Allowed

In the matter of Jarvis Infratech Private Limited Ia No. 119 of 2022 in Ib No. 2354-ND-2019

NCLT17 Apr 2023

Case brief

AI extract

What is this about?

The Tribunal allowed the liquidator's application under Section 66 read with Section 60(5) of the IBC. Directing the restoration of financial transactions identified as fraudulent, the respondent parties were ordered to contribute to the corporate debtor's assets as detailed in the Transaction Audit Report.

What did the court decide?

Restoration of financial transactions as per the audit report and a direction for respondents to contribute to the corporate debtor's assets.

In the matter of Jarvis Infratech Private Limited Ia No… — Insolvency and Bankruptcy | NCLT (2023)

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IN THE NATIONAL COMPANY LAW TRIBUNAL, NEW DELHI COURT-V

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Item No.-02 IB-2354/ND/2019 IA/119/2022

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IN THE MATTER OF: Noble Cooperative Bank Ltd. ….Applicant Vs. Jarvis Infratech Pvt. Ltd. …..Respondent

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SECTION U/s 66 R/w Sec. 60(5) of IBC Order delivered on 17.04.2023

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CORAM:

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SHRI P.S.N PRASAD, HON’BLE MEMBER (JUDICIAL)

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DR. BINOD KUMAR SINHA, HON’BLE MEMBER (TECHNICAL)

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PRESENT:

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For the Applicant : For the Respondent :

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ORDER

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Order pronounced in open court vide separate sheets. IA/119/2022 in IB-2354/ND/2019 is allowed.

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Sd/(DR. BINOD KUMAR SINHA) MEMBER (T)

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Sd/(P.S.N PRASAD) MEMBER (J)

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IN THE NATIONAL COMPANY LAW TRIBUNAL

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COURT-V, NEW DELHI BENCH

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IA NO. 119 OF 2022 IN IB NO. 2354/ND/2019

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An application under Section 66 read with Section 60(5) of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of National Company Law Tribunal Rules, 2016.

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IN THE MATTER OF:

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M/s Noble Co-operative Bank Limited M.P. Road -1, Raghunathpur, Sector-22, Noida-201301, Uttar Pradesh

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...Financial Creditor

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VERSUS

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Jarvis Infratech Private Limited

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602/96, 6^th Floor, Siddharth Building, Nehru Place, Near Central Bank, New Delhi-110019

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...Corporate Debtor

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AND IN THE MATTER OF:

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Dinesh Kumar Gupta

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Liquidator of Jarvis Infratech Private Limited B- 1/26, Sector 18 Noida- 201301 (U.P.)

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…Applicant

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VERSUS

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Pantel Technologies Private Limited

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Through Resolution Professional Mr. Gagan Gulati 602/96, 6^th Floor, Siddharth Building, Nehru Place, Near Central Bank, New Delhi-110019

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…Respondent No. 1

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IA No. 119 Of 2022 In IB no. 2354/ND/2019

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Mr. Vivek Prakash (Suspended Director & MD)

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Flat No. 201, Tower F, The Jewel of Noida, Sector 75, Noida- 201301 (U.P.) …Respondent No. 2

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Mr. Tarun Kemani (Suspended Director)

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Office No. 602/96, Siddharth Building, Nehru Place, New Delhi-110019 …Respondent No. 3

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Order Delivered on:17.04.2023

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CORAM:

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SHRI P.S.N. PRASAD, HON’BLE MEMBER (JUDICIAL) DR. BINOD KUMAR SINHA, HON’BLE MEMBER (TECHNICAL)

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Appearances (through Video Conferencing/physical hearing)

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For the Applicant : For the Respondent : For the Liquidator: Adv. Govind Bhardwaj, CS Vartika Mittal

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ORDER

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PER: SHRI P.S.N. PRASAD, HON’BLE MEMBER (JUDICIAL)

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1. The present I.A. No. 119 of 2022 is an application under Section 66 read with Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (“Code”) along with Regulation 35A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons), Regulations, 2016. The present application is preferred by Shri Dinesh Kumar Gupta (“ Applicant”) , Liquidator of the Corporate Debtor i.e., M/s Jarvis Infratech Private Limited (‘Corporate Debtor”) in compliance of the orders passed by this Adjudicating authority on 03.12.2021 and 16.12.2021.

