NCLT Chennai-1 (2025.02.19) in Mr. S.Palaniappan Vs. Mr. Anil Kumar Ohja & Ors. [IA/IBC/1331/ Che/2023 In CP/1264/2018], held that;
The Hon’ble Supreme Court meant a transaction to be a "preferential transaction" under IBC if the ingredients of clause 2 and 4 of Section 43 IBC are satisfied, and it is not protected by clause 3 of Section 43 IBC. The Court by formulating this test made it easier for the RPs and Tribunals to adjudicate upon the existence of a "preferential transaction".
Sections 43(2) and 43(4) are deeming provisions. Hence, a legal fiction would come into play in such a scenario, meaning the transaction would be deemed to be hit by Section 43 of the Code even if it was not intended or even anticipated to be preferential.
The tribunal reiterated the position taken by Anuj Jain case and held that since legal fiction comes into play once the ingredients of Section 43(2) r/w Section 43(4) are fulfilled, the question of intent becomes irrelevant, and the transaction would be deemed to be preferential.
Excerpts of the order;
IA/IBC/1331/Che/2023 has been filed seeking the following reliefs:
a) Declare that the payment of the subject transactions is violative of Section 43 of the Code and is liable to be reversed and set aside and pass appropriate orders directing the Respondents 1 to 4 to pay such sums as stated above in respect of benefits received by them from the Corporate Debtor as the Hon'ble Tribunal may direct;
b) Pass appropriate directions / orders in terms of Section 44 of the Code including for recovery / restoration of legitimate amounts due to the Corporate Debtor and penalty on the Respondents;
c) Permit the Applicant / Liquidator to submit supplementary findings and report the PUFE transactions post updating of books of accounts, audit conducted and transaction audit done afresh;
d) Direct for the matter to be investigated by an Inspector or Inspectors in terms of Section 213 of the Companies Act, 2013 and to thereafter take necessary action as against the Respondents as per due course of law;
e) Permit submission of additional information and documents by the Applicant/Liquidator before this Bench;
f) And for such other / further order(s) and / or direction(s) as the facts and circumstances of the case may be warrant.
2. BRIEF HISTORY
2.1. M/s. SLO Industries Limited (Corporate Debtor (CD)) was incorporated on 17 July 2003 and was engaged in the business of manufacturing MS ingots and steel structures. The directors (suspended) of the CD were Mr. Anil Kumar Ojha, Mr. Rakesh Kumar Sharma and Ms. Arangannal Deepalakshmi. The Corporate Debtor obtained credit facilities for Rs. 205.10 crores from Corporation Bank (now Union Bank of India) during the Financial Year 2014-15 towards its operational activities, including but not limited to the setting-up of its rolling mill and for raw materials procurement. As the CD defaulted in payments, the Bank took the appropriate steps for recovery of the outstanding amounts, including initiating action under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC") before this Tribunal.
2.2. The Company Petition CP/1264 / (IB) / 2018) was admitted by this National Company Law Tribunal (NCLT) under Section 7 of the Insolvency and Bankruptcy Code 2016 ("Code") for initiation of Corporate Insolvency Resolution Process ("CIRP") as against the Corporate Debtor ("CD") vide Tribunal’s Order dated 04th November 2019.
3. ARGUMENTS ON BEHALF OF APPLICANT:
3.1. It is submitted that as a precursor to the initiation of CIRP as against the CD, a complaint was filed on 31.08.2018 (FIR No. 16 dated 31.08.2018) by the Deputy General Manager, Corporation Bank (now merged with Union Bank of India) with the Central Bureau of Investigation (CBI), Banking Securities & Fraud Cell, Bangalore against the Corporate Debtor, their group companies and related parties. The allegations in the complaint disclose commission of offences under Section 120B read with 406,420,468 & 471 of Indian Penal Code.
3.2. It is stated that the Directorate of Enforcement vide provisional attachment order No. 02/2020, dated 06-10-2020, attached 74 Immovable Properties and 8 Movable Properties of the Corporate Debtor, its directors and related parties. These included 38 immovable properties of the Corporate Debtor with a guideline value amounting to Rs.43.25 crores and also movable assets such as vehicles, crane etc., amounting to Rs.1.32 crores. An appeal was filed, which is pending before the Hon'ble Appellate Tribunal for PMLA for the properties
seized, under the Prevention of Money Laundering Act, 2002 seeking to release the assets attached to enable a proper resolution/liquidation of the CD and to enable the Secured Creditors to make recovery of the public Funds.
3.3. It is submitted that CBI and ED had seized documents and attached movable and immovable properties of Corporate Debtor and related parties.
3.4. It is submitted that external independent expert "BDO India LLP" was appointed during CIRP period by the erstwhile RP Mr. C. Ramasubramaniam to conduct Transaction Audit. The Transaction Audit report dated 18th February 2021 of BDO India LLP, highlighting various fraudulent transactions entered into by the Corporate Debtor and its promoters / directors of the CD being Respondents herein was submitted. Copy of the said Transaction Audit Report is hereto annexed and marked as "Annexure-1".
3.5. It is submitted that the erstwhile RP didn't file preferential, undervalued, fraudulent and extortionate (PUFE) transactions application during his tenure as RP (upto 21.01.2022) before this Tribunal even though Transaction Audit was done and report submitted by the external expert "BDO India LLP", dated 18th February 2021.
