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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 ..... ulent transactions or not - HELD THAT:- Taking into account the volume of transactions involved, which is around ₹ 550 crores, the goods worth ₹ 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 ₹ 35 lakhs cannot be granted. Writing off trade receivables to the tune of ₹ 96.97 crores as bad debts by Corporate Debtor - HELD THAT:- There was dispute raised by the parties regarding quality of the material supplied. The total amount involved in these transactions is around ₹ 57,79,35,214. It is very clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, seeking directions to Respondents to make contributions to the assets of the Corporate Debtor. 2. AVERMENTS MADE IN THE APPLICATION: (1) This Tribunal by an order dated 5th October, 2018 admitted the Company Petition CP (IB) NO.343/7/HDB/2018 filed by the financial creditor Bank of India and 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 2 nd Committee of Creditors meeting held on 13th December, 2018 Raju Prasad, Charted Accountants were appointed on 10th January, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) CIRP Process started on 05-10-2018 (NCLT admission date). Before that, during F.Y.2017-18, Company has written off debts to the extent of ₹ 96.97 Crores. 2) As mentioned in Point A of Chapter VII, (vide page no. 18 of the audit report), there is no correspondence, no legal action taken on the debtors to substantiate the efforts made by the company to recover the moneys 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 Rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4(B), the Applicant has mentioned details of the nature of Disputed Debts as raised by the parties in the balance confirmation letters received by the forensic auditors. At para 4(C), the Liquidator has furnished the receivables for which there is no communication from the parties. (9) The Liquidator further stated that with regard to the Receivables mentioned in Para 4, the respondents have sent follow up letters requesting the parties 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) It is the case of Respondent No.2 that no benefit was received by any of the Respondents. The total purchases made by the Corporate Debtor through LCS during the financial years for which the forensic audit was conducted is around ₹ 550 crores, out of which purchase returns amounts to ₹ 35.45 crores i.e. less than 6.36% of the total purchases. Respondent No.2 further stated that the purchase return were on two accounts (i) quality issue (ii) purchase becomes 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 Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6391LCDA150078 2,18,40,000 86391LCDA150075 1,49,62,000 86391LCDA150085 1,39,23,000 86391LCDA150081 1,29,15,000 86391LCDA150077 1,18,12,500 86391LCDA150071 1,05,00,000 86391LCDA150093 1,05,00,000 86391LCDA160003 1,02,90,000 86391LCDA150057 1,61,70,000 14,61,60,000 2 Pragis Enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on the same day and the parties discounted the LCs and refunded the money to the Corporate Debtor Bank account and in turn the Corporate Debtor utilized the said amount to other LCs and availed the facility. Thus, the Respondents misused the LC facilities without actual purchase of goods and it was done with a view to defraud the creditors and they are liable to make good to the assets of Corporate Debtor under Section 66 (1) of IBC. The Liquidator estimated the liability being 1% of each LC which comes to ₹ 35 lakhs on the goods worth ₹ 35 crores involved in the above transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 ₹ 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 Oils Pvt Ltd 10,17,65,2019 3 P.M.S Agro Agencies 7,67,27,840 4 Sri Gopi Krishna Oil Mills 7,38,68,335 5 Sri Vishnu Oil Mill 7,19,73,994 6 7 Hills Trading Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kaleesuwari Refinery and Industry 12,37,226 32 Greener Fuels Ltd - Yambu 11,09,305 33 Golkonda Foods and Feeds Ltd Nlg A/c 9,88,750 34 Sri SLNS Traders 2,94,000 35 Jubilant Generics Ltd 1,90,360 36 Sovino Foods Pvt Limited 1,80,700 37 Sharan Foods Products Private Ltd 1,73,002 38 Sri Balaji Enterprises 1,12,882 39 S.M.P. Bakers 93,290 40 Daaj Hotels and Resorts Pvt Ltd 49,000 41 Maa Sarada Sai Agro Extraction (P) Ltd 37,123 42 Balaji Soap Works 28,485 43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the materials the parties 2 Kanyaka Parameswari Oils Pvt Ltd 10,17,65,219 Dispute quality raised b regarding the of the materials the parties 3 P.M.S Agro Agencies 7,67,27,840 Dispute quality raised b regarding the of the materials the parties 4 Sona Impex 57,32,160 Dispute quality raised b regarding the of the materials the parties 5 Sri Andavar Trading Company 3,74,66,028 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lent trading or wrongful trading. It is also the case of Liquidator that there was no communication in respect of certain transactions from the concerned parties whose recoveries were written off as shown below:- Sl.No. Particulars Amount 1 BIO FUTURE (INDIA) 48,77,088 2 Coronet Foods Pvt Ltd 10,224 3 Debtors - Non Current 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 Foo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India vs Chaturbhai M. Patel Co. (1976 AIR 712) that fraud must be established beyond reasonable doubt in civil and criminal proceedings where fraud is alleged. Learned PCS would contend that there is no allegation in the application that fraud was involved. In this connection Learned PCS relied on para 76 of Hon'ble National Company Law Appellate Tribunal in the matter of Axis Bank Ltd. v. Resolution Professional for Jaypee Infratech Ltd., 2019 SCC Online NCLAT 435. The first contention of the Learned PCS that Liquidator cannot invoke provisions of 66 (2) of IBC during liquidation. The said provisions shall be invoked by Resolution Professional during CIRP. Now the Liquidator has invoked this provision during liquidation and as such the application cannot be maintained under section 66 (2) by the Liquidator. 15. The Learned PCS would contend that these write offs stated by the Liquidator are not in respect of any related party. PCS would contend writing off a debt is commercial business decision. There cannot be any illegality or fraud attributed to write off. PCS would contend, the mere writing off in the Books does not deprive the Corporate Debtor to recover th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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