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IA No. 119 Of 2022 In IB no. 2354/ND/2019

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2. The Applicant/Liquidator has made the following prayers in the application:

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a) To admit the present application; and/or

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b) To order/instruct Respondent No. 1 (vide powers u/s 66(1) of IBC, 2016) to make contribution to the assets of the Corporate Debtor for the amount of loss incurred on account of fraud as stipulated in Para No. 9 as provided hereinbefore in this application; and/or

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c) To order/instruct Respondent No. 2 & 3 (vide powers u/s 66(2) of IBC, 2016) to make contribution to the assets of the Corporate Debtor for the amount of loss incurred on account of fraud as stipulated in Para No. 10 and 11 as provided hereinbefore in this Application; and/or

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d) To hold Respondent No. 2 & 3 guilty of the fraud committed against the Corporate Debtor as well as Creditors of the Corporate Debtor and instruct/advice the Applicant to institute appropriate legal action against the Respondent No. 2 & 3; and/or

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e) To declare null and void, all the effect and nature of transactions entered by the Corporate Debtor with Respondent No. 1,2 & 3 along with the other transactions with whom the Corporate Debtor had entered into with third parties stated hereinabove; and/or

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f) Any other order as this Hon’ble Tribunal deems fit in this regard in the interest of justice.

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3. The present application was filed on 01.01.2022 before this Adjudicating Authority for seeking necessary directions in respect of the Financial Transactions as prescribed under Section 66 of the Code, which have been entered and executed upon by the promoters, directors and management of the Corporate Debtor, and have adversely affected the financial position of the Corporate Debtor and the substratum of the assets to the tune of R. 2,53,45,487.57 (Two Crore Fifty-Three Lakhs Forty-Five Thousand Four

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IA No. 119 Of 2022 In IB no. 2354/ND/2019

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Hundred Eighty-Seven and Fifty-Seven Paise) approximately of the Corporate Debtor have been eroded through these transactions by the suspended directors and management of the Corporate Debtor during the look back period as prescribed by the Regulations of the Code.

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4. Para 9 of the Applicant’s Application, on which the Applicant is relying states that there is a benefit to the extent of Rs. 1,35,64,945.57 (One Crore Thirty-Five Lacs Sixty-Four Thousand Nine Hundred Forty-Five Rupees Fifty-Seven Paise) in favor of the Respondent No. 1 i.e., M/s Pantel Technologies Private Limited as detailed hereunder:

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IA No. 119 Of 2022 In

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IB no. 2354/ND/2019

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IA No. 119 Of 2022 In

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IB no. 2354/ND/2019

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IA No. 119 Of 2022 In

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IB no. 2354/ND/2019

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5. Further, para 10 of the said Application states that there has been benefit to the extent of Rs. 1,17,80,542 (Rupees One Crore Seventeen Lacs Eighty Thousand Five Hundred Forty-Two), in favor of the Respondent No. 2 & 3, Mr. Vivek Prakash and Mr. Tarun Kemani, respectively as detailed hereunder:

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IB no. 2354/ND/2019

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IA No. 119 Of 2022 In IB no. 2354/ND/2019

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6. The present application has come up before this Adjudicating Authority to seek directions for the restoration and re-instatement of the financial transactions qualified under Section 66 of IBC, 2016 as observed by the Liquidator and ex-RP, during the CIRP period through a Transaction Audit Report.

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Briefly stated the facts of the case as mentioned in the instant application, which are just and necessary for adjudication, are as follows: -

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i) That the Hon’ble Adjudicating Authority passed an order initiating CIRP against the Corporate Debtor vide order dated 10.02.2020 in the matter being CP IB No. 2354/ND/2019 titled as Noble Cooperative Bank Limited v. Jarvis Infratech Private Limited , to which Mr. Gagan Gulati was appointed as the Resolution Professional.

