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TMI Blog2018 (10) TMI 339X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the stocks/receivables have been diverted. The petitioner also has pointed out that false sale and purchase transactions of goods have been made to defraud the creditors. As further revealed that though there was realisation of the stock receivables but there has not been any corresponding reduction in the working capital limits, which suggests mismanagement in the affairs of the company. In addition, applicant bank has placed on record the details of adverse comments made in the audited balance sheets of the company to show the following violations: The company is in default u/s. 252 and Sec. 383 of the Companies Act, 1956, regarding non-complying with the minimum directors and appointments of the company secretary.The company is not regular in paying statutory dues like PF, ESI, Income Tax, Custom duty etc. The Company has not internal audit system; its audit committee is not functioning. The company has not filed audited balance sheet for 2013 whereas, the same was signed and accepted by the AGM on 20.07.2013. Not only the company has collected huge amount from the creditors but also has failed to repay the debts and the aforementioned facts prima facie show that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. It is submitted that in order to secure, the due repayment of the aforesaid credit facilities, the respondent company executed the following security/loaning documents in favour of the Petitioner Bank on 16.11.2011. Demand Promissory Note Dt. 16.11.2011 for a sum of ₹ 90 Crores. Letter of Continuity dt. 16.11.2011 for a sum of ₹ 90 crores. Letter of Hypothecation dt. 16.11.2011 for ₹ 90 crores. Deed of Hypothecation to Secure LC dt 16.11.2011 for ₹ 20 crores. Agreement for Hypothecation of Moveable Assets forming part of fixed Assets dt 16.11.2011 for ₹ 90 crores. Agreement for Hypothecation of Current Assets dt. 16.11.2011 for ₹ 90 crores. Omnibus Counter Guarantee for Letter of Credit dt. 16.11.2011 for ₹ 20 crores. 5. It is stated that after taking into consideration of all the debit and credit transactions including adjustment of the part payments, the Respondent Company is liable to pay a sum of ₹ 129,02,05,412/- (Rupees One hundred twenty nine crores two lacs five thousand four hundred and twelve rupees only) on account of principal, interest and other incidental costs, charges, expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies - 84.90 107.06 Total 20.60 118.73 122.96 11. It has been alleged that the respondent company has given interest free loans and advances to its group companies, whereas it was paying interest to the banks for the money borrowed thereby stressing the profits. Instead of taking steps to recover the advance to revive the cash flows and stability; the company had made diversion of funds. 12. It is further stated that during the year ended 2010-11 and 2011-12, the operating statement of the company is as follows:- Particulars 2011 2012 Sales 1600.72 1622.95 Other income 2.67 4.63 Total Revenue 1603.25 1627.58 Raw Material Consumed (A) 1504.25 1597.58 Expenses 107.80 114.25 Depreciation 26. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he stock levels have reduced considerably from FY 2011 to FY 2012 and FY 2012 to 2013. It indicates poor management of receivables and stocks by the company and required efforts have not been employed by the company for any improvement. Further, the receivables/stocks have reduced over time, without any reduction in the working capital limits implying that recoveries from the stocks/receivables have been taken out of the system and have been diverted. 16. It has been pointed out that the company has serious irregularities/defaults as appears from the adverse comments made in the audited balance sheets of the company, as detailed below:- The company is in default u/s. 252 and Sec. 383 of the Companies Act, 1956, regarding non-complying with the minimum directors and appointments of the company secretary. The company is not regular in paying statutory dues like PF, ESI, Income Tax, Custom duty etc. The Company has not internal audit system; its audit committee is not functioning. The company has not filed audited balance sheet for 2013 whereas, the same was signed and accepted by the AGM on 20.07.2013. 17. It is also disclosed in the petition that from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the affairs of the company are being deliberately conducted with a view to defraud its creditors. 21. The respondent company has filed its reply on 07.06.2016 opposing the admission of the present petition and submitted that the Respondent Company was incorporated in the year 1992 and till the financial year 2010-11, the respondent company had been a profit making company with a turnover of INR 1600 crores and a profit of INR 100 crores. However, subsequently due to various factors such as economic slowdown; devaluation of Indian currency; huge inventory of stocks; delay in recovery from sundry debtors; rapid diversification into various business; closure of plant at Baddi due to environment issues; time and cost overrun in commissioning of plant at Jammu and Kashmir etc. during the next financial year ending March 2012, respondent company reported a loss of INR 272 crores despite a turnover of INR 1621 crores. 22. Thereafter the financial health of the company came under lot of stress, so much so that the Respondent Company started defaulting in servicing of its debts. It is alleged that Lenders of the respondent Company like the Petitioner, by refusing to sanction furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness plant etc. and had visited various facility of the Respondent Company and thereafter, had submitted a detailed TEV report. Mott Macdonald in its TEV report had reported that all the units of the Respondent company are technically viable and capable of achieving production as indicated in the business plan. A copy of TEV report of Matt MacDonald has been placed on record. 