TaxTMI 
TaxTMI 
2020 (2) TMI 1313
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....ofessional ("RP") under Sections 25(j), 43 to 51 and 66 of the Insolvency and Bankruptcy Code, 2016 ("IBC, 2016") for the following reliefs:- (a) Direct the avoidance of the potential transactions identified by the Forensic Consultant as included in Point A and Point B of the application, if deemed appropriate, and levy an appropriate rate of interest, until the avoidance of the same; (b) Pass appropriate directions for potential transactions identified by the Forensic Consultant as included in Point C, Point D, Point E and Point F of the application, in accordance with Sections 25(j), 43 to 51 and 66 of the Code and other applicable provisions of the regulations framed under the Code and the Companies Act, 2013 including the appointment of an appropriate investigating agency to investigate into the affairs of the directors of the Corporate Debtor and the counter parties to the aforementioned transactions identified in this application and/or in the Forensic Consultant Report; and (c) Pass any other order(s) which this Hon'ble Tribunal may deem fit in the facts and circumstances of the case in the interest of equity, justice and good conscience. 2.....
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....oking Company Private Limited 7.49 3.29 1.50 5.71 5 Fabworth Promoters Private Limited 2.50 2.50 - - Total 127.81 105.97 58.63 80.47 The parties at S.No. 2, 3 & 4 above were identified as related party. In regard to party at S.No. 5, it was observed that Mr Bipin Kumar Vohra, Managing Director of the Corporate Debtor was a Director of the company of S.No.5. It is also observed that management did not maintain any documentation i.e., Agreements, Letters, Minutes of Board Meetings, etc. for the unsecured loan taken from the above entities. (ii) The management response in this regard is reproduced as under "(i) SSRML "the Company" had sought financial support and obtained unsecured loans from time to time from the companies mentioned in the tabular chart of Observation 1 drawn by you. The loan was taken in order to meet the urgent working capital requirements of the company with the understanding that the loan will be repayable on demand. There was no agreement as such between the parties. The said loan being repayable on demand was interest free. Therefore as observed by your good office, the company re....
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.... Limited (CAPL) upto 315t March, 2013. The balance outstanding to the said company was Rs. 20.18 Crores as on 31st March, 2013, out of which ayments have been made from time to time. The company still owes Rs. 6.17 Crores even after making the payments as stated in your observation. " (iii) Inference drawn by the Forensic Consultant is reproduced as under "Considering the facts that: i. CAPL is the only entity to whom payment was made without any corresponding purchase and sale transactions during our review period ii. No supporting documents were made available by the management of SSRML for justifying the underlying transactions and corresponding payments The payment aggregating to INR 6.77 Crores made by SSRML to CAPL during one year (i.e., preceding one year from the insolvency commencement date) could have possibly been preferential in nature." C. Amount receivable from entities potentially connected with the Corporate Debtor: (i) The Forensic Consultant examined the financial statements and noted that trade receivables aggregating to Rs. 399.08 Crores from 742 entities were appearing in the financial statements. They selec....
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....f arrangement, approved by Hon'ble High Court of Calcutta and Cuttack, Divisions at Durgapur & Himachal Pradesh units were demerged and vested in SSRML, thus retaining Jharsuguda unit in SPS Steel & Power Limited. Mr. Vohra resigned from the said company which is managed, controlled and run by Mr. Sanjay Sureka since then. Accordingly, the name of the company was also changed to Concast Steel & Power Limited. It is denied that the company SSRML has any connection with the entities stated in your observation other than the transactions in the normal course of business. Further, we would like to bring your attention to the fact that there are credit balances also in the books of account for companies of same group which have been tabulated below. (Rupees in Crores) Sr.No. Party Name Debit Credit Balance 1 Concast Exim Limited 30.12 - 30.12 2 Sureka Exports Limited 15.33 - 15.33 3 Concast Ispat Limited 5.22 35.00 (29.78) 4 Concast Global Limited 3.33 - 3.33 5 Dankuni Steels Limited 3.29 - 3.29 6 Concast Steel & Power Limited 1.00 4.72 (3.72) 7 Concast....
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....ited and Meenakshi Enterprises from whom advances are recoverable relate to Company's Unit at Himachal Pradesh, which has been disposed off three years back. Information required for identifying the reasons for non-recoverability till date needs to be gathered and analysed. In some cases, the debit balances appear due to quality claim and rate difference for purchases from various parties as was in the case of Rungta Mines Limited. In some other cases (for example - Maha Vinayak Roadways and The Liberty Marine Syndicate Private Limited), amount was paid 'On Account' to the parties for transportation & clearing charges which could not be adjusted due to lack of proper supporting documents. Advance to D.C. Dagara was given for acquiring mining rights. Advance to Ind Power Limited was given for purchase of second hand structural mill and the debit balances in the account is the balance after adjusting the value of supplies received from them. All the debit balances as mentioned in your observation either need to be adjusted or yet to be received. Detailed reasons for the same will require reconciliation/confirmation of the same from the parties. " (iii) Inference ....
