TaxTMI 
TaxTMI 
2021 (10) TMI 1310
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.... a. issue notice to the respondents and take appropriate action against the respondents/Ex-management of the corporate Debtor; b. Direct the Respondent Ex-management to disclose the background of the inventories/exports Written off and sold at losses and make good the amount so misappropriated; c. Direct the Respondents/Ex-management to disclose the whereabouts of the vehicles and to restore them to the custody of the applicant/RP or deposit its corresponding value with applicant /RP and In alternative appropriate direction may be issued to the concerned transport departments for locating and restring vehicles to the custody of the applicant; d. Direct the Respondents/Ex-management to make good the Losses Caused to the corporate Debtor by their fraudulent and wrongful trading; e. Direct the chartered Accountant of the corporate Debtor to come and explain the circumstances under which he audited the balance sheet of the corporate Debtor and not kept even a note for such huge amounts as written off and inventories sold at losses; f. Summon the Janta co-operative Bank Ltd. Darya Ganj, through its Manager of branch before....
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....9.36 crore for a total of 85 parties during FY 2018-19 and no documentary evidences such as copy of sale order, sale bills, shipping bill, bill of entry agreements, party's account statement, balance confirmation etc. were available on record to verify the genuineness of these balances. Further there have been no copy of board resolutions nor minutes of meeting were available on record wherein such decisions were taken by the management of CD. The Transaction Auditors have also not found any qualifying remarks of the auditors in "Notes to Accounts" annexed to the audited financial statements. Further no documents were available on record to indicate that reasonable efforts were made to recover balances from such export debtors and whether export benefits, if any, availed off by Corporate Debtor were surrendered after such write off of export debtors. That in view of the above, conclusion of Transaction Auditors has been that the Corporate Debtor had diverted the funds amounting to Rs. 119.36 Crore by way of writing oft' the balance receivable from export debtors. iii. It is submitted that the Corporate Debtor has reported sale of inventories at a net loss of Rs. 47.2....
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....ovisional Financial Statement as on 19.09.2O19 the management of the Corporate Debtor were well versed with the information that there was no reasonable prospect of avoiding the commencement of corporate insolvency resolution process in respect of the corporate debtor. 5. The Respondent No, 1 is the suspended director of the Corporate Debtor and has filed the reply dated 12.10.2020 arid has submitted that the test to decide 'Fraudulent Trading" or Wrongful trading" is to see whether any fraud is committed with the creditors only which has caused any loss to the creditors and the creditors of the Corporate Debtor ought to have suffered the financial loss arising out of the alleged "Fraudulent Trading" or "Wrongful Trading'. The Respondent No. 1 has made the following submissions: i. It is submitted that the accounts of the Corporate Debtor with the creditor bank were running smoothly and comfortably and there was no default in accounts till mid of 2018 however, in view of the temporary difficulties faced by the Corporate Debtor the creditors declared their account as NPA on 08.09.2018. ii. It is submitted by the Respondent No. 1 that till date none of the ....
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.... no staff available till date. v. It is submitted that Respondent No.1 has not diverted the funds amounting to Rs. 119.36 crore, Respondent No. 1 had written off the export debtors to the tune of Rs. 119.36 crore due to the amount receivable from these parties could not be recovered despite a long follow up with them, the relevant documentary evidences for the recovery of these debtors is not available as the Corporate Debtor does not have the access to the place where the records are kept as per the RBI notification no RBI/2012-13/435 and circular No. AP.(DIR Series) Circular No.88 dated 12/03/2013, copy enclosed as Attachment. no.6, the star trading export house can write off the export receivables upto 10% of the sale turnover of last Financial Year. So, the CD had written off the export receivable upto that extent as the same were not recoverable and became the bad debts for the company. vi. it is submitted that the corporate debtor had sold the some of the vehicles to the customer at a low price as some of the vehicles had met with an accident and were old due to which these were not in a good condition. Most of the vehicles were 9- 10 years old and the....
