Sandeep Mahajan vs Nayan Thakrashi Shah & Ors.

PER: Ms. LAKSHMI GURUNG (MEMBER, JUDICIAL)

This application has been filed by the Interim Resolution Professional for the Neptune Ventures and Developers Private Limited against the Suspended Directors under Section 14(1) read with Section 68(i)(b) of the Insolvency and Bankruptcy Code, 2016 (‘the Code’), seeking the following prayers against the suspended directors of the corporate debtor:

Upon an application filed by Edelweiss Asset Reconstruction Company Limited under Section 7 of the Code, Neptune Ventures and Developers Private Limited (‘the Corporate Debtor’) was admitted into Corporate Insolvency Resolution Process (‘CIRP’) on 17.07.2023 (the ‘insolvency commencement date’) and the Applicant was appointed as the Interim Resolution Professional (‘IRP’). While admitting the corporate debtor into CIRP vide order dated 17.07.2023 (‘admission order’), the Adjudicating Authority declared moratorium in terms of section 14 ofthe Code.

A public announcement regarding the commencement of the CIRP was published on 19.07.2023 in English and Marathi newspapers. The announcement specified 31.07.2023, as the last date for submitting claims. The details of publication are provided as under:

The Applicant convened the first Committee of Creditors (‘CoC’) meeting on 16.08.2023, and apprised the members that the respondents were uncooperative in providing necessary details about the corporate debtor. These details included information about the Corporate Debtor’s assets, bank accounts, keys to properties forming part of the unsold inventory, and a copy of the sale register. The Applicant required this information to take custody and control of the assets of corporate debtor.

Consequently, the Applicant filed an application, I.A. No. 4339 of 2023, under Section 19(2) of the Code against the Respondents. This application sought directions to the Respondents to cooperate and provide access to all documents and information requested by the Applicant via emails dated 18.07.2023, 08.08.2023, and 09.08.2023 for proceeding with the CIRP of the corporate debtor. The said application is pending adjudication before this Tribunal.

The It is submitted that on perusal of bank accounts of the corporate debtor, it was found that following amounts from the three bank accounts of the corporate debtor were transferred without the knowledge and approval of the Applicant during moratorium:

The Applicant sent email dated 18.09.2023 to the respondents pointing out that amounts have been transferred from the HDFC Bank account No. 00150350000185 after the commencement of moratorium which amounts to violation of section 14 of the Code and requested the respondents to reverse the total amount of Rs. 5,23,43,364/- to the bank account of the CD. Two other similar emails both dated 24.09.2023 were also sent to the respondents requesting reversal of amounts of Rs. 66,18,500/- to the Axis Bank Account No. 1080102000013040 and Rs. 1,79,541/- to the Axis Bank Account No. 911020068030646 respectively. All above three emails are annexed to the present application as Annexures ‘A-3 (Colly)’, ‘A-4 (Colly)’, and ‘A-5 (Colly)’ respectively. Reply by Suspended Directors (Respondent Nos. 1,2 and 3)

Affidavit-in-reply dated 05.03.2024 has been filed by Respondent No. 1, which is adopted by Respondent Nos. 2 and 3. The Respondents have submitted as follows:

The instruments (cheques, demand drafts, pay orders, post-dated cheques) were initiated and issued before the insolvency commencement date. There is no provision in the IBC, including Sections 14 and 68 of the Code, prohibiting the encashment of instruments issued before the Insolvency Commencement Date.

The amounts transacted through these instruments represent debts owed by the Corporate Debtor to third parties primarily comprising of homebuyers seeking refunds for cancelled units and operational creditors. The Corporate Debtor was contractually required to refund money to homebuyers and other third parties; failure to do so would have resulted in potential litigation.

The Applicant has not provided any evidence showing that the Respondents were wrongfully enriched or siphoned off any amounts. On the contrary the payments were made towards legitimate dues of the homebuyers seeking refunds and to operational creditors. The details of such transactions with date of instrument are as follows:

A) Bank Account No. 00150350000185 (HDFC Bank):

B) Bank Account No. 1080 102000 13040 (Axis Bank):

C) Bank Account No. 911020068030646 (Axis Bank):

Lacking access to the records, the Respondents state their inability to furnish copies of the relevant instruments, which are in the IRP’s possession. It is submitted that the instruments were issued before the Admission Order and their presentation and encashment are at the discretion of third party.

The Applicant, in its Rejoinder dated 19.09.2024 has denied the accuracy of the transaction details submitted by the Respondents, as the transactions in question occurred after insolvency commencement date. The contention of the Respondents is rebutted by the Applicant, which is summarised as under:

The bank statements of the corporate debtor provide clear evidence of transactions during period of moratorium. The contention of the Respondent regarding debts owed to third parties is irrelevant as there is breach of the directions for moratorium.

The Respondents have failed to provide any evidence of a contractual obligation to refund the monies.

The Respondents have falsified the account statements, misrepresenting transactions as pre-CIRP, thereby demonstrating an intent to deceive the Adjudicating Authority, a violation of Section 68(i)(b) of the Code. The Respondents reliance on the proviso to Section 68(i) is misplaced, as it pertains to a defence against punishment, not liability. They have failed to substantiate the genuineness of the transactions.

Heard Ld. Counsel for the parties on both the sides and perused the record.

The Applicant has identified various amounts debited in the three bank accounts of the corporate debtor after the admission of the application under section 7 of the Code against the corporate debtor and declaration of moratorium by the Adjudicating Authority vide order dated 17.07.2023.

