Mr. Ram Ratan Kanoongo Vs Mr. Pramod Goenka & Ors. - The Resolution Professional becomes functus officio after the approval of plan and he ceases to have authority to file any fresh application under the Code, except to prosecute the applications already pending before this Tribunal prior to approval of the Resolution Plan or before appellate authorities in relation to such pending application before this Tribunal or pending thereat at the time of approval of Resolution Plan.

 NCLT Mumbai-1  (2024.09.03) in Mr. Ram Ratan Kanoongo Vs  Mr. Pramod Goenka & Ors. [M.A. 1548 OF 2019 IN T.P. (IB) 600/MB/2017] held that; 

• The Hon’ble Delhi High Court in case of Tata BSL Limited vs. Venus Recruiters Private Limited (Supra) had held that the Resolution Professional can prosecute further the avoidance applications filed prior to approval of Resolution Plan.

• “Accordingly, reliance placed upon sections applicable in the context of CIRP cannot be extended to the RP for the purposes of pursuing avoidance applications. The RP, before passing of the approval order, filed an application for avoidance of certain transactions, discharging the statutory burden laid out under Section 25(2) (j) of the IBC.”

• The Resolution Professional becomes functus officio after the approval of plan and he ceases to have authority to file any fresh application under the Code, except to prosecute the applications already pending before this Tribunal prior to approval of the Resolution Plan or before appellate authorities in relation to such pending application before this Tribunal or pending thereat at the time of approval of Resolution Plan.

Excerpts of the Order;

# 1. The present Interlocutory Application IA 1548 of 2019 is filed in Petition CP No. 600 of 2017 by Mr. Ram Ratan Kanoongo in terms of Section 43, 66, 70, 71, & 72 read with Section 26 of the Insolvency and Bankruptcy Code, 2016 in the matter of Say India Jewellers Pvt. Ltd. seeks following relief;

• a. Consider and allow the MA No. 1548 of 2019 in terms of Section 43, 66 read with Section 26 of IB Code, 2016

• b. Require the person as detailed in this above, 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;

• c. Pass appropriate directions/ orders in terms of Section 43, 67, 70, 71, 72 & 73 of the Code including for recovery/restoration of legitimate amounts due to the Corporate Debtor;

• d. And for such other/ further order(s)/direction(s) as the facts and circumstances of the case may warrant.

# 2. The Insolvency Petition filed by M/s D. Chagganlal & Co. (Operational Creditor) against Say India Jewellers Private Limited (Corporate Debtor) was admitted by this Tribunal vide order dated 01 August 2017 and Mr. Akshay R. Shah, was appointed as the interim resolution professional ("IRP") with effect from 3 October 2017. Thereafter, Mr. Ram Ratan Kanoongo, having registration no. IBBI/IPA-001/IP- P00070/2017-18/10156, was appointed as the Resolution Professional ("RP") (now as Chairman of Monitoring Committee) in the second CoC meeting held on 20 November 2017 and was confirmed by this Tribunal vide Order dated 09 January 2018.

# 3. A Resolution Plan jointly submitted by Mr. Babulal Motawat and Mr. Rohit Motawat has been approved by this Hon'ble NCLT vide orders dated 29 January 2019, proposing certain modifications as listed therein and subsequently confirming the modified Resolution Plan vide order dated 07 February 2019. As per the approved Resolution Plan, the Financial Creditors have the right to all recoveries resulting out of the said Application.

# 4. Say India Jewellers Pvt. Ltd. has four divisions: -

A. Diamond Division for procurement and trading in Diamonds. This Division caters to Group Companies. It has operations at Opera House (Diamond District of Mumbai)

B. Jewellery Manufacturing facility in SEEPZ, Andheri

C. Colour Stones procurement, cutting and polishing Division catering group companies. It has Office in Jaipur.

D. Trading Office in SEEPZ for procurement of miscellaneous raw materials mainly Silver, Rhodium, Alloy etc. It is one of the few Trading License Holders in the entire SEEPZ. The business model followed by the Group is that the domestic procurement operations are carried out through Corporate Debtor whilst overseas operations are managed by other group companies viz. Jewel America Inc. and Barjon Jewelry Inc. being Sales, marketing and customer relationship arm.

