NATIONAL COMPANY LAW APPELLATE TRIBUNAL

AT NEW DELHI
(APPELLATE JURISDICTION)
Company Appeal (AT) (Insolvency) No. 137/2021

(Arising out of the Impugned Order dated 07.01.2021 in CP

(IB) No.2556/MB/2019, passed by the National Company Law
Tribunal, Mumbai Bench, Mumbai)

In the matter of:

Royal India Corporation Limited
62, 6th Floor, C-Wing, Mittal Tower,
210, Nariman Point, Mumbai- 400 021.

…Appellant
Versus

1. Mr. Nandkishor Vishnupant Deshpande,

(Resolution Professional for Royal Refinery Pvt. Ltd.),
IBBI Registration No.
IBBI/IPA-001/IP-P01399/2018-2019/12181,
Having Office at Headway Resolution and
Insolvency Services Pvt. Ltd. 708,
Raheja Centre, 7th Floor, Nariman Point,
Mumbai- 400 021. …Respondent No.1

2. Mr. Vishal Choudhary,

No. 82, 83 & 84, 4th Floor Building,
143/D, Khemka Bhavan, Fanaswadi,
Opp. Sitaram Poddar School,
Chira Bazar, Mumbai- 400 002.
…Respondent No.2
3. Mr. Gaurav Panwar,
S/o Dilipraj Panwar, Makan No. 171/ 172
Anjani Dham, Barbar Road,
Ratlam – 457001 (M.P.)
…Respondent No.3
4. Mr. Manish Panwar,
401, Lotus Business Park,
Behind H.P. Petrol Pump,
S.V. Road, Malad West,
Mumbai- 400 064. …Respondent No.4
Present :

For Appellant : Mr. Sanchar Anand, Ms. Deeksha Gaur and Mr. Arjun,
Advocates.
For Respondents : Mr. Kaustav Som, Mr. Arpit Lahoti, Advocates for R1.
Mr. Saurabh Ajay Gupta, Mr. Nishant Bishnoi, Ms.
Srishti Prabhakar, Advocate for R-2 & 3.

JUDGMENT

(Hybrid Mode)

[Per: Ajai Das Mehrotra, Member (Technical)]

1. The present appeal has been filed assailing the order dated

07.1.2021 passed by National Company Law Tribunal, Mumbai Bench in IA

No. 1266 of 2020 in CP (IB) No. 2556/MB/2019.

2. On an application filed under Section 9 of Insolvency & Bankruptcy Act,

2016 by Raksha Bullion, the Corporate Debtor, Royal Refineries Private

Limited (hereinafter referred as RRPL) was admitted in Corporate Insolvency

Resolution Process (hereinafter called as CIRP) by order dated 13.11.2019 and

Mr. Nandkishore Deshpande was appointed as Interim Resolution

Professional (IRP). IRP was later confirmed as RP. It is stated that corporate

debtor RRPL was engaged in the business of Trading in Bullion i.e. importing

Gold and then exporting the same after performing manufacturing activity

over the imported gold. The Corporate Debtor also engaged in sale/ purchase

of gold in the local market.

3. In May 2019, RRPL and its associated concerns and persons were

searched by the Department of Revenue Intelligence (hereinafter referred as

DRI). It is stated that the business operations of the corporate debtor had

Company Appeal (AT) (Insolvency) No. 137/2021 Page 2 of 15

virtually stopped since May 2019. After search by DRI, following findings were

recorded by the Joint Commissioner of Customs in his order dated

04.02.2021:-

“I find from the investigation conducted by DRI and the

statements of the Directors and employees of RRPL., that
RRPL was a front company run by Shri Manoj kumar Babulal
Punamiya. Shri Manoj kumar Babulal Punmaiya appears to
have arranged finances for the company and recruited
directors like Shri Vishal Harish Choudhary and Shri Gaurav
Dilipraj Panwar. Both the directors acted under his
instructions on front end and he was behind the curtain.
Under the directions of Shri Manoj kumar Babulal Punamiya
both the above directors had planned to import duty-free gold
bars under Advance Authorisation and divert the same to
domestic market and further planned to fulfil export
obligation by showing export of Non-Gold jewellery of alloys
of Copper and Nickel, as gold jewellery.”

