.

Issue No.1: Whether this application filed as a composite application under Sections 43, 45, 49 and 66 of the Insolvency and Bankruptcy Code, 2016 is maintainable before this Adjudicating Authority?.

Issue No.2: Whether the Applicant as the Resolution Professional has complied with the requirements of Regulation 35A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 in filing this application?.

Issue No.3: Whether the purchase and sale transactions of Gram, Cumin Seeds, Castor Seeds, Sesame Seeds and FP Bales as detailed in the application are transactions that are avoidable as undervalued transactions under Section 45 of the Insolvency and Bankruptcy Code, 2016 read with Section 66 of the Insolvency and Bankruptcy Code, 2016 as fraudulent transactions or transactions involving wrongful trading?.

Issue No.4: Whether the repayments of unsecured loans to the related parties as detailed in the application are transactions that are avoidable as preferential transactions under Section 43 of the Insolvency and Bankruptcy Code, 2016 read with Section 66 of the Insolvency and Bankruptcy Code, 2016 as fraudulent transactions or transactions involving wrongful trading?.

Issue No.5: Whether the Sauda settlement payments as detailed in the application are transactions that are avoidable under Section 66 of the Insolvency and Bankruptcy Code, 2016 as fraudulent transactions or transactions involving wrongful trading?.

Issue No.6: What reliefs if any are to be granted to the Applicant in this application and what orders are to be passed against the Respondents including the Respondents who are proceeded ex-parte?.

The Respondents No.1 to 7, 19 and 20 have contended that a joint application for setting aside transactions as preferential, undervalued or fraudulent is not maintainable. The provisions are mutually exclusive. The parameters, enquiries and consequences are different as held in the judgment of the Supreme Court in Anuj Jain IRP, Jaypee Infratech Ltd. v. Axis Bank Ltd., (2020) ibclaw.in 06 SC. The look back period is provided for Sections 43 and 45 but not for Section 66. Hence the composite application is not maintainable. The alternate plea to press under Section 66 is belated. It would alter the nature of allegations and cause prejudice. The Respondents have responded to the allegations as preferential or undervalued. Re-characterizing as fraudulent under Section 66 would deprive the opportunity to deal with the allegations. The additional affidavit ought not to be taken on record.

The Applicant has contended that the reliance on Anuj Jain case (2020 ibclaw.in 06 SC) is misconceived. The judgment deals with ingredients for preferential transactions. It states that no intent is needed for Section 43. It leaves open the question whether transactions held preferential can also be undervalued or fraudulent. The intent to defraud is present in all transactions. The transaction auditor categorized under Section 66. On examination, ingredients of Sections 43 or 45 are also present. The provisions involve actions that undermine creditors. When ingredients of multiple sections are present, the same can be invoked. Substantive justice should be preferred over procedural technicalities. The Supreme Court in Piramal Capital Case (2025 ibclaw.in 120 SC) has held that applications for fraudulent and wrongful trading under Section 66 are distinct from avoidance applications under Sections 43, 45 and 50. There is demarcation of powers. If Resolution Professional files common applications the Adjudicating Authority shall distinguish and decide which provision applies. In case not inclined to maintain on ground of invoking two sections seek liberty to press under Section 66.

The analysis on this issue requires examination of the scheme of the Insolvency and Bankruptcy Code, 2016. Chapter III deals with avoidance of preferential transactions under Section 43. Section 43(4) provides that a preference shall be deemed to be given, if given to a related party during the period of two years preceding insolvency commencement date. This period reduces to one year period in case a preference is given to person other than a related party. It deals with undervalued transactions under Section 45. The consideration period in section 46 for undervalued transaction is two years for a related party and one year for transaction with any other person. It deals with transactions defrauding creditors under Section 49. Section 50 deals with extortionate transactions. Chapter VI deals with fraudulent trading or wrongful trading under Section 66. The Supreme Court in Anuj Jain Case (2020 ibclaw.in 06 SC) has observed that the parameters and enquiries for preferential, undervalued and fraudulent are different. The question of intent is not involved in Section 43 but by legal fiction transaction is deemed preferential if ingredients present. For undervalued under Section 45 different enquiry. Under Section 49 if undervalued to defraud creditors intent examined. Section 49 applies where undervalued transactions (under Section 45) are entered with intent to defraud creditors, distinct from fraudulent trading under Section 66. For Section 66 liabilities on persons responsible for fraudulent or wrongful trading. Specific facts to be pleaded. The scope for preference is different. Resolution Professional to keep requirements in view. But the judgment leaves open whether transactions can be both preferential and fraudulent or undervalued and fraudulent. It does not bar filing composite application when facts support multiple provisions.