# 5. The Applicant submitted that he was given to understand that the Managing Director/Promoter Mr. Pramod Goenka "Respondent No. 1" is absconding and not traceable. The shareholding pattern of the Corporate Debtor comprises 7,26,975 shares held by Respondent No. 4 constituting 96.93% shareholding. While Respondent Nos. 1 to 3 are also shareholders and Directors in Respondent No. 4.

# 6. The Corporate Debtor has been banking with Andhra Bank since 2005 and State Bank of Bikaner and Jaipur since 2008. The Respondents have been operating as many as 10 other accounts with Banks other than the consortium members (i.e. Andhra Bank and State Bank of Bikaner and Jaipur) which are operated without the knowledge of the Consortium members. The "Metal loan account with Bank of Nova Scotia" was exclusively for the purpose of purchasing metal and no other purpose; however, it has been observed that there were other financial transactions undertaken with group companies, which is a clear violation of "end use restriction" and leads to syphoning of funds from the account of the Corporate Debtor for the purpose other than for which it was disbursed. Details can be seen from the following table :

# 7. Potentially Bogus Sales:

a. On perusal of the sample size of approx. Rs. 46.57 crores worth of sales, Rs. 30.71 crores are with related parties (i.e. Dania Oro Jewellery Pvt Ltd, Inter Gold India Pvt Ltd, Lily Jewellery Pvt Ltd and Yash Jewellery Pvt Ltd) which includes Rs. 10.47 crores of sales to Respondent No. 4 (i.e. Yash Jewellery Pvt Ltd). It was reported in the Forensic Audit Report that these sales amounting to Rs. 30.71 crores were not supported by any evidence/documents/delivery challans and neither shipping bills nor airway bills could be traced or were produced for inspection, the party wise details are given below :

b. Hence, it can be said these are bogus sales undertaken on the behest of the Respondents 1 to 3 and the same ought to be recovered from them.

# 8. Provision for doubtful debts:

a. Thereafter, on further perusal of the Tally data, an aggregate value of Rs. 30.93 crores have been shown as provision for doubtful debts, most of which is towards sales made to related parties with no disclosure of such provision being made in the audited financials for FY 2016-17, the party wise details are given below :

b. These were potentially bogus sales made to related parties merely to inflate the profit and loss account of the corporate debtor and to defraud the secured lenders.

# 9. The Forensic Audit shows a write-back of approx. Rs. 50.09 crores in the books of accounts with no disclosure of such write-back in the audited financials. The write back comprise of Rs. 1966.62 lakhs payable to the Group Companies and remaining payable to other parties. In other words, inflated/bogus creditors were originally created which were later written back as non-payable but were neither disclosed in the profit and loss account nor offered to tax as required in terms of provisions of section 41 of the Income-tax Act, 1961. This evidences that funds to the extent of Rs. 50.09 crores of the Corporate Debtor have been siphoned off for the benefit of the Respondents, which ought to be brought back into the account of the Corporate Debtor.

# 10. Potentially Bogus purchases subsequently, written back but not disclosed in audited financial statements:

a. During FY 2016-17, based on the purchase information as per the Tally data, purchases aggregating to 29.42 crores were made from four parties which were subsequently written back in the accounting system with no disclosures in the audited financial statements and neither was offered to tax as required mandatorily in terms of the provisions of section 41 of Income-tax Act, 1961, the party wise details are given below :

b. These purchase entries are neither supported by any documents, no goods receipt note, nor any confirmation about the customer's whereabouts. Refer to internal page 27 of the Forensic Audit Report (Page 46 of this application).

# 11. Inflated Salary expenditure:

It is observed by the Forensic Auditors that salary data have been deliberately inflated in the audited financials to the extent of Rs. 7.73 crores on the behest of the Respondents the party wise details are given below :

# 12. Sale of fixed assets belonging to the Corporate Debtor of approx. Rs. 69.28 lakhs The fixed assets worth Rs. 69.28 lakhs (written down value as per books) were apparently sold for merely Rs. 19.58 lakhs and the said sales proceeds have been siphoned off and not credited into the account of the Corporate Debtor. The Forensic Auditor has also observed that in case of five assets sold for Rs. 3.08 lacs, the Auditor could not trace the receipt of the funds into the tally system. Further, in majority of sale of fixed assets, the acknowledgement of purchaser for receipt of assets was not observed. The Respondents ought to be directed to bring back the money into the account of the Corporate Debtor to the extent of Rs. 69.28 lakhs.

