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TMI Blog2021 (11) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... fraudulent transaction on or before the seventy-fifth day from the date of commencement of CIRP - In the present case, CIRP had commenced on 07.02.2020, therefore, as per the said regulation, an opinion should have been formed on of before 22.04.2020; determination should have been made on or before 01.06.2020 and the application under the relevant section applicable should have been filed on or before 21.06.2020. The two independent auditors appointed by the financial creditors prior to initiation of CIRP, when the Trust Retention Account was operational, have cleared the transactions in question without any demur. Further, it is not the Resolution Professional's case that any benefit in the form of any additional facilities from the financial creditor has been obtained by the corporate debtor or its key managerial personnel. Therefore, the allegation that the transactions were intended to defraud the creditors, does not hold water. Consequently, the allegations under section 66 cannot be sustained. We are not inclined towards granting the prayers made in the present application - application dismissed. - IA (IB) No. 878/KB/2020 in CP (IB) No. 1214/KB/2018 - - - Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency Resolution Process for Corporate Persons) Regulations, 2016 read with the order dated 30.03.2020 passed by Hon'ble NCLAT in Suo Moto Company Appeal (CT) (Insolvency) No. 01/2020 one hundred and thirty-fifth day expired on 17.09.2020. 8. On 14.09.2020, Ernst Young LLP submitted its report to the RP. The report is annexed to the application and has been marked with letter A-6 on Pages 85-123. 9. The RP submits that upon assessment and evaluation of the information relating to the Corporate Debtor and review of the audit report, it appears that the Corporate Debtor has been subjected to the following transactions with an intention to defraud the creditors:- a. Adjustment entries made in the receivables of the Corporate Debtor: the entries made in the year-on-year closing balances of trade receivables as per the audited balance sheet for the Financial Year 2017-2018 and 2018-2019 do not match with the entries made in the year-on-year trade receivable balance as per the audited cash flow statement. Many adjustment entries have been passed in the ledger accounts of various parties which have changed the amounts receivable from them on the Balance Sheet without r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly conveyed to the shareholders and other stakeholders that there was substantial fixed asset at the said plant, whereas, in reality, most of the assets do not exist and the same should have been reflected in the books of account. Moreover, the Corporate Debtor has created a first pari passu charge on the entire fixed assets of the Corporate Debtor including the land and building at the said plant. The Respondents were at all time aware that the assets of the said plant were not in existence, however, they continued to treat them as genuine assets in the books of account and have purposely not accounted for the impairment of the assets of the Corporate Debtor of the Haldia Plant to the tune of ₹ 137.89 crore, to inflate the value of asset with the sole intention to defraud its creditors. d. Transaction with SKP Overseas Pte Ltd: SKP Overseas Pte Ltd., incorporated in Singapore, is a wholly-owned subsidiary of the Corporate Debtor. The Corporate Debtor used to make investments and advances to SKP Overseas Pte Ltd. it appears from the Financial Statement of SKP Overseas Pte Ltd. for the year ending on 31.03.2016, that these advances were used by the SKP Overseas Pte L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entory written off: an amount aggregating to ₹ 199.34 crore have been written down on account of raw material at Haldia Plant during the Financial Years 2016-2017 to 2018-2019. g. Reduction in unsecured debt: it appears from the financial statement for the years of 2016-2017 and 2017-2018 that there has been reduction in the unsecured debt of the Corporate Debtor to the tune of ₹ 60.92 crore and ₹ 3.38 crore, respectively. 10. The Applicant submits that it is clear from the aforesaid transactions that the businesses of the Corporate Debtor have been carried out with intent to defraud the creditors. The Corporate Debtor has also been subjected to several related party transactions of significant amount, including adjustment entries passed in the books of account of the Corporate Debtor, with Impex Metal Ferro Alloys Limited, Ankit Metal and Power Limited, and Impex Ferro Tech Limited. However, the transactions cannot be verified because of lack of proper documents. 