NCLT Chennai-1(2025.02.19) in Mr. S. Palaniappan, Vs. Mr. Anil Kumar Ohja & Ors [IA/IBC/1336/ Che/2023 In CP/1264/2018], held that;
It is well settled legal position that RP is statutorily bound 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.
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 Sec 66 of IBC was 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 application.
The contentions of the respondent that there are multiple transaction audit reports, contradictory prayers, glaring discrepancies in Transaction Audit Reports have some truth.
Even though, the transactions in LC facility are Rs.376.90 crore and receipts from related parties were to the extent of Rs.284.66 crore, all the above transactions of circular movement of funds happened within the LC limit of Rs.65 crore only. So, the maximum amount of loss to the financial creditor from LC limit was Rs.65 crore.
It is stated that all the beneficiaries are the undisclosed related parties and further in absence of relevant disclosures and support documents for the donation made, it was unable to ascertain the appropriateness and genuineness of these transactions.
Excerpts of the order;
1. IA/IBC/1336/Che/2023 has been filed seeking the following reliefs: -
a) Declare that the payment of the subject transactions is violative of Section 66 of the Code and is liable to be reversed and set aside and pass appropriate orders directing the Respondents 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 66 and 67 of the Code including for recovery/restoration of legitimate amounts due to the Corporate Debtor and imposing appropriate penalty on the Respondents;
c) Direct the Respondents to restore the rights in the immovable/other properties and assets so acquired through fraudulent transactions and misuse of funds of the Corporate Debtor and vest all such interests created in their personal capacity, back to the Corporate Debtor;
d) 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; SLO Industries Limitede) 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;
f) Permit submission of additional information and documents by the Applicant/Liquidator before this Hon'ble Bench;
g) 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. It 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. It is stated that Corporate Debtor obtained credit facilities for INR 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 setting-up of its rolling mill and for raw material procurement. It is stated that as the CD defaulted in payments, the Bank took appropriate steps for recovery of the outstanding amounts, including initiating action under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC") before the Tribunal.
2.2. The Company Petition CP/1264 / (IB) / 2018) was admitted by this Tribunal 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 stated that as a precursor to the initiation of CIRP 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 allegation in the complaint discloses commission of offences under Section 120B read with Sections 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 the 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 further to enable the Secured Creditors to make recovery of the public Funds.
3.3. It is stated 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 annexed and marked as "Annexure-1".
3.4. It is stated that the erstwhile RP did not file Preferential, Undervalued, Fraudulent and Extortionate (PUFE) transactions application during his tenure as RP (upto 21.01.2022) before the Tribunal even though Transaction Audit was conducted and report was submitted by the external expert "BDO India LLP", on dated 18th February 2021.
3.5. It is stated that in above circumstances and also because a non-co-operation application was pending before the tribunal, the Applicant/Liquidator filed this Application before the 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 the attachment order of the Directorate of Enforcement in OC 1364/2020, dated 24.03.2021 relating to the CD.
3.6. It is averred that fraudulent transactions under Section 66 have been made by the Corporate Debtor in nine areas giving cross reference to the BDO Reports and ED attachment orders . Total fraud committed by Corporate Debtor under Section 66 of IBC amounts to Rs. 4,010.92 crore. Summary of the transactions have been given in the form of table as below:
XXXXX
3.7. Analysis of bank statements by BDO.
3.8. ED report details about properties purchased by third parties using the funds of Corporate Debtor.
3.9. The averments made by the applicant in respect of the fraudulent transactions falling under Section 66 under various heads are elaborated and dealt with in ‘Findings and Analysis’ .
4. WRITTEN SUBMISSION FILED BY THE NEW LIQUIDATOR/APPLICANT
4.1. It is stated that the avoidance transaction application has been filed against the erstwhile directors of the corporate debtor based on the outcome of the Transaction audit report conducted by the external agency, "M/s BDO India LLP" (Page No 50-200) 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 Ohja and other directors of the CD and his relatives, which has been confirmed by the Adjudicating Authority under the PMLA act of 2002 in its order dated 24.03.2021. The copy of the AA's order at attached in Page No 201-472.