# 13. Recovery of Rs. 12.06 crores being preferential transaction with Respondent No.1, needs to be vested into the Corporate Debtor. During the period FY 2015-16 (within two years prior to initiation of CIRP), approx. Rs. 12.06 crores have been paid to Respondent No.1 out of the account of the Corporate Debtor which is preferential treatment to an unsecured lender over the secured financial creditors and triggers. provisions of section 43 and section 66 of the Code. The Corporate Debtor has payable to Respondent No. 1 under unsecured loan a sum of Rs. 2286.89 lacs at the end of Financial Year 2013-14 and the same was reduced to 968.02 lacs as on end of Financial Year 2016-17.

# 14. Internal adjustments against receivables of Corporate Debtor:

Time and again, adjustment entries are passed in a way to nullify all receivables of the Corporate Debtor against the liabilities of Respondents. Respondent No. 1 stands to gain to an extent of Rs. 0.67 crores while Respondent No. 4 is a beneficiary for an amount of Rs. 25.15 crores. During the Financial Year 2012- 13, Nascant Jewellary Private Limited- Creditor of Rs. 66.76 lacs has been adjusted with Respondent No. 1 loan. Similarly, in 2011-12, Yash Jewellary Pvt. Ltd. – Debtors of Rs. 160 lacs has been adjusted against Pramod Goenka – loan account. Both the respondents ought to be directed to infuse the said money into the account of the Corporate Debtor.

# 15. Provision of Corporate Guarantee amounting to Rs. 35.70 crores for the benefit of Respondents: The Corporate Debtor has provided a corporate guarantee to the extent of Rs. 35.70 crores, being the claim amount received by the RP from State Bank of India for the benefit of the Respondents Lily Jewellery Pvt. Ltd. which is a misrepresentation to the existing lenders and adversely impacts the claim of the secured financial creditors, since, the said Corporate Guarantee has been created on behalf of group company i.e. Lily Jewellery Private Limited, after it has been declared as NPA on 31st December 2013 with State Bank of India and 30th September 2014 with Andhra Bank and without obtaining any NOC from existing lenders.

# 16. Transfer of Rs. 4.67 crores to the credit of Respondent No. 1:

The Corporate Debtor had availed a credit facility from Andhra Bank and SBBJ and had provided as a collateral security, inter alia, the plot no. AA1, Cama Industrial Estate, Goregaon (East), Mumbai. The Corporate Debtor entered into a joint development agreement with a third party during FY 2015-16 without the permission of the secured lenders and received an amount of Rs. 4.67 crores in this regard which was subsequently transferred to the credit of Respondent No. 1. This is squarely covered under the provisions of section 43 of the Code, being preferential treatment given to the related party over the secured lenders and also hit by provisions of section 66 of the Code.

# 17. Respondent No. 4 is in the Corporate Insolvency Resolution Process (CIRP). Respondent No. 2 & 3 are non-execute directors and have filed their reply. 

# 18. Respondent No. 2 submitted that the present Application is not maintainable as its barred by limitation; the office of the Resolution Plan was functus officio at the time of filing the Application as the Resolution Plan was approved before the filing of the Application; the Applicant has failed to demonstrate as to how Respondent No.2 is a beneficiary to the transactions which is alleged in the Application; the Applicant has failed to place on record any such evidence which will explain a direct relationship between Respondent No.2 and the said purported transactions; he was never involved in the decision making or daily affairs of the Corporate Debtor; and he was not involved with the Corporate Debtor after 2002.