11. The Respondents are not cooperative. Since the commencement of the CIRP they are denying access to information relating to the Corporate Debtor. The Applicant has reasons to believe tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under section 67 of the Code. f. Direct that the Respondent Nos. 1 and 2 are liable for causing loss to corporate debtor by their act or omission, which tantamount to misappropriation, breach of trust, misapplication or retention of monies/properties of the corporate debtor. Submission on behalf of the Respondents:- 14. Mr. Joy Saha, Learned Senior Counsel appearing for the Respondents 1 to 3, submits that the application is time-barred since although the Applicant has purportedly explained the delay of eighty-eight days in calculating the 135 days period for filing the application, he has made no prayer for condonation of such delay. In absence of any such prayer, the present application should be dismissed. 15. Although various baseless allegations have been made by the Applicant without making any case for the same. The application is based on false, uncorroborated and false allegations and no orders can be passed basis these allegations. 16. All the affairs of the Corporate Debtor including all the transactions were closely scrutinised by a nominee Director of the State Bank of India on behalf of the consortium of lenders. The said Director was on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... five debtors, as is evident from the auditor's report. There is no evidence in support of any alleged adjustment entries as the same are balances pertaining to the period prior to the Financial Year 2018-2019. Admittedly, no relevant data was available with the Applicant; therefore, the RP could not have come to such findings. Such allegations are based on surmises and conjectures without any documentary evidence supporting them. There is no discrepancies in the books that indicate that the book entries have been passed to adjust debit and credit balance of receivables of the Corporate Debtor. These allegations have only been made to create prejudice for no prayer has been made with respect to this allegation. b. Non-existent sundry debtors of the Corporate Debtor: the aggregate trade receivable in the Financial Statement for the year ending on 31.03.2019 was ₹ 419.05 crore. The trade receivables were mutual and the business transactions with the debtors were running and continuous, as a result of which, the trade receivables reduced and stood receivable over a period of time. It is, therefore, wrong to submit that the sundry debtors were non-existent. It is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erate or wrongful statements with regard to fixed assets of Haldia Plant. The fact of rampant theft is evident from complaint letter dated 31.05.2016 written to the local Police Station, a copy of which is annexed to the Reply Affidavit and marked with letter E. Even after these, the rampant theft continued at the said plant. The erstwhile management reported the same to the local Police Station by letter dated 17.01.2020. A copy of the said complaint-letter is annexed to the Reply Affidavit and marked with letter F. It is denied that the debtor's amount had been inflated by the Respondents for the purpose of misrepresenting or deceiving the creditors. It is a matter of usual practice that such trade receivables are extended as security to the Financial Creditor. The same was done in course of the credit facilities availed by the Corporate Debtor from its Financial Creditors who had done their due diligence before accepting such securities. In the instant case too, there was there was a first pari-passu charge on the entire fixed assets of the Corporate Debtor including equitable mortgage on land and building in favour of SBICAP Trustee Company Limited and Consortium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C Limited: upon initiation of the CIRP against the Corporate Debtor, MSTC filed an application bearing IA (IB) No. 611/KB/2020 in the underlying Company Petition, alleging that there has been unauthorised lifting of goods from the Jajpur Plant of the Corporate Debtor and that the boards demarcating the stocks pledged to MSTC Limited have been removed. MSCT submitted that more than ₹ 47 crore is due and payable by the Corporate Debtor, therefore the raw material lying at the said plant be auctioned. This application was dismissed by this Adjudicating Authority vide order dated 21.08.2020, a copy of the said order is annexed the Reply Affidavit and marked with letter I. This order was appealed against before the Hon'ble National Company Law Appellate Tribunal (NCLAT), the Hon'ble NCLAT upheld the decision of this Adjudicating Authority and directed MSTC to file its claims before the RP as an Operational Creditor. The MSTC has filed its claim which has been admitted by the RP to the extent of ₹ 44 crore. However, the claim of MSTC had been disputed by the Corporate Debtor when on 23.10.2019 MSTC had requested the Corporate Debtor for a balance confirmation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n