NCLT Rightly Declared Entries of Financials as Fraudulent Since Directors Failed to Explain | NCLAT

Case Details: Shibu Job Cheeran v. Ashok Velamur Seshadri, Liquidator of Archana Motors Ltd. - [2023] 152 taxmann.com 634 (NCLAT-Chennai)

Judiciary and Counsel Details

• • M. Venugopal, Judicial Member & Naresh Salecha, Technical Member
  • Dr K.S. Ravichandran, PCS & Ms S. Manjula Devi, Adv. for the Appellant.
  • S. Sathiyarayanan, Adv. & Ms D. Pavithra, Adv. for the Respondent.

Facts of the Case

In the instant case, the liquidation process was initiated against the corporate debtor by the Adjudicating Authority (NCLT) and the respondent was appointed as the liquidator. The respondent, while examining the balance sheets of the corporate debtor discovered certain entries that appeared to be fictitious.

Consequently, the respondent filed an application u/s 66 of the IBC against the appellants, who were suspended directors of the corporate debtor. This action was taken before declaring such entries to be fraudulent transactions.

The NCLT vide the impugned order agreed to the same. Thereafter, an appeal was made to the National Company Law Appellate Tribunal (NCALT) against the order passed by the NCLT.

The appellants contended that the loss of books of account, data and assets due to a flood had prevented them from providing all necessary information to the respondent. They also refuted the allegation regarding the misuse of trade receivables, which were considered assets from their customers.

It was noted that adequate opportunities were given to the appellants to provide details of their assets, locations and copies of the assets register of fixed assets. However, the appellants failed to do so.

NCLAT Held

The NCLAT held that, since the appellants had not turned out to be clean in their explanations, they could not avoid their responsibilities towards non-available or non-verifiable assets amounting to Rs. 21.37 crores as shown in the balance sheet. Thus, these assets were deemed to be fictitious in nature and appeared to have been created in the books of account, with the intent to defraud creditors.

Therefore, there was no error in the impugned order passed by the NCLT. Accordingly, the appeal was to be dismissed.

List of Cases Reviewed

• • Ashok Velamur Seshadri, Liquidator of Archana Motors (P.) Ltd. v. Shibu Job Cheeran [2023] 152 taxmann.com 633 (NCLT – Kochi) (para 55) affirmed [See Annex].

List of Cases Referred to

• • Anuj Jain v. Axis Bank Ltd. [2020] 114 taxmann.com 656 (SC) (para 20).