# 19. Respondent No. 3 submitted that An erstwhile RP or a member of the monitoring committee has no power to file or prosecute an application under Sections 43 or 66; Section 66 can only be invoked “during the corporate insolvency resolution process or a liquidation process”; The Application is moved by the Applicant with gross and unexplained delay, and is therefore barred; In multiple places, the Applicant, in terms, admits that he only has a “reason to believe”, or that “potentially” offending acts have been committed; it was Respondent No.1 who was in charge of all the decision making and running the affairs of the Corporate Debtor and Respondent No.3 had a very limited role in the Corporate Debtor and used to simply execute the decisions of Respondent No.1; and Respondent No.3 was never the beneficiary of any transactions of the Corporate Debtor. 

# 20. Heard the Learned Counsel and perused the material on record.

# 21. The Respondent No. 2 and 3 have raised the ground of limitation stating that the application has been filed beyond 135 days from commencement of CIRP. However, the time lines under IBC have been held to be directory in nature in Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta, [2019] ibclaw.in 07 SC. The division Bench of Hon’ble Delhi High Court in the case of Tata Steel BSL Ltd. Vs. Venus Recruiter Pvt. Ltd. & Ors. (2023) ibclaw.in 09 HC have held that “However, it is our understanding that the timelines under Regulation 35A are directory and not mandatory in nature.” hence we do not find any merit in this ground. 

# 22. The application has been contested on the ground that the Applicant Resolution Professional ceases to have any authority after approval of Resolution Plan in case of Corporate Debtor finally on 7.2.2019 to file an application for avoidance of transactions under the IBC. Admittedly, this application has been filed by the pplicant Resolution Applicant after approval of Resolution Plan, which is  evident from the fact of approval of Resolution Plan even stated at I.6 of the Application. On perusal of the application and documents annexed thereto, we find this Application has been signed on 18.4.2019 by the Applicant in his capacity as Resolution Professional, whereas the applicant ceases to be Resolution professional on 7.2.2019 and the office of Resolution Professional is rendered functus officio. We further find that the Applicant has not made any averment as to when he received the Report of Forensic Auditor; why he could not file the application before the filing of an application before this Tribunal seeking approval of the Resolution Plan; whether the Report of Forensic Auditor was considered by CoC or even placed before CoC. There is no averment that the applicant received the information late or there was non co-operation from the erstwhile Management which delayed the filing of present application. No minutes of CoC meeting, if any, held for discussion of the avoidance transaction, is placed on record. The Forensic Auditor’s report is undated, hence this Tribunal is not in a position even to make out what could have led the Applicant to file present application after approval of Resolution Plan.

# 23. The Hon’ble Delhi High Court in case of Tata BSL Limited vs. Venus Recruiters Private Limited (Supra) had held that the Resolution Professional can prosecute further the avoidance applications filed prior to approval of Resolution Plan. It said so in following words 

• 83. The Ld. Single Judge has heavily relied upon the role of the RP in the context of the CIRP to hold that the RP becomes functus officio upon the conclusion of the CIRP. The role of the RP vis-à-vis the resolution process ends, and rightly so, with the successful resolution of the corporate debtor. However, the Scheme of IBC makes it is clear that avoidance applications and CIRP are a separate set of proceedings. The avoidance of a transaction requires discovery of dubious transactions which are complex in nature and adjudication of these by the adjudicating authority takes time and the resolution process need not await the outcome of the exercise. Therefore, a distinction can be drawn between the role of the RP vis-à-vis CIRP on one hand and avoidance applications on the other.

• 84. Accordingly, reliance placed upon sections applicable in the context of CIRP cannot be extended to the RP for the purposes of pursuing avoidance applications. The RP, before passing of the approval order, filed an application for avoidance of certain transactions, discharging the statutory burden laid out under Section 25(2) (j) of the IBC. 

# 24. Section 25(2)(j) of the Code mandates the Resolution professional to file application for avoidance of transactions in accordance with Chapter III, if any. The Resolution Professional becomes functus officio after the approval of plan and he ceases to have authority to file any fresh application under the Code, except to prosecute the applications already pending before this Tribunal prior to approval of the Resolution Plan or before appellate authorities in relation to such pending application before this Tribunal or pending thereat at the time of approval of Resolution Plan.

# 25. Accordingly, we are of considered opinion that the present application is not maintainable as having been filed without any authority vested in the Resolution Professional after the approval of Resolution Plan. 

