Tribunal orders recovery of funds in preferential, undervalued transactions

The Tribunal found that certain transactions in the case were preferential, undervalued, and involved fraudulent trading. The Liquidator was directed to recover specific amounts from the suspended managing director and another individual. However, as one party was not part of the proceedings, no orders were issued against them. The Liquidator was instructed to take immediate steps to recover the funds and report on their distribution among stakeholders. The application was disposed of on December 21, 2021.

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Issues Involved:

1. Preferential Transactions
2. Undervalued Transactions
3. Fraudulent Trading

Issue-wise Detailed Analysis:

Preferential Transactions:

The Liquidator filed IA(IBC)/51/KOB/2021 under Sections 35(1)(n), 43, 44, 45, 46, 48, 49, 60(5) & 66 of the Insolvency and Bankruptcy Code, 2016, seeking reliefs related to preferential transactions. It was found that Rs. 42,50,397 was repaid to the director during FY 2017-18, in preference to trade payables, statutory dues, and salaries. Additionally, Rs. 6,28,000 was paid to Mrs. Revathi Radhakrishnan, wife of the suspended managing director, as a loan, when no such loan was recorded in the audited financials. Moreover, Rs. 90,00,000 was outstanding from Sabkaa Payments Limited for SMS server maintenance charges. The Tribunal noted that these transactions were preferential within the meaning of Sections 43 and 44 of the Code, as they occurred within the relevant time frame and benefited related parties over other creditors. Therefore, the Tribunal directed the return of Rs. 42,50,397 and Rs. 6,28,000 to the Liquidator for distribution among stakeholders.

Undervalued Transactions:

The Liquidator identified undervalued transactions where assets with a written-down value of Rs. 48,55,750 were either missing or sold without proper documentation. A car was sold for Rs. 24,00,000, but other assets worth Rs. 33,12,921 were unaccounted for. The Tribunal noted that these transactions were undervalued and lacked proper records, making them suspicious and detrimental to the interests of creditors. The report by the Transaction Auditor confirmed these findings, indicating that the assets were lost, written off, or sold without adequate documentation.

Fraudulent Trading:

The Liquidator also highlighted fraudulent trading activities, including the incorporation of Sabkaa Payments Limited and the investment of Rs. 13,34,818 in its share capital without proper disclosure in the financial statements of the Corporate Debtor. The Tribunal found that these activities were intended to defraud creditors, as the investments and related party transactions were not disclosed as required by accounting standards. The report by the Transaction Auditor corroborated these findings, showing that Rs. 1,09,550 was spent on preliminary and legal expenses for Sabkaa Payments Limited, which was not reflected in the Corporate Debtor's financial statements.

Findings:

The Tribunal concluded that the transactions in question were preferential, undervalued, and fraudulent. The Liquidator was directed to recover Rs. 42,50,397 from the suspended managing director and Rs. 6,28,000 from Mrs. Revathi Radhakrishnan. However, since Sabkaa Payments Limited was not made a party to the proceedings, no orders could be passed against them. The Liquidator was instructed to take immediate steps to recover the amounts and submit a report on the distribution of the recovered funds among stakeholders.

Conclusion:

The Tribunal disposed of IA(IBC)/51/KOB/2021 with directions to the Liquidator to recover specific amounts from the suspended managing director and Mrs. Revathi Radhakrishnan and report the distribution of these funds among stakeholders. The application was disposed of on December 21, 2021.

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