Case Note & Summary
The present appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) was filed by Mr. Gopal Kalra, the erstwhile director of M/s Easytech Global Private Limited (Corporate Debtor), against the order dated 11.01.2024 passed by the National Company Law Tribunal, New Delhi Bench II (Adjudicating Authority) in I.A. No. 5545/ND/2021. The Corporate Debtor was incorporated on June 06, 2014 under the Companies Act, 2013. On October 04, 2018, the Adjudicating Authority admitted a petition filed by M/s Insynergy Supply Chain Solutions Private Limited (Operational Creditor) under Section 9 of the IBC, initiating Corporate Insolvency Resolution Process (CIRP). As the CIRP failed, the Adjudicating Authority ordered liquidation of the Corporate Debtor under Section 33(2) of the IBC on April 03, 2019, and appointed Mr. Akhilesh Kumar Gupta as the Liquidator. The Liquidator filed an application under Section 66 of the IBC alleging that the appellant, as director, had engaged in fraudulent and wrongful trading by siphoning off funds and entering into preferential transactions, thereby causing loss to the creditors. The Adjudicating Authority allowed the application, holding the appellant liable. The appellant challenged this order before the National Company Law Appellate Tribunal (NCLAT). The NCLAT examined the facts and submissions, noting that the Liquidator had provided evidence of suspicious transactions, including transfers to related parties without consideration. The appellant argued that the transactions were bona fide and for the benefit of the company, but failed to provide satisfactory explanation or documentary evidence. The Tribunal held that the burden of proof under Section 66 shifts to the director once prima facie evidence is shown, and the appellant did not discharge that burden. The NCLAT found no infirmity in the impugned order and dismissed the appeal, upholding the liability of the appellant for fraudulent and wrongful trading.
Headnote
A) Insolvency and Bankruptcy Code - Fraudulent Trading - Section 66 IBC - Liability of Director - The appellant, erstwhile director of the Corporate Debtor, was found to have siphoned off funds and entered into preferential transactions, causing loss to creditors. The Tribunal upheld the Adjudicating Authority's order, holding that the appellant failed to discharge the burden of proving that the transactions were bona fide and for the benefit of the company. (Paras 2-10) B) Insolvency and Bankruptcy Code - Wrongful Trading - Section 66 IBC - Burden of Proof - The Tribunal held that once the liquidator establishes prima facie evidence of fraudulent or wrongful trading, the burden shifts to the director to show that he acted with reasonable diligence and in good faith. The appellant did not provide satisfactory explanation for the suspicious transactions. (Paras 5-8) C) Insolvency and Bankruptcy Code - Liquidation - Section 33(2) IBC - Appointment of Liquidator - The Corporate Debtor was ordered to be liquidated under Section 33(2) of the Code after failure of resolution. The liquidator filed an application under Section 66, which was allowed by the Adjudicating Authority. (Paras 2-3)
Issue of Consideration
Whether the Adjudicating Authority was correct in allowing the application under Section 66 of the Insolvency and Bankruptcy Code, 2016, holding the appellant (erstwhile director) liable for fraudulent and wrongful trading during the liquidation of the Corporate Debtor.
Final Decision
The appeal is dismissed. The impugned order dated 11.01.2024 passed by the Adjudicating Authority is upheld. No order as to costs.
Law Points
- Fraudulent trading
- Wrongful trading
- Section 66 IBC
- Burden of proof on director
- Siphoning of funds
- Preferential transactions
- Liability of erstwhile director
