TaxTMI 
TaxTMI 
2018 (10) TMI 339
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....e the said Term Loan Facility: • Term Loan Agreement dt. 13.12.2010 for a sum of Rs. 60 Crores. • Agreement for Hypothecation of Moveable Assets forming Part of Fixed Assets dt. 13.12.2010 for Rs. 60 crores. • Letter of Undertakings dt. 13.12.2010. 3. Subsequently, the Petitioner Bank further sanctioned the following credit Facilities to the respondent company. • Cash Credit under consortium arrangement to the tune of Rs. 70.00 crores. • Inland/Foreign LC(DA) Facility of Rs. 20.00 Crores. 4. It is submitted that in order to secure, the due repayment of the aforesaid credit facilities, the respondent company executed the following security/loaning documents in favour of the Petitioner Bank on 16.11.2011. • Demand Promissory Note Dt. 16.11.2011 for a sum of Rs. 90 Crores. • Letter of Continuity dt. 16.11.2011 for a sum of Rs. 90 crores. • Letter of Hypothecation dt. 16.11.2011 for Rs. 90 crores. • Deed of Hypothecation to Secure LC dt 16.11.2011 for Rs. 20 crores. • Agreement for Hypothecati....
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.... group companies as follows: 2010-11 2011-12 2012-13 Investment in group concern 20.60 33.83 15.90 Loans to group companies - 84.90 107.06 Total 20.60 118.73 122.96 11. It has been alleged that the respondent company has given interest free loans and advances to its group companies, whereas it was paying interest to the banks for the money borrowed thereby stressing the profits. Instead of taking steps to recover the advance to revive the cash flows and stability; the company had made diversion of funds. 12. It is further stated that during the year ended 2010-11 and 2011-12, the operating statement of the company is as follows:- Particulars 2011 2012 Sales 1600.72 1622.95 Other income 2.67 4.63 Total Revenue 1603.25 1627.58 Raw Material Consumed (A) 1504.25 1597.58 Expenses 107.80 114.25 Depreciation 26.55 34.62 Increase/(Decrease) in WIP (C) -222.68 21.25 Cost of production (A+B+C) 1389.38 1732.65 Add:- Increase (Decrease) in Finished goods -50.58 36.11 Cost of goods sold 1338.38 1732.65 Increase in cost of goods Sold ....
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....etc. • The Company has not internal audit system; its audit committee is not functioning. • The company has not filed audited balance sheet for 2013 whereas, the same was signed and accepted by the AGM on 20.07.2013. 17. It is also disclosed in the petition that from the sale and purchase transaction records for the year 2011-12, it has been observed that company has entered into sale and purchase transactions of the same products with the same party. Products were purchased and sold to vendors back and vise - versa in huge amounts at different prices for purchase and sale. The same has impacted on the operational profitability and shows a deliberate attempt to inflate the revenue/purchase which may have been used to mislead the lenders for availing limits. The above fact shows without any iota of doubt that the affairs of the company are being conducted with a view to defraud the creditors which include the present applicant. The entire course of conduct points towards evading financial obligations, disregarding contracts and closing commercial operations. Moreover, there is no attempt to preserve any security to repay the dues. 18. The ....
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....ng March 2012, respondent company reported a loss of INR 272 crores despite a turnover of INR 1621 crores. 22. Thereafter the financial health of the company came under lot of stress, so much so that the Respondent Company started defaulting in servicing of its debts. It is alleged that Lenders of the respondent Company like the Petitioner, by refusing to sanction further loan/provide working capital facility and subsequently declaring accounts of the Respondents Company as 'Non-Performing Assets', further compounded the already stressed financial health of the Respondent Company. Denial of sanction of fresh loan or enhancement of working capital limit by the consortium of banks led by State Bank of India, of which the Petitioner was also a party, dried up the working capital required for the growing business of the Respondent Company. It is contended that the shortage of funds arising from the action and inaction of the consortium banks and other lenders caused significant adverse effect on the Respondent Company, which forced the Respondent Company to scale down its business operations, which ultimately led to closure of the operations of the Respondent Company by the end of y....
