In the world of insolvency & bankruptcy in India, PUFE transactions are important and life saver for corporate debtor as for RP. PUFE means Preferential, Undervalued Fraudulent, Extortionate transaction. These are the transactions which directly or indirectly made CD to undergo CIRP or liquidation.
PUFE transaction are not commercially intended transactions but they are meant for cheating the corporate debtor. A company is different than the director and promoters. When a director thinks that he needs to cheat the stakeholders and the corporate debtor, He will go for PUFE transaction These transactions are done through directors or Key Management persons.
PUFE transactions are well planned and well executed transactions by the key persons to reduce the loss to them by the corporate Debtor or create a loss to the corporate debtor. It is a well-planned death execution of CD
Efficiency and independency of IRP or RR can be checked through the identification of transaction which is the life saver for the CD.
A good auditing skill is required to identify the PUFE transaction. So, an IP who is having auditing skill become handy It nowadays in IBC area.
Thanks to GST regimes Returns and data can be a handy for the RP to assess whether there is PUFE transaction in the last 2 years before CIRP. This helps to find whether there is undervalued sales or preferential sales or unnecessary purchases. This can be checked through the Gstr1 and 2A /2B. GSTR reconciliation helps RP to identify PUFE transaction if any, which are routed through normal transactions.
2nd Source may be reading CARO report of 2 years. This report usually covers related party transaction between CD and key persons. If Caro report is not having facts but only standardised format, it is better to ignore
Income tax audit report could be used to identify transaction as related party transaction. once related quantity transaction is identified. Then it is for the IP to find out whether they are genuine and correct or need to investigate as PUFE
Conclusion
Since PUFE transaction is life saver for CD to get more in CIRP or liquidation, the role of IP is very important
if IP has auditing skill and having experience of reading audit reports and financials along with GST compliance, it helps PUFE transaction. Of course, all material transactions need to checked whether they are PUFE in it. Since only RP can file an application for PUFE transactions before 130th day with AA, RP must act on this. Failing which RP may need to undergo disciplinary action from IPA. So PUFE identification and reporting is life saver for IP and Corporate Debtor. IP with CA Skill and practice may become handy and advantage compare to other IPs. Documentation of these steps and technique on PUFE is key to defend in future against disciplinary action.
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