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....espondent no. 3 was appointed as statutory auditor of the Corporate Debtor only on 06.09.2019 after the closing of the Financial Year during which the alleged irregularity were mentioned. ii. That the application under reply is also not maintainable being filed by the Resolution Professional /Applicant without appreciating the report of the transaction auditor in which specific assertion has been made by the transactional auditor that the requisite record to substantiate the financial data reflected in the balance sheet had neither been produced /provided by the suspended directors of the Corporate debtor nor any record has been available in the office of the CD and as such the Respondent no. 3 cannot be held liable /accountable for the said lapses on the part of the suspended board of the directors of the Corporate Debtor. iii. That the application under reply is also not sustainable in the law as the- Applicant/ Resolution Professional has failed to appreciate the note given by the Respondent no 3 in his statutory audit report of the Corporate Debtor for the relevant year as it has been specifically mentioned in point no. 2(i) (iv) of the Independent Audit....
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....professional charges by the corporate debtor and then submitted his report to the corporate debtor along-with his observation on the financial statement produced before him by the suspended Board of Directors of the corporate debtor and as such if some material information had been concealed or misrepresented/misquoted in the said financial statement by the suspended Board of Directors of the corporate debtor then the answering Respondent no 3 cannot be faulted with or held responsible for the said conduct of the suspended Board of Directors of the Corporate Debtor. 7. The Respondent No.2 Mr. Kamal (Suspended Director) arid Respondent No. 4. The Janta Co-Operative Bank have not filed their replies and were proceeded ex parte vide order dated 17.12.2020. 8. The Applicant has further filed its rejoinder dated 07.11.2020 to the reply of the Respondent No. 1 and has stated the following: i. The stand taken by the Respondent No.1 to avoid query of not having access to the documents is completely farcical and nothing but evasion to cooperate. The reference and reliance upon RBI circular dated 12.03.2013 is completely misplaced as the same gives scope to the exporter to ....
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....n of the resolution professional pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit. 68. Where any officer of the corporate debtor has,- (i) within the twelve months immediately preceding the insolvency commencement date, b) fraudulently removed any part of the property of the corporate debtor of the value of ten thousand rupees or more; such officer shall be punishable with imprisonment for a team which shall not be less than three years but which may extend to five years, or with fine, which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both: Provided that nothing in this section shall render a person liable to any punishment under this section if he proves that he had no intent to defraud or to conceal the state of affairs of the corporate debtor. 11. On perusal of the observations made by the Transaction Auditor arid the relevant replies filed by the Respondents it is observed that the Respondent No.1 has not provided any documentary evidence to corrobor....
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....sional under Section 43 & 45 of the Code, seeking following prayers: a. issue notice to the respondents and take appropriate action against the respondents and make appropriate order under Section 44 &46 of the Code for such property gone into preferential transaction and undervalued transaction to reverse and vest into the assets of the Corporate Debtor M.K. Overseas Pvt. Ltd. b. Pass such other or further orders as may be deemed just and fit under the circumstances of the case, 2 The brief facts of the case arc that an application by MANYOGA INVESTMFNT LTD. herein the Operational Creditor) under Section 9 of IBC, 2016 against the Corporate Debtor and vide order dated 19.09.2019, the Corporate insolvency Resolution Process was initiated against the Corporate Debtor and Mr Suresh Kumar Jain was appointed as an Interim Resolution Professional and later he was confirmed as the Resolution Professional by the CoC 30.10.2019. Thereafter A.K.G Associates was appointed for carrying out transaction audit for the period of two preceding years from the commencement of the CR process taking into account the ambiguity in the books of account of Corporate Debtor. ....
