NCLT Chennai-1 (2025.01.30) in Mr. Palanigounder Eswaramoorthy Vs Mr. Subbaraya Ananthar Durairaju & Ors. [IA/238(CHE)/2022 in IBA/203/2020] held that;.
Thus, the preliminary enquiry which this Adjudicating Authority is required to do is to first ascertain as to whether the Corporate Debtor has given any preference and whether the preference has happened during the relevant time.
The Hon'ble Supreme Court in the case of Anuj Jain Vs. Axis Bank Ltd. (2020) 8 S.C.R. 291 has noted that even in cases where the tests under Section 43(2) and Section 43(4) are satisfied, the same may not be treated as a preferential transaction if it falls within the scope of the exception set out in Section 43(3) of IBC which provides for transfer made in the ordinary course of business or financial affairs of the Corporate Debtor or the transferee.
Excerpts of the Order;
This application IA/238(CHE)/2022 has been filed by the Liquidator under Section 43(1) and 45(1) of IBC seeking the following reliefs.
a. To direct the Respondents 1 to 3 to pay a sum of Rs. 94,32,633/- being amounts covered under the above transactions together with interest at 12% p.a. from 06.09.2021 till the date of realization.
b. To direct the Respondents 1 to 3 to return the Skoda car back to the Corporate Debtor or in the alternative pay a sum of Rs. 18.61 Lakhs with interest from 06.09.2021 till the date of realization.
BRIEF FACTS OF THE CASE
# 2. The facts relating to disposal of the application are that on an application filed by the Financial Creditor M/s. Indian Overseas Bank under Section 7 of IBC, this Tribunal directed the initiation of CIRP against the Corporate Debtor M/s. Subhashri Bio Energies Pvt Ltd vide an order dated 02.09.2021. The RP while discharging his functions during the CIRP appointed one KSPV & Co., Chartered Accountants, to conduct a transaction audit of the Corporate Debtor. The above firm submitted its report to the RP annexed as Annexure A2. On the basis of the report the RP filed the above application. Subsequently, this Tribunal ordered for the commencement of the liquidation proceedings against the Corporate Debtor vide an order dated 28.04.2022 and appointed Shri. Palanigounder Eswaramoorthy as the Liquidator. The RP was later substituted by the Liquidator vide order dated 09.05.2024.
# 3. It is stated that as per the transaction audit report and the books of accounts of the Corporate Debtor, a sum of Rs. 11,41,767/- is due and payable by R3 / Mr. Salaisivaprakasam, being the amount advanced by the Corporate Debtor during the look back period of 2019 – 2021 as detailed below. . . . . . . .
It is stated that the Corporate Debtor had to pay several other Creditors, but the said sum was paid to R3 without any commercial transactions which attracts Section 43.
# 4. It is stated that the RP had taken over the management of the Corporate Debtor on 06.09.2021. The cash balance as on 02.09.2021 was shown as Rs. 33,61,422/- which cash was not handed over to the RP and was diverted by the Suspended Directors i.e. R1 to R3. It is further stated that on 01.04.2018, the CD had purchased a Hyundai Creta bearing registration No. KA 03 NC 5044. It sold the vehicle on 02.07.2021 to N. Kandasamy on a loss of Rs. 4,02,913/-, although, the quoted price was Rs. 6.25 Lakhs at online site. It is stated that the car was sold for Rs. 2.5 Lakhs and is being used by R3.
# 5. It is further stated that the Corporate Debtor had purchased a Skoda car on 02.04.2012 for a sum of Rs. 18,61,529/-. It was sold for Rs. 2.5 Lakhs on 20.12.2020 to one Mr. Natarajan. Though the car was purchased in the name of the Suspended Director but the loan and asset were booked in the name of Corporate Debtor and instalments were paid by the Company as such the Company was the owner of the car which is still being used by Respondent No. 1.
# 6. It is stated that R1 to R3 sold the vehicles one year prior to CIRP date without any justification as detailed below. . . . . . .
