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TMI Blog2019 (8) TMI 1609X X X X Extracts X X X X X X X X Extracts X X X X ..... ES LTD. AND MR. JAYATHEERTHAK. B and it was dismissed by upholding the order. In the present case also, issue raised in the instant Company Application are required to be further investigation by the Serious Fraud Investigation Office - therefore, appropriate action can be taken against the erring Officials/Respondents basing on the report. The Central Government is directed to refer the matter to the SFIO for further investigation into the Affairs of the Corporate Debtor namely M/s. BCIL Red Earth Developers India Private Limited, Shri Hariharan Chandrashekhar, Ms. Kanchan Kaur, Shri Sanjay Ramanujam and M/s. Promptech Incorporated and other related Persons and Companies including Director of Companies of Corporate Debtor related Companies, basing on the Review Report as expeditiously as possible. - I.A. No. 457 of 2018 and I.A.No. 256 of 2019 in C.P. (IB) No. 06/BB/2018 - - - Dated:- 9-8-2019 - Rajeswara Rao Vittanala, Member (J) And Dr. Ashok Kumar Mishra, Member (T) For Resolution Professional: Party-in-Person and C.K. Nanda Kumar For Respondents/Defendant: Vivek B.R. and Thomas Vellapally ORDER RAJESWARA RAO VITTANALA, MEMBER (J) 1. I.A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated January 31st, 2019 extended CIRP of the Corporate Debtor by further 90 days beyond 180 days starting from February 5th 2019 i.e., till May 6th 2019 upon an application filed by the erstwhile RP under Section 12 of the Code read with Regulation 40 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Subsequently, the Adjudication Authority vide its order dated April 01st, 2019 allowed the application filed on behalf of the Committee of Creditors of the Corporate Debtor to change the Resolution Professional of the Corporate Debtor and thus appointed Mr. Arnit Chandrakant Shah as the RP in place of Mrs. Nidhi Seksaria. (4) It is stated that pursuant to the erstwhile RP taking charge of the Corporate Debtor and upon perusal/review/analysing the books of accounts and other records of the Corporate Debtor, the erstwhile RP noticed that an amount of ₹ 1,25,45,046/-(Rupees One Crore Twenty Five Lakhs Forty Five Thousand and Forty Six Only) against the receivables from Respondent No. 4. The erstwhile RP carried out an exercise to determine if the transactions of the Corporate Debtor may be classified inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014 42,25,000 Respondent No.4 to Respondent No.5 29.04.2014 62,00,000 Corporate Debtor to Respondent No.4 29.04.2014 55,00,000 Corporate Debtor to Respondent No.4 30.04.2014 50,00,000 Respondent No.4 to Respondent No.5 30.04.2014 50,00,000 Respondent No.4 to Respondent No.5 06.05.2014 15,00,000 Respondent No.4 to Respondent No.5 08.09.2014 1,00,00,000 Corporate Debtor to Respondent No.4 09.09.2014 50,00,000 Respondent No.4 to Respondent No.5 10.09.2014 43,00,000 Respondent No.4 to Respondent No.5 2,17,00,000 Total from Corporate Debtor to Respondent No.4 2,35,25,000 Total from Respondent No.4 to Respondent No.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent No.4 to Corporate Debtor 92,54,954 Total from Respondent No.4 to Corporate Debtor 1,13,55,000 Total from Respondent No.5 to Respondent No.4 (9) It is stated that the Applicant vide email dated 20.12.2018 wrote the R-4. The Applicant vide email informed the R-4 that the CIRP process for the Corporate Debtor has commenced and this Adjudicating Authority vide its order dated 09.08.2018 (received by the Applicant on 11.08.2018) appointed the Applicant as IRP and that the Applicant's appointment as the RP is confirmed and/or approved by the CoC. The Applicant further informed the R-4 that the powers of Board of Directors have been vested in the Applicant. The Applicant during interaction with employees and management of the Corporate Debtor learned that the R-4 was handling works related to club houses for R-5. It is further informed the R-4 that the Applicant has noticed that a sum of ₹ 1,25,45,046/-(Rupees One Crore Twenty Five Lakhs Forty Five Thousand and Forty Six Only) is receivable from R-4 and that the Applicant is unable to find nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivable from the R-4 as per the books of accounts of