NCLAT can probe allegations of fraudulent trading carried by Corporate Debtor during the Insolvency Resolution

NCLAT can probe allegations of fraudulent trading carried by Corporate Debtor during the Insolvency Resolution

The modified order allows the Adjudicating Authority to inquire into alleged dealings in accordance with the law with expedition

In this case, when the Adjudicating Authority (National Company Law Tribunal) New Delhi Bench, was approached by the Liquidator for invoking the provisions of Sections 43/66 of the I&B Code for taking action regarding preferential transactions and fraudulent trading/wrongful trading, it observed that it would be beyond its scope of powers to look into the transactions which attract the provisions of Sections 43/66 of the I&B Code and explanation of the opposite party if required, can be offered to the Investigating Agency.

The Appellant submitted that while the jurisdiction of the Adjudicating Authority was rightly invoked by the Resolution Professional/Liquidator, as specifically provided by Section 43 and Section 66 of the I&B Code respectively, it was not permissible for the Adjudicating Authority to abdicate its powers and refer the matter to the Ministry of Corporate Affairs or an Investigating Agency.

It was submitted that the allegations on the basis of which jurisdiction of the Adjudicating Authority was sought to be invoked with reference to preferential transactions and fraudulent trading/wrongful trading falling within the ambit of Sections 43 and 66 of the I&B Code respectively, lies within the domain of the Adjudicating Authority and the express provisions of these sections leave no room for ambiguity.

Arun Kathpalia, senior counsel representing the Appellant referred to certain observations of the apex court made in Embassy Property Developments Pvt. Ltd. vs. State of Karnataka and Ors.

The Bench comprising of Justices Bansi Lal Bhat, Anant Bijay Singh and V. P. Singh opined that it is the settled position of law that allegations of preferential transactions as also fraudulent trading/wrongful trading carried on by the Corporate Debtor during the insolvency resolution can be inquired into by the Adjudicating Authority.

The NCLAT was also of the opinion that all that the Adjudicating Authority was required to do was to take cognizance of the complaint emanating from the Liquidator in regard to the alleged preferential transactions and fraudulent trading/wrongful trading having occurred qua the Corporate Debtor. The impugned order has been modified by providing that the Adjudicating Authority will inquire into such alleged dealings in accordance with the law with expedition, preferably within two months.