3.6. It is submitted that under the above circumstances and also non-cooperation application pending before this tribunal, the Applicant/Liquidator filed this Application before this tribunal,
highlighting the Fraudulent transactions reported as per the findings of the external expert BDO India LLP vide its report dated 18th February 2021 and also copy of the attachment order of the Directorate of Enforcement in OC 1364/2020, dated 24.03.2021 relating to the CD.
3.7. The extracts from BDO’s report regarding Section 43 IBC application are as under:
XXXX
REGARDING TRANSACTION OF RS.14.86 CRORE WITH ARAN STEELS PVT LTD
4. WRITTEN SUBMISSION FILED BY THE NEW LIQUIDATOR APPLICANT
4.1. It is submitted that Mr. Anil Kumar Ohja, who is the common Director in both the companies and hence related parties as per the provisions of the IBC and the Companies act 2013.
4.2. It is stated that this avoidance transaction application filed against the erstwhile Directors of the Corporate Debtor (R1, R2 & R3) and the beneficiary company (R4) is based on the outcome of the Transaction audit report conducted by the external agency, "M/s BDO India LLP (Page No 25 -175) and also based on the report of the Director of the Enforcement Department in O/C 1364/2020 and the attachment of the movable and immovable properties of CD and Mr.Anil Kumar Ohja and other Directors of the CD and his relatives, has been confirmed by the Adjudicating Authority under the PMLA act of 2002 in its vide Order dated 24/03/2021.
4.3. Based on the findings of the Transaction Audit Report of the external expert, BDO India LLP, the following Preferential Transaction is Summarized:
4.4. It is submitted that in brief, the avoidance transaction under Section 43 of IBC is as under:
a. Payments between CD and the ARAN Steels were made within the look back period of 2 years. The 1st Respondent is a common director in both the companies.
b. ARAN Steels being the related party of the CD received a preference from the CD.
c. Transaction by the CD to ARAN Steels was not in the ordinary course of business of the CD. The CD had previously not made payments in this nature of the transaction and such payments are one of transactions and not in the ordinary course of business of the CD.
d. The circumstances in which the payment of the transaction has taken place i.e. during the period when the CD was already in default of due payments to the secured financial creditor.
e. That the payment made by the CD has had the effect of improving the position of the ARAN Steels. It is apparent that the ARAN Steels would have been ranked below the creditors, who would have had priority as per Section 53 of the Code.
5. COUNTER FILED BY 1ST RESPONDENT ANIL KUMAR OJHA
5.1. It is stated that for the sake of brevity, the Respondent is not replying para wise to the averments contained in the Application. Therefore, it should not be deemed that the Respondents have admitted the uncontroverted averments in the Application.
A. Limitation for filing avoidance application
5.3. It is submitted that the Application is barred by limitation and that the Applicant could not have filed this Application as it is time barred. The limitation for filing avoidance application has been specified in Regulation 35A of CIRP Regulations, which reads as under;
CIRP Regulations;
Regulation 35A. Preferential and other transactions.
(1) On or before the seventy-fifth day of the insolvency commencement date, the resolution professional shall form an opinion whether the corporate debtor has been subjected to any transaction covered under sections 43, 45, 50 or 66.
(2) Where the resolution professional is of the opinion that the corporate debtor has been subjected to any transactions covered undersections 43, 45, 50 or 66, he shall make a determination on or before the one hundred and fifteenth day of the insolvency commencement date.
(3) Where the resolution professional makes a determination under sub- regulation (2), he shall apply to the Adjudicating Authority for appropriate relief on or before the one hundred and thirtieth day of the insolvency commencement date.
(3A) The resolution professional shall forward a copy of the application to the prospective resolution applicant to enable him to consider the same while submitting the resolution plan within the time initially stipulated.
(4) The creditors shall provide to the resolution professional, relevant extract from the audits of the corporate debtor, conducted by the creditors such as stock audit, transaction audit, forensic audit, etc.
5.4. It is submitted that the above regulation mandates that the resolution professional shall apply to the Adjudicating Authority for appropriate relief on or before the One Hundred and Thirty Five (135) day of the insolvency commencement date. In the regulations the word shall has been emphatically used many times, which shows that the timeline provided under the regulations is mandatory.
5.5. It is submitted that the mandatory nature of this provision (timeline) is reinforced by the fact that RP is required to file time bound compliance under Regulation 40B (1B) of CIRP Regulations, which reads as under;
(1B) The resolution professional shall file Form CIRP 8 intimating details of his opinion and determination under regulation 35 A, on or before the one hundred and thirty five day of the insolvency commencement date:
Provided that the filing of Form CIRP 8 shall not become due unless a period of thirty days has elapsed from the date of commencement of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2021.
(Regulation (1B) was Inserted by Notification No. IBBI/2021- 22/GN/REG075, dated 14th July, 2021 (w.e.f. 14-07-2021).
5.6. It is submitted that reliance is being placed on the following;
(a) Hon'ble Supreme Court in "Nemai Chandra Kumar & Others vs. Mani Square Ltd. & Others, (2015)14 SCC 203"
"32. Ordinarily, the Court resorts to the plain meaning rule (also Known as literal rule) for statutory interpretation. The said rule emphasis that the starting point in the statutory interpretation is statute itself and if the language of statute is Clear and unambiguous there is no need to look outside the statue. 33. The intention of the legislature is primarily to be gathered from the language used in the statute, "thus paying attention to what has been said as also to what has not been said" as observed by his Court in Dental Council of India v. Hari Prakash7. Relevant part of which is quoted hereunder
"7. The intention of the legislature is primarily to be gathered from the language used in the statute, thus paying attention to what has been said as also to what has not been said. When the words used are not ambiguous, literal meaning has to be applied, which is the golden rule of interpretation.”
