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TMI Blog2020 (6) TMI 767X X X X Extracts X X X X X X X X Extracts X X X X ..... d Corporate Insolvency Resolution Process commenced against the Corporate Debtor M/s. Southern Online Bio Technologies Limited by appointing the Applicant herein as an Interim Resolution Professional who was subsequently confirmed as Resolution Professional of the Corporate Debtor. (2) When no resolution plan came forth, the Committee of Creditors in its 14th meeting resolved to liquidate the Corporate Debtor. Following which, this Tribunal on 16th July, 2019 passed an order in IA No.565/2019 preferred by the Applicant for liquidating the Corporate Debtor Company by appointing the Applicant herein as Liquidator of the Corporate Debtor M/ s Southern Online Bio Technologies Limited. (3) The Applicant stated that on the directions of CoC in the 2nd Committee of Creditors meeting held on 13th December, 2018 Raju & Prasad, Charted Accountants were appointed on 10th January, 2019 for conducting forensic audit for the preceding 5 years from the Insolvency Commencement Date that included the transaction analysis as per Sections 43, 45, 30 & 66 of Insolvency and Bankruptcy Code, 2016 which are as follows: i. Section 43: Preferential Transactions and relevant time. ii. Section 45: Avo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the debtors. Hence, we are of the view that company has not exercised due diligence in minimizing the potential losses. Hence the act will fall under the purview of Section 66(2) of IBC. 3) As mentioned in point D of Chapter VII, (vide page no.28 of the audit report), company has issued LC'S to certain parties against purchases. However, as per books of accounts, we have noticed that such purchases were returned on the same day. It infers that company has made payments through LC facilities to certain parties but no effective purchases were made. Though parties to whom such LC's were issued have returned the money in majority of cases, we are of the view that the above act shall fall under the purview of Section 66(1) of IBC. (5) The Applicant shared the final Audit Report with the members of Committee of Creditors who in turn called for explanations from the Ex-directors of the company. The Liquidator further informed the members of COC about preferring an Application before this Tribunal against the ex-directors of the company as per the sections mentioned in the forensic audit report by the forensic auditors. (6) The Applicant subsequently filed memo dated 10.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties to pay the outstanding amounts. Some of them mentioned in Table B of the para 4, raised disputes regarding the quality of the products and that they would settle the disputes with the Company. They have also confirmed the outstanding amount. With regard to the receivables mentioned in the para 4- table C, it is stated that the parties have not communicated and some of the correspondences are stated to have been not delivered. Hence Applicant feels that there are chances of recovery of these receivables mentioned therein, depending on the financial position of the parties, quantum of dispute regarding the quality of the product. The Applicant alleged that the Respondents instead of retaining them in the Books of Accounts, have written them off in the Financial Year 2017-18, thereby depriving the Corporate Debtor from recovering the outstanding amounts from the parties. 3. COUNTER BY RESPONDENT NO.2 Counter is filed by Respondent No.2 refuting the averments made in the instant application and contested as under. Respondents 1 and 3 vide memo dated 05.06.2020 have adopted the counter filed by Respondent No.2. (1) Respondent No.2 contents the present application filed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comes disadvantageous due to price fluctuation. It is further stated that the transactions which are whined in the Application are purely commercial in nature and quite common in any manufacturing industry. (5) Respondent No.2 further submits that none of the parties involved in the write off or purchase returns are related parties as defined under Section 5 (24) of the Code. (6) It is alleged that the instant application is preferred by the Applicant only on the basis of Forensic Audit but not on the opinion formed by the Applicant / Liquidator, as such urged the Tribunal to dismiss the Application. 4. We have heard the Counsel for Liquidator as well the Liquidator and also the PCS for Respondents 1-3. Both sides filed written submissions. The points urged in the written submissions will be dealt in the course of the order. 