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TMI Blog2019 (4) TMI 1208X X X X Extracts X X X X X X X X Extracts X X X X ..... y commencement date. In this case, the insolvency commencement date is 27.6.2017. Therefore, only the transaction made between 28.6.2015 to 27.6.2017 will fall within the look-back period, as provided under section 43(4)(a) of the Code. The look-back period in the present case, as per the provisions of section 43(4)(a), would start from 28.6.2018. Therefore, the transactions carried on during the period 01.04.2015 to 26.6.2015 will be out of the purview of the Preferential Transactions. The Bottling agreement as entered into between the holding company and the Corporate Debtor is not produced on record by either side. As per the submission of the Applicant, the change in business model took place in F.Y. 2015-16 and without any specific date, it would be an obvious assumption that the transaction of change in business model took effect on 01.04.2015. Therefore, the transaction of change in the business model of the corporate Debtor falls beyond the look-back period and cannot be challenged as a preferential transaction under section 43 of the I B Code. Undervalued transaction - HELD THAT:- In the present case, on perusal of the forensic audit report, we found it written in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iwala, Advocate, Mr. G. Aniruth Purusothaman, Advocate, Mr G. Aniruth Purusothaman, Advocate For The Respondent : Mr Chetan Kapadia, Advocate, Mr Akshay Pawar, Advocate, Ms Vidhi Thaker, Advocate, Mr Kunal Bhanage, Advocate ORDER 1. The present application being MA 267/2018 filed under section 43, 49, 60(5) and 66 of the Insolvency and Bankruptcy Code, 2016 (I B Code), was filed by the Resolution Professional and is now being pursued by the Liquidator of the Corporate Debtor appointed vide the order for liquidation of the Corporate Debtor dated 09.08.2018. 2. The application for Corporate Insolvency Resolution Process filed by the Standard Chartered Bank under Section 7 of the IBC was admitted by this Bench by an order dated 27.6.2017 wherein Mrs Dipti Mehta was appointed as the Interim Resolution Professional. The Committee of Creditors consists of two creditors namely Standard Chartered Bank and DCB Bank. In the first meeting of the Committee of Creditors on 28.07.2017, the Interim Resolution Professional was confirmed as the Resolution Professional and then further appointed as liquidator by order of the Adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor, the Resolution Professional has filed this Application U/S43, 49, 60(5) and 66 of the I B Code read with Rule 11 of the NCLT Rules, 2016. Preferential Transaction 7. It is alleged that the change in the business model, from manufacturer and seller of Indian, made Foreign Liquor to bottling job worker of Indian made foreign liquor w.e.f., F.Y. 2015-16 onwards, has resulted in the transfer of ₹43.85 crores to Tilaknagar Industries Ltd. during 2015-16 and 2016-17. The Resolution Professional has alleged that these transactions appear to be preferential transactions as it resulted in the transfer of surplus to Tilaknagar Industries Ltd. who is also the creditor of the Corporate Debtor, which caused prejudice to the interest of the other creditors, as it affected the ability of the Corporate Debtor to service its debt. 8. The Resolution Professional has further alleged that this change of business model was not intimated to the creditors for taking their prior approval. Also that this abrupt change has resulted in the transfer of revenues to only one creditor in preference and exclusion to all other creditors and thus it tan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturer for and on behalf of whom the bottling process has been undertaken by the Bottler. A bottler does not have a sales and marketing department of its own. The activities of sales and marketing are carried on by the brand owner/manufacturer. In some cases, the manufacturer may have the bottling/manufacturing facilities of its own, or it may obtain it on lease or contract bottling basis. 13. It is submitted that the Corporate Debtor did not have adequate funds for its working capital and that it carried the bottling function for its holding company. Therefore, the holding company used to infuse funds into the Corporate Debtor to keep it afloat and to function. Thus, the Corporate Debtor was utterly dependent on its holding company for support and survival. 14. It is submitted by the Respondents that, as per the industry practice, under the arrangement between the holding company and the Corporate Debtor, the brands of the holding company were bottled and sold by the Corporate Debtor and the holding company was entitled to the sale proceeds. The Corporate Debtor was only entitled to the per case bottling fee or a lump sum consideration instead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60,70,12,215 31st March, 2011 50,33,19,899 30th June 2011 5,90,79,398 30th September 2011 17,18,12,233 31st December 2011 23,79,82,422 31st March 2012 40,21,99,813 30th June 2012 44,46,19,176 30th September 2012 39,77,80,481 31st December 2012 46,54,48,695 31st March 2013 60,37,95,733 30th June 2013 68,51,34,429 30th September 2013 68,70,95,335 31st December 2013 66,64,67,932 31st March 2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, as the case may be, is of the opinion that the corporate debtor has at a relevant time given a preference in such transactions and in such manner as laid down in sub-section (2) to any persons as referred to in