It is stated that there is no justification for the sale of above vehicles for Rs. 30,42,000/- and the said transactions squarely fall under Section 45 of the IBC.
# 7. It is stated that the Corporate Debtor had given advances to its employees as per books who are related parties and it did not effect any recovery from them. . . . , . . .
It is stated that the above amount has not been recovered from the parties who are related to R1 and R3. The possibility of receiving the said sum by R1 to R3 in their personal account cannot be ruled out.
# 8. It is stated that the above transactions were not carried out in the ordinary course of business. It is stated that the secured creditors had advanced loan facilities of Rs. 164,66,66,835/- and the transactions carried out by the Suspended Directors are either the preferential transactions or the undervalued transactions for enriching themselves falling under Section 43 and 45 of IBC.
# 9. In reply to the application, it is stated that the Respondents had already responded to the Liquidator vide clarifications letters dated 21.12.2021 and 28.12.2021 with respect to the transaction audit report. It is stated that the Respondents had been working in the earnest interest of the Company. Every act of the Respondents was governed by prudence. It is stated that entire records relating to the Company are in the possession of the Applicant. The Respondents had assured that there was full transparency in their dealings. It is stated that the Respondents had taken the decisions that they genuinely felt were in the interest of the Company at that point of time based on the sound professional advice. The allegations are purely speculative and presumptuous.
# 10. A seizure mahazar has also been filed by the Suspended Directors vide Sr. No. 219 dated 13.01.2023 enclosing the clarifications submitted to the audit report which is reproduced as under. . . . . . . .
# 11. It is stated that the Directors remunerations taken from the Company all along 15 years were minimal. They whole heartedly worked for the upliftment of the project, personally invested their entire resources more than Rs. 10.0 Crores in the project hoping for a bright future. The Executive Director of the Company Mr. Salaisivaprakasam is M.S., having lucrative job receiving Rs. 18 Lakhs in UK, came to India to develop the project on their request. They had no mal-intentions or motives. It is stated that insurance claim on the project assets is yet to be settled and the Directors have been fighting to recover the value of the assets by paying the Arbitrator fee of Rs. 45 Lakhs even though the Bank stopped funding. They also submitted the clarifications which are reproduced as under.
# 12. We have heard Ld. Counsels for the parties and perused the records.
# 13. Section 43 of IBC provides as under.
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.
(2) A corporate debtor shall be deemed to have given a preference, if– (a) there is a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and (b) the transfer under clause (a) has the effect of putting such creditor or a surety or a guarantor in a beneficial position than it would have been in the event of a distribution of assets being made in accordance with section 53
(3) For the purposes of sub-section (2), a preference shall not include the following transfers–
(a) transfer made in the ordinary course of the business or financial affairs of the corporate debtor or the transferee;
(b) any transfer creating a security interest in property acquired by the corporate debtor to the extent that –
(i) such security interest secures new value and was given at the time of or after the signing of a security agreement that contains a description of such property as security interest, and was used by corporate debtor to acquire such property; and
(ii) such transfer was registered with an information utility on or before thirty days after the corporate debtor receives possession of such property:
Provided that any transfer made in pursuance of the order of a court shall not, preclude such transfer to be deemed as giving of preference by the corporate debtor.
Explanation. – For the purpose of sub-section (3) of this section, “new value” means money or its worth in goods, services, or new credit, or release by the transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the liquidator or the resolution professional under this Code, including proceeds of such property, but does not include a financial debt or operational debt substituted for existing financial debt or operational debt.
(4) A preference shall be deemed to be given at a relevant time, if –
(a) It is given to a related party (other than by reason only of being an employee), during the period of two years preceding the insolvency commencement date; or
(b) a preference is given to a person other than a related party during the period of one year preceding the insolvency commencement date.