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....rketing Company 28,08,00 7. M K Overseas Exports Pvt. Ltd. 1,38,44,655 8. Nasira Begum (Director) Rs. 5,96,05,000 9. Prime Natural Frozen Foods (Old Account) Rs. 56,92,108 10. Prime Natural Frozen Foods (Rent Account) Rs. 16,96,045 11. Wings Security and & Allied Services Pvt. Ltd. Rs. 8,81,752 Grand Total 8,00,23,515 8,00,23,515 ii. It is submitted that as per the books of accounts, the Corporate Debtor had sold its subsidiary "A1 Dua Food Processing Private Ltd" to AlHamd Agro Food Products Private Limited during the Financial Year 2018-19 and accepted liabilities 97 parties) of Rs. 19.68 crore of this subsidiary in such sale transaction. It is pertinent to mention that the Corporate Debtor assumed 21 creditors totaling Rs. .6.54 crore) during Financial Year 2017-2018 and 76 creditors (totalling Rs. 13.14 crore) during Financial year 2018-2019 on or after 20.09.2018 till triggering of CIRP. The transaction audit report reflecting these transactions have been annexed. It pertinent to mention that no disclosure pertaining to....
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....ating an undervaluation thereof by Rs. 17.23 Crore. The relevant extract of the ledger, CERSAI search report copy of the conditional NOC from YES bank and copy or the sale Agreement has been annexed under para 16.2 of the report annexed with this application. iii. It is further submitted that sale of the above mentioned property was cancelled as the buyer paid Rs. 62.25 lakh and YES bank kept such amount under lien till the balance amount of Rs. 10.37 crore is received and due to initiation of the CIRP the buyer failed to pay the consideration in full. Hence, the amount was forfeited and necessary entry was passed in the books of account, The application to that affect or treating the sale as NIL and recovery of possession is pending before the Ron'blc Tribunal as CA NO. 1304/2020. iv. It is submitted that a review of the books of accounts of the Corporate Debtor, it was observed that the Corporate Debtor was engaged in circular trading of stock (totalling to 49.11 Crore). It is submitted that the Corporate Debtor has carried out circular trading of "Bone in buffalo meat" for Rs. 41.41 Crore with Al dua Food Processing Pvt. Ltd. during the Financial Year 2017-2018....
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....during the Financial Year 2018-2019 and 2019-2020. It is found in the transaction audit that the assets/vehicIes were sold/transferred for a consideration which was significantly less than the book value of such assets. Therefore, the said transaction, prima facie, may be categorized as undervalued transaction. viii. It is further submitted that all the movable assets of the Corporate Debtor were under general charge of Bank of Baroda on account of credit facilities obtained there from. However, no records were available to confirm that any NOC (No Objection Certificate) was obtained from Bank of Baroda for carrying out such sale transactions in respect of said vehicles. It is further submitted that a total of 33 vehicles were sold fully in cash for a total consideration amounting to Rs. 0.40 crore and the details of transferees have not been recorded by the Corporate Debtor. It is submitted that the Ex-management of Corporate Debtor has failed to support its replies with adequate documentary evidences and its claims that such vehicles were sold in cash to pay off creditors is without merit. 6. The Respondent No. 1 is the suspended director and Respondent No. 3 & 4 are the Ex- D....
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.... debt or other liabilities owed by the corporate debtor? (iii) As to whether such transfer has the effect of put ring such creditor or surety or guarantor in a beneficial position than it would have been in the event of distribution of assets being made in accordance with Section 53? (iv) If such transfer had been for the benefit of a related party (other than an employee), as to whether the same was made during the period of two years preceding the insolvency commencement date; and if such transfer had been for the benefit of an unrelated party, as to whether the same was made during the period of one year preceding the insolvency commencement date? (v) As to whether such transfer is not excluded transaction in terms of sub-section(3) of Section 43? That it is submitted that the alleged transactions as stated by the Applicant does not fulfil the guidelines/mandate as prescribed by the Hon'ble Supreme Court of India in the aforesaid judgement to be followed to attract the provision of Section 43 and 45 of the Code. v.. It is submitted that no material particulars/evidence have been produced to show that the alleged transactions being ....