5. COUNTER FILED BY 1ST RESPONDENT ANIL KUMAROJHA
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
5.2. It is stated that the Application is barred by limitation. 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 read 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 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.
5.3. It is stated 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.
5.4. It is stated 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).
5.5. The Applicant placed reliance on the following judgements:
(a) Hon'ble Supreme Court in "Nemai Chandra Kumar & Others vs. Mani Square Ltd. & Others, (2015)14 SCC 203"held,
"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" held,
"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……….
5.6. It is stated that in the present case, 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 the application with AA by 03.07.2021 (135 days from 18.02.2021). As per the Regulations, the RP should have filed the report within 135 days from CIRP commencement date, which was 6.11.2019. Therefore the 135 days would have expired on 21.03.2020.
5.7. It is stated that IBBI on 24.01.2023 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 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 stated 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 or 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.
5.8. It is stated 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 by limitation and should be dismissed forthwith.
B. No report of opinion and determination by either RP or Liquidator
5.9. It is stated that Code & Regulations specifically provide that RP or Liquidator has to form an opinion and determine the Preferential Transactions under section 66, and then file suitable application for the extent of impact of such 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 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:
5.10. It is stated that the present application is not maintainable in absence of any report of opinion & determination by either RP or Liquidator as a prerequisite for filing avoidance application as per the Code & regulations which is mandatory and is also the law laid down in the following judgements:
a) Hon'ble Supreme court 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 sub-section (2) of Section 43.
5. In yet further step, such of the scanned and scrutinised transactions that are found covered by clause (a) of subsection (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 subsection (2) as also negative test of sub-section (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 corporate 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."
5.11. It is stated that the present application is liable to be dismissed as the Applicant did not form any opinion of his own ,merely extracted contents and quoted extensively from the report of the Enforcement Directorate.
C. Likelihood of presence of multiple Transaction Audit reports
5.12. It is stated 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 were multiple Transaction Audit reports and that the Applicant has not come with clean hands before this Tribunal.
5.13. It is stated that relevant portions from various minutes of CoC meetings are extracted below :
5.14. It is stated 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 finalised and the same was discussed in the 17th COC. It is stated that, this report would have been finalised at a later date but it finds no mention at all in the Application.
5.15. It is further stated that as per the order of the IBBI, M/s BDO India LLP submitted 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. Thus, it is evident from the events mentioned above that the report dated 31.07.2020 was another Transaction Audit Report in question. The relevant portion of the order is extracted 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.
5.16. It is stated 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 possibility of multiple reports being obtained by the RP/Applicant.
D. Contradictory Prayer of the Applicant
5.17. It is stated that the reliefs sought for in the Application are as under:
a) Declare that the payment of the subject transactions is violative of Section 66 of the Code and is liable to be reversed and set aside and pass appropriate orders directing the Respondents 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 66 and 67 of the Code including for recovery/restoration of legitimate amounts due to the Corporate Debtor and imposing appropriate penalty on the Respondents;
c) Direct the Respondents to restore the rights in the immovable/other properties and assets so acquired through fraudulent transactions and misuse of funds of the Corporate Debtor and vest all such interests created in their personal capacity, back to the Corporate Debtor;
d) 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; e) 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;
f) Permit submission of additional information and documents by the Applicant/Liquidator before this Hon'ble Bench;
g) And for such other / further order(s) and / or direction(s) as the facts and circumstances of the case may be warrant.
5.18. It is stated 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 "d" is seeking permission to submit supplementary findings and report PUFE transactions post updating of accounts, audit conducted and another transaction audit report done thereafter.
E. Glaring discrepancies in the Transaction Audit report dated 18.02.2021 annexed to the Application
5.19. It is further stated that the authenticity of the report dated 18.02.2021 filed by the Applicant which forms the basis of this application is itself questionable on the following points:
5.20. It is stated that it is clear that the auditors themselves have accepted that they have prepared the report based on details available only from the public domain and that they did not verify the said details independently and also disclaimed the guarantee and veracity of the information in the report. Further the auditors did not have access to the books of accounts though the RP had all the data with him. In fact, the auditors have stated that they 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 sufficient to show the legitimacy of the said report.
5.21. It is further stated that the authors of the report themselves have 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
5.22. It is stated that at the behest of Respondent No.1, the RP of the CD was charged with defrauding the CD. 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).