Further the Supreme Court in Piramal Capital Case (2025 ibclaw.in 120 SC) has held that applications under Section 66 for fraudulent and wrongful trading are not avoidance applications like under Sections 43, 45, 50. There is clear demarcation. If common applications filed the Adjudicating Authority to distinguish and decide applicable provision. Exercise powers under the Insolvency and Bankruptcy Code, 2016. This supports maintainability with segregation.

In addition, the NCLAT in its judgment dated 24.04.2023 in GVR Consulting Services Pvt. Ltd. v. Pooja Bahry, (2023) ibclaw.in 261 NCLAT has allowed avoidance under multiple sections. If the facts of the case support the ingredients of more than one provision. This was also upheld by the Supreme Court in Civil Appeal No. 4125 and 4322 of 2023 on 14.07.2023 in Dyna Rasayan Udyog Pvt. Ltd. v. Pooja Bahry and Anr., (2023) ibclaw.in 211 SC. The NCLT, Mumbai Bench in its judgment dated 04.09.2024 in IA No. 15417 of 2021 has maintained composite application by segregating the transactions and applying the appropriate provisions.

In the present case the application identifies specific transactions. It alleges them as preferential or undervalued with fraudulent intent or fraudulent trading or wrongful trading. The facts pleaded show ingredients of multiple sections such as for purchase and sale transactions undervalued as losses booked on sales at lower prices than purchases without justification. Fraudulent as book entries without actual movement of goods. For repayments preferential as related parties put in better position. Fraudulent as done despite dues and losses with intent to defraud. For Sauda fraudulent as to show losses pre insolvency. The Adjudicating Authority can segregate and apply Section 66 where fraudulent intent is established or business of the corporate debtor has been carried on with an intent to defraud creditors or for any fraudulent purpose. No look back period applies under Section 66. The alternate plea is considered as the application can be pressed under Section 66 in interest of justice. The Respondents have addressed fraudulent aspects in replies. No prejudice as the facts are common. Depending on the nature of transactions and its effect, the same could satisfy the tests of either section 43, 45, 50, or 66 of the transaction can fall in the ambit of more than one sections. The application is maintainable with segregation and decision on applicable provisions. Thus, Issue No.1 is decided in the affirmative that the application is maintainable.

The Respondents No.1 to 7, 19 and 20 have contended that Regulation 35A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 requires the Resolution Professional to form an opinion whether the Corporate Debtor has been subjected to transactions under Sections 43, 45, 50 or 66. After forming opinion to make a determination. Then file application before the Adjudicating Authority. But in this case no opinion formulated by the Resolution Professional. No determination made. It was the Committee of Creditors who resolved to move the application. Hence the application is filed without fulfilling pre-requisites. It is not maintainable.

The analysis on this issue requires examination of Regulation 35A. It provides that the Resolution Professional shall form an opinion whether the Corporate Debtor has been subjected to any transaction covered under Sections 43, 45, 50 or 66 on or before the 75th day of the insolvency commencement date. If forms such opinion make a determination on or before the 115th day. File the application before the Adjudicating Authority on or before the 135th day. The timelines are directory as held by the NCLAT in judgment dated 16.02.2023 in Jagdish Kumar Parulkar RP v. Vinod Agarwal Ex-Director, (2023) ibclaw.in 132 NCLAT. Substantial compliance is sufficient if the audit report supports the determination.

In the present case the insolvency commencement date is 15.03.2021. The auditor was appointed on 01.05.2021 which is within 75 days. The report was submitted on 06.07.2021 which is within 115 days. The meeting was held on 16.07.2021. The application was filed on 18.08.2021 which is within 135 days. The RP got the transaction audit done and when transactions that would not have been carried out in a normal course of business and prima-facie hit by sections 43,45,49, or 66 were identified based on the nature of transactions and effect of the same on the corporate debtor or likely benefits to other, he took the matter to the CoC seeking permission to file an application before the adjudicating authority for a decision on these transactions. The opinion was formed by him based on the transaction audit prepared by an expert. Possible categorisation of the transaction whether avoidable or fraudulent is underpinned by sound judgment based on the nature of transactions. This involves application of mind and that forms the basis for an opinion. Therefore, it would not be correct to argue that opinion was not formed.