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....port, CDR-EG had approved the CDR package vide approval letter dated 29.01.2013 and Master Restructuring Agreement was executed between the Respondent Company and the consortium banks including the Petitioner. It is further submitted that copy of the said SIA report would be available with the Petitioner and all the allegation of the Petitioner bank has already been dealt with and only after that the CDR Scheme was sanctioned. 26. The said CDR package was subsequently withdrawn by the lenders allegedly due to failure of the Respondent Company to adhere to the terms and conditions of the said CDR package. It is submitted that the Respondent Company failed to comply with the terms and conditions of the CDR package due to reasons which were beyond the power and control of the Respondent Company. Some of the said reasons, which were also within the knowledge of the lenders including the Petitioner are as below: a. Initiation of winding up proceedings by some of the creditors of the Respondent Company; b. Attachment of assets of the Respondent Company by the Income Tax Department. The said attachment was subsequently vacated, however, by then the lenders had already....
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....nies (Special Provisions) Act, 1985 ("SICA") and BIFR had registered the reference of the Respondent Company as Case No. 85 of 2013 vide order dated 28.11.2013. 30. An objection has been raised that Section 22 of SICA bars/prohibits continuation of any proceeding with respect to a sick company for winding up or for execution or distress or the like against any properties of a sick company or for the appointment of a receiver or like except with the consent of BIFR. The Petitioner bank has already filed its objection before BIFR raising identical objections, which is pending adjudication. Raising the same allegation again before this Board by the Petitioner amounts to forum shopping, which cannot be permitted and thus the application deserves to be dismissed. 31. It is further pointed out by the respondent that the Petitioner has also filed an original application bearing OA No. 169 of 2014 before DRT-II, New Delhi for recovery of INR 129,02,05,412.00/-, which is pending adjudication. It is claimed that such forum shopping amounts to taking coercive action against a sick company which is prohibited in terms of Section 22 of SICA and thus the instant application deserves to be ....
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....t in such manner as the Central Government may direct: Provided that if after investigation it is proved that- (i) the business of the company is being conducted with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose, or that the company was formed for any fraudulent or unlawful purpose; or (ii) any person concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, then every officer of the company who is in default and the person or persons concerned in the formation of the company or the management of its affairs shall be punishable for fraud in the manner as provided in. section 447." 35. A perusal of Section 213 of the Companies Act, 2013 reveals that the Tribunal is empowered under Section 213 to investigate into the affairs of a company: (a) on an application made by the certain number of members of the company; and (b) on an application made by any other persons or otherwise. 36. Tribunal can therefore entertain an application under Section 213 to investigate into the affairs of a company preferred ....
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....or are baseless and the alleged financial irregularly, if any, has been in knowledge of the Petitioner since a long time in as much as the alleged irregularity as per the Petitioner's case in the instant application was committed during the year 2012-13. Thus, objection was raised that the instant application has been filed after an inordinate delay of 3 years and therefore deserves to be dismissed being barred by limitation. 41. In this regard it can be seen that the Petitioner has mentioned in their petition that upon scrutiny of balance sheets for the Financial Years 2011, 2012 and 2013, they found various irregularities. The diary date of filing of the present petition is 20.07.2015 which is well within three years from the date of balance sheet of financial year ending 31.03.2013. Therefore, the objection of delay and laches in filing the present petition has no leg to stand. 42. It is further stated in the reply that the Respondent Company had filed a reference under section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 ("SICA") and BIFR had registered the reference of the Respondent Company as Case No. 85 of 2013 vide order dated 28.11.2013. ....
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....or (iii) of clause (b) of Section 213 of the Companies Act, 2013. However, the Tribunal is not required to form opinion objectively, and is only required to satisfy itself on the basis of materials/evidence on record that there are good grounds to order investigation. The material/evidence taken on consideration should reflect the satisfaction of the Tribunal to order investigation. 48. In the present case applicant has shown that the respondent company had given interest free loans and advances in crores to its group companies, whereas it was paying interest to the banks for the moneys borrowed and outstanding. There is no material on record to suggest that respondent had taken steps to recover the advances in order to revive the cash flows and stability of the company. Balance sheets of the company itself depict that there had been diversion of funds. On this count alone, prima facie adverse opinion can be formed that the affairs of the company are being conducted with a view to defraud the creditors. 49. Applicant bank has also shown that there has been diversion of funds from short term sources to long term uses. That apart considerable reduction in stocks suggest that th....