# 26. We find that the Resolution Professional has referred to various observation of Forensic Auditor to make out a case against the Respondent No. 1 to 3 alleging bogus sales & purchases, inflated salary expenses, siphoning of funds by sale of fixed assets, transfer to related persons and preferential payments. Accordingly, we consider it appropriate to direct IBBI to look into these aspect and initiate appropriate proceedings against Respondent No. 1 to 3 in terms of Section 70, 71 and 73 of the Code. The IBBI may also look into the conduct of the Applicant Resolution Professional in failure to file appropriate application prior to approval of Resolution Plan. Registry is directed to send a copy of this Order to IBBI for necessary action at their end.

# 27. In view of the foregoing, the MA 1548 of 2019 is dismissed and disposed of accordingly.

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Vivek Prakash Vs Dinesh Kumar Gupta. - The mere fact that certain amounts were written off cannot amount to preferential transaction within meaning of Section 43.

NCLAT (2024.08.28) in Vivek Prakash Vs  Dinesh Kumar Gupta. [Company Appeal (AT) (Insolvency) No. 196 & 828 of 2023] held that; 

• When the allegations were made by the Liquidator that transactions are transaction which are covered under Section 66, there has to be Application of mind by the Adjudicating Authority to the ingredients which are required to be fulfilled for declaring the transaction to be a fraudulent transaction.

• There is no finding by the Adjudicating Authority in the Impugned Order that ingredients of Section 66 are fulfilled. The mere fact that proceedings were Ex-Parte against the Appellant cannot be a reason to hold the ingredients of Section 66 are fulfilled without adverting to the relevant ingredients.

• Adjudicating Authority has not given any consideration or findings in the Impugned Order for holding the transaction are covered under Section 66. Ends of justice be served in setting aside the Order passed by the Adjudicating Authority dated 17.04.2023 and reviving the Application I.A.119/2022 for fresh consideration.

• For holding transaction to be a preferential transaction, conditions enumerated in Section 43 need to be established.

• The mere fact that certain amounts were written off cannot amount to preferential transaction within meaning of Section 43.

Excerpts of the Order;

28.08.2024 : Comp. App. (AT) (Ins.) No. 828 of 2023

# 1. This Appeal has been filed by the Appellant, the Ex Director of the Corporate Debtor challenging the Order dated 17.04.2023, passed by the Learned Adjudicating Authority, (National Company Law Tribunal, Court – V, New Delhi Bench) in I.A.119/2022 in IB No. 2354 / ND / 2019. I.A.119/2022 was filed under Section 66 read with sub-Clause 5 by the Liquidator of the Corporate Debtor. In the Application in Paragraph 9 and Paragraph 10, certain transactions were referred to which were sought to be declared as a fraudulent transaction.

# 2. Adjudicating Authority in Paragraphs 4 & 5 of the Order has extracted the Paras 9 & 10 of the Application. In the Applications, the Appellant could not file any Reply and the Adjudicating Authority proceeded to decide the Application by the Impugned Order. Only two Paragraphs of the Orders i.e., Paragraphs 12 & 13 which can be said to be consideration of the Application by the Adjudicating Authority which Paragraphs 12 & 13 are as follows:

• “12. We are of the view that the abovementioned observations are made by the rightly appointed Transaction Auditors and hence, have been taken on record. Further, it is relevant to mention that despite sending of multiple notices by the Applicant, the Respondents made no appearance. The Applicant has further enclosed affidavit of service, which justifies that there has been no default on the part of the Applicant and hence, the said Respondents has been proceeded Ex-parte with, by this Adjudicating Authority. In addition to that, we opine that the abovementioned Transaction Auditors are expert in the concerned field and that there has been no reply on the part of the Respondents, we see no impediment in allowing the present application.

• 13. Hence, we allow the Liquidator on behalf of the Jarvis Infratech Private Limited to restore the position of the Financial Transactions identified by the Applicant under Section 66, as it existed before such financial transactions had been entered into by the Corporate Debtor. Further, we direct the respondents to contribute to the assets of the Corporate Debtor, as detailed in Paragraphs 9 and 10 of the instant application based on the expert opinion of the Transaction Auditor leading to formation of opinion/belief on the part of the liquidator.”

