2022 (3) TMI 756 - AT - Insolvency and Bankruptcy

Adjudicator upholds undervalued plant sale decision, dismisses appeal, affirms preferential transaction.

The Adjudicating Authority's decision on 04.10.2021, declaring the sale of the plant at Taloja Industrial Area as undervalued and ordering the return of ... Cancellation of sale of plot - directing the possession of the said Plant to be handed over to the Resolution Professional - preferential transaction or not - HELD THAT:- Under Section 46 relevant period for avoidable transaction or undervalued transaction is period of one year preceding the Insolvency Commencement date. The transaction in question being of 05th August, 2019 is within the period as contemplated under Section 46 as noted above. Insolvency Commencement date is 19.09.2019 and it was less than one and half month before the said date that this transaction was made by the Corporate Debtor. The Adjudicating Authority noted the transaction audit report and submissions made by the Appellant. It was noted by the Adjudicating Authority that ‘no objection’ granted by Yes Bank for sale of the property, was at least ₹ 17.86 crore. When the mortgagee Bank has issued conditional NOC for 17.86 crore transaction of the property, at the amount of 11 crore is undervalued transaction and we do not find any error in the decision of the Adjudicating Authority holding the transaction as undervalued transaction. However, handing over the possession by the Directors of the Corporate Debtor to the Appellant before even payment indicates the nature of transaction which transaction was preferential transaction as well as undervalued transaction. Transaction was a transaction to defeat the rights of the creditor of the Corporate Debtor - Direction in the Impugned Order is only to hand over the possession of the plant to the Resolution Professional which is consequential action on account of reversal of the transaction. The Order passed by the Adjudicating Authority thus cannot be said to be beyond Section 45(1). However, when transaction is treated to be void it loses all its legal effect and submissions of Learned Counsel for the Appellant that since application for declaring the transaction void being Application No. 1304 of 2020 pending no direction could have been issued by the Adjudicating Authority as has been issued in the Impugned Order cannot be accepted. Respondent has also brought on record relevant materials to indicate that both Mohd Nasira Begum and Mohd Kamil who claimed to have passed resolution for transferring the plants on 15th April, 2019 were ceased to be directors with effect from 12.09.2018 hence the entire proceedings beginning from decision to transfer of the property was not legally done and preferential transaction and undervalued transaction in favour of the Appellant was only with a intent to defeat the rights of the creditors and no error have been committed by the Adjudicating Authority in allowing the Application filed by the Resolution Professional under Section 43 and 45 of the Code - Appeal dismissed. Issues Involved:1. Validity of the sale of the plant at Taloja Industrial Area.2. Allegations of preferential and undervalued transactions.3. Compliance with principles of natural justice.4. Authority of the Adjudicating Authority to cancel registered agreements.Detailed Analysis:1. Validity of the Sale of the Plant at Taloja Industrial Area:The Corporate Debtor’s plant at Plot M-6, Taloja Industrial Area was mortgaged to Yes Bank. A conditional No Objection Certificate (NOC) was issued by Yes Bank on 01st August 2019 for the sale of the property for at least Rs. 17.86 Crore. However, the plant was sold for Rs. 11 Crore, with only Rs.0.63 Crore received as consideration. The Adjudicating Authority, relying on the Transaction Audit Report, found the sale to be undervalued and ordered the cancellation of the sale and the return of the plant’s possession to the Resolution Professional.2. Allegations of Preferential and Undervalued Transactions:The Transaction Audit Report identified several preferential and undervalued transactions, including the sale of the Taloja plant. The Resolution Professional filed an application under Sections 43 and 45 of the Insolvency and Bankruptcy Code (IBC) to reverse these transactions. The Adjudicating Authority found that the sale of the plant was significantly undervalued, as the property was sold for Rs. 11 Crore against the conditional NOC value of Rs. 17.86 Crore, and only Rs.0.63 Crore was paid. The transaction was deemed to be made to defeat the rights of the creditors and was declared void.3. Compliance with Principles of Natural Justice:The Appellant argued that the Adjudicating Authority violated the principles of natural justice by not hearing them, despite being an affected party. However, the court noted that the Appellant was aware of the proceedings and had filed an application (I.A. No. 699 of 2020) seeking to restrain the Resolution Professional from taking control of the property. The Appellant was heard on 30th September 2021, and the suspended directors of the Corporate Debtor were also heard. Therefore, the court found no violation of natural justice principles.4. Authority of the Adjudicating Authority to Cancel Registered Agreements:The Appellant contended that the Adjudicating Authority did not have the jurisdiction to cancel a registered agreement. The court clarified that under Section 45(1) of the IBC, the Resolution Professional can apply to the Adjudicating Authority to declare transactions as void and reverse their effects. The Adjudicating Authority inferred the cancellation of the sale due to non-payment of the full consideration and directed the possession of the plant to be handed over to the Resolution Professional. This action was deemed within the authority of the Adjudicating Authority.Conclusion:The Adjudicating Authority’s order dated 04.10.2021, declaring the sale of the Taloja plant as an undervalued transaction and directing the return of possession to the Resolution Professional, was upheld. The appeal was dismissed, affirming the findings that the transaction was preferential and undervalued, and that the Appellant was heard in accordance with the principles of natural justice.