TaxTMI 
TaxTMI 
2020 (6) TMI 767
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....ed by the financial creditor Bank of India and Corporate Insolvency Resolution Process commenced against the Corporate Debtor M/s. Southern Online Bio Technologies Limited by appointing the Applicant herein as an Interim Resolution Professional who was subsequently confirmed as Resolution Professional of the Corporate Debtor. (2) When no resolution plan came forth, the Committee of Creditors in its 14th meeting resolved to liquidate the Corporate Debtor. Following which, this Tribunal on 16th July, 2019 passed an order in IA No.565/2019 preferred by the Applicant for liquidating the Corporate Debtor Company by appointing the Applicant herein as Liquidator of the Corporate Debtor M/ s Southern Online Bio Technologies Limited. (3) The Applicant stated that on the directions of CoC in the 2^nd Committee of Creditors meeting held on 13th December, 2018 Raju & Prasad, Charted Accountants were appointed on 10th January, 2019 for conducting forensic audit for the preceding 5 years from the Insolvency Commencement Date that included the transaction analysis as per Sections 43, 45, 30 & 66 of Insolvency and Bankruptcy Code, 2016 which are as follows: i. Section 43: Preferenti....
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....pondence, no legal action taken on the debtors to substantiate the efforts made by the company to recover the moneys from the debtors. Hence, we are of the view that company has not exercised due diligence in minimizing the potential losses. Hence the act will fall under the purview of Section 66(2) of IBC. 3) As mentioned in point D of Chapter VII, (vide page no.28 of the audit report), company has issued LC'S to certain parties against purchases. However, as per books of accounts, we have noticed that such purchases were returned on the same day. It infers that company has made payments through LC facilities to certain parties but no effective purchases were made. Though parties to whom such LC's were issued have returned the money in majority of cases, we are of the view that the above act shall fall under the purview of Section 66(1) of IBC. (5) The Applicant shared the final Audit Report with the members of Committee of Creditors who in turn called for explanations from the Ex-directors of the company. The Liquidator further informed the members of COC about preferring an Application before this Tribunal against the ex-directors of the company as per the se....
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.... (9) The Liquidator further stated that with regard to the Receivables mentioned in Para 4, the respondents have sent follow up letters requesting the parties to pay the outstanding amounts. Some of them mentioned in Table B of the para 4, raised disputes regarding the quality of the products and that they would settle the disputes with the Company. They have also confirmed the outstanding amount. With regard to the receivables mentioned in the para 4- table C, it is stated that the parties have not communicated and some of the correspondences are stated to have been not delivered. Hence Applicant feels that there are chances of recovery of these receivables mentioned therein, depending on the financial position of the parties, quantum of dispute regarding the quality of the product. The Applicant alleged that the Respondents instead of retaining them in the Books of Accounts, have written them off in the Financial Year 2017-18, thereby depriving the Corporate Debtor from recovering the outstanding amounts from the parties. 3. COUNTER BY RESPONDENT NO.2 Counter is filed by Respondent No.2 refuting the averments made in the instant application and contested as under. Respond....
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....ich purchase returns amounts to Rs. 35.45 crores i.e. less than 6.36% of the total purchases. Respondent No.2 further stated that the purchase return were on two accounts (i) quality issue (ii) purchase becomes disadvantageous due to price fluctuation. It is further stated that the transactions which are whined in the Application are purely commercial in nature and quite common in any manufacturing industry. (5) Respondent No.2 further submits that none of the parties involved in the write off or purchase returns are related parties as defined under Section 5 (24) of the Code. (6) It is alleged that the instant application is preferred by the Applicant only on the basis of Forensic Audit but not on the opinion formed by the Applicant / Liquidator, as such urged the Tribunal to dismiss the Application. 4. We have heard the Counsel for Liquidator as well the Liquidator and also the PCS for Respondents 1-3. Both sides filed written submissions. The points urged in the written submissions will be dealt in the course of the order. 5. Originally the Liquidator filed application against Respondents 1-4 who were ex-Directors of Corporate Debtor Company under Section....
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.... 86391LCDA150057 1,61,70,000 14,61,60,000 2 Pragis Enterprises 86391LCDA150069 1,44,69,000 86391LCDA150083 1,09,20,000 86391LCDA150082 1,07,62,500 86391LCDA150070 1,05,00,000 86391LCDA160004 1,02,90,000 86391LCDA150076 68,25,000 86391LCDA150079 73,50,000 86391LCDA150092 80,32,500 86391LCDA150094 72,29,250 86391LCDA150097 78,75,000 9,42,53,250 3 Venkateswara Traders 86391LCDA150067 1,38,60,000 86391LCDA150080 1,33,87,500 86391LCDA150084 70,87,500 2068415LC0000262 1,72,72,500 2068415LC0000271 1,10,88,000 7,31,9....