The appointment of auditor with Committee of Creditors consent and basing the application on the audit report constitutes formation of opinion and determination by the Resolution Professional. The report identifies the transactions. The Resolution Professional has filed the application adopting the findings. The involvement of Committee of Creditors is for approval as per Section 25(2)(j). It does not amount to abdication. In National Company Law Tribunal, Ahmedabad judgment dated 12.05.2023 in IA No. 123 of 2021 similar compliance was held sufficient. Hence there is compliance with Regulation 35A. Thus, Issue No.2 is decided in the affirmative that there is compliance

The Applicant has contended that the transactions are undervalued. The Corporate Debtor booked losses on sales of commodities at prices lower than purchase prices. The losses run into crores of rupees. Most appear to be book entries without actual movement of goods. In most cases goods are purchased at higher prices and sold at lower prices on the same day or shortly after. In certain cases the seller and buyer are related operating from the same place. The intent is to defraud creditors by booking artificial losses. For Gram stock mismatches with sales without stock. Differential purchased later at higher price while sold earlier at lower. Cash purchases dominant. For Cumin Seeds and Sesame Seeds same day transactions with Respondents 8 and 9 related. Purchase unaffected by alleged decline. For Castor Seeds related higher unrelated lower. For FP Bales same day losses. The Transaction Audit Report dated 06.07.2021 supports. No look back under Section 66.

The Respondents No.1 to 7, 19 and 20 have contended that the transactions are genuine business transactions in trading since 2012. Losses due to market fluctuations of 2 to 5 percent daily as evidenced by screenshots. For Gram worm infestation forced discounted sale. 80 percent with unrelated parties. Bank audits no objections on stock variation. Beyond look back for undervalued. No proof of undervalued as no evidence market value higher on sale date. Arm's length known to bank. For Cumin Seeds profit in 2017. Loss due to decline. From related at market rate. Respondents 8 and 9 not related to Corporate Debtor. Unaware of their relation. Audits would detect no movement. Similar for Sesame Seeds. For Castor Seeds marginal loss Rs. 1.44 per kilogram due to decline. For FP Bales different quality volatility. Incurring losses not defrauding.

The analysis on this issue requires examination of Section 45. It provides for avoidance of undervalued transactions if the Corporate Debtor has at a relevant time made a gift or transferred property for consideration value less than provided. Section 46 provides look back of 1 year or 2 years for related parties. Section 49 provides if undervalued to defraud creditors the Adjudicating Authority may order restoration. Section 66 provides if business carried with intent to defraud creditors or for fraudulent purpose the Adjudicating Authority may order contribution from persons responsible. No look back under Section 66. The Supreme Court in Anuj Jain Case has held that whether a transaction is undervalued requires a different enquiry as per Sections 45 and 46. If the undervalued transaction is to defraud creditors the intent is examined under Section 49. For fraudulent trading under Section 66 the liabilities are on the persons responsible. The scope is different. Specific facts are to be pleaded. Thus, where undervalued transactions involve defrauding intent, Section 49 may apply alongside Section 66 for trading aspects.

In the present case for Gram, the purchases are Rs. 10,73,65,565. Sales Rs. 6,90,87,875. Loss Rs. 3,82,77,690. Stock in February 2018 nil but sales 5,06,962 kilograms. Till February 2019 sold higher than purchased. Differential in March 2019 at Rs. 42.72 per kilogram while February 2018 sales at Rs. 9 per kilogram. April 2019 at Rs. 13.81 per kilogram. Purchase increase 7.14 percent but sale decrease 77.5 percent. If worm infestation fresh March 2019 stock not sold discounted. Decline should lower purchases too but not. 75 percent cash parties not named. Only 4.13 percent unrelated contrary to 80 percent claim. Pattern shows undervalued sales. Intent to book loss fraudulent under Section 66.

For Cumin Seeds purchases 2,90,125 kilograms at Rs. 154 per kilogram. Sold at Rs. 149 and Rs. 141 per kilogram. Loss Rs. 17,23,150. 44 percent from related. From Respondent 8 sold to 9 related same address. Same day like 28.03.2018 and 29.03.2018 buy at Rs. 154 and Rs. 153 sell at Rs. 149 and Rs. 148. Decline affects sales not purchases. Unaware not credible as same place. Thus the transactions are avoidable under Section 45 read with Section 66 as undervalued with fraudulent intent.