# 3. When the allegations were made by the Liquidator that transactions are transaction which are covered under Section 66, there has to be Application of mind by the Adjudicating Authority to the ingredients which are required to be fulfilled for declaring the transaction to be a fraudulent transaction. Paragraphs 9 & 10 of the Application as extracted by the Adjudicating Authority are ledger balances which are subsequent to 31.03.2019.

# 4. Learned Counsel for the Appellant submits that last Balance Sheet filed by the Corporate Debtor was as on 31.03.2019 and thereafter no Balance Sheet was filed. There is no finding by the Adjudicating Authority in the Impugned Order that ingredients of Section 66 are fulfilled. The mere fact that proceedings were Ex-Parte against the Appellant cannot be a reason to hold the ingredients of Section 66 are fulfilled without adverting to the relevant ingredients. Counsel for the Appellant has also given an explanation for not being able to appear before the Adjudicating Authority since personal Insolvency Proceedings were already going on against the Appellant and all documents were with the Resolution Professional (`RP’) who was appointed by the Adjudicating Authority

# 5. Learned Counsel for the Liquidator submits that the Balance Sheet was filed after 31.03.2019 up to date before the commencement of the CIRP proceedings. Adjudicating Authority, however, has not referred to any Balance Sheet in the Impugned Order.

# 6. In the facts of the present case and especially the reasons as given above that Adjudicating Authority has not given any consideration or findings in the Impugned Order for holding the transaction are covered under Section 66. Ends of justice be served in setting aside the Order passed by the Adjudicating Authority dated 17.04.2023 and reviving the Application I.A.119/2022 for fresh consideration. 

 

# 7. In view of the facts that Application is being revived, Appellant is also at opportunity to file the Affidavit in Reply to the Application within a period of three weeks from today along with the relevant materials which is required to be filed. The Adjudicating Authority after considering the Reply of the Appellant may proceed to pass fresh Order in accordance with law.

# 8. Application I.A.119/2022, having been filed in 2022, we request the Adjudicating Authority to expeditiously dispose of the Application.

 

Comp. App. (AT) (Ins.) No. 196 of 2023

# 1. This Appeal has been filed by the Ex Director of the Corporate Debtor, challenging the Order dated 22.12.2022 passed by the Learned Adjudicating Authority (National Company Law Tribunal, New Delhi Bench Court – V) in I.A. 111/2022 in (IB)/2354/ND/2019. I.A.111/2022 was filed by the Resolution Professional (`RP’) under Section 43 read with Section 60(5) of the Insolvency and Bankruptcy Code, 2016, (for short `The Code or The IBC’) before the Adjudicating Authority. Liquidator has filed the transaction on the basis of Transaction Audit Report dated 19.08.2020.

# 2. Learned Counsel for the Appellant submits that the Order of the Adjudicating Authority by which transactions have been declared to be preferential transaction and direction has been issued to make contribution are not in accordance with the provisions of Sections 43 & 44 of the IBC. It is submitted that the transactions which have been declared to be preferential transactions were transactions under which it was claimed that there were certain receivables which were written off.

# 3. We have heard Counsel for the Liquidator also.

# 4. The Transaction Audit Report, which is the basis of Order is relevant transactions have been captured in Paragraph 9 of the Report, which is as follows:

• “9. The company (PIL) has written off a huge amount of Rs.86, 69.550.46 during the financial year 2019-20 and booked the same under the head “Miscellaneous Expenses” in the Provisional Balance Sheet and Profit & Loss Account as at 10/02/2020. The amount primarily includes accounts receivables/amount recoverable & sales and is apparently an attempt divert/misappropriate the funds belonging to JIPL by forging the books of accounts, The written off amount consists of the following:

• 
  

	Head of Account	Amount written off (Rs.)	Nature of amount written of
	Sales	58,03,943.00	Sales
	M/s.Coramandal Electronics	19,51,7689.00	Account receivable
	GST	7,38,018.00	GST Recoverable
	Directorate of Prosecution	1,19,284.00	Account Receivable
	TDS-2016-2017	56,537.00	TDS Receivable
	Cash	(-)0.05
	Total	86.69.550.46

• 10. The company OTPL) seems to have Intentionally and wrongfully manipulated is current assets in form of Stocks, Trade Receivables, Loans, Advances and deposits recoverable to bring them down in 2019-20 by wrongfully, deliberately, and arbitrarily transferring most of the accounts receivable and loans & advances to its favourite parties and by writing off the assets belonging to the company. This is apparently an attempt to pass the undue benefits to the favourite parties and to cheat on the other creditors and the company itself.