(b) Hon'ble Supreme Court in "Lalu Prasad Yadav & Anr Vs. State of Bihar & Anr., (2010) 5 SCC 1"
"23. In Sussex Peerage, the House of Lords, through Lord Chief Justice Tindal, stated the rule for the construction of Acts of Parliament that they should be construed according to the intent of the Parliament which passed the Act. If the words of the statute are of themselves precise and unambiguous, then no more can be necessary than to expound those words in their natural and ordinary sense. The words themselves do, in such case, best declare the intention of the Legislature,
24. A Constitution Bench of this Court in Union of India & Anr. v. Hansoli Devi and Others, approved the rule exposited by Lord Chief Justice Tindal in The Sussex Peerage's case6 and stated the legal position thus: (Hansoli Devi case7, SCC p.281, para 9).
"9.... It is a cardinal principle of construction of a statute that when the language of the statute is plain and unambiguous, then the court must give effect to the words used in the statute and it would not be open to the courts to adopt a hypothetical construction on the ground that such construction is more consistent with the alleged object and policy of the Act……….
5.7. It is submitted that in the present case the Transaction Audit Report of BDO was received by the RP on 18.02.2021. Even if it is presumed that the timeline for filing avoidance transactions starts from 18.02.2021 i.e. when the RP received the report, RP should have filed an appropriate application with AA by 03.07.2021 (135 days from 18.02.2021). However, as per the Regulations, the RP should have filed the report within 135 days from CIRP commencement date which was 6.11.2019 and therefore the 135 days would have expired on 21.03.2020.
5.8. It is submitted that the IBBI on 24.01.2023 had issued a SCN to the RP, based on findings in the inspection report in respect of his role as IRP/RP in the CIRP of the CD. The SCN alleged contraventions of several provisions of the Code and Regulations. The RP also replied to the SCN and attended a personal hearing before the Disciplinary Committee on 16.02.2023. The Disciplinary Committee thereafter passed an IBBI/DC/153/2023 dated 20.02.2023 (Annexure - 1). It is submitted that one of the contraventions dealt with in the order pertains to Non-filing of Avoidance Application. Relevant portion is extracted herein below;
2.1 Non-filing of Avoidance Application:
2.1.1 Section 43(1) of the Code provides that the RP or liquidator shall apply to the AA for avoidance of preferential transaction where he is of the opinion that the CD has at a relevant time, given a preference in such transactions and in such manner as laid down. Regulation 35A of CIRP Regulations states that on or before the 75th day of the insolvency commencement date (ICD), the RP shall form an opinion whether the CD has been subjected to any transaction covered under Sections 43, 45, 50 or 66. It further provides that where the RP is of the opinion that the CD has been subjected to any transactions covered under sections 43, 45, 50 ог 66 he shall make a determination on or before the 115th day of the ICD. Moreover, where the RP makes a determination, he shall apply to the AA for appropriate relief on or before the 135th day of the ICD (as per then applicable regulations), the same has been reiterated under Regulation 40A of the CIRP Regulations which prescribes the model timeline for CIRP to ensure timely completion. Further, Clause 13 of the Code of Conduct under First Schedule of IP Regulations provides that an IP must adhere to the time limits prescribed in the Code and the Rules, Regulations, and guidelines thereunder for insolvency resolution, liquidation, or bankruptcy process, as the case may be, and must carefully plan his actions, and promptly communicate with all stakeholders involved for the timely discharge of his duties.
5.9. It is submitted that accordingly the limitation for filing avoidance application by the Applicant expired on 05.06.2022 (i.e. 135 days from 21.01.2022 Liquidation Commencement Date). Thus, the said application filed by the Applicant is barred on account of limitation and should be dismissed forthwith.
B. No report of opinion and determination by either RP or Liquidator
5.10. It is submitted that Code & Regulations specifically provide that RP or Liquidator has to form an opinion & determine the Preferential Transactions under section 43, and then file suitable application for the extent of impact of such Preferential Transactions on the interests of the creditors. Following provisions of the Code & regulations are worth mentioning;
IBC, 2016.
Section 25. Duties of resolution professional. -
(1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor.
(2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:-
XXXX
(d) appoint accountants, legal or other professionals in the manner as specified by Board;
XXXX (i) file application for avoidance of transactions in accordance with Chapter III, if any; and
Section 43. Preferential transactions and relevant time. -
(1) Where the liquidator or the resolution professional, 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.
XXXX
CIRP Regulations
# Regulation 35A. Preferential and other transactions.
(1) On or before the seventy-fifth day of the insolvency commencement date, the resolution professional shall form an opinion whether the corporate debtor has been subjected to any transaction covered under sections 43, 45, 50 or 66.
(2) Where the resolution professional is of the opinion that the corporate debtor has been subjected to any transactions covered under sections 43, 45, 50 or 66, he shall make a determination on or before the one hundred and fifteenth day of the insolvency commencement date.
(3) Where the resolution professional makes a determination under sub- regulation (2), he shall apply to the Adjudicating Authority for appropriate relief on or before the one hundred and thirtieth day of the insolvency commencement date
(3A) The resolution professional shall forward a copy of the application to the prospective resolution applicant to enable him to consider the same while submitting the resolution plan within the time initially stipulated.
