2023 (8) TMI 356 - AT - Insolvency and Bankruptcy

Preferential Transactions - Validity of impugned order - error in accepting the conclusions in Forensic Report - Delegation of Powers of the Resolution Professional or not - HELD THAT - It is brought to the fore, that the Corporate Debtor, had transferred Sums, from its Bank Account, to the Appellants / Respondents, with a view to Discharge its Antecedent Operational Debt, and by virtue of the Payments so made, the Appellants / Creditors, were placed in a higher Beneficial Pedestal, than that of the Financial Creditors, when Distribution of Assets, are made as per Section 53 of the Code. In the instant case, the Transactions that took place between the period from 27.12.2019 and 12.04.2021, were rightly taken into account, and undoubtedly, the period specified in Section 43 (4) (a) of the Code, is fulfilled, considering the fact that the Insolvency beginning date, was 21.12.2021, and the Transactions, were held between the Related Parties / Appellants / Respondents, being the Former Directors of the Corporate Debtor. No wonder, the lookback period of two years, squarely applies to the facts of the instant case. Although, on behalf of the Appellants / Respondents, a stand was taken (Before the Adjudicating Authority), that the Transactions, were made in the Ordinary Course of their Business, and the amounts, withdrawn from the Corporate Debtor s Account, etc., and usurping the same in respect of the Antecedent Debt, cannot tantamount to carrying on business in an ordinary manner of the Corporate Debtor, or in the Financial Affairs of the Respondents. Looking at from any angle, the impugned transactions, are not exempted transactions, as per Section 43 (3) of the Code, in the considered opinion of this Tribunal - In the present case, the NPA, was made on 23.02.2021 and the transactions, pointed out by the Appellants / Respondents, were before the earlier Date of the NPA, is not omitted. As far as the present case is concerned, on account of the Preferential Transactions, the Individual and the Companies, were gained at the cost of Creditors and in Law, the Appellant Nos. 1, 3 and 5 / Respondent No. 1, 3 and 5 and Paptrade India Pvt. Ltd. / Company (6th Respondent in IA (IBC) / 206 / KOB / 2022, are in Preferential Transaction. The impugned order passed by the Adjudicating Authority / Tribunal, in directing the 1st Appellant / 1st Respondent, to pay an amount of Rs.3,96,04,622/-, the 2nd Appellant / 3rd Respondent, to pay an amount of Rs.30,39,400/- and the 3rd Appellant / 5th Respondent, to pay a Sum of Rs.37,86,943/-, and the Paptrade India Pvt. Ltd. (6th Respondent in IA (IBC) / 206 / KOB / 2022), to pay a Sum of Rs.47,13,869/-, within a month from the date of Order, failing which, the amounts will carry 12% Simple Interest, till the date of Realisation, is free from any Legal Infirmities. Accordingly, the Appeal, sans merits and it fails. Appeal dismissed.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Validity of the impugned order regarding preferential transactions under Section 43 of the I&B Code, 2016.

Condonation of Delay:

Heard the Learned Counsel for the "˜Petitioners / Appellants', in IA No. 335 of 2023 in Comp. App (AT) (CH) (INS.) No. 96 of 2023.

According to the Petitioners / Appellants, there has occasioned a "˜Delay of 5 days', in preferring, the instant Comp. App (AT) (CH) (INS.) No. 96 of 2023.

The 1st Petitioner / 1st Appellant, is suffering from various "˜Ailments', and because of his age, the "˜Travel', has become an issue for him. Further, the "˜Appellants', were either out of India / Out of Station and not able to give due instructions, to prefer the "˜Appeal', well "˜within 30 days from the date of Impugned Order, on 25.01.2023, passed by the "˜Adjudicating Authority' / "˜Tribunal', in IA (IBC) / 206 / KOB / 2022 in CP (IB) / 25 / KOB / 2021.

