TaxTMI 
TaxTMI 
TaxTMI 
2021 (10) TMI 1310
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....riate 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 this Hon'ble tribunal with the withdrawal forms/debit vouchers/cheques as to ascertain ....
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....r, 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. 47.21 Crore during Financial Year 2018-2019. It is submitted that in the Transaction Audit it is revealed that inventory....
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....here 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 creditors have levelled any allegations of diversion or siphoning of funds against the Corporate Debtor or its management including the answering ....
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....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 corporate debtor had sold these assets in cash so that the creditors could be paid as they created problems for us on daily basis To get rid out of this some of the old vehi....
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....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 Report which has been reproduced below: "the company has made a bad debts of Rs. 119,35,74,242.20 (Rs. One Hundred Nineteen Crores Thirty Five Lakh Seventy Four Thousand Two Hundred Forty Two and T....
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....rate 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 write off unrealized trade receivable to the maximum of 10% and not beyond, that too on the basis of proper and complete documents. ii. It is submitted that the diversion of funds is a matter of record. It is submitted that the ROC an....
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....porate 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 corroborate the genuineness of the transactions made during the Financial Year 2018-2019 and support his arguments. It is also pertinent to mention that Respondent No.2 Mr. Kama) (suspended director) has been proceeded ex parte. The Respondent No.1 has also not been able to satisfy the bench with respect t....
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.... 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. 3. The Final report dated 02.07.2020 of the transaction audit has reported that within one year from the date of commencement of the CIRP several preferential transaction under section 43 & 45 of the code have taken place which have been likely to put an adverse effect. on the CIRP and reduce the assets of the Corporate....
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....3,515 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 such arrangement in the financial statements of the Corporate Debtors Also there were no documents available on record which may indicate that prior approval of the creditors was obtained by the Corporate Debtor for carrying out such arrangement. 5. The observations made by A.K.G & Associates (Transaction Auditor) on behalf of the Resolution Professional, in the final report dated 02.07.2020 with respect to the present application made under....
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....tion 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 incurring a loss of Rs. 0.72 crore on such transaction. It is further submitted that the Corporate Debtor has carried out circular trading of "Frozen Buffalo meat" for Rs. 7.70 crore with Al Junaid Food products Private Limited during Financial Year 2018-2019, incurring a loss of Rs. 3.85 Crore on such transactions. It has been observed by the auditor that sale of the same items of inventory were made to the same party from which such items were purchased, which constitutes Circular Trading of goods, ....
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....lable 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- Directors of the Corporate Debtor and has filed the reply dated 12.10.2020, The Respondent No. 1, 3 and 4 have made the following submissions: i. It is submitted that a conjoint reading of Section 43 and 45 of the code requires that the Resolution professional has to demonstrate the under-value transaction with any related party within one year and unrelated party within two years preceding the insolvency commencement date. The Resolution Professional has failed to demonstrate the aforesaid requirement in the applica....
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....rty, 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 i) Adjustment/ Set Off of Trade Payables against Trade Receivables; ii), Payment of Liabilities assumed/accepted from AI Dua Food Processing Pvt. Ltd. iii) Sale of Mumbai Plant, iv) Circular Trading with related parties, V) Sale of the Drayaganj Property, vi) sale of the vehicles was not in ordinary course of business of the Corporate Debtor. vi. It is submitted that the Respondent No. 3 and 4 cannot be held liable for the transaction as alleged by the Applicant herein as they had resigned from the Corporate Debtor on 12.09.2018 and the said fact is not in dispute. Thus, t....
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....unt 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 Products Pvt. Ltd. to export the same but the frozen meat which the Corporate Debtor sold to them was the one which is preserved for a Long time and could not be exported due to its bad quality as per the Government norms. ¡t is further submitted that the Corporate Debtor was primarily an export unit, therefore, it has constraints to sell the exportable goods in the domestic market This is the reason why the Corporate Debtor sold the goods which were not of exportable quality at lower price. xiv. It is further submitted that the Corporate Debtor vide letter dated 07.07.2018 transferred the liabilities of certain cred....
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....r 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 in the ordinary course of the business or financial affairs of the corporate debtor or the transferee; b) any transfer creating a security interest in property acquired by the corporate debtor to the extent that- i. such security interest secures new value and was given at the time of or after the signing of a security agreement that contains a description of such property as securities interest and was used by corporate debtor to acquire such property; and Ii. such transfer was registered with an information utility on or before thirty days after the corporate debtor receives possession of such property: Provided that any transfer made in pursuance of the order of a court ....
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....eferential 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 under 43(4). However, a transfer made in the ordinary course of business or financial affairs of the Corporate Debtor or the Transferee, or which intends to create a. security interest that leads to new value shall be excluded from the application of 43(2). Further Section 45 of the Code state that if the liquidator or the resolution professional after examination of the transactions of the Corporate Debtor determines that certain transaction were made during the relevant period under section 46, which were undervalued, he shall make an application before the Adjudicating Authority to declare such transaction entered by the Corporate Debtor as void and reverse the effect of such transaction. 10. On perusal of the observations made by the Transaction Audit....
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....sed 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 on letter dated 30.06.2018 solely relied upon by the corporate debtor. The corporate debtor in the reply on 23.08.2019 to the said application has first time revealed about the share Purchase Agreement and claimed that the said debt of applicant is payable by M K Overseas. It is important to note that order was reserved in application to initiate CIRP against MK Overseas on 06.09.2019. The applicant filed another application on 31.01.2020 to call upon the RP of MK Overseas to file a detailed report with respect to claims flied and list of creditors. The application was allowed & RP filed report. The observations of RP of MK Overseas are reproduced here under: "Since no scheme of arrangements for transfer of certain liabilities of Al Dua Food Processing Pvt. Ltd....