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....ns. 10. It is true, the Company did business worth Rs. 550 crores as per information provided where LCs were used. However, transactions worth Rs. 35 crores among them is only questioned on the ground that goods purchased and returned on the very same day. There is no fraud alleged in these transactions. If goods are returned on the very same day after inspection, then it cannot be said to be a fraudulent transactions. The transactions which are now questioned are not related party transactions. One can infer intention of fraud if these transactions are with related parties. Taking into account the volume of transactions involved, which is around Rs. 550 crores, the goods worth Rs. 35 crores were only returned. It is a specific case of Respondents 1-3 that the goods were returned after inspection due to quality and also due to fluctuations in the price. Neither the Liquidator nor the Forensic Auditor alleged that these are fraudulent transactions. Then mere return of goods on the very same day cannot be held to be fraudulent transactions intended to defraud the creditor. The important factor to be taken note of that these are not related party transactions. Thus, when there is n....
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.... 42 Balaji Soap Works 28,485 43 Sri Durga Industrys 22,346 44 Coronet Foods Pvt Ltd 10,224 45 Trade Receivables ISP Division Written off - 801 Parties 6,02,10,886 TOTAL BAD DEBTS WRITTEN OFF DURING 2017-18 96,96,60,543 12. It is also the case of Liquidator that certain trade receivables are in the nature of irrecoverable debts due to the reasons stated against each entry shown in the table below:- Sl. No. Particulars Amount Remarks 1 ADVAIT B V 19,14,43,673 Became insolvent, declared by the Department of Private Law section of Trade and Insolvency, Holland, vide insolvent no.C/15/17/8F, dated 3rd January, 2017 2 Balaji Soap Works 28,485 Debts for the period of more than 3 years 3 DAAJ HOTELS AND RESORTS PVT.LTD. 49,000 Debts for the period of more than 3 years 4 Sharan Foods Products Private Ltd 1,73,002 Debts for the period of more than 3 years 5 SRI SLNS TRADERS 2,94,000 Debts for the period of more than 3 years 6 Trademet Ltd 51,33,898 Debts for the period of more than 3 years 7 ISP division debts 6,02,10,886 Debts for the period of....
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.... 57,79,35,214 As seen from the table furnished by the Liquidator, there was dispute raised by the parties regarding quality of the material supplied. The total amount involved in these transactions is around Rs. 57,79,35,214. It is very clear that disputes are not with related parties. These are the transactions entered with third parties and not with related parties. Thus, debts were written off on the ground that parties raised disputes with regard to quality. As far as these transactions are concerned, it cannot be said that they are fraudulent trading or wrongful trading. It is also the case of Liquidator that there was no communication in respect of certain transactions from the concerned parties whose recoveries were written off as shown below:- Sl.No. Particulars Amount 1 BIO FUTURE (INDIA) 48,77,088 2 Coronet Foods Pvt Ltd 10,224 3 Debtors - Non Current Asset 32,80,500 4 Evergreen Ener Inc 78,68,804 5 MAA SHARDA SAI AGRO EXTRACTION (P) LTD 37,123 6 Nidhi Agencies 31,92,952 7 SAI RAM CHEMICALS 98,41,342 8 Sarda Agro Oil Ltd. 1,15,79,165 9 S.M.P BAKERS 93,290 10 Sovin....
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....ed this provision during liquidation and as such the application cannot be maintained under section 66 (2) by the Liquidator. 15. The Learned PCS would contend that these write offs stated by the Liquidator are not in respect of any related party. PCS would contend writing off a debt is commercial business decision. There cannot be any illegality or fraud attributed to write off. PCS would contend, the mere writing off in the Books does not deprive the Corporate Debtor to recover this money. Nothing prevents the Corporate Debtor to pursue with the debtors and collect money. It is also the contention of PCS that Liquidator or even Resolution Professional has not taken any steps till date for recovery of the amount covered under write off. The Learned PCS contended, write off does not amount to waiver of the rights over the debtors. PCS would contend, write off of bad debts is purely accounting entry as provided in Section 36 of IT Act and the same cannot be faulted. 16. The contention of PCS, it is commercial decision of the Company to write off bad debts. Even if the amounts are written off, it does not amount to giving up the right to proceed against the concerned debtor of ....