(4) The creditors shall provide to the resolution professional, relevant extract from the audits of the corporate debtor, conducted by the creditors such as stock audit, transaction audit, forensic audit, etc.
# Regulation 40B Filing of Forms.
(18) The resolution professional shall file Form CIRP & intimating details of his opinion and determination under regulation 35A, on or before the one hundred and fortieth day of the insolvency commencement date:
5.11. It is submitted that the present application is not maintainable inMabsence of any report of opinion & determination by either RP orLiquidator as a prerequisite for filing avoidance application as per the Code & regulations is mandatory.
5.12. Reliance is placed on the following;
a. SCI (26.02.2020) in Anuj Jain IRP for Jaypee Infratech Limited Vs Axis Bank Limited Etc. (Civil Appeal Nos. 8512- 8527 of 2019 and other petitions)
# 28.1. Looking to the legal fictions created by Section 43 and looking to the duties and responsibilities per Section 25, in our view, for the purpose of application of Section 43 of the Code in any insolvency resolution process, what a resolution professional is ordinarily required to do could be illustrated as follows:
1. In the first place, the resolution professional shall have to take two major but distinct steps. One shall be of sifting through the entire cargo of transactions relating to the property or an interest thereof of the corporate debtor backwards from the date of commencement of insolvency and up to the preceding two years. The other distinct step shall be of identifying the persons involved in such transactions and of putting them in two categories; one being of the persons who fall within the definition of 'related party' in terms of Section 5(24) of the Code and another of the remaining persons.
2. In the next step, the resolution professional ought to identify as to in which of the said transactions of preceding two years, the beneficiary is a related party of the corporate debtor and in which the beneficiary is not a related party. It would lead to bifurcation of the identified transactions into two subsets: One concerning related party/parties and other concerning unrelated party/parties with each subset requiring different analysis. The sub-set concerning unrelated party/parties shall further be trimmed to include only the transactions of preceding one year from the date of commencement of insolvency.
3. Having thus obtained two subsets of transactions to scan, the steps thereafter would be to examine every transaction in each of these subsets to find: (i) as to whether the transaction is of transfer of property or an interest thereof of the corporate debtor; and (ii) as to whether the beneficiary involved in the transaction stands in the capacity of creditor or surety or guarantor qua the corporate debtor. These steps shall lead to shortlisting of such transactions which carry the potential of being preferential.
4. In the next step, the said shortlisted transactions would be scrutinised to find if the transfer in question is made for or on account of an antecedent financial debt or operational debt or other liability owed by the corporate debtor. The transactions which are so found would be answering to clause (a) of subsection (2) of Section 43.
5. In yet further step, such of the scanned and scrutinised transactions that are found covered by clause (a) of sub-section (2) of Section 43 shall have to be examined on another touchstone as to whether the transfer in question has the effect of putting such creditor or surety or guarantor in a beneficial position than it would have been in the event of distribution of assets per Section 53 of the Code. If answer to this question is in the affirmative, the transaction under examination shall be deemed to be of preference within a relevant time, provided it does not fall within the exclusion provided by sub-section (3) of Section 43.
6. In the next and equally necessary step, the transaction which otherwise is to be of deemed preference, will have to pass through another filtration to find if it does not answer to either of the clauses (a) and (b) of sub- section (3) of Section 43.
7. After the resolution professional has carried out the aforesaid volumetric as also gravimetric analysis of the transactions on the defined coordinates, he shall be required to apply to the Adjudicating Authority for necessary order/s in relation to the transaction/s that had passed through all the positive tests of sub-section (4) and sub-section (2) as also negative test of subsection (3).
# 28.2. On a motion made by the resolution professional after and in terms of the exercise aforesaid, the Adjudicating Authority, in its turn, shall have to examine if the referred transaction answers to all the descriptions noted above and shall then decide as to what order is required to be passed, for avoidance of the impugned transaction or otherwise.
b. NCLAT (25.01.2024) in Gloster Cables Ltd. Vs. Fort Gloster Industries Ltd. & Ors.. [Comp. App (AT) (Ins) No. 1343 of 2019]
We have found that the legislature has used the different language in Section 43 and 45 of the Code because in Section 43, the RP or the liquidator has to form an opinion whereas in Section 45 the RP or the liquidator has to examine and then determine that the transaction in question were undervalued during the relevant period.
c. NCLT Kolkata (06.05.2022) in Jitendra Lohia vs. Nikhil Chowdhury and others [I.A. (IB) No. 208/KB/2021INC.P (IB) No.204/KB/2019]
#16. "We have carefully seen the averments of the application and corresponding reply of the respondents. We have noticed that the allegations made in application do not constitute anything actionable against the respondents. It was the duty of the RP to come to conclusive determination before filing an application with the Adjudicating Authority. Simply by repeating the extracts or observations made in the forensic auditors report, the RP could not make an independent determination about the nature of transactions as required by Regulation 35A (2) of the CIRP Regulations."
d. NCLT Kolkata (30.06.2022) in Kshitiz Chhawchharia vs. Madhumalati Merchandise Private Limited & Ors [I.A. (IB) No. 346/KB/2019 In CP(IB) No. 349/KB/2017
6.7. "According to regulation 35A(1) of the CIRP Regulations, the Resolution Professional shall form an opinion whether the c rporate debtor has been subjected to any transaction covered under sections 43, 45, 50 от 66 on or before the seventy-fifth day of the insolvency commencement date. According to the regulation 35A(2), on or before the one hundred and fifteenth day of the insolvency commencement date, the Resolution Professional is also required to make a determination to that effect.