For Castor Seeds purchases 3,36,339 kilograms from related parties Respondent No. 5 and Respondent No. 10 at Rs. 39 to 40.30 per kilogram. Sold 3,36,266 kilograms to Respondent No. 11 at Rs. 38.21 per kilogram. Resulting in loss of Rs. 4,33,960. No prior business transactions with Respondent No. 11. Purchases beginning month higher sales end lower. Decline only end. Related higher unrelated lower contrary normal. Thus the transactions are avoidable under Section 45 read with Section 66 as undervalued with fraudulent intent.

For Sesame Seeds purchases 6,00,000 kilograms from 8 at Rs. 92 per kilogram. Sold to 9 at Rs. 85 per kilogram. Loss Rs. 42,00,000. 8 and 9 related. Same day like 03.03.2018 and 05.03.2018 buy sell same quantity. Decline affects sales not purchases. Thus the transactions are avoidable under Section 45 read with Section 66 as undervalued with fraudulent intent.

The intent is clearly to defraud creditors by booking artificial business losses, allowing to take out money out of the corporate debtor, as receipts are less than the payemnts. It is simply draining out money/cash from the corporate debtor and therefore the transaction satisfies the conditions of sections 45 and 66. The sales were undervalued, and the respondents have not proved that the sale price were market driven price of the commodity on the transaction date. Therefore, the sales were rightly held as undervalued and covered under section 45 of the IBC, 2016. These transactions in commodities were carried out always resulting into losses (the respondents have not proved that delivery was taken or given and these were genuine transactions). The carrying on these transactions also satisfies the requirements of section 66 because it has been found that business of the corporate debtor, by carrying out these transactions, has been carried on with an intent to defraud creditors of the corporate debtor or for fraudulent purposes. In this case, the CD was facing financial distress and it accounts became NPA. In these circumstances carrying on of the unusual trading transactions resulting into huge loss can be stated for the purpose of draining the scarce funds of the CD so it need not pay creditors and intention was to defraud the creditors. Cash purchases attract provisions of section 40A(3) of the Income Tax Act, 1961 still it carried out the transactions in cash which demonstrate that the intention was to take out the cash from the corporate debtor. Thus the transactions are avoidable under Section 45 read with Section 66 as undervalued with fraudulent intent.

The NCLT, Ahmedabad in judgment dated 19.02.2024 in IA No. 43 of 2017 avoided similar commodity trades under Section 66 as fraudulent to defraud creditors. Here patterns consistent losses no justification intent established. Respondents ex-parte uncontroverted. Transactions avoidable under Section 45 read with 66 and Section 49, where applicable. Thus, Issue No.3 is decided in the affirmative.

The Applicant has contended in the application, Rejoinder/Written Synopsis, additional affidavit, written submissions and revised synopsis that the transactions are preferential. By repaying Rs. 4,47,06,188 to related parties Respondents 1 to 4, 19 and 20 in Financial Year 2017-18 such unsecured related lenders are put to a beneficial position than in distribution under Section 53. The transactions are fraudulent. The repayments were made despite the Corporate Debtor owing Rs. 37,00,00,000 to unrelated creditors. Incurring losses of Rs. 22,00,00,000 in Financial Year 2017-18. The repayments were just prior to Non-Performing Asset declaration on 06.07.2018. The loans are shown as long term borrowings in audited financial statements. The entire outstanding as on 31.03.2017 was repaid without simultaneous receipts. Balances reduced substantially. No due diligence exercised amid financial distress indicating intent to defraud creditors. The audited balance sheet and profit and loss account for Financial Year 2017-18 and ledger accounts support.

The Respondents No.1 to 7, 19 and 20 have contended that the terms of sanction letter dated 23.12.2016 do not prohibit repayment of loan to the related parties. It is clear from terms of the sanction letter that repayment of unsecured loans to the related parties is permitted to a certain limit. If repayments were made beyond that limit then the Corporate Debtor would be subjected to 2 percent penalty. No such penalty was imposed on the Corporate Debtor for repayment of loan which substantiates the fact that repayments were made within the limits prescribed by the Financial Creditor. The Respondents had granted short term loans to the Corporate Debtor at regular intervals. The Corporate Debtor would repay the loan amount to the Respondents periodically. Therefore the repayments were made in ordinary course of financial affairs of the Corporate Debtor. It is denied that any justification was sought from the Respondent for the aforesaid transaction. Even otherwise the repayments were made beyond the look back period of two years that is all the repayments were made prior to 14.03.2019. Hence repayment of unsecured loan to related parties will not fall within the purview of preferential transactions.