5. Originally the Liquidator filed application against Respondents 1-4 who were ex-Directors of Corporate Debtor Company under Section 66(1) and Section 66 (2) of IBC, 2016. The Liquidator originally sought relief against Respondents by giving a direction to the Respondents to make such contribution to the assets of the Corporate Debtor as the Tribunal d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,05,00,000 86391LCDA160004 1,02,90,000 86391LCDA150076 68,25,000 86391LCDA150079 73,50,000 86391LCDA150092 80,32,500 86391LCDA150094 72,29,250 86391LCDA150097 78,75,000 9,42,53,250 3 Venkateswara Traders 86391LCDA150067 1,38,60,000 86391LCDA150080 1,33,87,500 86391LCDA150084 70,87,500 2068415LC0000262 1,72,72,500 2068415LC0000271 1,10,88,000 7,31,95,500 4 Siri Traders 86391LCDA160005 1,05,00,000 1,05,00,000 5 Sree Traders 86391LCDA160007 78,75,000 78,75,000 6 Kisan Enterprises 2068415LC0000258 2,25,75,000 2,25,75,000 35,45,58,750 8. It is also the case of Liquidator that the goods purchased by availing LC facilities from the above mentioned parties are returned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith related parties. Taking into account the volume of transactions involved, which is around Rs. 550 crores, the goods worth Rs. 35 crores were only returned. It is a specific case of Respondents 1-3 that the goods were returned after inspection due to quality and also due to fluctuations in the price. Neither the Liquidator nor the Forensic Auditor alleged that these are fraudulent transactions. Then mere return of goods on the very same day cannot be held to be fraudulent transactions intended to defraud the creditor. The important factor to be taken note of that these are not related party transactions. Thus, when there is no material to conclude that these are fraudulent transactions, then the request of the Liquidator to direct the Respondents to make contributions to the assets of the Corporate Debtor to the extent of Rs. 35 lakhs cannot be granted. 11. The next contention of the Liquidator that during the Financial Year 2017-18 the Corporate Debtor has written off trade receivables to the tune of Rs. 96.97 crores as bad debts, the details of which are shown below:- Sl. No. Name of the Party Amount WO (in Rs.) 1 Advait B.V 15,15,83,046 2 Kanyaka Parameswari Oil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 DAAJ HOTELS AND RESORTS PVT.LTD. 49,000 Debts for the period of more than 3 years 4 Sharan Foods Products Private Ltd 1,73,002 Debts for the period of more than 3 years 5 SRI SLNS TRADERS 2,94,000 Debts for the period of more than 3 years 6 Trademet Ltd 51,33,898 Debts for the period of more than 3 years 7 ISP division debts 6,02,10,886 Debts for the period of more than 3 years Total Amount 25,73,32,944 The Liquidator has categorically admitted that the above trade receivables are not recoverable because they are barred by limitation. There is no point in keeping those debts in the accounts. The Company did nothing wrong in writing off those debts because they are barred by limitation. The amount involved in the said category is Rs. 25,73,32,944/-. 13. The further case of Liquidator that certain receivables are in the nature of Disputed Debts because dispute was raised by the parties concerned in the balance confirmation letters received by the Forensic Auditor. They are shown in the table given below:- Sl. No. Particulars Amount Remarks 1 ADVAIT BIO FUELS LLP 2,01,98,387 Dispute quality raised b regarding the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urrent Asset 32,80,500 4 Evergreen Ener Inc 78,68,804 5 MAA SHARDA SAI AGRO EXTRACTION (P) LTD 37,123 6 Nidhi Agencies 31,92,952 7 SAI RAM CHEMICALS 98,41,342 8 Sarda Agro Oil Ltd. 1,15,79,165 9 S.M.P BAKERS 93,290 10 Sovino Foods Pvt Limited 1,80,700 11 Sri Balaji Enterprises 1,12,882 12 SRINIDHI OIL PRODUCT 1,76,77,227 13 VIJAYADITYA AGRI BIOTECH PVT LTD 65,53,208 14 Global Impex 43,00,000 15 Golkonda Foods and Feeds Ltd - Nlg A/c 9,88,750 16 Jubilant Generics Ltd 1,90,360 17 Kaleesuwari Refine and Industry 12,37,226 18 Paramone Infrastructure Pvt.Ltd 1,38,98,376 19 Sri Durga Industries 22,346 20 Greenergy fuels ltd 11,09,305 21 Anisha Trading Company 28,81,134 22 Sri Venkata Ramana Traders 4,44,60,383 Total 13,43,92,385 The amount involved in the above transactions is around Rs. 13,43,92,385/-. The contention of the Liquidator, the Corporate Debtor has not taken any steps for recovery of the amount due from parties who raised dispute regarding quality as well from the parties who have not responded to the communication regarding receivables from them. The contention of Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of PCS, it is commercial decision of the Company to write off bad debts. Even if the amounts are written off, it does not amount to giving up the right to proceed against the concerned debtor of the Corporate Debtor Company for recovery. For account purpose and for IT purposes the bad debts were written off. The important thing, the parties are not related parties against whom the debts were written off. The case of Liquidator that the Respondents who were in the management of the Company failed to exercise due diligence and as a result caused loss to the Company by not taking appropriate action against the defaulters. 17. We have discussed earlier that certain debts were barred by limitation. There is nothing wrong in writing off those debts which are barred by limitation. Regarding claims where disputes are involved even though such debts were written off, it is open to the Corporate Debtor to proceed. Likewise the amount due from the parties who have not responded, even against them also the new management who acquired Corporate Debtor Company can proceed, if so advised. The fact remains that there is no fraud alleged. Secondly, the parties against whom the debts were written ..... X X X X Extracts X X X X X X X X Extracts X X X X
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