6.8. Further, Regulation 35A(3) of the CIRP Regulations provides that upon making such determination under regulation 35A(2), the Resolution Professional shall apply to the Adjudicating Authority for the appropriate relief on or before the one hundred and thirty-fifth day of the insolvency commencement date. In this case, the one hundred and thirty fifth day is on 23 May 2018. The instant application being IA. (IBC) 346/KB/2019 has been filed on 20 March 2019, thus making it clear that the Applicant has not complied with the provisions of regulation 35A within the timeline provided therein.
6.9. we do not see any "determination" within the meaning of regulation 35A of the CIRP Regulations. Therefore, we will not act as court of first instance to determine the nature of the transactions mentioned hereinabove.
6.10 In light of the above facts and circumstances, the adjudicating Authority is satisfied that the instant application is not maintainable and the same is therefore rejected."
5.13. It is submitted that the present application is liable to be dismissed as the Applicant did not form any opinion of his own and has merely extracted contents and has only quoted extensively from the report of the Enforcement Directorate.
C. Likelihood of presence of multiple Transaction Audit reports
5.14. It is submitted that the basis of this Application is a Transaction Audit Report dated 18.02.2021 which has been annexed to the Application by the Applicant. However, from a reading of the minutes of the various meetings of the CoC and the order No. IBBI/DC/153/2023 dated 20.02.2023 passed by the Disciplinary Committee of the IBBI as mentioned supra, it appears that there are multiple Transaction Audit reports and that the Applicant has not come with clean hands before this Tribunal.
5.15. It is submitted that relevant portions from various minutes of CoC meetings are extracted below for convenience and ready reference;
5.16. It is submitted that as per above table, it is evident that until the 17th CoC meeting held on 21.04.2021, the Transaction / Forensic audit report was not finalized and the same was discussed in the 17th COC.Therefore, this report would have been finalized at a later date but finds no mention at all in the Application. Hence, it is apparent that the existence of this report has been hidden from this Tribunal.
5.17. It is further submitted that as per the order of the IBBI, M/s BDOIndia LLP submitted the transaction audit report on 31.07.2020. This fact could only have been told to IBBI by the RP, who was the one who ordered for the transaction audit report and was in full knowhow about the status of the transaction audit report. Therefore, it is evident from the events mentioned above that this report dated 31.07.2020 was the Transaction Audit Report in question. The relevant portion of the order is extracted as below:
2.1.2. It is noted that the CIRP in the matter of CD-I commenced on 4 November, 2019 and Mr. C. Ramasubramaniam, in the 1st CoC meeting dated 30th November, 2019 had formed an opinion regarding the need to conduct transaction audit of the CD. It is further noted that in the 3rd CoC meeting dated 27th December, 2019, M/s. BDO India LLP was engaged as the forensic auditor to help determine the avoidance transactions of CD-1, and that the M/s. BDO India LLP submitted its transaction audit report on 31.07.2020.
2.1.3. It is noted that pursuant to the submission of the report, in the 11th CoC Meeting dated 6th November, 2020 and 19th CoC Meeting dated 29th May, 2021, Mr. C. Ramasubramaniam, had informed the CoC that he would be filing an avoidance application before the AA. However, it is noted that, no avoidance application had been filed by him, despite the lapse of 572 days from ICD and 302 Days from the date of submission of transaction audit report until the date of the final COC meeting when resolution for liquidation of the CD was taken. 2.1.4. Accordingly, the Board was of the prima facie opinion that IP had, inter alia, violated Section 43(1) of the Code, Regulation 35A and 40A of the CIRP Regulations read with Clauses 13 of the Code of Conduct.
5.18. It is submitted that from the above it is abundantly clear that there were multiple Transaction Audit Reports which were obtained for reasons best known to the RP or the Applicant and further the presence of multiple reports only goes to show the ulterior motive of the RP and / or the Applicant as the Applicant chose to file the Application on the basis of a report which was probably tailor made to his requirement and in order to implicate the Respondents into false cases and harass them. Hence, the report dated 18.02.2021 annexed to the Application cannot be relied due to the possibility of multiple reports being obtained by the RP/Applicant.
D. Contradictory Prayer of the Applicant
5.19. It is submitted that the reliefs sought for in the Application are as under:
a. Declare that the payment of the subject transaction is violative of Section 43 of the Code and is liable to be reversed and set aside and pass appropriate orders directing the Respondents 1 to 4 to pay such sums as stated above in respect of benefits received by them from the Corporate Debtor as the Hon'ble Tribunal may direct;
b. Pass appropriate directions/orders in terms of Section 44 of the Code including for recovery / restoration of legitimate amounts due to the Corporate Debtor and penalty on the Respondents;
c. Permit the Applicant/Liquidator to submit supplementary findings and report the PUFE transaction post updating of books of accounts, audit conducted and transaction audit done afresh.
d. Direct for the matter to be investigated by on Inspector or Inspectors in term of Section 213 of the Companies Act, 2013 and to thereafter take necessary action as against the Respondents as per due course of law;
e. Permit submission of additional information and documents by the Applicant/Liquidator before this Bench;
f. And for such other / further order(s) as the fact and circumstances of the case may be warrant
5.20. It is submitted that from a plain reading of the reliefs sought by the Applicant, it is clear that the Transaction audit report was prepared based on incomplete data as the Applicant in prayer "C" is seeking permission to submit supplementary findings and report PUFE transactions post updating of accounts, audit conducted and another transaction audit report done thereafter.