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....e entities or contact parties of the Sundry Debtors and the same have been adjusted by those parties and effect thereof has not been taken by our company. The company requests your kind office to provide copies of ledger accounts and other details received from Sundry Debtors as per list in your observation for proper reconciliation at our end. " (iii) The inference drawn by the Forensic Consultant is reproduced as under: "Considering thefacts that: i. All debtors who provided responses (i.e. 10 entities out of total 76 entities) have either disputed the amount demanded or counter claimed the amount demanded from SSRML or claimed to make payment to related entity of SSRML ii. There were no sale transactions recorded in the general ledgers of above mentioned 10 entities during our Review Period iii. There is no supporting documents made available to us by the management of SSRMLforjustifying the underlying transactions corresponding to outstanding balances with sundry debtors We are unable to comment on the balances receivable from the entities and it appears that the outstanding receivable of INR 43.19 Crores could possibl....
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....f internal controls/procedures or other attestation or review or services to perform agreed upon procedures in accordance with standards established by the Institute of Chartered Accountants of India ("ICAI"). The services also did not involve expressions of any opinion or any other form of assurance, with respect to any matters as a result of performance of our services. 6. Work done by DTTILLP as a part of the Services, was as considered necessary at the given point of time. DTTILLP has relied upon the information/documentation/explanation, verbal as well as documentary provided by the representatives of the Corporate Debtor and assumed that the verbal explanations provided by them were accurate and honest representations. We did not independently verify the accuracy / reliability / genuineness of the information provided by them or from other independent sources unless specified otherwise specifically in the Report. Hence, the content of this Report should not form the sole basis for any decision as to a potential course of action without independent confirmation of its findings; nor should it be relied upon as preferred advice on assets/ liabilities in question or the ....
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.... Debtor and material on record. At the first instance, we prefer to deal with the legal aspects associated with these issues. First stage in regard to nature of transactions mentioned in Sections 43, 45, 50 and 66 starts with forming of opinion by the Resolution Professional that the Corporate Debtor has been subjected to any transaction covered in these sections. This is required by virtue of Regulation 35A of the CIRP Regulations, 2016. As per this regulation, this is to be done on or before 75th day of insolvency commencement date. After such opinion is formed, Resolution Professional is required to make a determination on or before 115th day that the Corporate Debtor has been subjected to any transactions covered in these sections. An intimation to the IBBI is also to be given. Thereafter, Resolution Professional has to apply to the Adjudicating Authority for appropriate relief on or before 135th day of the insolvency commencement date. Two things which emerge from the above discussion are that stage-wise timelines have been given so that final decision on such transactions may happen in all probabilities before the finalisation/approval of resolution plan or liquidation, as th....
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.... observe that the assistance of expert agencies can be taken for determination of preferential, invalid or fraudulent transactions, but, in spite of that, independent opinion of Resolution Professional / Liquidator remains a must, meaning thereby, irrespective of the exercise done by the expert agency, the Resolution Professional should independently form a belief / opinion that such transactions, in fact, existed which require appropriate order from this Authority. 12. Further, every transaction has got it own specific nature and different kind of obligations are being cast upon Resolution Professional or a Liquidator or Adjudicating Authority. Thus, a general yardstick or view cannot be applied as a whole to avoidable transactions of different nature as mentioned in different sections. Further, there is one more exception as far as Section 43 is concerned that such transaction should not be made in the ordinary course Of the business or financial affairs of the Corporate Debtor or the transferee. 13. In the present case, there are no transactions of the nature as mentioned in Section 50 of the IBC, 2016, though it has been so mentioned in the application. Similar is the cas....
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....ainst the erstwhile management of the Corporate Debtor. Accordingly, for this reason also, this application is liable to be dismissed in regard to all transactions discussed herein before. 17. Having reached to this conclusion, still we would have a look at each of the transactions on merits. A. Potential preferential repayment of unsecured loans: As regards potential preferential repayment of unsecured loans, the figures as on 23rd December, 2015 have been reported. However, no observation has been made as to how this outstanding balances arose i.e., what is the nature of transaction made with such parties, for what purposes these loans were taken which can be known even if the documents are not there from the general entries, narration thereof and vouchers. It could also be established from Bank statements not only of Corporate Debtor but from the Bank account of such parties. This preliminary exercise has not been done and all the onus has been shifted on the management and a disclaimer has been made that such documents of minutes of Board meetings, Loan Agreement, approval from Banks and other correspondences were not provided. All general vouchers do have ....
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....oyalty per Ton (IN INR) Period of Contract Prashant Properties Private Limited (ttpppL") 30 May 2014 75 21 years Dytron Marketing Services Private Limited ("Dytron") 11 May 2016 100 30 years The Resolution Professional appointed independent technical consultant for commercial review of these contracts and as per that report, there existed commercial weakness and unilateral benefit to the user of such trademarks, thereby making such contracts untenable. The Forensic Consultant further reviewed the transactions from books of account and asked for clarifications / explanations from the management, who did not give any response thereto. Based upon these facts and opinion of technical expert, following inference was drawn: "Considering the facts that:- • The contracts were entered with the related entity (Dytron Marketing Services Private Limited) and a shareholder of the Corporate Debtor (Prashant Properties Private Limited) • Technical consultant has confirmed that the contract is commercially untenable and one sided based on the following grounds mentioned in the report submitted to RP: • As per gener....