4.1 In the application (IA No. 1266 of 2020) filed by the Resolution

Professional under Section 66 read with Section 26 of Insolvency

Bankruptcy Code, 2016 (hereinafter called as IBC, 2016) before NCLT,

Mumbai, it was submitted that the transaction of Rs. 1,58,07,56,469/-

between the corporate debtor and the appellant, Royal India Corporation

Limited (hereinafter referred as RICL) are covered under the provisions of

Section 66 of IBC, 2016 and the Adjudicating Authority was requested to

pass necessary directions to respondents to make good potential loss

suffered by the other creditors of Rs. 1,58,07,56,469/. The Adjudicating

Authority gave a finding and directions requiring the appellant herein

(RICL) to return to the corporate debtor’s accounts the sum of Rs.

1,19,08,05,762/- vide impugned order dated 07.1.2021.

Company Appeal (AT) (Insolvency) No. 137/2021 Page 3 of 15

4.2 The Adjudicating Authority (AA) noted that as per the documents seized

by DRI there was a balance of Rs. 1,58,07,56,469/- which was due from RIPL

(the appellant herein) to the corporate debtor (RRPL).

4.3 It was noted by the AA that as per the documents seized by DRI there

were three ledger accounts of RICL as reflected in the Books of Accounts of

the Corporate Debtor. These accounts were up to May, 2019, that is till the

date of search of DRI.

4.4 The AA also noted that maintaining 3 different types of ledger accounts

for RICL was not normal, as also the substantial credit shown in these

accounts, as per the prevailing business practices.

4.5 The AA noted that subsequent to the search by DRI, as per ledger

account filed by RICL, it had become net seller of gold to the refinery RRPL.

As per the ledger account of RICL reproduced on page 19 and 20 of the order

there is opening balance of Rs.1,34,03,40,448.46 and thereafter they are

purchases from 1.4.2019 till 4.5.2019. However, thereafter, there are only

sales from RICL to RRPL from 27.7.2019 to 27.8.2019 and the balance payable

to RRPL has been brought down to Rs. 31,01,83,022/-.

4.6 The AA noted that refinery generally sells gold to the jewellers after

refining them and rarely purchases gold from jewellers.

4.7 The AA noted that fraudulent entries of sale by RICL to RRPL are made

only subsequent to the DRI raids in May 2019 onwards.

Company Appeal (AT) (Insolvency) No. 137/2021 Page 4 of 15

4.8 The AA held that as per the provisions of Section 66 “recovery can be

made from any person who had participated in the fraudulent transaction and

had benefitted from it”.

5. The appellant had filed an I.A. No. 2802 of 2021 seeking permission to

file additional documents. The appellant was allowed to file the additional

affidavit vide this Tribunal order dated 8.5.2023.

6.1 In its oral and written submissions, the appellant had submitted that

the proceedings under Section 66 of IBC, 2016 are not maintainable against

the appellant as the Resolution Professional has not given clear opinion or

determination or finding as required under Regulation 35 A. It was submitted

that the RP has not brought out any supporting documentary evidence to

show that the transaction between the appellant and the corporate debtor are

fraudulent in nature. It was further submitted that no men-rea was

established in the application in question. It was submitted that Resolution

Professional’s case was based only on unaudited accounts statements seized

by the DRI Authorities in a raid conducted only upon the corporate debtor.

6.2 The learned counsel for the appellant relied upon the judgment of

Hon’ble Supreme Court in Gluckrich Capital Pvt. Ltd. Vs. The State of West

Bengal & Ors. 2023 SCC OnLine SC 1187, to support its contention that the

remedy against third party is not available under Section 66 of IBC. It was

submitted that the case of the RP that transaction is between related parties

is not correct as it is not covered in the definition of ‘Related Party’ given in

Section 5 (24) (m) (3) of IBC, 2016 as the key managerial person of the

Company Appeal (AT) (Insolvency) No. 137/2021 Page 5 of 15

appellant for the period from 10.8.2018 to 9.1.2019 was not simultaneously

associated with the corporate debtor. It was submitted that concept of related

party arises only when a person is associated with corporate debtor and other

such person at the same time.