5.21. It is submitted that it becomes apparent that the Applicant is going on a fishing expedition and wasting the precious time of this Tribunal by filing such an application. The Application is violative of the duplicative-litigation doctrine as the Applicant in prayer "C" is seeking a similar relief in case the Application is dismissed.
E. Glaring discrepancies in the Transaction Audit report dated 18.02.2021 annexed to this Application
5.22. It is further submitted that the authenticity of the report dated 18.02.2023 filed by the Applicant which forms the basis of this application is itself questionable on the following points:
5.23. It is submitted that from the above its clear that the auditor himself has accepted that he has prepared the report based on details available only from the public domain and that he did not verify the said detail independently and also disclaimed the guarantee and veracity of the information in the report. Further the auditor did not have access to the books of accounts though the RP had all the data with him. In fact the auditor has stated that he did not have access to the books of accounts and source documents and any records of the CD. In such a situation how can such a report be relied upon which obviously would not show the correct and true picture of the dealings of the CD. This itself is also sufficient to show the legitimacy of the said report.
5.24. It is further submitted that the authors of the report themselves stated that their service did not constitute an audit in accordance with generally accepted accounting principles in accordance with standards established by the Institute of Chartered Accountants of India (ICAI).
F. Application filed as a counterblast to Respondents Application IA/1010(CHE)/2022 and IA(IBC)/333(CHE)2023
5.25. It is submitted that at the behest of the 1 Respondent, the RP of the CD has been charged with defrauding the CD and the CBI has registered a FIR No.RC0322023A0020 dated 14.11.2023 u/s 120 B r/w 420 and 409 IPC and also u/s 13(2) r/w (13)(1)(a) of PC Act - 1988 (As amended in 2018) (Annexure - 9).
5.26. It is submitted that the reason, why the Applicant chose to file this frivolous application was only to divert the attention of this tribunal from his own wrong doings which were brought to the fore by the Respondent in Applications IA/1010(CHE)/2022 and IA(IBC)/333(CHE)2023. Thus, this present application is a counterblast to these applications.
5.27. It is submitted that the Applicant himself falsified the books of the CD and also resisted from discussing the fate of the Rs. 839 crs stock in a SCC meeting. The 1st Respondent brought to fore both these misdemeanors of the Applicant before this Hon'ble Tribunal in the above applications thereby drawing the ire and wrought of the Applicant upon himself, resulting in the Applicant filing the present application as an act of vendetta against the Respondents.
5.28. It is submitted that had there been any reason to file a preferential transaction application, the RP would have done so in his tenure as he had filed 2 other frivolous applications (Under Section 19 of IBC and under Section 68 of IBC) against the Respondents before the Tribunal and later withdrew them when he found that these applications do not hold water. Details of these applications are as under;
(a) Section 68 filed in IA/544/CHE/2021 filed on 02.06.2021 and RP/Applicant Withdrawn on 21.09.2021.
(b) Section 19 filed in IA/534/CHE/2021 filed on 02.06.2021 and RP/Applicant withdrawn on 01.02.2024.
5.29. It is submitted that the Applicant has misrepresented the fact that although the CBI registered a FIR against the CD on 31.08.2018 and the Respondents Under Section 120-B read with 406, 420, 468 and 471 of IPC (Annexure -10), the CBI themselves dropped the sections 406, 468 and 471 IPC in its final report dated 22.03.2021 filed before the trial
court (Annexure 11).
5.30. It is also submitted that the Respondent has also filed a complaint dated 28.08.2023 & 19.10.2023 against the Applicant with the CBI for illegally accepting gratification from the SFC. Therefore, it is natural that the Applicant would hold a grudge against the Respondent and would try to implicate the respondents in any false and frivolous cases.
5.31. It is therefore prayed for the aforementioned reasons that this Tribunal be pleased to dismiss the Application with exemplary cost and thus render justice.
6. WRITTEN ARGUMENTS FILED BY 1ST RESPONDENT ON BEHALF OF ALL RESPONDENTS
6.1. It is stated that after the erstwhile liquidator took charge, i. The 1st Respondent filed an application before this Tribunal in IA/1010/2022 on 06.09.2022 alleging that the erstwhile liquidator had knowledge that accounts of the CD has been falsified and that he should be punished.
ii. The 1st respondent filed an application before this Tribunal on 04.02.2023 in IA/333/2023 praying that the erstwhile liquidator called for a SCC meeting to discuss the missing stock of Rs. 840 crs which the erstwhile liquidator himself had pointed out in one of his affidavits
before this Tribunal.
iii. The 1st respondent filed an application before this Tribunal on 24.05.2023 in IA/1009/2023 praying for directions to the erstwhile liquidator to contest the Counter claim of the CD against the Financial Creditor which is pending before the DRT, since the erstwhile liquidator was not keen in contesting that case.
iv. On 10.06.2023, the 1st Respondent wrote to the erstwhile liquidator informing him that Rs. 2 lakhs which was being paid to him was illegal and not as per the Regulations and that he was not eligible for the same. It is stated that the 1st Respondent has thereafter preferred an application before this Tribunal in IA/2192/2023 seeking to set aside the fees of Rs. 2 Lakhs per month being paid illegally to the erstwhile Liquidator. The matter is pending adjudication before this Hon'ble Tribunal.