5.23. It is stated that the reason, the Applicant chose to file this frivolous application, is only to divert the attention of the tribunal from his own wrong doings which were brought to the fore by the Respondent in the Applications IA/1010(CHE)/2022 and IA(IBC)/333(CHE)2023. Thus, this application is a counterblast to these applications.
5.24. It is stated that the Applicant himself falsified the books of the CD and also resisted from discussing the fate of the Rs. 839 crores stock in the SCC meeting. The 1st Respondent has brought to fore both these misdemeanors of the Applicant before the Tribunal in the above applications thereby drawing the ire and wrath of the Applicant upon himself, resulting in the Applicant filing the present application as an act of vendetta against the Respondents. It is stated 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 applications (one u/s 19 of IBC and 2nd u/s 68 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 IA/544/CHE/2021 filed on 02.06.2021 and RP/Applicant withdrew on 21.09.2021.
(b) Section 19 IA/534/CHE/2021 filed on 02.06.2021 and RP/Applicant withdrew on 01.02.2024.
5.25. It is stated that the Applicant misrepresented the fact that although the CBI registered a FIR against the CD on 31.08.2018 and the Respondents u/s 120-B r/w, 406, 420, 468 and 471 (Annexure -10), the CBI itself dropped the sections 406, 468 and 471 IPC in the final report dated 22.03.2021 filed before the trial court (Annexure 11).
5.26. It is stated 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.
6. Written arguments & Brief synopsis filed by 1st Respondent Mr. Anil Kumar Ojha on behalf of himself and other Respondents, as per directions dated 14.11.2024 passed by the Adjudicating Authority
6.1. It is stated that as per data available on record, the turnover of the CD from 01.04.2015 till 04.11.2019 was about Rs. 1,666 crores. However, at Page 46, the Applicant alleged Fraudulent Transactions or Wrongful Trading to the tune of Rs. 4010.92 Crores. Further, the alleged Rs. 4010.92 Crores include some amount from the attachment order of the ED. Can the Applicant quote from any report/order and keep adding figures? This goes to show the motive of the Applicant in trying to implicate the Respondents in a frivolous matter without any substantive material.
6.2. It is stated that the Respondent filed reply on 29.02.2024. Since the Applicant has not yet filed any rejoinder, no further opportunity can be given to the Applicant for filing the rejoinder.
6.3. It is stated that after the erstwhile liquidator took charge :
i. The 1st Respondent filed an application before the Tribunal in IA/1010/2022 on 06.09.2022 alleging that the erstwhile liquidator had knowledge that accounts of the CD were falsified and that he should be accordingly punished.
ii. The 1st respondent filed an application before the Tribunal on 04.02.2023 in IA/333/2023 praying that the erstwhile liquidator call 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 the 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 were being paid to him per month was illegal and not as per the Regulations and that he was not eligible for the same. It is stated that the 1st Respondent 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 the Tribunal.
6.4. 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 parties 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 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.
Issues raised by respondents
7.3. It is observed that respondent in his reply has raised various issues about the avoidance applications , which are being examined in detail. 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 66 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 application is 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 is statutorily bound 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, [(2025) ibclaw.in 08 NCLT] NCLT, Bengaluru 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 Sec 66 of IBC was 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 application. 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 there are multiple transaction audit reports, contradictory prayers, glaring discrepancies in Transaction Audit Reports have some truth.
b) It is observed that due to non availability of information due to Enforcement Directorate attachment and also due to non-cooperation by erstwhile directors and employees. It was stated in the transaction audit report that based on the information available in public domain and also due to non availability of data, certain portions of report are not conclusive.
7.4. We have taken cognizance of the above limitations in availability of information, while deciding the avoidance applications.
Legal provisions in respect of Section 66 of IBC
7.5. In respect of Section 66 of IBC, Hon'ble Supreme Court of India, in Union of India v. Chaturbhai M Patel & Co., in (1976) 1 SCCat Page 747, observed that
``Fraud, must be established beyond reasonable doubt and the mere suspicion, however may be the circumstances, however strange the coincidences, and however grave the doubt, suspicion alone can never take place of proof."