shut down since July, 2015. The Applicant has failed to demonstrate as to why such transaction is illegal. Further, no prayer with respect to the said amount has been made in the Application. g. Reduction in unsecured debt: it is a matter of record that while some of the parties had receivables from the Corporate Debtor, some parties had to pay the Corporate Debtor in respect of distinct transactions. The said parties squared up the transactions, therefore, no actual sums were ever paid by the Corporate Debtor. Further, while calculating the figure, the RP has not considered the current borrowings part of the financial statement; various amounts were re-classified from the non-current borrowing group to current borrowings group as per the relevant accounting principles. 20. The business of the Corporate Debtor has not been carried out to defraud the creditors. The Corporate Debtor has exercised proper control in the affairs of the Corporate Debtor. 21. It is denied that the Respondents have not cooperated with the RP or have refused to provide any information or document. It is wrong to submit that the books of accounts of the Corporate Debtor have not been maintained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial has been brought to substantiate RP's visit or that he prepared in the presence of independent witnesses. The photographs taken have been annexed to the Rejoinder and marked with letter A-2. It is clear from the photograph that nothing exists at Haldia Plant except for the old, dilapidated structures. There is no trace of any machineries or movable properties. Upon visit to the plant, the RP has caused the Corporate Debtor to record the impairment in the financial statement of the Corporate Debtor for the Financial Year ending on 31.03.2020. An impairment of ₹ 137.89 crore has been provided on all assets except land in the said financial statement. The Respondents have admitted that there had been rampant theft at the plant, however, they did not provide for impairment in the value of assets in the Financial Years 2015-2016 to 2018-2019 and have thereby led the Financial Creditors to believe that the Haldia Plant had substantial assets. 30. The Respondents have failed to provide any documents that would prove that the investment in were made to exercise stake in cola mines of PT Bara Prima Mandiri. They have referred to legal proceedings in Indonesia, however, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections 43, 66 of the Code against the Respondent Nos. 1 to 3. 37. The Applicant claims to have complied with Regulation 35A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. 38. As per the aforesaid regulation, it is incumbent upon the RP to form an opinion as to whether the Corporate Debtor has been subjected to preferential, undervalued or as has been alleged in the present case - fraudulent transaction on or before the seventy-fifth day from the date of commencement of CIRP. 39. Thereafter, on or before one hundred and fifteenth day from the date of initiation of CIRP, the RP shall make a determination that the Corporate Debtor has been subjected to the transaction alleged to have been made. Upon making determination of the transaction, the RP is to make an application before the Adjudicating Authority on or before one hundred and thirty-fifth day from the date of commencement of CIRP. 40. In the present case, CIRP had commenced on 07.02.2020, therefore, as per the said regulation, an opinion should have been formed on of before 22.04.2020; determination should have been made on or before 01.06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imate the determination of the nature of the transaction to the Insolvency and Bankruptcy Board of India under regulation 35A(2). 46. So far as the merit of the case is concerned, transactions under seven broad heads have been alleged to be fraudulent. In so far as the allegations recorded in preceding para 9(a) to (g) are concerned, the Respondents have replied to each allegation specifically which have been recorded in para 19 (a) to (g). 47. The allegation pertaining to the fact that impairment of assets was not provided for in the balance sheet of the corporate debtor for the Financial Year 2016-2017. 48. We note that two independent auditors appointed by the financial creditors prior to initiation of CIRP, when the Trust Retention Account was operational, have cleared the transactions in question without any demur. Further, it is not the Resolution Professional's case that any benefit in the form of any additional facilities from the financial creditor has been obtained by the corporate debtor or its key managerial personnel. Therefore, the allegation that the transactions were intended to defraud the creditors, does not hold water. Consequently, the allegations ..... X X X X Extracts X X X X X X X X Extracts X X X X
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