sub-section (4), he shall apply to the Adjudicating Authority for avoidance of preferential transactions and for, one or more of the orders referred to in Section 44. (2) A corporate debtor shall be deemed to have given a preference, if- (a) there is a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and (b) the transfer under clause (a) has the effect of putting such creditor or a surety or a guarantor in a beneficial position than it would have been in the event of a distribution of assets being madein accordance with Section 53. (3) For the purposes of sub-section (2), a preference shall not include the following transfers- (a) transfer made in the ordinary course of the business or fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On perusal of the definition of the Related Party as given in Section 5(24)(i) of the Code, it is clear that body corporate, which is a holding company, the subsidiary or an Associate Company of Corporate Debtor, or a subsidiary of a holding company to which the Corporate Debtor is also a subsidiary, is covered u/s.5(24)(i)of I B Code as a related party. 23. In the present case, the impugned transactions are with the holding company of the Corporate Debtor. Thus, the transaction can be said to be with a related party of the Corporate Debtor. Further, the look-back period as provided u/s.43(4)(a) will be two years preceding the insolvency commencement date. In this case, the insolvency commencement date is 27.6.2017. Therefore, only the transaction made between 28.6.2015 to 27.6.2017 will fall within the look-back period, as provided under section 43(4)(a) of the Code. 24. The Applicant has not mentioned the exact date of the alleged transaction, but has only stated that the change in the business model from manufacturer and seller of Indian made foreign liquor to bottling job-work, from the financial year 2015-16 onwards, has resulted in the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s model from manufacturer of the Indian made foreign liquor to bottling job-work, and the consequent act of Corporate Debtor in raising invoices in its own name, booking and receiving sales revenue from the sale of brands owned by its holding company, and transfer of surplus under the bottling arrangement are in the ordinary course of business and financial affairs of the corporate debtor and hence not covered in preference transactions under section 43 of I B Code. Undervalued Transaction 29. The Applicant has stated that the Corporate Debtor has indulged in the undervalued transaction to benefit Respondent No. 6. The Applicant has stated that after the change in business model from FY 2015-16, the Corporate Debtor had started acting like a bottling job-worker for its holding company and was charging the Respondent No. 6 ₹65/case of 90 ml, for the F.Y. 2016-17, whereas the other job worker Soaring Spirits Pvt Ltd. was charging much higher to the Respondent No. 6. The Applicant has based his allegation upon the forensic auditor s observation and has cited the following observation of Forensic Auditor in particular: The jo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34. On perusal, The impugned transaction took place in the ordinary course of business of the Corporate Debtor and therefore exempted from being undervalued transaction. Sub-lease Agreement 35. The Applicant has prayed to declare the sub-lease agreement with MS Biotech Pvt. Ltd. as null and void as it is prejudicial to the interest of the creditors and not approved by the creditors. The Applicant has stated that the change in business model in FY 2017-18, wherein the Corporate Debtor became leasing unit for MS Biotech Pvt. Ltd. by sub-lease agreement, has resulted in the sales to Andhra Pradesh Beverage Corporation Limited being done and collected by MS Biotech Pvt Ltd. This business arrangement, it is stated, has prejudiced the creditors as the receivables from Andhra Pradesh Beverage Corporation which had been given as securities to the creditor will cease to exist, in the hands of the corporate debtor. The Liquidator states that this appears to be an exercise to defraud the creditors as it impacted the profitability of the Corporate Debtor. 36. In reply to these allegations, the Respondents has submitted that MS Biotech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377;11.35 crores which were transferred to Shrirampur unit of Tilaknagar Industries Ltd. be vested in the Corporate Debtor. The Applicant has relied upon the Forensic Audit Report to state that the assets worth ₹11.35 crores were transferred to the Shrirampur unit of the holding company and the same cannot be identified as they were used along with other similar machinery of the holding company. It is contended that the transfer was not mentioned or described anywhere in the board minutes, minutes of Member s meeting, accounts, director s report and not even informed to the creditors. It is submitted that this transfer is preferential transaction as it gave preference to the holding company. 40. In reply to the allegations of the transfer of assets worth ₹11.35 crores to the holding company the Respondents have submitted that due to the delay of more than five years in approval of a license for enhanced capacity, the assets of the Corporate Debtor were lying unutilised and rusted. The transfer of assets to the Holding Company s unit at Shrirampur, Maharashtra was a commercial decision, taken almost five years before the CIRP initiation date, for better u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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