7.6. It is pertinent to mention the Judgment of the Hon'ble NCLAT in the matter of Regen Powertech Pvt. Ltd. -Vs- Wind Construction Pvt. Ltd. in Company Appeal (AT)(Ins) No.349 of 2022, where it was held as follows:
33. Be it noted, this Tribunal', significantly, points out that, whenever 'Fraud' on a 'Creditor' is perpetrated in the course of 'carrying on Business', it does not necessarily follow that the 'Business' is being carried on with an 'Intent to Defraud' the 'Creditor'.
34. One cannot remain 'oblivious' of the candid fact that, if the 'Directors' of a 'Company" had acted on a 'bonafide belief that the 'Company' would 'recover' from its 'Financial Problems' / 'Difficulties', then, they will not be held liable for the 'act' / 'offence' of 'Fraudulent Trading'.
35. As a matter of fact, the 'aspect' of 'Fraudulent Trading requires a very 'High Degree of proof, which is attached to the Fraudulent Intent'. To put it emphatically, a more compelling 'Material' / 'Evidence' is required to satisfy the conscience of this 'Tribunal', 'on a preponderance of probability'. Apart from that, an 'isolated' / 'solo fraud' case, against the person, then, action in 'tort' can be resorted to, as opined by this Tribunal'. No wonder a Creditor', who was defrauded, will have 'recourse' to an 'alternative remedy', under 'Civil Law'.
38. Barring the aforesaid 'Reliefs'/ 'Directions' being sought for, by the 'Appellant' / 'Applicant' in IA(IBC)/489(CHE)/2021 in IBA/1099/2019, there are no 'Convincing Tangible' / 'Documentary Materials' to fortify the 'Plea' of the 'Appellant' / 'Applicant' that the 'Business' of the 'Corporate Debtor' was carried out by the Respondents with a 'Dishonest Intention' and, especially, to 'Defraud' the 'Creditors'. To put it precisely, the averments projected by the 'Appellant' / 'Applicant' in IA(IBC)/489(CHE)/2021 in IBA/1099/2019 do not come within the 'Four Parameters', of the ingredients of Section 66 of the Insolvency and Bankruptcy Code, 2016). Viewed in that perspective, the 'Impugned Order' dated 01.07.2022 in IA(IBC)/489(CHE)/2021 in IBA/1099/2019 passed by the 'Adjudicating Authority' (National Company Law Tribunal, Division Bench - II) in 'dismissing' the ‘Application', without Costs, is 'free from any 'Legal error'. Consequently, the ‘Appeal' fails.
In fine, the instant Comp App (AT) (CH) (Ins) No.349/2022 is 'dismissed', for the reasons assigned by this 'Tribunal', in this 'Appeal'. No Costs. (emphasis supplied)
Factual matrix:
7.7. We will go through the various grounds raised by applicant under Section 66 of IBC.
1. Round Tripping Transactions:
a) It is stated that as per the records, the receipts and payments with the customers and vendors were reflecting as ‚on-account‛ transactions and were not categorised into heads of purchases or sales. The narrations for these transactions were also incomplete. It is stated that in the absence of support documents and relevant classification of the transactions, the genuineness of these transactions could not be ascertained. It is stated that recording of receipts and payments against vendors and customers without actual purchase or sale of underlying goods indicate potential round tripping of funds and qualifies the transaction as potential fraudulent trading under Section 66 of IBC.
b) The amount of Rs. 5.93 crore alleged as round tripping amount was arrived by deducting the deposits of Rs. 175.75 crore from withdrawal of Rs. 181.68 crore.
Our view:
c) It is mentioned that in the absence of support documents and relevant classification of the transactions, the genuineness of these transactions could not be ascertained. It is observed that due to ED attachment and due to non-cooperation of the promoter directors and employees , full information was not available for BDO to conduct the transaction audit. Hence no conclusive evidence is provided to prove that the above transactions are covered under Section 66 of IBC.
2. Sale of immovable properties
Our view
a) It is mentioned that property was developed by SLO group. It is stated that no asset was available in books of accounts and the fixed assets register of Corporate Debtor. It is observed that in the BDO report , no where it is mentioned that property sold belongs to Corporate Debtor. Only information available is that sale proceeds have been credited to ICICI Bank account of Corporate Debtor.
b) Without clarity as to whether the assets sold belong to Corporate Debtor or not , whether the sale price was less than the acquisition price and whether Corporate Debtor was put to loss because of these transactions, we are of the view that it cannot be proved that fraud under Section 66 of IBC has been committed.