6.3 It was also submitted that the appellant in the past had also sold

jewellery to the corporate debtor and as per established marked practice the

refinery purchases old jewellery/ gold from jewellers, melts it and converts

into gold bars. The appellant submitted that the transactions between the

appellant and the corporate debtor were genuine and the same took place in

the ordinary course of business between the parties. It was averred that the

NCLT has erred in not taking into consideration the updated ledgers produced

by the appellant which indicated that only an amount of Rs. 31,01,83,022/-

was due to the corporate debtor.

7.1 In its reply, oral arguments and written submissions, Respondent No. 1

(Resolution Professional or ‘RP’) submitted that the business of the Corporate

Debtor is trading in gold bullion; that the Appellant is also engaged in the

business of gold bullion and had entered into several transactions with

Corporate Debtor between 01.04.2018 to 20.05.2019; that as per the three

ledger accounts maintained by the Corporate Debtor, an outstanding amount

or Rs. 1,58,07,56,469/- was due from the Appellant; that as per general

practice of the Corporate Debtor, the Corporate Debtor was not offering any

credit to the purchaser of gold items whereas appellants’ dues had remained

outstanding for more than two years; that pursuant to certain bogus and

Company Appeal (AT) (Insolvency) No. 137/2021 Page 6 of 15

sham transactions detected, raids were conducted by the Department of

Revenue Intelligence (DRI) and that the operation of the Corporate Debtor

ceased from May 2019 onwards. It was further submitted that the Appellant

does not dispute that the total liability owed to the Corporate Debtor was Rs.

1,58,07,56,469/- as on 20.05.2019 but it is the Appellant’s case that

transaction with Corporate Debtor after May, 2019 till the commencement of

CIRP has reduced the outstanding amount to Rs. 31,01,83,022/-. It was

submitted by the RP that entries made in the books of accounts were clearly

fraudulent and the amount due to Corporate Debtor was brought down

through these entries from Rs. 158 crores to Rs. 31 Crores.

7.2 The Resolution Professional further submitted that no stock of gold

bullion had been found in the premises of Corporate Debtor in May, 2019

during raids by DRI and that no physical inventory was found in the premises

of Corporate Debtor on taking over by Resolution Professional in November,

2019. It was submitted by Resolution Professional that sudden change in

nature of transaction between the Corporate Debtor and Appellant was for the

purpose of reducing the total outstanding dues owed to the Corporate Debtor.

7.3 It was further submitted by Resolution Professional that according to

the penalty order issued by the Customs Department, Corporate Debtor was

front Company of one Mr. Manoj Punamia, who is one of the promotors of the

Appellant Company. The Resolution Professional further submitted that there

is no requirement of ‘dishonest intent’ or “mens-rea” as long as it is found that

the purpose of fraudulent or wrongful trading transaction was to defraud the

Company Appeal (AT) (Insolvency) No. 137/2021 Page 7 of 15

creditors of the Corporate Debtor and the provisions of Section 66 of IBC will

be applicable.

7.4 The Resolution Professional further submitted as under :-

“The fact that both the CD and the Appellant were related parties is further

borne out in the common Show Cause Notice issued by the Department of

Revenue Intelligence (“DRI”) under Section 124 of the Customs Act, 1962 dated

21.11.2019 (Ref. No.: F. No. DIR/MZU/D/ INT/95/ 2019/7687) to the CD and

several other persons, including the Respondent Nos. 2 and 3, and a promoter

of the Appellant. Shri Manoj Kumar Babulal Punamia (“DRI Show Cause

Notice”). It is important to note that Mr. Punamiya has been significant

shareholder of the Appellant, and continues to have 18.35% shareholder in the

Appellant for the financial year 2019-2020. Mr. Punamiya and his wife together

have a shareholding of over 30% in the Appellant”.

