Nihal Shaikh Dev Motta January 17 2023 Reporting fraudulent transactions: is there a limitation period? Clasis Law | Litigation - India Nihal Shaikh, Dev Motta Litigation FactsDecisionFactsMr Thomas George (the appellant), the suspended director of M/s Mathstraman Manufacturers and Traders Private Limited (the corporate debtor) filed an appeal(1) before the Chennai National Company Law Appellate Tribunal (NCLAT) challenging the order passed by the Kochi National Company Law Tribunal (NCLT), thereby allowing the application filed under section 66 of the Insolvency and Bankruptcy Code 2016 (IBC) by Mr K Easwara Pillai, the resolution professional (RP).On 20 November 2020, the NCLT allowed the initiation of a corporate insolvency resolution process (CIRP) against the corporate debtor. During the CIRP period, the RP learned that the corporate debtor had been dormant from 2015-2016. Therefore, the RP prepared an annual report for the year 2014-2015 with the limited information available to him.The RP filed an application under section 66 of the IBC seeking to hold the promoters and related parties liable for the wilful default and make good the losses of the creditors of the corporate debtor. Even though notices were served upon all respondents, respondents three to six chose not to appear before the NCLT and accordingly an ex parte order was passed against them.By an order dated 9 July 2021 (the impugned order), the NCLT allowed the RP's application. It declared the transaction as fraudulent and directed the respondents to make good the losses caused by them to the creditors of the corporate debtor. Aggrieved by the decision of the NCLT, the appellant appealed before the NCLAT to set aside the impugned order.The appellant claimed that the NCLT had erred in allowing the application purely on the assessment of the facts pleaded, without discussing the evidence.Further, the appellant argued that the limitation period for initiating any actions under the IBC is three years. Therefore, to file an application under section 66 of the IBC, the look-back period for the fraudulent transaction is also restricted to three years. According to the appellant, the RP had only established that the ex-manager of the corporate debtor had made fraudulent transactions, and had failed to prove that the appellant had committed fraud.DecisionThe NCLT observed the following:There were no grounds for not filing the replies, despite the service of notice on the appellant. Therefore, there were no grounds to set aside the ex parte order or give another opportunity to the appellant to present his case belatedly.The NCLT had passed the impugned order on the merits and the appellant had not denied any statements made by the RP.Section 66 of the IBC does not provide for any specific look-back period for reporting fraudulent transactions and/or trading. Therefore, as there is no specific period, the RP is allowed to retrieve and/or repossess, without any limitation of time, to rectify the wrongdoings for ay relevant point in time.In light of the above, the NCLT held that there were no substantial grounds in allowing the appeal.For further information on this topic please contact Nihal Shaikh or Dev Motta at Clasis Law by telephone (+91 11 4213 0000) or email ([email protected] or [email protected]). The Clasis Law website can be accessed at www.clasislaw.com.Endnotes(1) Company Appeal (AT) (CH) (INS) No. 293 of 2021.