3. Transactions with undisclosed related parties
Our view:
a) An amount of Rs.1632.48 crore has been mentioned as transactions with undisclosed related parties for the period April 2015 to November 2019 . The definition of related parties for this purpose is taken from Section 2(76) of the Companies Act 2013. It is stated that transactions with related parties have to be carried out on arm’s length basis, the details of which could not be ascertained.
b) It is stated that proper disclosure has not been made in the financial statements of the Corporate Debtor as per Section 188 of Companies Act 2013. It is stated that full particulars of the transactions and support documents are not available.
c) No concrete evidence or proof has been provided to prove that these are fraudulent transactions falling within the purview of Section 66 of IBC. Hence , the above charge has not been established.
4. Misuse of LCs obtained from Corporation Bank &
5. Receipts from undisclosed related parties prior to issuance of LC.
Misuse of LCs obtained from Corporation Bank
a) Corporate Debtor enjoyed an Inland Letter of Credit Limit of Rs. 65 crore from Corporation Bank ( Page 57 of the application and page 9 of BDO report).
b) The summary of LC payments is as follows:
Amt Rs in cr
Receipts from identified parties during FY 2015-16
Party-wise LC payments made by Corporation Bank
XXXXX
Receipts from undisclosed related parties prior to issuance of LC.
c) Para 16.2 of Final Report Form submitted before the Additional Chief Metropolitan Magistrate, Egmore, Chennai. ( page 15 of report, Page 108 of Counter) talks about circular
transactions / round tripping transactions in LCs:
16.2. It is alleged that during the period April 2015 to March 2016, there were 37 Letters of Credits issued on behalf of the 6 LC beneficiaries, aggregating Rs.284.66 Crore. Out of these, 5 beneficiaries Viz., 1. M/s. Core Indo Ispat Private Limited., 2. M/s. Emjay Steel Udyog Private Limited., 3. M/s. Shakthi Ferro Allyos (India) Private Limited., 4. M/s. Kamachi Steels Limited and 5. M/s. Suryadev Alloys and Power Limited also appeared among the major debtors submitted to bank for arriving DP / limits. Further it is alleged that there are circular pattern of the transfer of funds, where in LC beneficiary party transferred funds similar to the LC amount into the borrowers companies banks account on the same day when the LC was issued in favour of the respective beneficiary and in 5 instances LC beneficiary parties transferred funds of INR 28.98 Crores, similar to LC- amount into the borrowers bank account on the same day LC was issued in favour of respective LC beneficiary parties.
d) Details of the LC transactions , and credits received from the parties for 34 LCs showing nexus between receipt of money and LC payments as given in BDO Report are given below in Annexure IX:
Same parties paid and received the amounts:
e) M/s. Suryadev Alloys and M/s. Kamatchi Sponge paid the money to the CC account of Corporate Debtor which was later used for payment through LC to them as under:
f) Receipts amounting to Rs.121.67 crore from Shri Mahalakshmi Metal and Scrap Processing Pvt Ltd ( undisclosed related party –). No invoice, sales order was produced to prove why Rs.121.67 crore was received from Shri Mahalakshmi Metals. The turnover of Sri
Mahalakshmi Metals did not commensurate with the amount received from it . The turnover was nil during 2013-14,2014-15 and 2016-17. During 2015-16 , the turnover was only Rs. 23,000/-.
