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2021 (2) TMI 1286 - Tri - Insolvency and BankruptcyPreferential and undervalued as well as fraudulent transactions - whether the RP has adhered to sections 43 and 46 of the Code read with regulation 35A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for the Corporate Persons) Regulations, 2016 (CIRP Regulations)? - HELD THAT - As per the said regulation, the RP has to form an opinion whether the Corporate Debtor has been subjected to preferential transaction on or before seventy-fifth day of the CIRP commencement date. Thereafter, on or before one hundred and fifteenth day of forming such opinion, the RP shall make a determination that the Corporate Debtor has been subjected to preferential transaction. Upon making such determination the RP shall make an application before the Adjudicating Authority on or before on hundred and thirty-fifth day. In the present case, although the RP submits that he has formed his opinion and determined that the lease deed dated 30.11.2016 amounted to preferential and undervalued transaction, he has not apprised us of the timeline in which he did so; except for the fact that he pointed it out to the CoC on 06.02.2020. The present application was filed on 04.09.2020, which is after three hundred and thirty-three days from the date of initiation of CIRP. The CIRP Regulations envisage no role to the CoC in respect of determination to be arrived at in the case of avoidance transactions. It is a duty cast solely on the RP. The reasons for not complying with the timeline as envisaged under regulation 35A of the CIRP Regulations by the RP are not satisfying, even if the reasons were to be accepted, these reasons, section 46 of the Code binds the hands from proceeding further inasmuch as we cannot look into transactions that were entered into during the period of two years preceding the date of commencement of CIRP. It is the RP s own case that the lease deed was entered into between the Corporate Debtor and Respondent No. 6 and 7 on 30.11.2016 whereas the CIRP had commenced on 18.10.2019, which is way beyond the two years timeframe envisaged under section 46 of the Code. The RP is not expected to undertake any roving inquiry beyond the timeframe stipulated in the Code and the regulations. The facts and circumstances of the present application do not inspire the confidence that it is maintainable ex facie. The application is first hit by regulation 35A of the CIRP Regulations and then by section 46 of the Code. Application dismissed.
Issues Involved:
1. Allegations of preferential and undervalued transactions. 2. Allegations of fraudulent transactions. 3. Non-cooperation by the suspended board of directors. 4. Usage of the brand name "AEON" by third parties. 5. Related party transactions between the Corporate Debtor and Respondents Nos. 6 and 7. Issue-wise Detailed Analysis: 1. Allegations of Preferential and Undervalued Transactions: The Resolution Professional (RP) alleged that a lease deed dated 30.11.2016 between the Corporate Debtor and Respondent No. 3 was undervalued. The property, valued at ?42,39,89,000, was leased for a mere ?6,00,000 per year, with only 30% of the lease amounting to ?15,000 coming to the Corporate Debtor. The RP considered this transaction as preferential and undervalued, violating the equitable mortgage terms with the Bank of India. 2. Allegations of Fraudulent Transactions: The RP contended that the lease deed was executed between related parties, intending to defraud creditors by keeping assets out of their reach. The RP also highlighted numerous related party transactions with Respondent Nos. 6 and 7, totaling ?16,60,000, which he deemed preferential but did not determine as fraudulent. 3. Non-cooperation by the Suspended Board of Directors: The RP faced "heavy resistance and complete non-cooperation" from the suspended board, necessitating an application under section 19(2) of the Insolvency and Bankruptcy Code, 2016. Despite an order from the Adjudicating Authority on 09.12.2019 directing cooperation, the board members failed to comply, providing only a lease deed on 15.01.2020. The RP lacked crucial financial documents, impeding the determination of the veracity of transactions. 4. Usage of the Brand Name "AEON": The RP discovered that a third party was operating a business under the Corporate Debtor's brand name "AEON". The RP sought to restrain Respondent Nos. 3 to 5 from using the brand name and requested the seizure of infringing goods and compensation for copyright infringement. 5. Related Party Transactions with Respondent Nos. 6 and 7: The RP presented two tables of alleged related party transactions, highlighting payments made to Shree Ram Saw Mill Private Limited and Shova Properties Private Limited, both involving common directorship with Om Prakash Pandey. However, the RP did not provide specific dates for these transactions, making it difficult to ascertain if they fell within the bounds of section 46 of the Code. Judgment: Compliance with Sections 43 and 46: The Tribunal emphasized the need for the RP to adhere to sections 43 and 46 of the Code and regulation 35A of the CIRP Regulations. The RP failed to provide a clear timeline for forming an opinion and making a determination regarding the preferential transactions. The application was filed well beyond the stipulated 135 days from the CIRP commencement date. Lease Deed and Related Party Transactions: The Tribunal noted that the lease deed was executed beyond the two-year timeframe stipulated under section 46 of the Code. The RP's allegations of fraudulent transactions under section 66 were unsubstantiated and appeared to be an attempt to circumvent the timeline prescribed under regulation 35A. Proceedings under SARFAESI Act: The Tribunal stated that the Financial Creditor should pursue the matter under the SARFAESI Act independently, as it commenced before the CIRP. Conclusion: The Tribunal dismissed the application, citing non-compliance with regulation 35A and section 46 of the Code. The Tribunal was not convinced that the lease deed was executed to defraud creditors. The findings are specific to the application under the Insolvency & Bankruptcy Code, 2016, and do not preclude the Financial Creditor from pursuing other legal avenues. Order: The IA No. 742/KB/2020 was dismissed. The Registry was directed to send e-mail copies of the order to all parties and their counsel. Certified copies of the order may be issued upon compliance with requisite formalities.
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