TaxTMI 
TaxTMI 
2019 (4) TMI 1208
X X X X Extracts X X X X
X X X X Extracts X X X X
.....08.2018. 2. The application for Corporate Insolvency Resolution Process filed by the Standard Chartered Bank under Section 7 of the IBC was admitted by this Bench by an order dated 27.6.2017 wherein Mrs Dipti Mehta was appointed as the Interim Resolution Professional. The Committee of Creditors consists of two creditors namely Standard Chartered Bank and DCB Bank. In the first meeting of the Committee of Creditors on 28.07.2017, the Interim Resolution Professional was confirmed as the Resolution Professional and then further appointed as liquidator by order of the Adjudicating Authority dated 09.08.2018. 3. The present application has been filed against the 5 directors of the Corporate Debtor (Respondent Numbers 1 to 5) and the Tilaknagar Industries Limited, holding company of the Corporate Debtor (Respondent No. 6). 4. The background of the case as stated by the Liquidator is that Respondent No. 6, the holding company of the Corporate Debtor, is the creditor of the Corporate Debtor to the extent of Rs.60,00,01,857/- as on 27.06.2017. It is also stated that the Respondent No. 6 is a corporate guarantor to the loan advanced by the Standard Chartered Bank to the Corporate D....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r of the Corporate Debtor, which caused prejudice to the interest of the other creditors, as it affected the ability of the Corporate Debtor to service its debt. 8. The Resolution Professional has further alleged that this change of business model was not intimated to the creditors for taking their prior approval. Also that this abrupt change has resulted in the transfer of revenues to only one creditor in preference and exclusion to all other creditors and thus it tantamounts to Preferential Transaction. 9. In reply to the above-said allegations, the Respondents have stated that change in the business models was effected from 1.4.2015 and the date of initiation of CIRP against the Corporate Debtor is 27.6.2017. Therefore, the impugned transaction was before two years preceding the initiation of CIRP and not within the look-back period, and hence the purported change in the business model cannot be regarded as a preferential transaction. 10. The Respondent has further submitted that there is no change in the business model as alleged. It is a liquor industry practice for the manufacturer to enter into a tie-up/manufacturing agreement with the bottling unit wherein the unit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 14. It is submitted by the Respondents that, as per the industry practice, under the arrangement between the holding company and the Corporate Debtor, the brands of the holding company were bottled and sold by the Corporate Debtor and the holding company was entitled to the sale proceeds. The Corporate Debtor was only entitled to the per case bottling fee or a lump sum consideration instead of facilitating the bottling for the holding company's brands. However, the holding company did not seek immediate transfer of the sale proceeds from the year 2009 to March 2015, considering that the Corporate Debtor was its wholly owned subsidiary, received periodical funds from the holding company. 15. It is submitted by the Respondents that the holding company, by way of bottling agreement, adopted a standard industry practice of transferring the sale proceeds from the account of the Corporate Debtor to holding company with effect from 01.04.2015. Under this Agreement, the Corporate Debtor was required to pay the surplus arising out of the sale of the Brands owned by the holding company, to the holding company account,and in return the holding company was to provide a consideration of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Debtor was acquired by its holding company in the year 2009, and since June 2009, the holding company has several times provided financial assistance to the Corporate Debtor. 18. The Respondents have submitted a copy of the account of the Corporate Debtor in the books of the holding company to show that the account is a running account and that the Corporate Debtor has received huge financial support from the holding company, by the bottling arrangement, in usual and ordinary course of business. 19. It is pertinent to note the provision of section 43 of the I&B Code that deals with the Preferential Transaction as reproduced below: 43. Preferential transactions and relevant time.- (1) Where the liquidator or the resolution professional, as the case may be, is of the opinion that the corporate debtor has at a relevant time given a preference in such transactions and in such manner as laid down in sub-section (2) to any persons as referred to in sub-section (4), he shall apply to the Adjudicating Authority for avoidance of preferential transactions and for, one or more of the orders referred to in Section 44. (2) A corporate debtor shall be deemed to....