As per the provisions of Section 17 of the Code, from the date of appointment of the IRP, the management of the affairs of corporate debtor vests with the IRP, the powers of the board of directors of the corporate debtor stand suspended and its officers and managers are required to report and provide the IRP with access to all necessary documents and records. Section 17 is reproduced for ease of reference:

We observe that the Respondents did not reply to the emails of the IRP. The Respondents did not cooperate in providing the financial details and the bank details of the corporate debtor. We are also dealing with the non-cooperation by the Respondents as demonstrated in the orders passed by this Tribunal in IA 4339/2023 is discussed in the later part of this order.

The Respondents submitted that:

a. though the amounts were debited after the admission date but the instruments/cheques were issued prior to admission order and therefore there is no violation of section 14 of the code.

b. Secondly, the payments were made to homebuyers whose units were cancelled, and to the operational creditors towards their legitimate dues, apprehending litigation.

c. Thirdly, no amount is transferred to the Respondents. Therefore, there is no intent of fraud involved in the above transactions.

Therefore, the issue for determination before us is whether there is breach of moratorium by the Respondents and the monies so debited in the bank accounts of the corporate debtor after declaration of moratorium, without the authority of the IRP are required to be restored back to the corporate debtor.

The contention of Respondents, regarding no intent of fraud involved in the transactions under question as no amount is transferred to the Respondents is immaterial to decide whether there is breach of moratorium or not.

Moreover, the submission that the payments were made to homebuyers or operational creditors cannot be accepted. Once moratorium is declared and IRP is appointed, it is not open to the suspended directors to facilitate the payments to the homebuyers or operational creditors. The suspended board is obligated to disclose all information including the details of cheques, if any, issued by them prior to admission order which have not been encashed till the passing of the admission order. Instead of providing all requisite information, the Respondents did not even cooperate with the IRP in replying its emails and providing the accurate and complete information to the IRP. We are also aware that the Respondents have stated in their reply to IA 4339/2023 that SAP software in which the details were maintained got corrupted and therefore they are not able to access SAP and cannot provide the requisite details to the Applicant. Nonetheless, the submission that all cheques were issued to home buyers and operational creditors towards their legitimate dues is also immaterial to decide whether there was breach of moratorium or not.

To arrive at a conclusion about breach of moratorium, we need to see when were the cheques actually paid.

Accordingly, we view that a careful examination of bank account statements of corporate debtor at ‘Annexure – A3 Colly’ of the petition, will be crucial in determining the validity and legality of these transactions. The plea for restoration necessitates a thorough examination of whether these transfers violated the moratorium and whether they can be reversed to uphold the integrity of the CIRP. Therefore, we have ourselves carefully examined the bank statements with date of debit and cheque numbers and the relevant information provided in the reply, which is provided as under for analysis purpose:

Account Balance as on 14.07.2023 was Rs. 14,43,886.71/-

Account Balance as on 17.07.2023 was Rs. 4,826.72/-.

It is noticed from the bank account of HDFC that the opening bank balance as on 14.07.2023 is Rs. 14,43,886.71. If we go by the version of the Respondent that the cheques totalling to Rs. 5,35,40,000/- were issued on 14.07.2023 then the respondents were aware that either the cheques would be dishonoured or were in anticipation of some credit amount in the bank account of the corporate debtor. Therefore, it cannot be said that the payment of Rs. 5,35,40,000/- was handed over to the third parties on 14.07.2023, i.e., prior to initiation of CIRP. We note that after payment of above Rs. 5,35,40,000/-, the closing balance was reduced to mere Rs. 2,771.61 as on 24.07.2023. In other words, an amount of Rs. 5,20,98,884.90, was received in the bank account of the corporate debtor during the period from 14.07.2023 to 24.07.2023. A deeper analysis of the statement showed that the amount was credited to the bank account on account of cancellation of earlier MCs issued to different entities/persons. It is apparent that the respondents have used their discretion to cancel some of the earlier issued MCs and to issue fresh MCs on 18.07.2023 in preference to other homebuyers/ operational creditors, as claimed by the Respondents.

Another startling feature is that most of the payments with value date as 18.07.2023 are paid by MC mode which means Managers Cheque meaning thereby that the instrument was made on the instruction of the Respondents on 18.07.2023, i.e., after imposition of moratorium. Another mode of payment is FT-DR i.e. Fund Transfer by Electronic Mode and payments in this regard are also made after commencement of the CIRP.

In view of the above disturbing features, it is clear that the Respondents have misrepresented about date of instrument. From the bank statement, it is clear that the said instruments, i.e., MC or FT-DR were debited on 18.07.2023 which is a date after commencement of CIRP. For the payments made through cheques on 20.07.2023, 21.07.2023 and 24.07.2023, the Respondents have not placed on record, any document/ evidence to show that the handing over of the instrument was prior to commencement of CIRP under contractual obligation or in ordinary course of business or through ECS mandate/ Auto-Debit. Hence, their submissions are rejected.

An analysis of Axis Bank: 108010200013040, shows that all the three payments made to Fortune Realty on 18.07.2023 are through RTGS mode and payment to Vedant Realtors LLP on 24.07.2023 was through electronic transfer. Clearly, the above transaction is after the commencement of CIRP.

An analysis of the payment debited in Axis Bank - 911020068030646, we note that Rs. 64,541 is paid to Vodafone Idea Limited – apparently towards telephone/mobile/internet charges which appears to be incurred in the ordinary course of business and can be treated as CIRP cost.

Upon considering the entire factual matrix, analysis of the bank statements annexed as Annexure –‘A3 Colly’ to the Petition and the reply of the Respondents, we have no hesitation to conclude that the amounts debited in the bank account of the corporate debtor post CIRP was made without the knowledge and permission of Resolution Professional and in violation of Section 14 of the Code. In view of the discussions in the preceding paragraphs, the submissions made by the Suspended Directors lack credibility, evidence, are unsustainable and hence, rejected.

Hence, we hereby allow the application with the following directions-: