66 (1)

Section 66 of IBC does not require the Resolution Professional to be satisfied before filing of an application in terms of Section 66 of the Code – Modilal Pamecha (Liquidator) Vs. Prince Goyal and 17 Ors. – NCLT Mumbai Bench

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Section 66 of IBC does not require the Resolution Professional to be satisfied before filing of an application in terms of Section 66 of the Code – Modilal Pamecha (Liquidator) Vs. Prince Goyal and 17 Ors. – NCLT Mumbai Bench Read Post »

Essentially for a transaction to qualify as Fraudulent Trading under Section 66(1) of IBC, 2016 and Wrongful Trading under Section 66(2) of Insolvency Code – Mr. Vijendra Kumar Jain Vs. Mr. Nitin Ramchandra Jadhav and Ors. – NCLT Mumbai Bench

Hon’ble NCLT Mumbai held that It is pertinent to mention that the concept of ‘Wrongful Trading’ has been imported from the UK Insolvency Act, 1986 into the IBC, 2016 which is still at a nascent stage in this country. Thus, by taking a cue from the judgments rendered by the English Courts in this regard, the following acts have been held to constitute ‘Wrongful Trading’;
(i) Repaying the director loan made to the company while other creditors were not paid;
(ii) Repayment of a loan to a family member;
(iii) A director paying his own salary while the salary for the employees was not paid;
(iv) Buying goods on credit when there is no means to pay for them;
(v) Using customer deposits for cash-flow purposes with no means of supplying goods;
(vi) Repaying bank personal guarantees over other creditors;
(vii) Not keeping proper accounting records;
(viii) Falsification of company records; and
(ix) Any transfer or sale of assets at anything less than a fair and reasonable commercial value.

Essentially for a transaction to qualify as Fraudulent Trading under Section 66(1) of IBC, 2016 and Wrongful Trading under Section 66(2) of Insolvency Code – Mr. Vijendra Kumar Jain Vs. Mr. Nitin Ramchandra Jadhav and Ors. – NCLT Mumbai Bench Read Post »

Can proceedings under Section 66 of IBC, 2016 for fraudulent trading or wrongful trading be initiated against the third parties? – Royal India Corporation Ltd. Vs. Mr. Nandkishor Vishnupant Deshpande, RP for Royal Refinery Pvt. Ltd. and Ors. – NCLAT New Delhi

Hon’ble NCLAT held that as per provisions of Section 66(1) of IBC, the Adjudicating Authority can pass an order directing “any person”, who was party to carrying on the business of Corporate Debtor in such manner as to defraud creditors of the Corporate Debtor, or for any fraudulent purpose, to make him liable to make such contribution to the assets of the Corporate Debtor as it may deem fit. A plain reading clearly shows that action can be taken against ‘any person’ for recovery of amount involved in the fraudulent transaction.

Can proceedings under Section 66 of IBC, 2016 for fraudulent trading or wrongful trading be initiated against the third parties? – Royal India Corporation Ltd. Vs. Mr. Nandkishor Vishnupant Deshpande, RP for Royal Refinery Pvt. Ltd. and Ors. – NCLAT New Delhi Read Post »

Sharing of common infrastructure, for which the costs has been borne by Corporate Debtor, certainly results into undue benefit having been given to the related parties at the cost of the Corporate Debtor, and such benefit certainly has an element of fraudulent intent – CA Manish Sukhani v. Shri Amit Lodha & Others – NCLT Mumbai Bench

NCLT Mumbai Bench-I held that Section 66 of the Code stipulates that the business of the Corporate Debtor is caried out with intent to defraud creditors or for any fraudulent purpose. Accordingly, there has to be an element of fraudulent intent to bring the transactions within four corners the Section 66 of the Code. Sharing of common infrastructure, for which the costs has been borne by the Corporate Debtor, certainly results into undue benefit having been given to the related parties at the cost of the Corporate Debtor, and such benefit certainly has an element of fraudulent intent. Accordingly, we find that the transactions fall under the ambit of section 66 of the Code, and an appropriate relief ought to be granted.

Sharing of common infrastructure, for which the costs has been borne by Corporate Debtor, certainly results into undue benefit having been given to the related parties at the cost of the Corporate Debtor, and such benefit certainly has an element of fraudulent intent – CA Manish Sukhani v. Shri Amit Lodha & Others – NCLT Mumbai Bench Read Post »

If Directors of Corporate Debtor have given preference to some of the creditors over other creditors, this constitutes preferential transaction as envisaged in section 43 of the Insolvency and Bankruptcy Code, 2016 – Ms. Reshma Mittal RP HIM Steels Pvt. Ltd. Vs. Mr. Ashok Raja Director, Suspended Board of the CD – NCLT New Delhi Bench Court-VI

NCLT New Delhi Bench Court-VI held that:
(i) For a preferential transaction under section 43 of the Code the lookback period is 2 years, in case of related parties and one year in case of any other party from the insolvency commencement date. However, unlike other Avoidance Transactions there is no lookback period as far as fraudulent transaction under section 66 of the Code is concerned.
(ii) In order to bring the transaction within the scope of Section 66 of the Code, 2016, it is necessary to demonstrate that the business of Corporate Debtor has been carried on with the “intent to defraud” its creditor or for “any fraudulent purpose”. Further, Section 66(2) of the Code inter-alia mandates that the directors of the corporate debtor ought to have known that there was no reasonable prospect of avoiding the initiation of the CIRP and the directors did not exercise due diligence in minimizing the loss.

If Directors of Corporate Debtor have given preference to some of the creditors over other creditors, this constitutes preferential transaction as envisaged in section 43 of the Insolvency and Bankruptcy Code, 2016 – Ms. Reshma Mittal RP HIM Steels Pvt. Ltd. Vs. Mr. Ashok Raja Director, Suspended Board of the CD – NCLT New Delhi Bench Court-VI Read Post »

Time period under Regulation 35A of CIRP Regulations, 2016 is not mandatory but only directory in character – Mr. Tenny Jose Vs. Mr. Prathap Pillai RP of M/s. Tenny Jose Ltd. – NCLAT Chennai

NCLAT held that:
(i) A pre-ponderance of probability will suffice in respect of an offence of fraudulent trading under Section 66 of the Code is sufficient but the probability must be such that it must satisfy the subjective conscience of the Adjudicating Authority.
(ii) In law, a Company or other entity which is involved in or assist and benefits from the offending business or benefits from business in an offending manner, does so knowingly and dishonestly can be held liable for a fraudulent trading.
(iii) Time period, as CIRP Regulation 35A, Resolution Professional is to form an opinion within 75 days of the CIRP and made determination within 115 days and is to file an application within 135 days from the date of commencement of CIRP is not a mandatory one but only directory in character.
(iv) In law a fraudulent intent is to be proved after a careful examination of all materials / evidence, as the case may be. If a fraudulent intent or fraudulent purpose is made out the liability must follow. An action can also lie, when there is a fraudulent purpose upon the customers of the Company. The Burden of Proof is the same as in a civil case where serious allegations of misconduct such as fraud are in issue. In an isolated fraud case, an Individual Tort Action(Civil Wrong) will lie.

Time period under Regulation 35A of CIRP Regulations, 2016 is not mandatory but only directory in character – Mr. Tenny Jose Vs. Mr. Prathap Pillai RP of M/s. Tenny Jose Ltd. – NCLAT Chennai Read Post »

The transaction of transfer of assets within the Group Companies will not come within the umbrage of the fraudulent trading as per Section 66(1) of the Code – Renuka Devi Rangaswamy,IRP of M/s. Regen Infrastructure and Services Pvt. Ltd. Vs. Mr. Madhusudan Khemka – NCLAT Chennai

NCLAT held that: (i) under Section 66 of the Code, 2016, it is not essential to attract that there ought to be a debtor and a creditor relationship.
(ii) for proving a fraudulent trading needs meeting the high standard of proof which is attached to a fraudulent intent.
(iii) a Director of a Company may be proceeded against for a wrongful trading because of the reason of negligent failure of management.
(iv) dishonesty is an essential ingredient of fraudulent trading.
(v) the ingredients of Section 66 (1) and 66 (2) of the Code, 2016 operate in a different arena.
(vi) it is crystalline clear that the transaction of transfer of assets among / within the Group Companies, ex-facie, will not come within the umbrage of the fraudulent trading as per Section 66(1) of the Code, as opined by this Tribunal.

The transaction of transfer of assets within the Group Companies will not come within the umbrage of the fraudulent trading as per Section 66(1) of the Code – Renuka Devi Rangaswamy,IRP of M/s. Regen Infrastructure and Services Pvt. Ltd. Vs. Mr. Madhusudan Khemka – NCLAT Chennai Read Post »

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