6.2. It is stated that the avoidance application has been filed as counterblast to the actions initiated by respondent and the intention and motive behind filing this application is not above board and on this very ground, this application should be dismissed.
7. ANALYSIS AND FINDINGS
7.1. Heard the submissions of the Ld. Counsels and perused the pleadings and written submissions placed on record.
7.2. The present IA has been filed by the liquidator seeking the following reliefs:
a) Declare that the payment of the subject transaction is violative of Section 43 of the Code and is liable to be reversed and set aside and pass appropriate orders directing the Respondents 1 to 4 to pay such sums as stated above in respect of benefits received by them from the Corporate Debtor as the Hon'ble Tribunal may direct;
b) Pass appropriate directions / orders in terms of Section 44 of the Code including for recovery / restoration of legitimate amounts due to the Corporate Debtor and penalty on the Respondents;
c) Permit the Applicant/Liquidator to submit supplementary findings and report the PUFE transactions post updating of books of accounts, audit conducted and transaction audit done afresh:
d) Direct for the matter to be investigated by an Inspector or Inspectors in terms of Section 213 of the Companies Act, 2013 and to thereafter take necessary action as against the Respondents as per due course of law;
e) Permit submission of additional information and documents by Applicant/Liquidator before this Hon'ble Bench;
f) And for such other /further order(s) and/or direction(s) as the facts and circumstances of the case may be warrant.
ISSUES RAISED BY RESPONDENTS
7.3. The respondent in his reply has raised various issues about the avoidance applications, which are being examined in detail later. Apart from the common issues raised, respondent has not given specific reply or response to the averments made in the avoidance applications filed under Section 43 of IBC. The issues raised are as under:
1.Due to violation of Regulation 35 A of CIRP Regulations and delay in filing the avoidance applications , the avoidance applications are barred by limitation
2. The applicant has not formed the opinion and made a determination to file avoidance application under Regulation 35A of CIRP regulations.
a) It is well settled legal position that RP’s statutory burden is to file the avoidance application within prescribed time limit. However, a delay in filing the application is not a ground for non-maintainability of the application.
b) In Ritesh R Mahajan vs Shivkumar Malaghan and Ors, NCLT Bengaluru [(2025) ibclaw.in 08 NCLT] it is held as under:
The primary objection of the Respondent is that the RP has not filed this application u/s 66 of the Code within a period of 135 days as prescribed under Regulation 35-A of the IBBI (CIRP) Regulations, 2016. In this connection, reliance is placed on the Judgments of the Hon’ble NCLAT in the case of Aditya Kumar Tibrewal RP v. Om Prakash Pandey reported at (2022) ibclaw.in 278 NCLAT in Order dated 06.04.2022, according to which the Regulation 35-A is not mandatory and is only directory in nature. Subsequently, a similar decision was rendered in the Prasant Chandra Rath v. Surya Kanta Satapathy (RP) and Ors. reported at (2022) ibclaw.in 789 NCLAT in Order dated 30.09.2022, in which, the reliance was placed on this earlier order in the case of Aditya Kumar (supra) and the same Judgment was delivered. It is also important to note here that in the latter Judgment, it was elaborately discussed and underlined that the delay in completing the report on the part of the RP for the purposes of Section 66 of the Code was caused primarily due to non-cooperation on the part of suspended Directors, as documents and registers was not handed over in time in that case. It was further noted that there was a delay on the part of suspended Directors to furnish documents, registers to the Transaction Auditor to complete the Transaction Audit for the purposes of Section 66.(p11)
c) With regards to the contention that applicant has not formed an opinion and made a determination to file avoidance application under Regulation 35A of CIRP regulation, we find that even though there was delay, the application under Section 43 has been filed by the applicant after perusing the Transaction Audit Report and FIR report and culling out the relevant facts. Thus applicant formed an opinion and made a determination to file avoidance applications. The delay was mainly due to non-availability of information due to seizure of documents by CBI and ED and also non-cooperation by the erstwhile directors and employees.
3) Multiple Transaction Audit Reports are available.
4) Contradictory prayers are there
5) Glaring discrepancies are there in Transaction Audit Reports
6) Application filed as counterblast to the applications filed by respondent against RP and liquidator.
a) The contentions of the respondent that multiple transaction audit reports, contradictory prayers, glaring discrepancies in Transaction Audit Reports have some truth.
b) Due to non-availability of information due to Enforcement Directorate attachment and also due to non-cooperation by erstwhile directors and employees, the transaction audit report states that based on the information available in public domain and also due to non-availability of data, certain portions of report are not conclusive. We have taken cognizance of the above limitations in availability of information, while deciding on the avoidance application and based on available evidence only, decision is taken.
LEGAL PROVISIONS IN RESPECT OF SECTION 43 OF IBC
7.4. The Hon’ble Supreme Court in the matter of Anuj Jain IRP for Jaypee Infratech Limited Vs. Axis Bank Limited etc illustrated step to be taken by RP under Section 43 of the Code.
"23. The analysis foregoing leads to the position that in order to find as to whether a transaction, of transfer of property or an interest thereof of the corporate debtor, falls squarely within the ambit of Section 43 of the Code, ordinarily, the following questions shall have to be examined in a given case:
23.1. As to whether such transfer is for the benefit of a creditor or a surety or a guarantor?
23.2. As to whether such transfer is for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor?
23.3. As to whether such transfer has the effect of putting such creditor or surety or guarantor in a beneficial position than it would have been in the event of distribution of assets being made in accordance with Section 53?