This "˜Tribunal', on being subjectively satisfied, as to the reasons ascribed for, and by on behalf of the "˜Petitioners / Appellants', in regard to the "˜Condonation of delay of 5 days', in preferring, the instant "˜Appeal', by adopting a "˜practical', "˜liberal', "˜purposeful', "˜meaningful', a "˜pragmatic', and a "˜rational' approach, extends its "˜Judicial Arm of Generosity', in "˜Condoning' the "˜delay in question', to prevent an "˜Aberration of Justice', and to "˜Promote Substantial Cause of Justice', accordingly, allows the "˜IA No. 335 of 2023 in Comp. App (AT) (CH) (INS.) No. 96 of 2023', but, without costs.

Validity of the Impugned Order:

The "˜Appellants / Respondent Nos. 1, 3 & 5', have preferred the instant Comp. App (AT) (CH) (INS.) No. 96 of 2023, as an "˜Aggrieved Persons', in respect of the "˜impugned order', dated 25.01.2023 in IA (IBC) / 206 / KOB / 2022 in CP (IB) / 25 / KOB / 2021 (Filed by the "˜Respondent / Petitioner', under Section 43(1) read with Section 44 of the I & B Code, 2016), passed by the "˜Adjudicating Authority' ("˜National Company Law Tribunal', Kochi Bench, Kochi).

While passing the "˜impugned order', dated 25.01.2023, in IA (IBC) / 206 / KOB / 2022 in CP (IB) / 25 / KOB / 2021 (Filed under Section 43(1) read with Section 44 of the I & B Code, 2016), the "˜Adjudicating Authority' ("˜National Company Law Tribunal', Kochi Bench, Kochi), at Paragraph Nos. 15 to 18 (For Point No.3), had observed the following:

"Point No 3: -

15. From the list of impugned transactions mentioned in the petition the corporate debtor made preferential payments to Respondents 1, 3, 5 and 6 to the extent of amount mentioned below:

1) 1st Respondent Rs. 3,96,04,622/-

2) 3rd Respondent Rs.30,39,400/-

3) 5th Respondent Rs.37,86,943/-

4) 6th Respondent Rs.47,13,869/-

16. From the materials Produced it is established that the Respondents 1, 3, 5 and 6 in Preferential transaction, and gained unlawfully at the cost of other Creditors, hence they are liable to refund the amount. Further because of the Preferential transactions, the person and companies mentioned in table No- II also unlawfully enriched however since they are not arrayed as parties to this application, no order can be passed against them.

17. The corporate debtor not made any payments to Respondents 2 and 4 and there is no iota of materials to implicate them with the preferential transactions set out in the petition. It is informed that the 4th respondent was appointed as an independent director in non-executive cadre on 18.06.2018 and resigned as such from office on 12.07.2021.

18. In the application it is stated that the corporate debtor made a sale transaction worth Rs.12,68,707/- to Paptrade with 6th respondent. It is stated that this credit sale transaction concluded after the initiation CIRP order. It appears that this transaction held during the moratorium Period, in such a situation, the transactions are void ab initio. The transactions carried out during the moratorium period does not full under Section 43 of IBC. If any transaction carried out by the Erstwhile directors of corporate debtor, the RP can retrieve the assets or he can file appropriate application seeking assistance of Adjudicating authority to retrieve the loss caused to the corporate debtor from the person or persons benefited by such void transaction. Further in this application the applicant has not furnished sufficient materials in this regard; hence no order has been passed in this regard and liberty is granted to the applicant to take necessary steps to recover the amount involved in the sale transaction concluded during the moratorium period."

and resultantly, directed the 1st Appellant / 1st Respondent, to pay a Sum of Rs.3,96,04,622/-, the 2nd Appellant / 3rd Respondent, was directed to pay a Sum of Rs.30,39,400/- and the 3rd Appellant / 5th Respondent, was directed to pay a Sum of Rs.37,86,943/- and the 6th Respondent therein, was directed to pay a Sum of Rs.47,13,869/- to the Respondent / Resolution Professional / Petitioner, within one month from today, failing which, the said Amounts, are to be paid with 12% Interest Per Annum, from the "˜Date of the Order', to till the "˜Date of Realisation of Amount', and in respect of 2nd and 4th Respondents therein, the "˜Petition / Application', was "˜Dismissed', but, without costs.

