2023 (5) TMI 724 - AT - Insolvency and Bankruptcy

Rejection of claim by Resolution Professional - Petitioners sought return of stock of their owned rice from the Corporate Debtor - whether the rice belonging to the Appellants, could be made part of liquidation estate of the Corporate Debtor? - HELD THAT - This Appellate Tribunal observe that the claims of the Appellants need to be crystal clear and cannot be on the basis of assumptions and presumptions like Oral Agreements without any specific details, more so when the Corporate Debtor and the Suspended Director/ Corporate Debtor were allegedly involved in fraud with Bank for over Rs. 1700 crores and who were investigated by the CBI and case seems to be still on. This Appellate Tribunal note that the Respondents made averments during hearing that the one single visit was made by the rice expert on 09.10.2020 to the premises of the Corporate Debtor and reported with partially identification of the rice belonging to the Appellant involving huge quantity of stock at the factory premises of the Corporate Debtor including 291.33 MT of Gurudeo Exports Corporation Pvt. Ltd, 493.42 MT of Shree Kalka Global, 84.00 MT of Neon International Traders and 58.94 MT TLS Mercantile P. Ltd. and total rice claimed to have been identified by the rice expert was 927.69 MT of four Appellants altogether in one single visit by rice expert. The Resolution Professional/Liquidator is agreed upon, that the report of the rice expert perhaps has been prepared in hurry and can not be treated as conclusive and authentic and therefore cannot be fully relied upon in order to accept the claims of the Appellants - the Appellants have not disputed that the Corporate Debtor never issued any invoice of job work to the Appellants and the Appellants also admitted that they have not recorded the payment of job work consideration in their own Audited Books of Accounts. The Liquidator brought out the fact the CBI is already investigating the case against the Corporate Debtor involving Rs. 1,700 crores of the claims of the several banks and the stock claimed by the Appellants have not been proven belonging to them. There are no concrete evidence or documentary proof are available to substantiate the claims of the Appellants. It may be the case that earlier the Appellants and the Corporate Debtor were involved in such types of trade practices, even may be on the basis of oral agreements and sometimes in violation of relevant laws like Companies Act, 2013, GST or TDS under Income Tax Act, etc. but to accept the claims of the Appellants at the stage of Resolution and now Liquidation proceedings, the claims have to be real, based on solid documentary evidence and in accordance with law. These cannot be allowed on the basis of indirect or circumstantial or secondary evidence/ documents. There are no error in the impugned order - appeal dismissed.

Summary

Issues Involved:
1. Legitimacy of the Appellants' claims for the return of rice stock from the Corporate Debtor.
2. Validity of oral agreements between the Appellants and the Corporate Debtor.
3. Adequacy of documentary evidence provided by the Appellants.
4. Role and findings of the appointed experts (rice and document experts).

Summary:

1. Legitimacy of the Appellants' Claims:
The Appellants filed a joint appeal under Section 61(1) of the Insolvency & Bankruptcy Code, 2016, against the order dated 11.03.2021, where the Resolution Professional rejected their claims for the return of rice stock from the Corporate Debtor. The Appellants argued that the Corporate Debtor illegally retained their rice stock, which was supposed to be processed and returned as per their oral business agreements.

2. Validity of Oral Agreements:
The Appellants claimed that since October 2016, they had oral agreements with the Corporate Debtor for processing rice, where the Corporate Debtor would retain 3% of the rice as consideration. The Appellants emphasized that such arrangements were common in the unorganized sector and did not require written agreements.

3. Adequacy of Documentary Evidence:
The Appellants provided various documents, including rice purchase invoices, material receipts, emails, and an affidavit from an ex-employee of the Corporate Debtor. However, the Respondents contended that the claims could not be verified from these documents. The document expert appointed by the Adjudicating Authority also found several discrepancies and anomalies in the documents provided by the Appellants, leading to the rejection of their claims.

4. Role and Findings of the Appointed Experts:
The rice expert's report partially supported the Appellants' claims, but the document expert's report was against them. The document expert highlighted the lack of written agreements, non-submission of invoices, non-payment of service tax or GST, and non-accounting of job work payments in the Appellants' financial books. The rice expert's report was also questioned for its thoroughness and reliability.

Conclusion:
The Appellate Tribunal noted the absence of concrete evidence to substantiate the Appellants' claims. The Tribunal emphasized that oral agreements, while legally valid, are difficult to prove in the absence of supporting documentary evidence. The Tribunal upheld the findings of the document expert and dismissed the appeal, stating that the claims were not genuine and lacked merit. The appeal was dismissed with no costs, and any interlocutory applications were closed.