25. It is further submitted that some of the lenders had subsequently demanded appointment of an auditor to carry out the Special Investigation audit ( SAI ) of the company to investigate whether promoters of the Respondent Company have diverted any funds and benefited from. Accordingly, M/s. S.S. Kothari Mehta co. was appointed to carry out SIA report was submitted to the lenders. Based on the said report of mott Mac Donald and SIA report, CDR-EG had approved the CDR package vide approval letter dated 29.01.2013 and Master Restructuring Agreement was executed between the Respondent Company and the consortium banks including the Petitioner. It is further submitted that copy of the said SIA report would be available with the Petitioner and all the allegation of the Petitioner bank has already been dealt w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation is a fishing expedition on the part of the Petitioner, which cannot be permitted under Section 237(b) of the Act and deserves to be dismissed. 28. It is submitted that grounds alleged by the Petitioner in the instant application for appointment of an Inspector are baseless and the alleged financial irregularly, if any, has been in knowledge of the Petitioner since a long time in as much as the alleged irregularity as per the Petitioner s case in the instant application was claimed to be committed during the year 2012-13. Thus, the instant application has been filed after an inordinate delay of 3 years and thus deserves to be dismissed being barred by limitation. 29. It is further stated that the Respondent Company had filed a reference under section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 ( SICA ) and BIFR had registered the reference of the Respondent Company as Case No. 85 of 2013 vide order dated 28.11.2013. 30. An objection has been raised that Section 22 of SICA bars/prohibits continuation of any proceeding with respect to a sick company for winding up or for execution or distress or the like against any properties of a sick company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards the company or towards any of its members; or (iii) the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, or the manager, of the company, order, after giving a reasonable opportunity of being heard to the parties concerned, that the affairs of the company ought to be investigated by an inspector or inspectors appointed by the Central Government and where such an order is passed, the Central Government shall appoint one or more competent persons as inspectors to investigate into the affairs of the company in respect of such matters and to report thereupon to it in such manner as the Central Government may direct: Provided that if after investigation it is proved that- (i) the business of the company is being conducted with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose, or that the company was formed for any fraudulent or unlawful purpose; or (ii) any person concerned in the formation of the company or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that the respondent company is liable to pay outstanding amount running into more than ₹ 1000/- Crores to various creditors. It is pertinent to note that in financial transactions, adjustments and compromise should be left to the parties to settle the matter in their best interest or exigencies of the business. When such huge loan amount was outstanding, it is open to the lenders not to give further loan facilities in the factual background of the matter. Accordingly, not sanctioning further loan cannot be a ground to reject the petition pertaining to investigation of the affairs of the company. 40. It is also the case of the respondent that grounds alleged by the Petitioner in the instant application for appointment of an Inspector are baseless and the alleged financial irregularly, if any, has been in knowledge of the Petitioner since a long time in as much as the alleged irregularity as per the Petitioner s case in the instant application was committed during the year 2012-13. Thus, objection was raised that the instant application has been filed after an inordinate delay of 3 years and therefore deserves to be dismissed being barred by limitation. 41. In this r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts of the company was already audited/examined by the consortium banks. Needless to say that if the accounts of the Company have been properly maintained with fully transparency, there is nothing to be afraid of in further scrutinisation of its accounts and no prejudice will be caused to the respondent company. Even if the accounts of the company has been audited by consortium banks, that itself cannot be a ground to reject the present petition for investigation into the affairs of the company, once the requirement of clause i, ii, and iii of Section 213(b) of the Act is fulfilled. 47. Coming to the merit of the case the Tribunal is required to form opinion in regard to existence of ingredients as mentioned in sub-clause (i), (ii) and/or (iii) of clause (b) of Section 213 of the Companies Act, 2013. However, the Tribunal is not required to form opinion objectively, and is only required to satisfy itself on the basis of materials/evidence on record that there are good grounds to order investigation. The material/evidence taken on consideration should reflect the satisfaction of the Tribunal to order investigation. 48. In the present case applicant has shown that the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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