Appellants' Contentions:

Assailing the "˜Validity', "˜Propriety' and "˜Legality' of the "˜impugned order', dated 25.01.2023 in IA (IBC) / 206 / KOB / 2022 in CP (IB) / 25 / KOB / 2021 (Filed by the "˜Respondent / Petitioner', under Section 43(1) read with Section 44 of the I & B Code, 2016), passed by the "˜Adjudicating Authority' / "˜Tribunal', the Learned Counsel for the Appellants / Respondent Nos. 1, 3 and 5, submits that the "˜Adjudicating Authority', had committed an error in accepting the conclusions in "˜Forensic Report', which does not amount to "˜Delegation of Powers of the Resolution Professional', and further the "˜Resolution Professional', had made a determination of his own, when the said "˜Forensic Report' itself, mentions a "˜Disclaimer' that "˜No person should act on such information, without appropriate Professional Advice, based on the circumstances of a particular situation'.

The Learned Counsel for the Appellants, points out that there is no determination made by the Resolution Professional, while filing the IA (IBC) / 206 / KOB / 2022 in CP (IB) / 25 / KOB / 2021 (Before the "˜Adjudicating Authority'), and the said "˜Application', was just a reproduction of "˜Forensic Audit Report'.

According to the Learned Counsel for the Appellants, the "˜Respondent / Resolution Professional', has to express and explain, "˜Application of Mind', based on the "˜Books of Accounts', "˜Financial Statements', and "˜Data of the Corporate Debtor', and none of the same, was produced, before the "˜Adjudicating Authority', and also no submissions, were made by the "˜Resolution Professional', on that basis.

The Learned Counsel for the Appellants, takes a stand that the Respondent / Resolution Professional, simply cannot repeat the extracts or observations, mentioned in the "˜Forensic Auditor's Report', and in fact, the Resolution Professional could not make an independent decision, in regard to the nature of transactions, as required by Regulation 35A (2) of the "˜Corporate Insolvency Resolution Process' Regulations.

The Learned Counsel for the Appellants, places reliance upon the decision of the "˜Tribunal', in Jitendra Lohiya v. Nikhil Chowdhury & Ors., reported in (2022) ibclaw.in 337 NCLT, wherein, at Paragraph 16, it is observed as under:

"We have carefully seen the averments of the application and corresponding reply of the respondents. We have noticed that the allegations made in application do not constitute anything actionable against the respondents. It was the duty of the RP to come to conclusive determination before filing an application with the Adjudicating Authority. Simply by repeating the extracts or observations made in the forensic auditors report, the RP could not make an independent determination about the nature of transactions as required by Regulation 35A (2) of the CIRP Regulations."

The Learned Counsel for the Appellants, cites the decision in Kshitiz Chhawchharia v. Madhumalati Merchandise Private Limited & Ors., reported in (2022) ibclaw.in 630 NCLT Kolkata, wherein, at Paragraph Nos. 6.7 to 6.9, it is observed as under:

"According to regulation 35A(1) of the CIRP Regulations, the Resolution Professional shall form an opinion whether the corporate debtor has been subjected to any transaction covered under sections 43, 45, 50 or 66 on or before the seventy-fifth day of the insolvency commencement date. According to the regulation 35A(2), on or before the one hundred and fifteenth day of the insolvency commencement date, the Resolution Professional is also required to make a determination to that effect.

Further, Regulation 35A(3) of the CIRP Regulations provides that upon making such determination under regulation 35A(2), the Resolution Professional shall apply to the Adjudicating Authority for the appropriate relief on or before the one hundred and thirty-fifth day of the insolvency commencement date. In this case, the one hundred and thirty fifth day is on 23 May 2018. The instant application being IA. (IBC) 346/KB/2019 has been filed on 20 March 2019, thus making it clear that the Applicant has not complied with the provisions of regulation 35A within the timeline provided therein.

Even if we go by the

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