7.5 The Resolution Professional further submitted that the ledger account

of the Appellant for the period 01.04.2018 to 31.03.2019 does not show any

sales to the Corporate Debtor though after the search by DRI, substantial sales

have been shown to reduce the outstanding amount but no corresponding

noting in the books of the Corporate Debtor and no enhancement of physical

inventory is recorded. The Resolution Professional submitted that by no

stretch of imagination, the transactions shown by the Appellant to reduce its

liability can be considered as genuine and these journal entries are mere

smoke screens.

Company Appeal (AT) (Insolvency) No. 137/2021 Page 8 of 15

7.6 In its Reply, Resolution Professional had enclosed the order of Joint

Commissioner of Customs wherein there is mention of statement of Shri Ketan

Madhusudan Shroff, earlier Director of RRPL recorded on 24.05.2019 where

it is stated that he joined RRPL on the request of Shri Manoj Punamia and at

that point of time, Shri Manoj Punamia had companies like M/s Balaji Bullion

& Commodities Pvt. Ltd., M/s Balaji Lifestyle Pvt. Ltd. and M/s Royal India

Corporation Ltd. (previously known as M/s Natraj Financial Limited). In his

statement recorded by DRI, which he later retracted, Mr. Manoj Punamia had

stated that M/s Royal India Corporation Ltd. (Appellant herein) had three

Directors, namely Shri Sharad Budhkaran Sharma, Ms. Madhusa Inda and

Shri Nitin Gujral and he is and his wife were shareholder of 18.3% and 12.66%

of RICL. He admitted that Directors of RICL work as per his instructions.

7.7 It was further submitted by Respondent No. 1 that the Resolution

Professional complied with all the requirements of Regulation 35-A of the CIRP

Regulation and in the first CoC meeting he had informed the CoC that the

business of Corporate Debtor is not supported from the available physical

inventory. The Resolution Professional had sent several e-mails to the

Appellant asking for details regarding transactions and obtained the seized

records of Corporate Debtor from DRI, on analysis of which he made clear

determination regarding fraudulent activities and decided to initiate

proceeding under Section 66 of IBC against the Appellant.

7.8 The Resolution Professional further submitted that remedy under

Section 66 of IBC is also available against third parties and cited the decisions

Company Appeal (AT) (Insolvency) No. 137/2021 Page 9 of 15

in the case of Tridhaatu Kirti Developers LLP vs. Arihant Nenawati Liquidator

of Royal Refinery Pvt. Ltd., 2023 SCC OnLine NCLAT 1583 in his support.

7.9 The Resolution Professional further submitted that the appellant’s

reliance on judgment in the case of Glukrich Capital Pvt. Ltd. vs. State of West

Bengal & Ors. 2023 SCC OnLine SC 1187, Para 10, is misplaced as the

observations made therein are in the nature of obiter dictum and not ratio

decidendi. The facts of the said case were different and it was decided on the

issue of validity of extension of transit anticipatory bail. It was submitted that

there is a direct judgment on this issue by NCLAT in Tridhaatu Kirti Developers

LLP vs. Arihant Nenawati Liquidator of Royal Refinery Pvt. Ltd., which was

upheld by the Hon’ble Supreme Court by judgment dated 20.02.2023 in Civil

Appeal No. 914/2022 and that the said judgment will be applicable to the facts

of this case.

8.1 Respondent Nos. 2 and 3, being suspended Directors of RRPL

(Corporate Debtor), have supported the case of the Appellant.

8.2 Respondent no.4 who was internal/ statutory auditor stated that he had

no role in the management. In para 15 of his reply, he has stated as under:

“It is pertinent to point out that Respondent no.4 had

never issued any statutory audit report since he was not given
any access to the books of accounts of the Corporate Debtor.”

