2023 (7) TMI 772 - AT - Insolvency and Bankruptcy

Undervalued Transactions - avoidable transactions or not - Debtor of the Coporate Debtors - Discounts given by the Corporate Debtor for the benefit of the Appellant in the ordinary course of business or otherwise - HELD THAT - From a perusal of the ledger account submitted by the Liquidator, who has access to the records of the Corporate Debtor, the Corporate Debtor appears to have given a discount of Rs.6,19,273.00 for C/Y sale, Rs. 13,76,320.00 for poor quality of raw material, Rs. 10,00,960.00 for labour and other charges due to material problem and Rs. 7,15,430.00 for rate difference - the ledger account maintained by the Corporate Debtor correctly depicts that amounts of discounts given to the Appellant and the amount due and payable by the Appellant to the Corporate Debtor, since the Corporate Debtor would not have any ostensible reason not to record the entries relating to Appellant incorrectly and further no reason has been given by the Appellant why this Corporate Debtor s Ledger Account should not be relied on. Whether the abovementioned discounts were given by the Corporate Debtor for the benefit of the Appellant in the ordinary course of business? - HELD THAT - The Appellant has not produced any document apart from the minutes of meetings dated 03.04.2018 to show that he had raised issue about poor quality and other issues for claiming discount with the Corporate Debtor at the time of supply of the raw material, but he is now claiming these discounts on the basis of meeting held on 03.04.2018 which took place barely ten days before the passing of the CIRP initiation order - the Appellant has not produced any other document apart from the minutes of the meeting dated 3.4.2018 to buttress his claim that the said discounts were given in the ordinary course of business and why these discounts were admitted after a lapse of many months after the supply of raw material. Moreover, it is found that such benefit of discounts were given to the Appellant within the look-back period of one year, and therefore in the absence of cogent explanation regarding these discounts it clearly infringes Section 45(2)(b) and fall in the relevant period for avoidable transactions as laid down stipulated in Section 46(1)(i) of the IBC. The Adjudicating Authority has not committed any error in holding that the balance as on 31.03.2018 (before discount) in respect of material supply to Technico Industries Ltd. (Appellant) is Rs. 31,00,475.00, which is the balance shown in paragraph 26 of the Impugned Order - the unambiguous view is upheld that the Adjudicating Authority has not committed any error in passing the Impugned Order. The Appeal is devoid of merit and is dismissed.

Summary

Issues Involved:
1. Whether the transactions between the Appellant and the Corporate Debtor were undervalued transactions.
2. Whether the discounts given to the Appellant were in the ordinary course of business.
3. Whether the Adjudicating Authority erred in directing the Appellant to make payment of Rs. 31,00,475.00 to the Corporate Debtor.

Summary of Judgment:

1. Undervalued Transactions:
The Appellant challenged the Impugned Order dated 07.06.2022, which declared certain transactions with the Corporate Debtor as undervalued and directed the Appellant to pay Rs. 31,00,475.00. The Appellant argued that the transactions were part of a running account for raw materials supplied to the Corporate Debtor and that discounts were mutually agreed upon due to quality issues, processing costs, and rate differences.

2. Ordinary Course of Business:
The Appellant contended that the discounts were given in the ordinary course of business, citing a meeting on 03.04.2018 where these issues were discussed and resolved. The Respondent/Liquidator argued that these discounts were not in the ordinary course of business, as they were decided just ten days before the commencement of the Corporate Insolvency Resolution Process (CIRP) on 13.04.2018. The Liquidator maintained that these transactions were 'avoidable transactions' under Section 46(1)(i) of the Insolvency and Bankruptcy Code (IBC) and were undervalued as per Section 45(2)(b).

3. Adjudicating Authority's Decision:
The Tribunal examined the ledger accounts submitted by both parties. It found that the Corporate Debtor's ledger, which recorded the discounts given to the Appellant, was reliable. The Tribunal noted that the Appellant failed to provide contemporaneous documentation to support the claim that the discounts were part of the ordinary course of business. The Tribunal concluded that the discounts were given within the look-back period of one year, making them avoidable transactions under the IBC.

Conclusion:
The Tribunal upheld the Adjudicating Authority's decision, finding no error in the Impugned Order. The appeal was dismissed, and the Appellant was directed to pay Rs. 31,00,475.00 to the Corporate Debtor. No order as to costs was made.