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....he Corporate Debtor mortgaged the property situated at Plot. No.- M6, Taloja Industrial Area Village, Pale Khur Taluka Panvel, Distt Raigad Maharashtra. It is submitted that to settle the overdue, on the behest of YES Bank, the Corporate Debtor agreed to sell the property to Ardiatic Sea Foods Pvt. Ltd for Rs. 11 Crore. The YES Bank has also given the approval to sell the same by executing the conditional sale deed in favour of the buyer. It is further submitted that sale of the above mentioned property was cancelled as the buyer paid R. 62.25 lakh and YES bank kept such amount under lien till the balance amount of Rs. 10.37 crore is received and due to initiation of the CIRP the buyer failed to pay the consideration in full. Hence, the amount was forfeited and necessary entry was passed in the books of account on 19.09.2019 xii. It is submitted that the Corporate Debtor was never engaged in Circular Trading of stock with the parties as alleged in the application. It is submitted that the allegations made are without proof or documentary evidence. xiii. It is submitted that the Corporate Debtor purchased frozen buffalo meat of export quality from Al Junaid Food Pr....
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....ction 43 & 45of the Code. "43. (1) here 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 have given a preference, if- a) there is a transfer of properly or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and b) the transfer under clause (a) has the effect of putting such creditor or a surety or a guarantor in a beneficial position than it would have been in the event of a distribution of assets being made in accordance with section 53. (3) For the purposes of sub-section (2), a preference shall not include the following transfers- a) transfer made ....
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....rson which involves the transfer of one or more assets by the corporate debtor for a consideration the value of which is significantly less than the value of the consideration provided by the corporate debtor, and such transaction has not taken place in the ordinary course of business of the corporate debtor" 9. It can be understood that Preference under the Code primarily entails, certain form of benefits that are provided by the Corporate Debtor to its creditor/surety/guarantor on account of any antecedent financial, operational or other form of debt, which in turn has the effect of putting such creditor in a beneficial position with respect to other creditors in the event of distribution of assets under the scheme of the Code. A transfer to be classified as preferential under the Code needs to fall within the look back period mentioned under Section 43. Look back period is generally considered to be the time frame for the purpose of avoidance of transactions on account of preference. An order under Section 44 of the Code by the Adjudicating Authority can be passed only when the transaction/transfer is in a manner specified under 43(2) and is to any of the persons specified un....
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....corporate debtor is the subsidiary of MK Overseas, wherein MK Overseas is holding 95% shares. The present application was filed at the time when already no. of insolvency applications against MK Overseas filed by various creditors was pending. It was also stated that MK Overseas has large no. of creditors being banks and other operational creditors, wherein the order of CIRP, was passed vide order dated .19.09.2019 in IB/1731/2019, Even in the reply filed by Corporate Debtor there is no whisper of Share Purchase Agreement. The only objection was raised relying on the letter dated 30.06.2018 allegedly written and signed by partner of Applicant Company, giving consent for receiving all due amount from MK Overseas. Thus, it is evident that a sham defence is raised by the corporate debtor. The applicant filed an application wider Section 340 Cr PC. for forgery crnd fabrication of document on 19.07.2019. The bench had called for the documents to show signatures of all partners of applicant. Copy of registered deed of partnership dated 09.09.2015 was shown to bench where there are only two partners being Mr. Mohd. Shariq and Smt. Sana, none of the signatures matches with sign....
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....the items of the inventory were made at a price lower than the purchase price paid, consequently such transactions have led to a loss of 4.57 crore and the Respondents have defended some but not been able to provide a satisfactory reason for doing the same, Further, We are of the view the Corporate Debtor entered into an undervalued transaction at a book loss of Rs. 2.32 crore with respect to the sale of the Daryaganj property vide various sale deeds from February 2018 to May 2019,which is till 4 months prior to the insolvency commencement date of the Corporate Debtor i.e. 19.09.2019 hence, it is within the look back period. Further it has been observed that the sale of the vehicle below the Book value to the extent of Rs. 1.90 Crore has been made from March 2019 to September 2019 which is prior to the insolvency Commencement date of the Corporate Debtor i.e. 19.09.2019 hence, it is within the look back period. It has been further observed that the Application for initiation of the CIRP of the Corporate Debtor was filed on 15.07.2019 and was admitted on 19.09.2019. We are of the view that the ex-management of the Corporate Debtor were well aware of the fact that an appl....