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Synopsis

The National Company Law Tribunal (NCLT) Mumbai has urged the Insolvency and Bankruptcy Board of India (IBBI) to conduct training sessions for forensic auditors, providing them with essential insights into the intricacies of avoidance transactions.

“The IBBI may look into the qualitative aspect of Forensic and Transaction Auditor’s Report and may consider to hold one training session so as to equip them with the basic nuances of provisions relation to Avoidance Transactions contained in the Code and the expectation of the stake-holders from them in this regard,” the NCLT said.

A division bench comprising Judicial Member VG Bisht and Technical Member Prabhat Kumar was hearing an application filed under Section 43 (Preferential Transactions & Relevant Time) of the Insolvency and Bankruptcy Code 2016.

The Corporate Insolvency Resolution Process (CIRP) was initiated against the Corporate Debtor, who made a payment of Rs. 91 Lakhs to Ramesh Jain as a sales commission.

Additionally, M/s Intec Capital had provided financing for machinery to the corporate debtor, amounting to Rs. 3.51 crores. The Resolution Professional was notified by Intec Capital about the missing machinery.

The Transaction Audit Report identified Rs. 91 lakhs as a preferential transaction and indicated that the corporate debtor had updated the list of assets.

After verifying the documents, the forensic auditor did not identify any anomalies in the documents or explanations provided by the corporate debtor.

Subsequently, the Resolution Professional filed an application under Section 43, seeking the declaration of Rs. 91 lakhs as a preferential transaction. However, no prayer was made regarding the machinery in the application.

The bench identified contradictions in the forensic auditor's report. It noted that on one hand, the auditor concluded that Respondent No. 3 was paid for sales commission, and the omission of sales commission expenses was characterized as an "accounting error." On the other hand, in the next paragraph, the auditor asserted that the payment of Rs. 91 Lakhs made within the look-back period could be classified as a Preferential Transaction.

While urging the IBBI to conduct training sessions for forensic auditor the bench deprecated the casual approach of the resolution professional, forensic auditor and the applicant.

“Before we part with, we deplore the approach of the Resolution professional, the Applicant, as well as the Forensic and Transaction Auditor in dealing with such important aspect of CIRP so casually and without application of mind to the facts of the case,” the bench said.

Case title: Mr. Girish Juneja vs Kailas Ramlal Pawar & Ors