23.4. If such transfer had been for the benefit of a related party (other than an employee), as to whether the same was made during the period of two years preceding the insolvency commencement date; and if such transfer had been for the benefit of an unrelated party, as to whether the same was made during the period of one year preceding the insolvency commencement date?
23.5. As to whether such transfer is not an excluded transaction in terms of sub-section (3) of Section 43?"
7.5. The Court devised a step-by-step process which must be applied by the RP (initially) and Tribunal (upon an application under Section 44 IBC) to see whether a transaction is hit by Section 43. These steps are as follows:
Firstly, whether the transfer by way of transaction is for the benefit of the surety or guarantor in furtherance of an antecedent financial liability of corporate debtor [Section 43(2)(a) IBC];
Secondly, whether such a transactions puts the surety or guarantor at a beneficial position than in case of a distribution of assets as per Section 53 IBC [Section 43(2)(b) IBC];
Thirdly, whether the transaction was made two years prior in the case of a "related party" or one year otherwise [Section 43(4) IBC); and
Fourthly, whether such transaction is not and "excluded transaction" as per Section 43(3) IBC.
7.6. In its essence, the Hon’ble Supreme Court meant a transaction to be a "preferential transaction" under IBC if the ingredients of clause 2 and 4 of Section 43 IBC are satisfied, and it is not protected by clause 3 of Section 43 IBC. The Court by formulating this test made it easier for the RPs and Tribunals to adjudicate upon the existence of a "preferential transaction".
7.7. Hon’ble Supreme Court in the Anuj Jain case ruled that Sections 43(2) and 43(4) are deeming provisions. Hence, a legal fiction would come into play in such a scenario, meaning the transaction would be deemed to be hit by Section 43 of the Code even if it was not intended or even anticipated to be preferential.
7.8. A similar question came up in the case of GVR Consulting, where NCLAT was asked to determine if the transaction would be deemed to be preferential even if there was no intention on the part of the corporate debtor to give any preference. The tribunal reiterated the position taken by Anuj Jain case and held that since legal fiction comes into play once the ingredients of Section 43(2) r/w Section 43(4) are fulfilled, the question of intent becomes irrelevant, and the transaction would be deemed to be preferential.
FACTUAL MATRIX
7.9. It is observed that Rs.14.85 crore was received by CD from Aran Steels on 06th February 2018. The amount was repaid to Aran Steels Pvt Ltd through five cheques on 28th May 2018 and 29th May 2018.
7.10. In the FY 2017-18, when the transactions took place, the amount payable to secured creditors by the Corporate Debtor was to the tune of Rs.222.01 crore and the payment made to Aran Steels Pvt Ltd was in contravention to the order of priority under Sec 53 of IBC. Further, as per transaction records, Aran Steels Pvt Ltd was reflecting as Sundry Debtor with credit balance and Aran Steels was not shown as related party. We have verified MCA website and found that Shri Anil Kumar Ojha, (DIN NO 01804526) who is promoter director of Corporate Debtor is also a director of M/s. Aran Steels Private Ltd (CIN No U52100TN2012PTC087229). Hence, M/s. Aran Steels Private Limited is a related party. In the CBI report dated 31st August 2018, Aran Steels was mentioned as a guarantor to the loan obtained by SLO from Corporation Bank.
7.11. It is found that
a) the payments between the Corporate Debtor and ARAN Steels have been made within the look back period of 2 years from the date of initiation of CIRP, ( CIRP initiation date 04th November 2019. Transactions took place in May 2018.)
b) Shri. Anil Kumar Ohja, is a common director in both the companies, and consequently meets the requirements of being related parties as per Section 2(76) of the Companies Act, 2013 and the relevant provisions of the IBC.
c) As ARAN Steels is a related party of the Corporate Debtor, (who had given advance and in addition stood as guarantor to the Corporate Debtor) it shall be presumed that the benefit received from the Corporate Debtor was by way of the preference otherwise than in good faith as per the explanation 1 to Section 44 of the Code.
d) The payment under the transaction by the Corporate Debtor to ARAN Steels was not in the ordinary course of business of the Corporate Debtor. The Corporate Debtor has previously not made payments in the nature of the transaction and such payments are one off transactions and not in the ordinary course of business of the Corporate Debtor.
e) The circumstances in which the payment of the transaction has taken place, i .e. during the period when the Corporate Debtor was already in default of payments to the secured financial creditor ( Corporation Bank / Union Bank of India) clearly demonstrate that such payments were not and cannot be construed as having been made in the ordinary course of business.
f) The payment under the subject transaction had the effect of improving position of the ARAN Steels while applying the provision Section 53 of the Code as it is apparent that the ARAN Steels would have been ranked below the creditors, who would have priority as per Section 53 of the Code and the payment under the transaction has had the effect of improving the position of ARAN Steels.
7.12. In view of the above facts, it is clearly proved that the transactions with Aran Steels Pvt Ltd fall squarely under Section 43 of IBC 2016. The preferential transaction under Section 43 of IBC was performed by the suspended promoter directors. Aran Steels Pvt Ltd (4th respondent) was beneficiary in the above transaction.
7.13. We therefore order that the respondents jointly and severally shall make good the amount of Rs.14.85 crore to the liquidation estate of the Corporate Debtor.
8. Accordingly, IA(IBC)/1331(CHE)/2023 is disposed of.
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