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.... seeking various concessions/waivers/annulment etc. 20. The Ld. Counsel for the RP appeared before us and contended that opinion of an expert technical consultant had also been obtained and having regard to tenure and commercial considerations involved in these agreements, such consultant was also of the opinion that normally such types of contracts were not entered into. On a query from the Bench as to how the first contract could come into the look back period of 2 years as this was entered into on 30th May 2014 with Prashant Properties Pvt. Ltd. and there was also contradiction in the findings given in the report where it was mentioned that these contracts were entered into with Prashant Properties Pvt. Ltd. during the period from 23.12.2015 to 22nd December 2017. On this, it was clarified that contract with Prashant Properties Pvt. Ltd., though entered into on 30th May 2014, but continued during the period under review and both contracts were operative during the period under review. Further, on a query from the Bench again as to the fact that Dytron Marketing Services Pvt. Ltd. was not a related party and contract was before one year period of initiation of insolvency comme....
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....d May 30, 2014 valid for 21 years. iii) With Dytron Marketing Services Private Limited via agreement dated May 11, 2016for 30 years. However, based on further discussions with the Management and the financial statements being made available to us, we understand that the company has not been able to generate any cash flows from these trademarks historically. Hence, the value of these trademarks is not determinable in such a scenario. " 21. On the basis of such observations, a query was raised that based on a historical data there was no contribution in generation of cash flows form the brands in the past, hence, these brands were not valued at all, meaning thereby, NIL value was assigned to brand in the valuation of the business of the Corporate Debtor, then, how transaction could be of the nature of under-valued transaction. The Ld. Counsel for the Resolution Professional placed reliance on the observations of the forensic consultant and technical consultants in this regard. 22. The Ld. Sr. Counsel for Prashant Properties Pvt. Ltd. Appeared and commented that Prashant Properties Pvt. Ltd. had filed an Interlocutory Application being CA No.124/KB/2020, through which i....
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....rcumstances for the same reason a conclusion was reached by this Authority that there was no undervalued or fraudulent transaction and the application was rejected. The Ld. Sr. Counsel contended in the present case also that the inference of the Forensic Consultant led to nowhere. 26. The Ld. Counsel for the RP, in the rejoinder, contended that the proposal for cancellation of the impugned agreement was always there even in the original resolution plan. He also submitted copy of Form H to show that such transaction was notified in the relevant column thereof. It was also contended that Prashant Properties Pvt. Ltd. was a party in application CA(lB)No.05/KB/2019 and they participated in the proceedings related thereto, hence, it could not be said that they were not aware or made aware of the proceedings in connection with this permitted user agreement and therefore, they could not have any grievance now on the ground that their rights were affected adversely on their back. He further submitted that even they had made claim for outstandings from Corporate Debtor as creditors and this outstanding amount was one of the prime consideration for execution of such agreement, hence, this....
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....r. Counsel further contended that in any case the claims made by Prashant Properties Pvt. Ltd. were of the nature of civil dispute and for that reason also this Authority had no jurisdiction under Section 60(5) or any other provisions of IBC, 2016. 30. The Ld. Sr. Counsel further harped upon that trademark was not used at all by Prashant Properties Pvt. Ltd. It was further contended that it was a case of fraudulent transaction and, therefore, no limit of time for look back period was applicable, particularly when Prashant Properties Pvt. Ltd. i.e., Intervenor, was a real estate company and was not engaged in manufacturing of steel bars. It was also contended that even Memorandum of Association as on the date of the agreement did not contain any manufacturing clause which was amended subsequently. He further drew our attention to the relevant object clauses of old Memorandum of Association as well as new Memorandum of Association in support of his contentions. The Ld. Sr. Counsel further contended that it was an unregistered agreement though it was of the nature of an assignment and not a case of license having regard to its long tenure and, therefore, it should have been appropr....
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....arrived at against the erstwhile management of Corporate Debtor. Further, there is another aspect of the matter. In valuation of the business / enterprise of the Corporate Debtor, no value has been assigned to this brand based upon the fact that no historical contribution has been made by such trademark owned by Corporate Debtor to the revenue of Corporate Debtor and once Resolution Professional or COC has not valued such brand, then, how the amount of recovery/consideration, even if it is assumed that it was a case of undervalued transaction, can be determined in terms of provisions of Section 48(1)(c) & 48(1)(d) of IBC, 2016. If it is so, then for non-applicability of machinery to calculate the amount also, such allegation fails. Apart from merits, as discussed above, we find that the inference drawn is inconclusive in every manner. Accordingly, we hold that it is also not a case of undervalued or preferential transaction. 33. As regards the second aspect, the first challenge made by the successful resolution applicant is that the application filed by Prashant Properties Pvt. Ltd. was not maintainable for the reason that this Authority has no jurisdiction as the resolution pla....