Our view on 4 & 5
g) It is stated that in 52 instances, Letter of Credit ("LC") were issued amounting to INR 376.90 crores allegedly encasing in circular transactions with related entities without any genuine trade activity. It is noted that in all these cases, prior to issuance of LC by Corporation Bank on behalf of SLO to a third party, the LC drawing power was potentially increased through receipt of similar amount made into the bank account of SLO. The circular
transactions with the identified parties indicate potential misuse of funds by the Company to obtain LC for further utilization.
h) From the 34 LCs listed above in Annexure IX , it is clear that on or near the due date for LC payments, funds were received from the six undisclosed related parties which were used for honouring the LC payments. There are transactions of M/s. Suryodaya Alloys and M/s. Kamatchi Sponge, where the parties themselves remitted money to an extent of Rs.17.83 crore which was used for making payment to the LCs in their favour as mentioned above. Further, there was an unexplained credit of Rs.128.10 crore from Mahalakshmi Scrap , a related party whose whole year turnover was Rs.23,000/- only. All these prove that there was round tripping and circular movement of funds, establishing fraudulent intent of the parties including erstwhile promoter directors . These transactions squarely fall within the definition of Section 66(1) of IBC which is reproduced below:
66. (1) If during the corporate insolvency resolution process or a liquidation process, it is found that any business of the corporate debtor has been carried on with intent to defraud creditors of the corporate debtor or for any fraudulent purpose, the Adjudicating Authority may on the application of the resolution professional pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit.
i) Even though, BDO Report states that there is misuse of LC limit obtained from Corporation Bank amounting to Rs. 376.90 crores and receipts from undisclosed related parties to the extent of Rs. 284.66 crores, we have to keep in mind that the Inland LC limit sanctioned by Corporation Bank was Rs. 65 crore . Even though, the transactions in LC facility are Rs.376.90 crore and receipts from related parties were to the extent of Rs.284.66 crore, all the above transactions of circular movement of funds happened within the LC limit of Rs.65 crore only. So, the maximum amount of loss to the financial creditor from LC limit was Rs.65 crore.
j) Therefore, we direct the respondents to contribute to the assets of the Corporate Debtor to the extent of Rs.65 crore.
6. Donations made
Our View
a) Even though Corporate Debtor recorded transaction of donation of Rs.0.56 crore , but that from the bank records, it is noticed that only an amount of Rs. 0.47 crore was actually paid during FY 2015-16 to FY 2019-20.
b) It is stated that all the beneficiaries are the undisclosed related parties and further in absence of relevant disclosures and support documents for the donation made, it was unable to ascertain the appropriateness and genuineness of these transactions.
c) Hence, no concrete evidences or documents have been produced to establish that fraud under Section 66 of IBC has been committed by way of donations.
7. Analysis of Bank Statements
a) In the application , all these transactions which have been carried out in the above 4 bank accounts have been summarised. It is stated that total amount of Rs.1699.88 crore would fall under Section 66 of IBC.
b) It is stated that in absence of list of bank accounts which the Company operated during the Review Period, BDO India have limited the review to four bank account statements as per the information provided by various banks. It is stated that full particulars of the transactions and support documents are not available.
c) BDO’s Transaction Audit Report dealing with bank reports for the period 2014-15 to November 2019 relate to the following bank accounts:
XXXXX
Our view
d) Total suspected transactions value from the above 4 banks amount to Rs.1699.88 Crore ( Rs.748.27cr + Rs.385.39cr +Rs.419.47cr + Rs.146.75cr).
e) Report states that there were various transactions likei) cash deposits / cash payments without proper accounting records,
ii) Undisclosed related parties receipts and payments,
iii) Unknown transactions ( receipts and payments) where parties could not be traced.
iv) transactions with narration ‘ self’ receipts and ‘self payments, etc without proper details relating to nature of transactions.
f) It is stated that in absence of list of bank accounts which theCompany operated, BDO India has limited the review to four bank account statements. It is stated that full particulars of the transactions and support documents are not available.
g) No concrete evidence or proof has been provided to prove that these are fraudulent transactions falling within the purview of Section 66 of IBC. Hence , the charge has not been established.
8 & 9 Purchase of immovable properties
In respect of SLO Steels
a) SLO Industries Ltd , Corporate Debtor diverted funds from the a/c no 510909010045441 held in City Union Bank, Anna Nagar West Branch to buy immovable properties in the name of the M/s SLO Steels:
b) It is observed that payment of Rs.0.62 crore has gone from City Union Bank account of Corporate Debtor and the property has been purchased in the name of SLO Steels. The above transaction in 2017 is clearly a diversion of fund and can be classified as fraud under Section 66 of IBC.
