2021 (11) TMI 838 - Tri - Insolvency and Bankruptcy

Implementation of Resolution Plan - restraint on resolution professional and committee of creditors of GB Global Ltd. (erstwhile Mandhana Industries Ltd.) from handing over the management of the corporate debtor to the new resolution applicant - Fraudulent trading or wrongful trading - HELD THAT - The land was proposed to be sold for a higher value than the purchase price. It is noted that on May 14, 2019 the KIADB claimed a sum of ₹ 69.93 lakhs towards additional cost of land. The applicant has not placed any material in support of the contention that the property was worth about ₹ 25 crores in 2010 which would show that it was proposed to be sold at a far lesser value. The mandate is very clear that only a creditor, member or a partner of the corporate debtor can make an application to the Adjudicating Authority to declare such transactions as void and reverse their effect. The applicant not being a creditor or partner of the corporate debtor is not competent to raise the issue nor can seek a direction to respondent No. 3 concerning the matter. As per respondent No. 3 a forensic auditor was appointed to look into the transactions of the corporate debtor and certain transactions of the corporate debtor were found to be questionable and the same are pending consideration before this Tribunal - The CoC is aware of the proposed sale of the land for ₹ 2.25 crores in the year 2010. No member of the CoC has questioned the propriety of the consideration. In the absence of any material the allegation of undervaluation cannot be accepted, for the limited purpose of this application. This application is found to be frivolous and without any merits - application dismissed.

Issues Involved:
1. Implementation of the resolution plan by the applicant.
2. Allegations of fraudulent conduct and misrepresentation by the resolution professional and committee of creditors.
3. Allegations of related party transactions and undervalued transactions.
4. Eligibility of the new resolution applicant under section 29A of the Insolvency and Bankruptcy Code, 2016.
5. Applicability of sections 43, 45, 47, 49, and 66 of the Insolvency and Bankruptcy Code, 2016.
6. Competence of the applicant to raise issues regarding undervalued transactions.

Detailed Analysis:

1. Implementation of the Resolution Plan by the Applicant:
The applicant, Formation Textiles LLC (FTL), was the former successful resolution applicant for the corporate debtor but could not implement the resolution plan. The applicant sought interim relief to restrain the resolution professional (RP) and the committee of creditors (CoC) from handing over the management of the corporate debtor to the new resolution applicant and to prevent approval of the new resolution plan.

2. Allegations of Fraudulent Conduct and Misrepresentation:
The applicant alleged that the resolution plan could not be implemented due to the "callousness, carelessness, misrepresentation, and fraudulent conduct" of the RP in connivance with the CoC. The applicant claimed that the RP and CoC concealed various facts and data, leading to the failure of the resolution plan and causing financial loss to the applicant.

3. Allegations of Related Party Transactions and Undervalued Transactions:
The applicant identified potentially related party transactions involving the corporate debtor and the promoters and directors of the new resolution applicant, Dev Land and Housing P. Ltd. (DLH). The applicant argued that the corporate debtor sold land to Bombay Rayons Fashion Ltd. (BRFL) at an undervalued price, in violation of the terms of the lease-cum-sale agreement with the Karnataka Industrial Area Development Board (KIADB).

4. Eligibility of the New Resolution Applicant under Section 29A:
The applicant contended that the new resolution applicant, DLH, was ineligible under section 29A of the Insolvency and Bankruptcy Code, 2016, due to the involvement of its managing director in related party transactions. However, the RP and the new resolution applicant argued that DLH was eligible and had submitted an affidavit confirming its eligibility under section 29A.

5. Applicability of Sections 43, 45, 47, 49, and 66 of the Insolvency and Bankruptcy Code, 2016:
The tribunal examined the applicability of various sections of the Code:
- Section 43 (Preferential Transactions): The tribunal found that the land transaction did not constitute a preferential transaction as it was not related to any antecedent financial or operational debt and was executed beyond the relevant period.
- Section 45 (Undervalued Transactions): The tribunal noted that there was no material evidence to support the claim that the land was sold at an undervalued price.
- Section 47 (Application by Creditor in Cases of Undervalued Transactions): The tribunal highlighted that only a "creditor, member, or partner" of the corporate debtor could make an application under this section, and the applicant did not qualify as such.
- Sections 49 and 66 (Fraudulent Transactions): The tribunal found no evidence to suggest that the transaction was entered into to defraud creditors or that it was a fraudulent transaction.

6. Competence of the Applicant to Raise Issues Regarding Undervalued Transactions:
The tribunal concluded that the applicant, not being a creditor or partner of the corporate debtor, was not competent to raise issues regarding undervalued transactions or seek directions concerning the matter.

Conclusion:
The tribunal dismissed the application as frivolous and without merit, stating that the impugned transaction did not fall under any of the provisions of the Code as alleged by the applicant. The tribunal refrained from imposing costs despite finding it a deserving case for such action.

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