the Corporate Debtor in the absence of any valid explanation/ clarifications by the R-1 to 3 indicates an overstatement of loss in the books of the Corporate Debtor. It is alleged that the impugned write off was done in order to settle the accounts between the group company of the Corporate Debtor and the R-4. In the event that Corporate Debtor was taking on the liability of a group Company, the journal entries should have been made accordingly and R-5 should be reflecting as a debtor in the books of the Corporate Debtor. (12) It is stated that the Corporate Debtor is the Compaq which has been. funded by the main Petitioner in the Company Petition and R-5 is the Corporate Guarantor/Co-obligor to the transaction. The transfer of ₹ 2,17,00,000/-(Rupees Two Crores and Seventeen Lakhs Only) to R-4 appears to be for the purpose of diversion of funds to R-5 which is not a funded Company. Only a fraction of the amount transferred was returned and the balance was written off instead of recording it as a debt owed by R-5. (13) It is also stated that the lack of an explanation or clear accounting entries for this transaction ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. The averment o the RP is refuted as false and are made with mala fide intent. 4. The Respondent No. 2 namely Ms. Kanchan Kaur anc Respondent No. 3 namely Shri Sanjay Ramanujam, have filec common Statement of Objections dated 16.07.2019, by intei alia contending as follows: (1) It is stated that the Corporate Debtor was engaged in the business of reals estate and development of a villa project in Bengaluru. In view of the nature of business, the Corporate Debtor had to incur cost and make payments for the purpose of securing approvals from various approva bodies including the Local Panchayat. Further, the Corporate Debtor also had to undertake customisations beyond the scope of construction agreements, which works were executed by third-party vendors under the overall supervision of the construction team of the Corporate Debtor. (2) It is also stated that the Respondent No.2 is only a Non-Executive Director on the Board of the Corporate Debtor. Furtiier, the Respondent No.2 has been in full time employment in Indian Institute of Journalism New Media since 2004. She is currently Dean of the said Institute. Due to her full time employment with the institute, she was h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done on arm's length and during the ordinary course of business. This fact is further corroborated from the Petitioner's approval for disbursement/transfer of funds from the escrow account. (6) Notwithstanding the fact that the transactions between the Corporate Debtor and the Respondent No.4 were made in good faith and in the ordinary course of business, all of the said transactions happened even before Respondent No.3 was appointed as the Executive Director of the Corporate Debtor effective 1st December 2014. Further, as mentioned in para 9 above, all transfers from Corporate Debtor to R-4 were made from the project escrow bank account for which the Petitioner is the sole approving authority and therefore it is certainly not a fraudulent transfer as alleged by the RP. It is unclear if the RP had asked the Petitioner to explain the basis for approving the bank-transfers from project escrow bank account and what were the responses received from the Petitioner. Further, it is also unclear why the Petitioner has not been included as Respondent as all transfers were made from the escrow account controlled by the Petitioner. (7) The averment of the RP refers to e-mails be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No 4 not carried out nor is a party to any fraudulent transaction and all the transactions carried out with the Corporate Debtor and the R-5 have been duly accounted in the books of this Respondent. This Respondent's scope of work was mainly by way of supplies related to construction, and also undertaking the internal finish work along with labour supply, for which purchase and work orders were issued from time to time by both M/s. Biodiversity Conservation India Private Limited (BCIL) and M/s. BCIL Red Earth Developers India Private Limited ('RED') and a consolidated ledger account for both companies were maintained by this Respondent as these were related Companies with