2021 (6) TMI 839 - Tri - Insolvency and Bankruptcy

Undervalued transactions voided, Respondents ordered to repay debts with interest.

G.V. Ravikumar Versus K. Kuppuswamy and Ors.

G.V. Ravikumar Versus K. Kuppuswamy and Ors. - [2021] 227 Comp Cas 148 (NCLT - Chen) Issues Involved:1. Avoidable transactions under Sections 35(b), 35(k), 35(l), 45, 46, and 48 of the Insolvency and Bankruptcy Code (IBC), 2016.2. Limitation period for filing applications under IBC.3. Ordinary course of business defense.4. Composite application issue.5. Related party transactions.Issue-wise Detailed Analysis:1. Avoidable Transactions under Sections 35(b), 35(k), 35(l), 45, 46, and 48 of IBC, 2016:The Liquidator filed an application to declare certain transactions as avoidable under the specified sections of IBC, 2016. It was observed that the Corporate Insolvency Resolution Process (CIRP) for the Corporate Debtor was initiated on 14.06.2017, and the company was under liquidation since 11.01.2018. The Liquidator discovered several transactions in the Corporate Debtor's books that appeared to be undervalued or preferential. These transactions included significant cash transfers to the ex-Directors and related parties, which were not in the ordinary course of business. The Liquidator sought to declare these transactions void and reverse their effects as per Section 48 of IBC, 2016.2. Limitation Period for Filing Applications under IBC:The Respondents argued that the application was barred by limitation, citing Regulation 40A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which prescribes a model timeline of 135 days from the commencement of CIRP. However, the Tribunal held that the timeline is directory and not mandatory. The avoidance transactions under Sections 43, 45, and 50 can be filed by either the Resolution Professional (RP) or the Liquidator, and the model timeline does not override the provisions of the Act. Thus, the application was not barred by limitation.3. Ordinary Course of Business Defense:The Respondents claimed that the transactions were made in the ordinary course of business. However, they failed to provide any documentary evidence to substantiate this claim. The Tribunal found that the impugned transactions lacked the characteristics of ordinary business transactions and rejected the Respondents' defense as devoid of merit.4. Composite Application Issue:The Respondents contended that the application was a composite one, which is not maintainable as per the Supreme Court's judgment in Anuj Jain's case. The Liquidator, acknowledging this, sought to withdraw the relief portion in clause (b) of para VII of the application and pressed only for the reliefs in clause (a). The Tribunal accepted this withdrawal and proceeded with the application accordingly.5. Related Party Transactions:The Liquidator alleged that the transactions with the 2nd and 3rd Respondents, who were related parties, fell within the two-year period preceding the insolvency commencement date. The Respondents argued that the 'Trust' could not be considered a related party and that the transactions were beyond the one-year period applicable to non-related parties. The Tribunal found that the trustees of the Trust were close relatives of the ex-Director and that the transactions were indeed related party transactions. The Tribunal also noted that the entries in the Corporate Debtor's books, presumed to be accurate, were not rebutted by the Respondents.Conclusion:The Tribunal concluded that the transactions in question were undervalued as per Section 45 of IBC, 2016. The 1st, 2nd, and 3rd Respondents were directed to repay Rs. 5,26,99,936, Rs. 11,55,142, and Rs. 1,00,000 respectively, along with interest, to the Liquidator within 60 days. The application MA/581/2019 was disposed of accordingly.