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... On perusal of the above provision, it is clear that for the applicability of section 43, look back period is two years from the date of commencement of CIRP, for a transaction with a related party and one year from the date of commencement of CIRP, for a transaction with a person other than a related party. 21. Related party, as defined under section 5(24) of the I&B Code includes: "...(i)a body corporate which is a holding, subsidiary or an associate company of the corporate debtor, or a subsidiary of a holding company to which the corporate debtor is a subsidiary;..." 22. On perusal of the definition of the "Related Party" as given in Section 5(24)(i) of the Code, it is clear that body corporate, which is a holding company, the subsidiary or an Associate Company of Corporate Debtor, or a subsidiary of a holding company to which the Corporate Debtor is also a subsidiary, is covered u/s.5(24)(i)of I&B Code as a related party. 23. In the present case, the impugned transactions are with the holding company of the Corporate Debtor. Thus, the transaction can be said to be with a related party of the Corporate Debtor. Further, the look-back period as provided u/s.43(4....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... infuse funds. Thus the holding company, i.e. the Respondent No.6, did not seek immediate transfer of the sales proceeds. It is only from 1.4.2015 onwards, that the holding company, in the ordinary course of its business, adopted the standard industry practice of transferring the sales proceeds from the account of the Corporate Debtor to itself and entered into Bottling Agreement with effect from 1.4.2015. The said bottling agreement is not produced on record by either side. 28. Thus, the change in business model from manufacturer of the Indian made foreign liquor to bottling job-work, and the consequent act of Corporate Debtor in raising invoices in its own name, booking and receiving sales revenue from the sale of brands owned by its holding company, and transfer of surplus under the bottling arrangement are in the ordinary course of business and financial affairs of the corporate debtor and hence not covered in preference transactions under section 43 of I&B Code. Undervalued Transaction 29. The Applicant has stated that the Corporate Debtor has indulged in the undervalued transaction to benefit Respondent No. 6. The Applicant has stated that after the change in busines....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion. The Liquidator has not even identified the transferee/counter party of the alleged undervalued transaction. The Liquidator has not compared the market value with the actual valuation of the alleged transaction. It is further stated that no opportunity was provided to the Respondent Nos. 1 to 5 to meet with the allegations in this regards. 34. On perusal, The impugned transaction took place in the ordinary course of business of the Corporate Debtor and therefore exempted from being undervalued transaction. Sub-lease Agreement 35. The Applicant has prayed to declare the sub-lease agreement with MS Biotech Pvt. Ltd. as null and void as it is prejudicial to the interest of the creditors and not approved by the creditors. The Applicant has stated that the change in business model in FY 2017-18, wherein the Corporate Debtor became leasing unit for MS Biotech Pvt. Ltd. by sub-lease agreement, has resulted in the sales to Andhra Pradesh Beverage Corporation Limited being done and collected by MS Biotech Pvt Ltd. This business arrangement, it is stated, has prejudiced the creditors as the receivables from Andhra Pradesh Beverage Corporation which had been given as securities ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reement is not maintainable and rejected. Machinery transferred 39. The Applicant has prayed to direct the Respondents to vest the property transferred in connection with the giving of the preference, i.e. the machinery worth Rs.11.35 crores which were transferred to Shrirampur unit of Tilaknagar Industries Ltd. be vested in the Corporate Debtor. The Applicant has relied upon the Forensic Audit Report to state that the assets worth Rs.11.35 crores were transferred to the Shrirampur unit of the holding company and the same cannot be identified as they were used along with other similar machinery of the holding company. It is contended that the transfer was not mentioned or described anywhere in the board minutes, minutes of Member's meeting, accounts, director's report and not even informed to the creditors. It is submitted that this transfer is preferential transaction as it gave preference to the holding company. 40. In reply to the allegations of the transfer of assets worth Rs.11.35 crores to the holding company the Respondents have submitted that due to the delay of more than five years in approval of a license for enhanced capacity, the assets of the Corporate Debtor ....