9. In its Rejoinder, the Appellant had reiterated its submissions and stated

that the outstanding amount due to the Appellant as on date of

commencement of CIRP is only Rs. 31,01,83,022/-.

Company Appeal (AT) (Insolvency) No. 137/2021 Page 10 of 15

10.1 We have carefully considered the submissions made by the Appellant

and the Respondents and perused the records. The Application under Section

66 of IBC was filed by the Resolution Professional before the Adjudicating

Authority after perusing the records seized by Department of Revenue

Intelligence (‘DRI’) in their search action on the Corporate Debtor in May,

2019. No Books of Account or documents for the period from May, 2019, the

time of DRI search till initiation of CIRP on 13.11.2019 were found by the

Resolution Professional. The Resolution Professional had informed the CoC

that there are no matching assets/inventory with the Corporate Debtor. Only

thereafter, Application under Section 66 IBC was filed thereby showing that

the Resolution Profession had complied with the Regulation 35A of IBBI

(Resolution Process for Corporate Persons), Regulation 2016.

10.2 We now examine the Appellants objection that proceedings under

Section 66 of IBC, 2016 cannot be taken against the third parties. Before

proceeding any further, it will be relevant to refer to the provisions of Section

66(1) of IBC, 2016 which is reproduced below:-

66. (1) If during the corporate insolvency resolution process or a

liquidation process, it is found that any business of the corporate
debtor has been carried on with intent to defraud creditors of the
corporate debtor or for any fraudulent purpose, the Adjudicating
Authority may on the application of the resolution professional
pass an order that any persons who were knowingly parties to
the carrying on of the business in such manner shall be liable to
make such contributions to the assets of the corporate debtor as
it may deem fit.

Company Appeal (AT) (Insolvency) No. 137/2021 Page 11 of 15

 As per provisions of sub-section (1), 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.

10.3 The Appellant had relied on the judgment of the Hon’ble Supreme Court

in the matter of Gluckrich Capital Pvt. Ltd. vs. State of West Bengal & Ors.-

2023 SCC OnLine SC 1187 and in the case Usha Ananthasubramanian vs.

Union of India- (2020) 4 SCC 132. On perusal of the judgment of the Hon’ble

Supreme Court in the case of Gluckrich Capital Pvt. Ltd. vs. State of West

Bengal & Ors.- 2023 SCC OnLine SC 1187 quoted by the Appellant it is seen

that the application seeking clarification of Judgment and order dated

24.02.2023 passed by the Hon’ble Supreme Court in SLP (Crl.), diary no.

6723/23, filed by Applicant was dismissed and the said judgment related to

transit anticipatory bail in a criminal case.

10.4 The judgment of the Hon’ble Supreme Court, relied upon by the

Appellant in the case Usha Ananthasubramanian vs. Union of India; (2020) 4

SCC 132 the facts were entirely different. The said appeal was filed by Usha

Ananthasubramanian, former MD & CEO, Punjab National Bank wherein the

judgment of NCLT and NCLAT was set aside. In this case, the allegation was

that the Appellant had failed to take preventive steps to prevent fraud

Company Appeal (AT) (Insolvency) No. 137/2021 Page 12 of 15

perpetuated by Mr. Nirav Modi and thereby committed mischief and

conspiracy with the other accused person. While deciding the said case,

Hon’ble Supreme Court has held as under:-

6) Under Section 241(2), the Central Government, if it is of the

opinion that the affairs of the Company are being conducted in a
manner prejudicial to public interest, may apply itself to the
Tribunal for orders under this Chapter, which is headed
“prevention of oppression and mismanagement”. Apart from the
vast powers that are given to the Tribunal under Section 242,
powers under Section 337 and 339 are also given in aid of this
power, which will apply mutatis mutandis.

7) Section 337 refers to penalty for frauds by an officer of the

company in which mis-management has taken place. Likewise,
Section 339 refers to any business of the company which has
been carried on with intent to defraud creditors of that company.
Obviously, the persons referred to in Section 339(1) as person
who are other than the parties ‘to the carrying on of the business
in the matter aforesaid” which again refers to the business of the
company which is being mismanaged and not to the business of
another company or other persons.

