2020 (2) TMI 1313 - Tri - Insolvency and Bankruptcy

Tribunal dismisses application & rejects claims due to lack of evidence & non-compliance.

Allahabad Bank Versus SPS Steels Rolling Mills Limited And Mr. Vijaykumar V lyer Versus Mr Bipin Kurnar Vohra, Mr Arjun Kumar Santhalia, Mr Sudesh Kumar Agarwal, Prashant Properties Private Limited,

The Tribunal dismissed the application filed by the Resolution Professional and rejected the claims made by the Intervenor based on the lack of conclusive ... Approval of Resolution Plan - undervalued/preferential transaction - whether Permitted User Agreement has been cancelled by this Authority while approving the resolution plan? - HELD THAT:- As far as contract between the Corporate Debtor and Prashant Properties Pvt. Ltd. is concerned, that has been definitely executed before the look back period of two years as the Resolution Professional and/or Forensic Consultant have not been able to make out a case that it was a back-dated transaction or an instance of fraudulent transaction. No specific finding in this regard has been given even by external technical consultant. Thus, on this preliminary ground itself, no adverse conclusion can be arrived at against the erstwhile management of Corporate Debtor. Further, there is another aspect of the matter. In valuation of the business / enterprise of the Corporate Debtor, no value has been assigned to this brand based upon the fact that no historical contribution has been made by such trademark owned by Corporate Debtor to the revenue of Corporate Debtor and once Resolution Professional or COC has not valued such brand, then, how the amount of recovery/consideration, even if it is assumed that it was a case of undervalued transaction, can be determined in terms of provisions of Section 48(1)(c) & 48(1)(d) of IBC, 2016. If it is so, then for non-applicability of machinery to calculate the amount also, such allegation fails. Apart from merits, as discussed above, we find that the inference drawn is inconclusive in every manner - it is also not a case of undervalued or preferential transaction. Maintainability of application - whether this Authority has jurisdiction as the resolution plan has already been approved? - HELD THAT:- The resolution plan has already been approved on 8th April 2019 by this Authority. It is a settled position that there is no power of review to this Authority of its own actions, hence, the contentions of Intervenor being in the nature of asking this Authority to review its own decision are not valid within the scheme / framework of the provisions of IBC, 2016. Thus, this contention of Successful Resolution Applicant is accepted particularly when there does not exist a case of fraud or violation of provisions of Section 30(2) of IBC, 2016 in getting the approval of Resolution Plan. We further note that no appeal under Section 61 of IBC, 2016 against approval of Resolution Plan has been preferred by Prashant Properties Pvt. Ltd., Intervenor, who also happens to be operational creditor of the Corporate Debtor and time limit for doing so has already expired, hence, Resolution Plan has become final. Such Resolution Plan is binding on all stakeholders as per provisions of Section 31 of IBC, 2016. Application filed by Resolution Professional is rejected and dismissed. Issues Involved:1. Potential preferential repayment of unsecured loans.2. Potential preferential payment of sundry creditors.3. Amount receivable from entities potentially connected with the Corporate Debtor.4. Unsupported advances from sundry creditors.5. Potential questionable receivables from sundry debtors.6. Potential questionable arrangement for sharing of brand.7. Jurisdiction and validity of the application by the Resolution Professional.8. Validity of the Permitted User Agreement and its impact on the resolution plan.Issue-Wise Detailed Analysis:1. Potential preferential repayment of unsecured loans:The Forensic Consultant identified 11 parties with outstanding sums aggregating to Rs. 163.53 Crores as of 23rd December 2015, which reduced to Rs. 116.19 Crores by 22nd December 2017. Transactions with five parties were scrutinized, revealing that three were related entities. The management argued that these were interest-free loans repayable on demand, taken to meet urgent working capital requirements. The Tribunal found that the preliminary exercise to determine the nature of these transactions was not adequately performed, and the management’s explanation remained uncontroverted. Consequently, the application lacked the necessary proof for recovery.2. Potential preferential payment of sundry creditors:The Forensic Consultant noted a net decrease of Rs. 10.68 Crores in sundry creditors' balance. The management explained that payments were made to Chaitanya Alloys Private Limited (CAPL) for transactions up to 31st March 2013, with a remaining balance of Rs. 6.17 Crores. The Tribunal found that the transactions were regular and spread over several years, thus not preferential.3. Amount receivable from entities potentially connected with the Corporate Debtor:The Forensic Consultant identified trade receivables aggregating to Rs. 399.08 Crores, focusing on ten entities forming 54% of the total. The management denied any connection with these entities and provided a summary of net balances receivable. The Tribunal found the inference drawn by the Forensic Consultant to be vague and inconclusive.4. Unsupported advances from sundry creditors:The Forensic Consultant found no transactions with 40 entities showing a debit balance of Rs. 70.93 Crores. The management explained various reasons for these advances, including quality claims, rate differences, and advances for transportation and mining rights. The Tribunal noted the lack of supporting documents and found the inference drawn insufficient for an order of recovery.5. Potential questionable receivables from sundry debtors:The RP issued demand notices to 76 debtors aggregating to Rs. 243.19 Crores. Responses from ten debtors indicated disputes or counterclaims. The management was surprised by the discrepancies and suggested possible adjustments with group entities. The Tribunal found the inference drawn by the Forensic Consultant to be inconclusive and insufficient for recovery.6. Potential questionable arrangement for sharing of brand:The Corporate Debtor had contracts with Prashant Properties Private Limited (PPPL) and Dytron Marketing Services Private Limited for the use of its trademark 'Elegant.' The Forensic Consultant and a technical expert found these contracts commercially untenable. However, the Tribunal noted that the brand had no historical contribution to the Corporate Debtor’s revenue and was assigned NIL value during CIRP. The Tribunal concluded that it was not a case of undervalued or preferential transaction.7. Jurisdiction and validity of the application by the Resolution Professional:The Tribunal emphasized the requirement for the Resolution Professional to form an independent opinion and determination of transactions under Sections 43, 45, 50, and 66 of the IBC, 2016. The Tribunal found no material evidence of such opinion formation, leading to non-compliance with the provisions. Thus, the application was liable to be dismissed.8. Validity of the Permitted User Agreement and its impact on the resolution plan:The Tribunal found that the application by Prashant Properties Pvt. Ltd. was not maintainable as the resolution plan had already been approved, making the Tribunal functus officio. The Tribunal noted that the Intervenor was aware of the proceedings and had participated as a creditor. Consequently, the claims made by the Intervenor were rejected.Conclusion:The Tribunal dismissed the application filed by the Resolution Professional and rejected the claims made by the Intervenor, Prashant Properties Pvt. Ltd., based on the lack of conclusive evidence and non-compliance with procedural requirements under the IBC, 2016.