• 11. The expenditure on account of Professional Charges have increased from Rs.10,73,500/- in 2018-19 to Rs.21,15,100/-In 2019-20 whereas there has been no business In the company during the year 2019-20 in terms of purchase or sales. These charges include Rs.10 lacs paid to M/s GRPT Marketing Pyt. Lid. And Rs. 11 lacs paid to M/s. S. Chaudhary & Co. the documents related whereto could not be examined for want of access to the same. The expenditure does not appear to be genuine and seem to have been manipulated/inflated.

• The Resolution Professional of the case was apprised of the aforementioned observations and the documents/information/explanations/clarifications etc. required in respect thereof as aforementioned. The Resolution Professional informed us to have sought the required documents/information/explanations/ clarifications from the management of jIPL but the management of JIPL not only failed to provide the same but also showed its reluctance to offer us the opportunity to visit the office of JIPL for our verification/examination of necessary documents/information or to seek explanation/clarification on our observations within the reasonable time and opportunity offered by the Resolution Professional to the management of JIPL. This shows sheer non-cooperative attitude of the management of PL in the matter.

• In view of the aforementioned circumstances, we are left with no other option but to submit our provisional transaction audit report on the basis of documents/information made available to us.

• OPINION:

• In view of our examination/verification of the documents/information produced before us for the purpose of Transaction Audit of the company UIPL). We do hereby, submit our Provisional Transaction Audi Report of the company and are of the opinion that:

• a) the management of the company has wrongfully, deliberately and arbitrarily diverted its assets in form of “accounts receivable/recoverable” aggregating to Rs.1,31,65,883.57 in favour of the “related party” viz. PTPL and Rs.7,06,894.52 in favour of the another “related party” viz. STSFL on preferential basis with the mala-lide intention of wiping off the recoverable/receivable assets from the books of accounts and Balance Sheet of the company for the benefit of favourite parties on preferential basis thereby leaving the least for the other creditors, which apparently amounts to misappropriation/diversion of the assets and breach of trust of the other creditors of the company and the company itself;

• b) the management of the company has deliberately made a payment of Rs.1,53.38,176/- out of the only major receipt of Rs.1,57,39,397/- during the year 2019-20 to the “related party” viz. STSPL on preferential. Basis apparently with the mala-fide intention of diverting the funds of the company and depriving the other creditors of the company of their rights.

• c) the management of the company has been found having indulged in misutilization/diversion of dis funds by way of advancing/diverting its funds to the directors and other parties without any consideration flowing in to the company;

• d) the management of the company has wrongfully, deliberately and arbitrarily written off its assets to the extent of R5.86,69,550.46 apparently with the mala-fIde intention of wiping off the assets and presenting the unfair and untrue position of profit/loss and assets/liabilities of the company, which is apparently an attempt defraud the company and its creditors and to misappropriate/divert the assets of the company;

• e) the company appears to have booked unreasonably high expenditure to the Profit & Loss Account for the period ended on 10/02/2020 thereby inflating the loss during that period and possibly misappropriating the funds of the company by such actions.”

# 5. The submission which has been pressed by the Counsel for the Appellant is that the transactions which are referred to were transactions where it is claimed that certain amount were written off as captured in Para 9 in the Table at Item Nos. 1 to 5.

# 6. We have considered the submissions of the Counsel for the Appellant and perused the record.

7. Section 43 of the IBC provides as follows:

• “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.”

