Section 66 Of IBC Does Not Provide For Any Look Back Period For Fraudulent Transactions: NCLAT Chennai
The National Company Law Appellate Tribunal ("NCLAT"), Chennai Bench, comprising of Justice M Venugopal (Judicial Member) and Ms. Shreesha Merla (Technical Member), while adjudicating an appeal filed in Mr. Thomas George v K. Easwara Pillai & Ors., has held that the Section 66 of IBC does not provide for any look back period as far as fraudulent transactions...
The National Company Law Appellate Tribunal ("NCLAT"), Chennai Bench, comprising of Justice M Venugopal (Judicial Member) and Ms. Shreesha Merla (Technical Member), while adjudicating an appeal filed in Mr. Thomas George v K. Easwara Pillai & Ors., has held that the Section 66 of IBC does not provide for any look back period as far as fraudulent transactions are concerned.
Background Facts
M/s. Mathstraman Manufacturers and Traders Pvt. Ltd. ("Corporate Debtor") was admitted into Corporate Insolvency Resolution Process ("CIRP") by the Adjudicating Authority on 20.11.2020. Mr. K. Easwara Pillai was appointed as the Interim Resolution Professional ("IRP") and later confirmed as the Resolution Professional.
During the CIRP, while inspecting the factory of the Corporate Debtor, the Resolution Professional found irregular business activities in the factory and at the Registered Office of the Corporate Debtor. It was alleged that the Corporate Debtor was dormant during 2015-2016 and the Books of Accounts and records were either destroyed or mutilated. The Corporate Debtor failed to file the Statutory Accounts before the RoC from 2015 onwards. All the movable and current assets were traded to M/s. Whispower Sales & Services Pvt. Ltd., having common director with the Corporate Debtor, and sold to settle the liabilities of the Corporate Debtor by cash mode, outside the Books of Accounts of the Corporate Debtor. There were no workers and employers working under the pay role of the Corporate Debtor.
The Resolution Professional filed an application under Section 66 of the Insolvency and Bankruptcy Code, 2016 ("IBC") against the Suspended Directors of the Corporate Debtor. The Resolution Professional prayed in the application (i) To direct the Suspended Directors to make good the losses caused to the creditors of the Corporate Debtor; (ii) To hold the Suspended Directors personally liable for such deliberate and wilful default; and (iii) To declare the transaction done by the Corporate Debtor as Fraudulent Transactions.
The Adjudicating Authority vide an order dated 09.07.2021 declared the transactions as fraudulent transactions and directed the Suspended Directors to make good the losses caused to the creditors of the Corporate Debtor. Further, the Suspended Directors were held personally liable for deliberate and wilful default and were directed to furnish all documents requested for by the Resolution Professional for smooth conduct of CIRP.
Mr. Thomas George ("Appellant"), being the Suspended Director of Corporate Debtor, filed an appeal before the NCLAT against the order dated 09.07.2021.
Contentions Of Appellant
The Suspended Director argued that the Order dated 09.07.2021 was passed ex-parte. Further, the Section 66 of IBC is covered by the provisions of the Limitation Act, 1963 which constricts the period of look back to three years. M/s. Whispower Sales & Services Pvt. Ltd. had taken over all rights for a period of five years. Thus the application was barred by Limitation.
Decision Of NCLAT
The Bench observed that the Suspended Director itself chose not to contest the matter and therefore, the Order was passed ex-parte.
The Bench held that Section 66 of IBC does not provide for any look back period as far as fraudulent transactions are concerned. Further, the Suspended Director has not denied about taking over the factory, plant and machinery of the Corporate Debtor. Therefore, there is sufficient material to evidence that the Suspended Director has committed the fraudulent act knowingly and in a dishonest manner to hoodwink the Creditors.
"Unlike other types of transactions provided under the Code, there is no specified look back period for fraudulent trading under Section 66. Hence, the Resolution Professional is allowed to retrieve/repossess without any limitation of time and correct all the wrong doings for any relevant point of time. Section 66 of the Code envisages that the losses caused to the Creditors are recovered in the event of the Liquidation and that the Directors who caused such losses are made liable to make good such losses."
The Bench upheld the Order of the Adjudicating Authority and dismissed the appeal.
Case Title: Mr. Thomas George v K. Easwara Pillai & Ors.
Case No.: Company Appeal (At)(Ch) (Insolvency) No. 293 Of 2021
Counsel For Appellant: Mr. Pradeep Joy.
Counsel For Respondent No. 1: Mr. S. Sethuraman.
Counsel For Respondent No. 7: Mr. G.R. Lakshmanan.