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ii) That after the initiation of CIRP, the Applicant started dispensing with the statutory duties and responsibilities as contemplated under the IBC, 2016. The Applicant while discharging such duties encountered various suspicious and doubtful nature of transactions which were executed in violation of Section 66 of the Code. The basic accounting rules were not followed by the suspended Board of Directors of the Corporate Debtor. The Applicant intimated about the same to the Committee of Creditors (CoC) and the CoC deemed it appropriate to sanction the conduct of Transaction Audit of the Corporate Debtor.

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iii) That consequent to the decision of CoC, the Applicant undertook to proceed with the initiation of Transaction Audit of the Corporate Debtor’s Books of Accounts. The Applicant faced great difficulty during such Audit because of lack of Co-operation from the suspended Board of Directors, who neither provided required data/information, nor provided adequate support in providing explanations to the entries/vouchers, bills, transactions, etc. Therefore, on the basis of the records and information available with

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IA No. 119 Of 2022 In

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IB no. 2354/ND/2019

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the Applicant as well as the Transaction Auditor, a Provisional Transaction Audit Report was submitted by the Transaction Auditors before the Applicant which was further put up before the CoC in 2^nd CoC meeting.

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iv) That the Transaction Audit Report revealed that many such transactions were executed in violation of established law and accounting principles and hence, deemed appropriate by the Applicant for reporting before this Adjudicating Authority as well as the Insolvency and Bankruptcy Board of India (IBBI). The Suspended Board of Directors were given ample opportunities to give reasonable justification regarding said transactions, however, no response was received from the said Board of Directors.

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v) That the Applicant has filed prior applications before this Hon’ble Tribunal to bring forth in the knowledge and cognizance of this Hon’ble Tribunal, certain unusual financial transactions which were entered upon by the suspended Board of Directors and management of the Corporate Debtor during the look back period, which falls under the category of Fraudulent Transactions as laid down under Section 66 of the Code and the same were disposed of accordingly.

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vi) That the present application has been preferred by the Applicant to disclose and bring forth to the utmost knowledge of this Hon’ble Tribunal, the Fraudulent Transactions covered under the ambit of Section 66 of the Code as disclosed in the Provisional Transaction Audit Report dated 19.08.2020.

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We have gone through documents on record filed by the applicant and arguments advanced by counsel of the Liquidator.

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In the present case, the Applicant being the Liquidator of the Jarvis Infratech Private Limited, is seeking to restore the position of the Financial

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IA No. 119 Of 2022 In IB no. 2354/ND/2019

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Transactions identified by the Applicant under Section 66, as it existed before such financial transactions had been entered into by the Corporate Debtor and also to make the Respondent No. 1,2 and 3 liable to contribute towards the assets of the Corporate Debtor for the loss which has been incurred, owing to their fraudulent conduct.

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Section 66 of the Insolvency and Bankruptcy Code, 2016 deals with Fraudulent Trading or Wrongful Trading. The said Section reads as:

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(1) If during the corporate insolvency resolution process or a 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 pass an order that 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.

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(2) On an application made by a resolution professional during the corporate insolvency resolution process, the Adjudicating Authority may by an order direct that a director or partner of the corporate debtor, as the case may be, shall be liable to make such contribution to the assets of the corporate debtor as it may deem fit, if—

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(a) before the insolvency commencement date, such director or partner knew or ought to have known that there was no reasonable prospect of avoiding the commencement of a corporate insolvency resolution process in respect of such corporate debtor; and

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(b) such director or partner did not exercise due diligence in minimizing the potential loss to the creditors of the corporate debtor.

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Explanation. —For the purposes of this section, a director or partner of the corporate debtor, as the case may be, shall be deemed to have exercised due

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IA No. 119 Of 2022 In

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diligence if such diligence was reasonably expected of a person carrying out the same functions as are carried out by such director or partner, as the case may be, in relation to the corporate debtor.