# 8. For holding transaction to be a preferential transaction, conditions enumerated in Section 43 need to be established. The word “transaction” has been defined in Section 3(33), which is as follows:

• “3. Definitions.- In this Code, unless the context otherwise requires,-

• (33) “transaction” includes a agreement or arrangement in writing for the transfer of assets, or funds, goods or services, from or to the corporate debtor;”

# 9. Learned Counsel for the Appellant submitted that in the Master Data of the Company as reflected in the Ministry of Corporate Affairs, the last Balance Sheet which is noted is up to 31.03.2019 and no Balance Sheets were submitted by the Corporate Debtor thereafter. It has been submitted by the Appellant that there was no material brought on the record to indicate that any decision to write off the aforesaid amounts were taken by the Appellant nor there is any documents, Board Resolution or Letter to indicate that the said decision was taken by the Appellant.

# 10. Learned Counsel for the Liquidator has also not been able to support the Impugned Order to characterise the transaction as preferential transaction. The mere fact that certain amounts were written off cannot amount to preferential transaction within meaning of Section 43.

 

# 11. In view of the aforesaid, we are of the view that Adjudicating Authority in the Impugned Order has not returned the findings as to how the ingredients of Section 43 are proved in the facts of the present case. The Order Impugned is unsustainable.

 

In view of the aforesaid, we set aside the Impugned Order insofar as directions in Paragraph 8(c) are concerned qua Appellant.

Appeal is allowed to the above extent.

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Kashyap Mehta Vs. Kabra Estate & Investment Consultants - Resolution Applicant can pursue the Avoidance Application filed under Sections 43, 45, 46, 66 & 67.

 NCLAT (2024.08.23) in Kashyap Mehta  Vs. Kabra Estate & Investment Consultants [(2024) ibclaw.in 514 NCLAT, Company Appeal (AT) (Insolvency) No. 1582 of 2024] held that; 

• We are of the view that the issue raised by the Appellant is fully covered by the Judgment of this Tribunal in `Kapil Wadhawan’ (Supra). After noticing the Scheme of the regulation it has been held that Adjudicating Authority can permit the Resolution Applicant to pursue the Application filed under Sections 43, 45, 46, 66 & 67.

Excerpts of the Order;

23.08.2024: Heard Counsel for the Appellant and Counsel for the Respondent.

# 2. This Appeal has been filed against an Order dated 27.06.2024 passed by the Learned Adjudicating Authority (National Company Law Tribunal, Court V, Mumbai Bench) in I.A. No. 3142/2024 in C.P. (IB) No. 3169 (MB) 2019, the Application was filed for amendment in I.A. 91/2021. By the Application certain Paragraphs were added and amendment as prayed was allowed.

# 3. Learned Counsel for the Appellant challenging the Order submits that it is the only Resolution Professional (`RP’) who is entitled to pursue Application filed under Sections 43, 45, 46 & 66, 67 and Adjudicating Authority committed an error in allowing the amendment, the Resolution Applicant has been permitted to pursue the Application. It is submitted that the said Order is not in accordance with law.

# 4. Learned Counsel for the Respondent opposing the submission of Counsel for the Appellant submits that issue is fully covered by this Tribunal in the matter of `Kapil Wadhawan’ Vs. `Piramal Capital & Housing Finance Ltd. & Ors.’ in Comp. App. (AT) (Ins.) No. 437/2023, where this Tribunal lays down following in Paragraph 27:

• “27. We, thus, are of the view that the impugned order has rightly permitted the Piramal – Successful Resolution Applicant to pursue the avoidance applications, which were filed by the erstwhile Administrator and were pending before the Adjudicating Authority. We do not find any error in the impugned orders passed by the Adjudicating Authority permitting the Piramal to pursue the applications and rejecting the applications filed by the Appellant and other Applicants to reject such applications. We do not find any good ground in these Appeals to interfere with the impugned orders passed by the Adjudicating Authority. There are no merits in any of the Appeals.

• All the Appeals are dismissed.”

# 5. After having heard the Counsel for the Parties, we are of the view that the issue raised by the Appellant is fully covered by the Judgment of this Tribunal in `Kapil Wadhawan’ (Supra). After noticing the Scheme of the regulation it has been held that Adjudicating Authority can permit the Resolution Applicant to pursue the Application filed under Sections 43, 45, 46, 66 & 67.

# 6. We thus do not find any error in the Order impugned passed by the Adjudicating Authority.

The Appeal is dismissed.

We make it clear that we have not entered into any of the rival contention of the Parties on the merits of the Appeal.

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