# 14. Perusal of Section 43 of IBC, 2016 contemplates that where the liquidator or the resolution professional is of the opinion that the corporate debtor has at a relevant time given a preference in such transaction 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 transaction and for, one or more of the orders referred to in Section 44. Thus, the preliminary enquiry which this Adjudicating Authority is required to do is to first ascertain as to whether the Corporate Debtor has given any preference and whether the preference has happened during the relevant time.
# 15. As per Section 45 of IBC, following transactions are considered to be undervalued.
(a) A gift to any person
(b) A transaction which involves the transfer of one or more assets by the Corporate Debtor for a consideration, the value of which is significantly less than the value of the consideration provided by the Corporate Debtor.
# 16.TRANSACTIONS WITH MR. DURAIRAJU SALAISIVAPRAKASAM
16.1 It is alleged in the application that as per the transaction audit report nd the books of accounts, a sum of Rs. 11,41,767/- is due and payable by Respondent No. 3 which amount was advanced by the Corporate Debtor while under the management of the Suspended Directors in 2019-20 and 2020- 21 during the look back period, although the Corporate Debtor had to pay to several other creditors.
16.2. In reply, it has been explained by the Suspended Directors that the Bankers did not allow them the operations in the running accounts since 2016. With the knowledge of the Banker, the Company started operating current account with Karur Vysya Bank. It was also attached and frozen by the Income Tax Department as TDS was due to them. The Company had no other alternative than to receive the amount from the Debtors in the account of D. Salaisivaprakasam who used to make payments to the Creditors and expenses to continue the activities of R&D project. The balance outstanding of Rs. 11,41,767/- is to be adjusted with expenses and balance is payable to Mr. Durairaju for Rs. 11,42,425/- as on 31.03.2020. The balance adjustment was made between the two in respect of which entries are yet to be recorded in the books.
16.3. Looking into the explanation, we find that the transactions were carried out to run the activities of R&D project without any hindrance. No preferential transaction can be stated to have been made to benefit the Directors or the related parties. These transactions were done in the usual course of business for running the Company as a going concern. There is no question of giving preference in the above transactions or putting the other party in a beneficial position. It has also been explained that the entries are yet to be recorded in the books.
# 17. CASH BALANCE OF RS. 33,61,422/- NOT HANDED OVER TO THE RP
17.1 It is alleged that as on 06.09.2021 when the RP took over the management of the Corporate Debtor, a cash balance of Rs. 33,61,422/- as on 02.09.2021 was shown which was not handed over and was diverted by the Directors.
17.2. On this aspect, the Directors have given a detailed reply at page 6 para 2 of the Memo filed vide Sr. No. 219 dated 13.01.2023 which need not be reiterated. It is stated that the Corporate Debtor had not finalized the accounts for FY 2020-2021 since GST Officials had taken the records of the Corporate Debtor to their office on 07.03.2021 which have not been returned yet. The Company had also filed the writ petition before the Hon'ble High Court to direct the Bank to permit the operations of the current account which is pending. It is stated that the Bank had not allowed the Company to operate the accounts and for this reason the cash in hand was deposited in the Directors account which was paid to the Insurance Arbitrators (Rs. 22.50 Lakhs), Shriram Finance (Rs. 23.33 Lakhs) and to the Advocates appearing for the Corporate Debtor in the arbitration case, TANGEDCO and Shriram Finance. It was stated that the above transactions are to be given effect in tally
17.3. On a consideration of the explanation and the record, we find that though the said act of the Directors is in violation of moratorium under Section 14 of IBC but the said transactions were done in the interest of the Company in the ordinary course of business, out of necessity since the Insurance Arbitrator and fee of the Advocates were to be paid and the Bank had not allowed the operations. Since the records were seized by the GST, the transactions could not be effected in the tally. There is nothing to show that any benefit was derived by the Suspended Directors out of the said transactions. At the best, the said transaction can be said to be in violation of the moratorium under Section 14 of IBC and not the preferential transaction as alleged.