8) This being the case, it is clear that powers under the

sections cannot possibly be utilized in order that a person who
may be the head of some other organization be roped in, and his
or her assets be attached. This being the case, we set aside the
impugned order passed by the NCLAT as well as the NCLT. The
appeal is allowed in the aforesaid terms.”

10.5 The facts of the present case are different and distinguishable from the

cases cited by the Appellant. In the present case, there is a finding that Manoj

Punamia was running several companies in its business of gold refinery. The

finding of the Customs Department was that both the Appellant Company

(RICL) and Corporate Debtor (RRPL) were being managed by Mr. Manoj

Punamia. Mr. Manoj Punamia and his wife were said to be shareholders of the

Company Appeal (AT) (Insolvency) No. 137/2021 Page 13 of 15

Appellant Company. In these circumstances, the appellant cannot be said to

be a third party, as both RICL and RRPL are under the control of same person.

During, the search action by DRI, documents/accounts were found which

reflected that the Appellant owed Rs. 1,58,07,56,469/- to the Corporate

Debtor. We have also noted that the corporate debtor was virtually closed since

May, 2019. The Appellant has not challenged the outstanding shown as on

20.05.2019 of Rs. 158,07,56,469/-. However, through entries, showing sale

of gold to the Corporate Debtor, the outstanding amount was brought down

to Rs. 31,01,83,022/-. We note that no books of accounts were made available

to the Resolution Professional by Corporate Debtor for this period. We also

note that Statutory Auditor has also stated that Books of Accounts were not

made available to him to conduct statutory audit. We also note that Resolution

Professional has reported to the Committee of Creditors (CoC) that no

inventory, corresponding to transaction shown by the Appellant was found by

Resolution Professional. This is a case where the outstanding of Appx. Rs. 158

Cr. was brought down to Rs. 31 Cr. by alleged entries so as to reduce the

amount due to the Corporate Debtor thereby reducing likelihood of recovery,

causing loss to the creditors of the Corporate Debtor.

10.6 On similar facts, in the case of Shri Baiju Trading and Investment Private

Limited vs. Mr. Arihant Nenawati (Liquidator for Royal Refinery Private Limited),

& Ors. the order of NCLT under Section 66 of IBC, 2016 was upheld by this

Tribunal, vide order dated 29.03.2023. Similarly, in the case of Tridhaatu Kirti

Developers LLP (2023 SCC OnLine NCLAT 1583) against the same respondents,

who are also Respondents in the present appeal, the order of NCLT under

Company Appeal (AT) (Insolvency) No. 137/2021 Page 14 of 15

Section 66 IBC was upheld by this Tribunal. This order was subsequently

upheld by the Hon’ble Supreme Court vide order in Civil Appeal No. 914 of

2023 as under:-

...
“Heard learned Counsel for the appellant. We find no merit
in this appeal. Admission is refused and the civil appeal is,
accordingly dismissed.”

10.7 Section 66 of IBC, 2016 empowers the Adjudicating Authority to pass

an order for recovery from such fraudulent transactions as contribution to the

assets of the Corporate Debtor. Such action has also been upheld by Hon’ble

Supreme Court in the case of Phoenix Arc (P) Ltd. vs. Spade Financial Services

Ltd.- (2021) 3 SCC 475.

10.8 On perusal of the facts of this case and judgments cited above, it is

apparent that entries were made in its accounts by the Appellant to reduce its

liability towards the Corporate Debtor.

10.9 In view of the above stated facts and circumstances, we find no reason

to interfere with the order of the Adjudicating Authority. The Appeal is

accordingly dismissed. All pending Interlocutory Applications, if any, are

closed. No order as to costs.

[Justice Rakesh Kumar Jain]

Member (Judicial)

[Ajai Das Mehrotra]

Member (Technical)
06.05.2024
Harleen

Company Appeal (AT) (Insolvency) No. 137/2021 Page 15 of 15