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2021 (6) TMI 839 - Tri - Insolvency and BankruptcyAvoidable transactions - conduct of liquidator - undervalued or preferential transactions - gifts made to related party - loss caused to the creditors of the Corporate Debtor - company under Liquidation process - composite application - reliance placed upon Ledger accounts - Requirement to file application within 135 days from the date of commencement of CIRP - HELD THAT - The requirement of filing application within 135 days, does not have much force in view of the fact that the avoidance transactions as found in Section 43, 45 and 50 can be filed either by the RP or by the Liquidator and that the model timeline prescribed under the attendant Regulations is only directory in nature and if the same is construed as mandatory then the avoidance transactions as stipulated under Section 43, 45 and 50, which entitles the Liquidator also to file an Application, would be rendered as otios - Moreover, section 12 of IBC, 2016 states that CIRP period has to be completed within a period of 330 days, while the model timeline as found in Regulation 40A has been arrived at taking into consideration a period of 180 days. In any case, Regulations do not prevail over the Act and thus, the arguments as advanced by the Respondents in relation to this issue are required to be brushed aside. Whether the impugned transactions have been made during the 'ordinary course of business'? - HELD THAT - The impugned transactions which have been carried out by the Respondents do not have any characteristics of transactions made during 'ordinary course of business' and thus the contentions raised by the Respondents in this regard stand rejected as being devoid of merits - It is also required to be noted that section also do not specify the 'related party' in relation to the Corporate Debtor or Individual being a Director of the Corporate Debtor, as both the definitions under Section 5(24) and 5(24-A) fall under Part-II concerning Insolvency Resolution and Liquidation for Corporate Persons. Validity of composite Application - Respondent contends that in view of the Judgment passed by the Supreme Court in ANUJ JAIN VERSUS AXIS BANK LTD. 2020 (2) TMI 1259 - SUPREME COURT , this Application being a composite Application, is not maintainable - HELD THAT - It is seen that the present Application was filed by the Liquidator, much before the judgment rendered by the Supreme Court in Anuj Jain and also the Liquidator, as already alluded in paragraph supra, during the course of submissions, in all fairness, taking into consideration the decision of the Hon'ble Supreme Court in Anuj Jain, has sought for withdrawal of the relief portion as reflected in clause (b) of para VII of the Application and that he will not be pressing for the said reliefs in view of the Hon'ble Supreme Court holding in the Anuj Jain's case - the objections as raised by the Respondents on the said count are also liable to be rejected. Validity of relying on the Ledger accounts - the Liquidator is relying on the ledger account of the Corporate Debtor in support of his contention that the alleged impugned transactions constitute undervalued transactions - HELD THAT - In relation to the documents being filed by the Liquidator, the same being a ledger account, in the absence of any rebuttal by the Respondents in relation to the entry being made in the books of account, this Tribunal necessarily has to presume prima facie that the entries are true and the transactions in relation to the same have been carried out. All those entries are necessarily being shown in the balance sheet of the Corporate Debtor - Further, Section 3 of the Commercial Documents Evidence Act, 1939 states that the Court shall presume that the documents as mentioned in Part II of the Schedule to the said Act, are accurate and true. In Part II of the Schedule at Sl. No. 21, the documents mentioned are the balance sheet, profit and loss account and the audit report filed under the Companies Act. Thus, these documents prima facie appear to give the true and correct details and a presumption that the same is accurate is made in favour of those documents and hence the burden of proof lies upon the Respondent to rebut the same. Validity of Transactions challenged - HELD THAT - The same falls within the parameters as laid down under Section 45 of IBC, 2016 in relation to Respondents 1 to 3 - It is concluded that the impugned transactions as alleged by the Liquidator in relation to Respondents 1 to 3 constitute undervalued transactions as envisaged under Section 45 of IBC, 2016 and in the circumstances, the relief as sought for by the Applicant in clause (a) of Para VII is granted - The 1st, 2nd and 3rd Respondents are directed to repay the sum of ₹ 5,26,99,936/-, ₹ 11,55,142/- and ₹ 1,00,000/- respectively along with interest chargeable at bank rates to the Applicant/Liquidator within a period of 60 days from the date of this order. Application disposed off.
Issues Involved:
1. Avoidable transactions under Sections 35(b), 35(k), 35(l), 45, 46, and 48 of the Insolvency and Bankruptcy Code (IBC), 2016. 2. Limitation period for filing applications under IBC. 3. Ordinary course of business defense. 4. Composite application issue. 5. Related party transactions. Issue-wise Detailed Analysis: 1. Avoidable Transactions under Sections 35(b), 35(k), 35(l), 45, 46, and 48 of IBC, 2016: The Liquidator filed an application to declare certain transactions as avoidable under the specified sections of IBC, 2016. It was observed that the Corporate Insolvency Resolution Process (CIRP) for the Corporate Debtor was initiated on 14.06.2017, and the company was under liquidation since 11.01.2018. The Liquidator discovered several transactions in the Corporate Debtor's books that appeared to be undervalued or preferential. These transactions included significant cash transfers to the ex-Directors and related parties, which were not in the ordinary course of business. The Liquidator sought to declare these transactions void and reverse their effects as per Section 48 of IBC, 2016. 2. Limitation Period for Filing Applications under IBC: The Respondents argued that the application was barred by limitation, citing Regulation 40A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which prescribes a model timeline of 135 days from the commencement of CIRP. However, the Tribunal held that the timeline is directory and not mandatory. The avoidance transactions under Sections 43, 45, and 50 can be filed by either the Resolution Professional (RP) or the Liquidator, and the model timeline does not override the provisions of the Act. Thus, the application was not barred by limitation. 3. Ordinary Course of Business Defense: The Respondents claimed that the transactions were made in the ordinary course of business. However, they failed to provide any documentary evidence to substantiate this claim. The Tribunal found that the impugned transactions lacked the characteristics of ordinary business transactions and rejected the Respondents' defense as devoid of merit. 4. Composite Application Issue: The Respondents contended that the application was a composite one, which is not maintainable as per the Supreme Court's judgment in Anuj Jain's case. The Liquidator, acknowledging this, sought to withdraw the relief portion in clause (b) of para VII of the application and pressed only for the reliefs in clause (a). The Tribunal accepted this withdrawal and proceeded with the application accordingly. 5. Related Party Transactions: The Liquidator alleged that the transactions with the 2nd and 3rd Respondents, who were related parties, fell within the two-year period preceding the insolvency commencement date. The Respondents argued that the "Trust" could not be considered a related party and that the transactions were beyond the one-year period applicable to non-related parties. The Tribunal found that the trustees of the Trust were close relatives of the ex-Director and that the transactions were indeed related party transactions. The Tribunal also noted that the entries in the Corporate Debtor's books, presumed to be accurate, were not rebutted by the Respondents. Conclusion: The Tribunal concluded that the transactions in question were undervalued as per Section 45 of IBC, 2016. The 1st, 2nd, and 3rd Respondents were directed to repay ?5,26,99,936, ?11,55,142, and ?1,00,000 respectively, along with interest, to the Liquidator within 60 days. The application MA/581/2019 was disposed of accordingly.
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