In respect of SLO Buildcon Pvt Ltd
a) Shri Anil Kumar Ojha, Director of M/s SLO Industries Ltd diverted funds from CC50001 of SLO Industries Ltd to CA 61107634126 of M/s SLO Buildcon Pvt Ltd - SBBJ, Subhash Marg
C Scheme, Jaipur to buy the following immovable properties:-
XXXX
b) the Table provides the details of the properties purchased in the name of SLO Buildcon Pvt Ltd and the details of cheques issued from the Current Account of SLO Buildcon Pvt Ltd in the years 2010-11 and 2011-12 period. It is observed that 7 properties were bought by SLO Buildcon Pvt ltd on various dates ranging from 05.01.2011 to 01.08.2013.
c) Table reproduced below shows the funds transferred from CC account of Corporate Debtor to Current Account, SBBJ of SLO Buildcon Pvt Ltd . There are 6 transfers that had happened between the period from 26.04.2011 to 19.01.2012.
Our view:
d) When we examine the details of receipts of money in SBBJ account of SLO Buildcon Pvt Ltd from Corporate debtor , payments made from the SBBJ account of SLO Buildcon Pvt Ltd
for purchase of properties and the dates of purchase transactions of SLO Buildcon Pvt Ltd , we find to be no apparent nexus or one to one matching which can be established between receipts and payment of money in the SBBJ account and the purchase dates. Hence, no concrete evidence has been provided for classifying the above transactions with SLO Buildcon Pvt Ltd as fraudulent transaction u/s 66 of IBC in respect of purchase of immovable properties by third parties.
Summary of alleged transactions under Section 66 of IBC
7.8. The summary of the transactions is produced as under:
Rs in crore
7.9. We are of the view that the following transactions could be treated as the fraudulent transactions and the amount of fraud committed is as under:
a) Transactions 5 & 6 relating to misuse of LCs and receipt from undisclosed related parties prior to issuance of fresh LCs. (Amount Rs. 65.0 Crores)
b) Transaction 8 relating to purchase of immovable property by SLO Steels using the money obtained from Corporate Debtor. ( Amount Rs.0.62 crores).
8. Conclusion:
8.1. The present application filed under Section 66 of IBC is unique and different from the applications filed by RP/ Liquidator in other IBC cases, because of the peculiar facts in the current case:
a) The avoidance application has been filed by the liquidator on 07.07.2023 , even though the Transaction Audit Report of BDO based on which the application has been filed was submitted on 18.02.2021.
b) There was a raid conducted by Enforcement Directorate on the Corporate Debtor where material documents and book of accounts were seized.
c) There was little or no cooperation from promoters in providing the information.
d) In this background, Transaction Audit Report submitted by the BDO contains lot of limitations about lack of information, documentary evidence, etc. The report has a disclaimer that ‚We have relied on the information provided by SLO and the information was not independently verified by us for correctness and genuineness. Whilst we have taken reasonable steps to corroborate the information obtained, we cannot guarantee its reliability or completeness. For these reasons, this report should be used for guidance purposes only. It should not form the sole basis for any decision as to a potential course of action without independent confirmation of its findings; nor should it be relied upon as preferred advice on assets / liabilities in question or the concerned entities and individuals to which it relates”.
e) Even though there were 9 transactions identified as eligible for Section 66 of IBC, the Respondent No 1 in his counter has not given specific reply to these allegations. The replies
given are general in nature, stating that for the sake of brevity, the Respondent is not replying para wise to the averments contained in the Application and it should not be deemed that the Respondents have admitted the uncontroverted averments in the Application.
8.2. While analysing the application , we have kept in mind the above peculiarities of the present case and our decision is arrived at on the basis of the facts furnished by both the parties and supporting evidences available.
8.3. Based on the above analysis, we find that the following transactions are the fraudulent transactions
a) Purchase of immovable Properties in the name of SLO Steel Ltd for Rs. 0.62 crore.
b) Misuse of LC limit obtained from Corporation Bank and receipts from related parties before payment of LC to the extent of Rs. 65.0 Crores.
8.4. We therefore hold that the respondents shall jointly and severally be liable to make such contributions to the assets of the corporate debtor to the extent of Rs. 65.62 crores.
8.5. IA 1336 of 2022 is accordingly disposed of.
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