The analysis on this issue requires a detailed examination of Section 43 of the Insolvency and Bankruptcy Code, 2016. It provides that a corporate debtor shall be deemed to have given a preference at a relevant time. During the period of two years preceding the insolvency commencement date if the corporate debtor is a related party. Or during the period of one year preceding the insolvency commencement date if the beneficiary is not a related party. The transaction is a transfer that puts the beneficiary in a beneficial position than it would have been in the event of distribution of assets being made in accordance with Section 53. Section 66 provides for liability if business carried with intent to defraud creditors.

In the present case the repayments amounted to Rs. 4,47,06,188 in Financial Year 2017-18 to related parties Respondents 1, 2, 3, 19 and 20. The insolvency commencement date is 15.03.2021. So the repayments are within the look back period of 2 years for related parties. The audited financial statements for Financial Year 2017-18 show the loans as long term borrowings. Not short term as contended. The entire outstanding amounts as on 31.03.2017 were repaid in Financial Year 2017-18 without adequate simultaneous receipts from the related parties. The outstanding balances reduced substantially after the repayments. The repayments were made when the Corporate Debtor had outstanding dues of Rs. 37,00,00,000 to the Financial Creditor. Incurred losses of Rs. 22,00,00,000 in the same financial year. Just prior to the account being declared Non-Performing Asset on 06.07.2018. No due diligence was exercised in repaying the related parties amid the financial distress. This indicates the intent to put the related parties in a beneficial position and defraud the other creditors. The sanction letter dated 23.12.2016 permits repayments to a limit with penalty if exceeded. But the absence of penalty does not negate the preferential nature as the transactions put the related parties better under Section 53.

The contention of ordinary course is not tenable as the repayments were of long term loans. Not periodic short term. Further, section 43(4) provides that a preference shall be deemed at a relevant time if transactions with related parties were made two years preceding insolvency commencement date. There is no dispute or objections by the respondent that the money was paid to related parties as repayment of loan (in preference to others as no money was paid to bank with whom the account of the Corporate Debtor became NPA due to non-payment and CD was in financial distress or other creditors) therefore due to deeming fiction the payments automatically became preferential hit by section 43 of the IBC, 2016. The intent appears to be not to leave anything in the CD and take out the available funds to benefit the relatives and put them in a better position that they would have been in a distribution under section 53 of the IBC, 2016.

The Supreme Court in Anuj Jain Case (2020 ibclaw.in 06 SC) has held that a transaction is preferential if it has the effect of putting the beneficiary in a beneficial position. The look-back period applies. Here the ingredients are satisfied. Further the intent to defraud is evident from the timing and circumstances. NCLAT in GVR Consulting Services Pvt. Ltd. (2023) ibclaw.in 261 NCLAT has avoided similar repayments to related parties as preferential under Section 43 and fraudulent under Section 66 when made amid financial distress. This was also upheld by the Supreme Court reported in (2023) ibclaw.in 211 SC. Hence, the transactions are avoidable under Sections 43 read with 66 of the Insolvency and Bankruptcy Code, 2016. Thus, Issue No.4 is decided in the affirmative

The Applicant contended the Corporate Debtor expensed off Sauda Settlement Expenses Losses to the tune of Rs. 11,91,30,564 in Financial Years 2017-18 and 2018-19. Majorly prior to Non-Performing Asset declaration on 06.07.2018. Prior to that no such speculative transactions at big scale. Parties new no prior relationship during financial crunch unable meet obligations suspicion genuineness. Party-wise losses detailed. Ledgers created solely prior no existence or no transactions. Unfathomable no benefit single Sauda majority Rs. 10,62,55,564 Financial Year 2017-18. Turned profits Rs. 16,53,280 till 31.03.2017 to losses Rs. 22,86,95,386 within year nothing ordinary. Entered show losses defraud. Transaction Audit Report dated 06.07.2021 supports.

The Respondents No.1 to 7, 19 and 20 have contended in the reply and written submissions that Sauda are transactions where contract entered buy sell commodity specified price quantity future date. Usually cancelled differential paid. Denied expensed off immediately prior Non-Performing Asset 07.07.2018 most settled way prior. Entered since 2016 unrelated third parties not during crunch. Entered 2016 2017 account regular limit losses entered settled prevailing market rate. Denied ledger Respondent 21 23 24 26 30 created solely none related no dues paid Respondent 23. No fraudulent trading no payment only reason alleging fraud losses failure generate profit point lack business acumen not defrauding.