the main Promoter being the same. The advances received from BCIL (R-5) or RED (Corporate Debtor) and dues to them, were adjusted against work carried out for each Company, or for the other Company, as mutually agreed, and on the directions of the management of the aforesaid Companies. In other words, payments to or from one Company for work carried out for that Company were often adjusted against payments due to or from the other Company and this was the practice and understanding from the year 2010 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of BCIL, Mr. Chandrasekhar Hariharan on 30.03.2016, confirming the adjustment stating that it was agreed by both the parties (BCIL Promptech) that the Sale Agreement will be terminated and that advances paid by M/s. Promptech Incorporated will be adjusted against other transactions between both Parties. It was only pursuant to this Agreement that the advances received form RED were adjusted against the dues from BCIL to this Respondent. (6) It is denied that an amount of ₹ 1,25,45,046/- (Rupees One Crore Twenty Five Lakhs Forty Five Thousand and Forty Six Only) is due to the Corporate Debtor from this Respondent. As mentioned above, amounts due to this Respondent from BCIL were adjusted against advances paid by RED and merely because a corresponding entry was not made in the books of RED, it does not mean and it is categorically denied that an amount of ₹ 1,25,45,046/-is due from this Respondent. It is reiterated that no amounts are due to either BCIL or RED from this Respondent, and dues from BCIL have been adjusted against advances paid by RED as mutually agreed with the management at that point of time and as was the practice over a period of time. The Appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as paid ₹ 1,13,55,000/- as a refund upon cancellation of abovementioned plots between June 2016 and September 2016. However, the balance of ₹ 1,36,70,000/- still reflects as a liability in the books of R-5 Company. 9. The Applicant submits that Ms. Nidhi Seksaria then RP has engaged S.P.R. Co. (Chartered Accountants) vide engagement letter dated 23.10.2018 to conduct a review as requires them to identify and report which reads as under: A: Avoidance Transactions Preferential transactions, if any, by the Corporate Debtor in terms of Section 43. Transactions, if any, which are undervalued by the Corporate Debtor in terms of Section 45. Extortionate credit transactions, if any, by Corporate Debtor in terms of Section 50. Fraudulent transactions as specified under Section 66 of the Code. B: Others Matters Others aspects detailed in the engagement letter dated 23.10.2018 and as discussed with the Resolution Professional. Accordingly, M/s. S.P.R. Co. (Chartered Accountants) has prepared a report analysing the subject issue which is in regards of Review of Related Party Transactions, Statutory Compliances and Summary of Avoidance Transactions f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,300 1,75,05,900 1,61,91,720 13,14,180 55 Venkatesh Prasad 27.10.201 5 3186 5,300 1,68,85,800 1,27,42,719 41,43,081 39A Manika Gera Anubhav Gera* 01.11.201 5 3311 5,300 1,75,48,300 1,72,29,839 3,18,461 31 Mahesh Kumar BS* 01.10.201 6 3667 5,300 1,94,35,100 1,93,68,000 67,100 Total Shortfall 1,66,90,010 Apart from the above, on perusal of the review report, the Bench points out the following points for resolving the issue which reads as under: Sl. No. Related Party Opening 2013-14 2014-15 2015-16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 BCIL Little Acre Resorts Pvt. Ltd. 4,405 -4,405 - 11 BCIL Trading Company - TOTAL 18,92,82,274 11,49,38,432 3,46,66,745 5,30,79,578 4,47,45,982 2,17,95,456 37,78,170 40,53,96,807 Similarly, several irregularities have been pointed out in the report justifying the conclusion of the RP as stated supra. Therefore, we are of the prima facie view that the Review Audit report got by RP has detected various fraudulent transactions which attracts to take action under Section 66 of the Code and the case required to be ordered further investigation. 10. In the similar circumstance, one application was filed under Section 66 R/w Section 25(2), 69, 70 and other applicable Sections of the IBC, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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