Tribunal rules on preferential, undervalued, and fraudulent transactions in insolvency case

The Tribunal found that the transactions identified by the Resolution Professional (RP) were preferential, undervalued, and fraudulent, except for those involving Respondent No. 6, deemed to be in the ordinary course of business. The respondents, excluding Respondent No. 6, were directed to repay the amounts related to the identified transactions within 30 days to the corporate debtor. The RP was instructed to commence penal proceedings against the suspended directors and other implicated parties. The order was to be communicated to the relevant parties and the Insolvency and Bankruptcy Board of India (IBBI) for further action.

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Issues Involved:
1. Preferential Transactions under Section 43 of the Insolvency and Bankruptcy Code (IBC), 2016.
2. Undervalue Transactions under Section 45 of the IBC, 2016.
3. Fraudulent Transactions under Section 66 of the IBC, 2016.
4. Compliance with Section 25(2)(J) and Section 235A of the IBC, 2016.

Detailed Analysis:

1. Preferential Transactions under Section 43 of the IBC, 2016:
The applicant, Mr. Tarun Batra, appointed as the Resolution Professional (RP), identified several transactions as preferential based on the transaction audit report. The transactions were not conducted in the ordinary course of business and were intended to favor certain creditors over others. Key instances include:
- Shree Ji International: Rs. 75.00 Lakhs considered preferential as payments were made outside the ordinary course of business.
- Ram Bhaj Jain (Suspended Director): Rs. 10.29 Lakhs identified as preferential transactions within the relevant period.
- Radico Trading Limited: Payments amounting to Rs. 2.86 Crores and Rs. 4.07 Crores were considered preferential.
- G.G. Enterprises and Hinglaj Enterprises: Transactions were not in the ordinary course of business and thus considered preferential.

2. Undervalue Transactions under Section 45 of the IBC, 2016:
The applicant submitted that several transactions were undervalued, with the intent to transfer assets out of the reach of creditors. Key instances include:
- Kundan Trading Co.: Sale of rice at significantly lower prices, resulting in a loss of Rs. 781.78 Lakhs.
- R.K. International: Sale of rice at undervalued prices, resulting in a loss of Rs. 744.12 Lakhs.
- Panchdev Foods & Chemicals Pvt. Ltd.: Sale of rice at undervalued prices, resulting in a loss of Rs. 7.06 Lakhs.
- Kanha Rice and Paddy Traders and Saraswati Foods: Similar undervalued transactions resulting in significant losses.
- Panchdev Foods and Chemical Limited: Sale of vehicles below fair market value.

3. Fraudulent Transactions under Section 66 of the IBC, 2016:
The applicant identified transactions intended to defraud creditors. Key instances include:
- Sansar International: Sales and purchases without actual movement of goods, inflating values to defraud creditors.
- Cap Commodities House and Bharat Agro Foods: Similar fraudulent transactions without actual movement of goods.
- East India Overseas and Life Time Enterprises: Purchases without actual transactions, inflating stock values.
- Panchdev Foods and Chemicals Pvt. Ltd., Shivoham Enterprises, Kundan Trading Co., and R.K. International: Transactions without proper documentation, intended to defraud creditors.

4. Compliance with Section 25(2)(J) and Section 235A of the IBC, 2016:
The RP is required to preserve and protect the assets of the Corporate Debtor and apply for the avoidance of such transactions. The Tribunal found that the RP had fulfilled these duties by identifying and reporting the preferential, undervalue, and fraudulent transactions.

Judgment:
- The Tribunal directed the respondents, except Respondent No. 6, to pay the amounts identified as preferential, undervalue, and fraudulent transactions to the corporate debtor within 30 days.
- The RP was directed to initiate penal proceedings against the suspended directors and other involved parties.
- The order was to be communicated to the parties and the Insolvency and Bankruptcy Board of India (IBBI) for further action.

The Tribunal concluded that the transactions identified by the RP were indeed preferential, undervalued, and fraudulent, except those involving Respondent No. 6, who was found to be acting in the ordinary course of business.

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