The Respondents 21, 22 and 27 have contended in their replies that Corporate Debtor entered Sauda contracts dated 19.09.2016 20.09.2016 for Respondent 21 purchasing cotton bales within 8 months sellers option. Dated 19.09.2016 21.09.2016 22.09.2016 for Respondent 22 purchasing within 8 months sellers option. Dated 10.11.2017 14.11.2017 15.11.2017 for Respondent 27 selling within 2-3 months sellers option. Supported contracts debit notes settlement notes payments within 5 days. Prior sales Financial Year 2016-17 Respondent 21 Rs. 2,15,96,160 Respondent 22 Rs. 3,31,25,360 Financial Year 2017-18 Respondent 27 Rs. 1,52,64,940. No knowledge source funds commercial wisdom market practices no other business ledger for Sauda. Fulfill consideration irrespective condition commercial sales purchases receipts clear course business entitled receive goods delivered.

The analysis on this issue requires a detailed examination of Section 66 of the Insolvency and Bankruptcy Code, 2016. It provides that if during the corporate insolvency resolution process or liquidation process it is found that any business of the corporate debtor has been carried on with intent to defraud creditors of the corporate debtor or for any fraudulent purpose. The Adjudicating Authority may on the application of the resolution professional or liquidator pass an order. Any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit. There is no look back period for Section 66. The provision is for fraudulent trading or wrongful trading. Where the business is carried on knowing that there is no reasonable prospect of avoiding insolvency or with intent to defraud.

In the present case the Sauda settlement payments resulted in losses of Rs. 11,91,30,564. It is unfathomable that the Corporate Debtor entered numerous Sauda contracts but was not benefitted from any single contract. The majority of the expenses losses amounting to Rs. 10,62,55,564 were in Financial Year 2017-18. That is the period immediately prior to the Non-Performing Asset declaration on 06.07.2018. Prior to that the Corporate Debtor had not entered into such speculative transactions at such scale. The parties were new with no prior business relationship. The transactions were during the period when the Corporate Debtor was facing major financial crunch. Unable to meet obligations. The contention that the Saudas were cancelled prior to specified period to limit losses is misconceived. The cancellations themselves led to the losses. Till 31.03.2017 the Corporate Debtor had booked profits to the tune of Rs. 16,53,280. Within a year incurred losses to the tune of Rs. 22,86,95,386.

There is nothing to indicate that the transactions were in ordinary course. They took place majorly in Financial Year 2017-18. Soon thereafter the Corporate Debtor was led into Corporate Insolvency Resolution Process. The ledgers for several parties were created solely for accounting these expenses. Prior no existence or no transactions. The contracts notes payments do not negate the fraudulent intent. The overall pattern shows the transactions were entered to book losses and defraud creditors. The National Company Law Tribunal Mumbai Bench in its judgment dated 14.06.2024 in a similar case avoided Sauda settlements under Section 66. They were speculative transactions to siphon funds and defraud creditors. The article Discerning the Reach of Avoidance Proceedings by Vinod Kothari Consultants explains that under Section 66 the Adjudicating Authority can hold directors and other persons liable for fraudulent trading. If the business was carried on with intent to defraud. Here the pattern establishes the intent. The Respondents who are proceeded ex-parte have not controverted. Hence the transactions are avoidable under Section 66 of the Insolvency and Bankruptcy Code, 2016. Therefore, Issue No.5 is decided in the affirmative.

In view of the findings on Issues 1 to 5 that the application is maintainable and there is compliance with Regulation 35A and the purchase and sale transactions are avoidable under Section 45 read with Section 66 and the repayments are avoidable under Section 43 read with Section 66 and the Sauda settlements are avoidable under Section 66, the transactions are declared void and avoided;

Considering that transactions meet the tests of section 66 of the IBC, 2016, as discussed above, we also hold that the directors of the corporate debtor knew that the CD is in financial distress and they knew that there was no reasonable prospect of avoiding the commencement of a corporate insolvency resolution process, which happened very quickly after carrying out the transaction and bank account became NPA, and such directors instead of exercising due diligence in minimising the potential loss to the creditors of the corporate debtor carried out the transactions as described in this order with an intent to draw out the cash out of the corporate debtor and defraud the creditors due to non-payment of their due amounts. Therefore, considering the provisions of section 66(2), we order that the directors are liable to contribute to the assets of the corporate debtor the amounts determined as losses due to fraudulent transactions due to trading in commodities and sauda transactions

The Respondents are directed to contribute the amounts to the Liquidator for the assets of the Corporate Debtor jointly and severally for distribution to the creditors in accordance with Section 53 of the Insolvency and Bankruptcy Code, 2016;

and the payments shall be made within 30 days from the date of this order.