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It is pertinent to mention that M/s P.K. Chad & Co., Chartered Accountants were appointed as Transaction Auditors of the Corporate Debtor. As per the Transaction Audit Report, prepared by the Transaction Auditors, certain observations have been made by the Transaction Auditors:

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a) The management of the Company has wrongfully, deliberately and arbitrarily diverted its assets in form of “accounts receivable/recoverable” aggregating to Rs. 1,31,65,883.57 (One Crore Thirty-One Lacs Sixty-Five Thousand Eight Hundred Eighty-Three Rupees Fifty-Seven Paise) in favour of the “related party” viz. PTPL and Rs. 7,06,894.52 (Seven Lacs Six-Thousand Eight Hundred Ninety-Four Rupees Fifty-Two Paise) in favour of the another “related party” viz. STSPL on preferential basis with the mala-fide intention of wiping off the recoverable/receivable assets from the books of accounts and Balance Sheet of the Company for the benefit of favourite parties on preferential basis thereby leaving the least for the other creditors, which apparently amounts to misappropriation/diversion of the assets and breach of trust of the other creditors of the company and the company itself.

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b) The management of the company has deliberately made a payment of Rs. 1,53,38,176 (One Crore Fifty-Three Lacs Thirty-Eight Thousand One Hundred Seventy-Six) out of the only major receipt of Rs. 1,57,39,397 (One Crore Fifty-Seven Lacs Thirty-Nine Thousand Three Hundred Ninety-seven) during the year 2019-20 to the “related party” viz. STSPL on preferential basis apparently with the mala-fide intention of diverting the funds of the company and depriving the other creditors of the company of their rights.

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c) The management of the company has been found having indulged in misutilization/diversion of its funds by way of advancing/diverting its funds to the directors and other parties without any consideration flowing into the company.

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d) The management of the company has wrongfully, deliberately and arbitrarily written off its assets to the extent of Rs. 86,69,550.46 (Eighty-Six Lacs Sixty-Nine Thousand Five Hundred Fifty Rupees FortySix Paise) apparently with the mala-fide intention of wiping off the assets and presenting the unfair and untrue position of profit/loss and assets/liabilities of the company, which is apparently an attempt to defraud the company and its creditors and to misappropriate/divert the assets of the company.

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e) The company appears to have booked unreasonably high expenditure to the Profit & Loss Account for the period ended on 10.02.2020 thereby inflating the loss during that period and possibly misappropriating the funds of the company by such actions.

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We are of the view that the abovementioned observations are made by the rightly appointed Transaction Auditors and hence, have been taken on record. Further, it is relevant to mention that despite sending of multiple notices by the Applicant, the Respondents made no appearance. The Applicant has further enclosed affidavit of service, which justifies that there has been no default on the part of the Applicant and hence, the said Respondents has been proceeded Ex-parte with, by this Adjudicating Authority. In addition to that, we opine that the abovementioned Transaction Auditors are expert in the concerned field and that there has been no reply on the part of the Respondents, we see no impediment in allowing the present application.

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Hence, we allow the Liquidator on behalf of the Jarvis Infratech Private Limited to r estore the position of the Financial Transactions identified by the Applicant under Section 66, as it existed before such financial

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IA No. 119 Of 2022 In IB no. 2354/ND/2019

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transactions had been entered into by the Corporate Debtor. Further, we direct the respondents to contribute to the assets of the Corporate Debtor, as detailed in Paragraphs 9 and 10 of the instant application based on the expert opinion of the Transaction Auditor leading to formation of opinion/belief on the part of the liquidator.

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The I.A No. 119 of 2022 stands allowed and hence disposed of in terms of the above direction.

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Let copy of the order be served to the parties.

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Sd/-

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Dr. Binod Kumar Sinha Member (Technical)

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Sd/-

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Shri P.S.N. Prasad Member (Judicial)

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IA No. 119 Of 2022 In IB no. 2354/ND/2019

In the matter of Jarvis Infratech Private Limited Ia No. 119 of 2022 in Ib No. 2354-ND-2019

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In the matter of Jarvis Infratech Private Limited Ia No. 119 of 2022 in Ib No. 2354-ND-2019

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