PURCHASE AND SALE OF HYUNDAI CRETA CAR KA 03 NC 5044 AND SKODA CAR
AND SALE OF VEHICLES
# 18. It is alleged that on 01.04.2018, the Corporate Debtor had purchased Hyundai Creta car, however the Directors sold the vehicle on 02.07.2021 to one Mr. N. Kandasamy and booked a loss of Rs. 4,02,913/-. On online site, the price for the car was quoted at Rs. 6.25 Lakhs, but it was sold for Rs. 2.75 Lakhs and it is being used by Mr. Salaisivaprakasm, one of the Suspended Director. Further, the Corporate Debtor had purchased a Skoda car on 02.04.2012 for Rs. 18,16,529/- which was sold by the Suspended management for Rs. 2.50 Lakhs on 20.12.2020 to Mr. Natarajan. It is stated that the car is still being used by Respondent No. 1. It is also alleged that the Suspended Directors also sold the vehicles one year prior to CIRP as detailed in para 6 of the order for Rs. 30,42,000/- without any justification.
# 19. To this effect, the Suspended Directors have given an explanation that the financier of the Creta car had pressurized the Company to pay the balance amount outstanding in the loan account, lest the vehicle will be seized and put to auction. To avoid this, the Company decided to sell the vehicle on distress sale to settle the loan amount of HDFC Bank which letter was given by the HDFC Bank. As regards sale of Skoda car, it was purchased on 02.04.2012 and sold on 20.12.2020.
19.1 On a consideration of record and the explanation, we do not find these transactions to be the undervalued transactions. The transactions were made to settle the dues of HDFC Bank since there was a threat for lifting the vehicle and putting it for auction. It cannot be said that the Suspended Directors derived any benefit out of the sale transaction. It was a distress sale out of compulsion. There is no record to show that the vehicle is in possession of the Suspended Directors as alleged. The Applicant has not placed any document to show that there was online quote price of the vehicle as Rs. 6.25 Lakhs.
# 20. As regards the Skoda car, after a period of 8 years, such like cars do not have much value. Their depreciation is high. Further there is no document to show that the car is being used by the Suspended Directors as alleged or it could fetch more price than the price at which the car was sold. The amount was duly brought to the accounts of the Corporate Debtor after the sale. That being the position, it cannot be said that the Respondents benefitted from the above sale.
20.1 As regards sale of other vehicles, it is explained that the sales were effected during the normal course of business. The Bank had stopped the operations of the current account. Considering the reply, the said transactions cannot be said to be the preferential transactions.
ADVANCE GIVEN TO THE EMPLOYEES AMOUNTING TO RS. 14,34,444/-
# 21. Admittedly, the said amount was given to the employees which has not been recovered yet but the said amount was given in the usual course of business for smooth running of the operations of the Company. The above transactions do not indicate that the above persons are the related parties of the Suspended Directors or the said sums were received by the Suspended Directors through them in their personal accounts.
# 22. It is true that the Sole Creditors had advanced various facilities and a total sum of Rs. 164.67 Crores stand in the name of the Corporate Debtor but the transactions as alleged above do not fall under the definition of either preferential or undervalued transactions. Rather the same appear to have been made in the normal course of business for the day to day operations of the Company and these transactions did not benefit the Respondents or made them unjustly rich. It has been submitted by the Suspended Directors / Respondents that they whole heartedly worked for the uplift of the project diverting maximum resource for the project. They also invested in the project hoping for a bright future for a socially and environmentally benign project, but unfortunately the project did not work to their expectation. The Hon'ble Supreme Court in the case of Anuj Jain Vs. Axis Bank Ltd. (2020) 8 S.C.R. 291 has noted that even in cases where the tests under Section 43(2) and Section 43(4) are satisfied, the same may not be treated as a preferential transaction if it falls within the scope of the exception set out in Section 43(3) of IBC which provides for transfer made in the ordinary course of business or financial affairs of the Corporate Debtor or the transferee.
# 23. Having considering the above facts and the responses in totality in the given circumstances, we do not find any merit in the application IA/238(CHE)2022 and dismiss the application IA/238(CHE)/2022 with no orders as to cost.
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