TMI Blog2020 (2) TMI 1313X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that no historical contribution has been made by such trademark owned by Corporate Debtor to the revenue of Corporate Debtor and once Resolution Professional or COC has not valued such brand, then, how the amount of recovery/consideration, even if it is assumed that it was a case of undervalued transaction, can be determined in terms of provisions of Section 48(1)(c) 48(1)(d) of IBC, 2016. If it is so, then for non-applicability of machinery to calculate the amount also, such allegation fails. Apart from merits, as discussed above, we find that the inference drawn is inconclusive in every manner - it is also not a case of undervalued or preferential transaction. Maintainability of application - whether this Authority has jurisdiction as the resolution plan has already been approved? - HELD THAT:- The resolution plan has already been approved on 8th April 2019 by this Authority. It is a settled position that there is no power of review to this Authority of its own actions, hence, the contentions of Intervenor being in the nature of asking this Authority to review its own decision are not valid within the scheme / framework of the provisions of IBC, 2016. Thus, this content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies to the aforementioned transactions identified in this application and/or in the Forensic Consultant Report; and (c) Pass any other order(s) which this Hon'ble Tribunal may deem fit in the facts and circumstances of the case in the interest of equity, justice and good conscience. 2. The facts, in brief, are that the Corporate Debtor was admitted into CIRP vide Order dated 22nd December, 2017. The IRP was appointed, whose appointment as Resolution Professional was confirmed by this Authority vide Order dated 19th January, 2018 by confirming the decision of the COC. On 6th July, 2018, the RP appointed M/S. Deloitte Touche Tohmatsu India LLP ( Forensic Consultant ) for reviewing and identifying potential transactions of the Corporate Debtor, as envisaged under the provisions of the Code (this is reproduced from the List of Dates And Events, page 8 of the application). The Forensic Consultant submitted the First Report on 23.08.2018 which was updated on 24.09.2018. The said report has been divided into following parts: A. Potential preferential repayment of unsecured loans; B. Potential preferential payment of sundry creditors; C. Amount receivable from entities p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a Director of the company of S.No.5. It is also observed that management did not maintain any documentation i.e., Agreements, Letters, Minutes of Board Meetings, etc. for the unsecured loan taken from the above entities. (ii) The management response in this regard is reproduced as under (i) SSRML the Company had sought financial support and obtained unsecured loans from time to time from the companies mentioned in the tabular chart of Observation 1 drawn by you. The loan was taken in order to meet the urgent working capital requirements of the company with the understanding that the loan will be repayable on demand. There was no agreement as such between the parties. The said loan being repayable on demand was interest free. Therefore as observed by your good office, the company repaid its dues as and when the demand for the loan was raised and an amount of ₹ 105.97 Crores was repaid by the company in the period of your review. Further, note that an additional loan was obtained by the company in the period of your audit, amounting to ₹ 58.62 Crores. All the loan transactions were routed through the regular bank accounts of the company and the relevant bank s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tity to whom payment was made without any corresponding purchase and sale transactions during our review period ii. No supporting documents were made available by the management of SSRML for justifying the underlying transactions and corresponding payments The payment aggregating to INR 6.77 Crores made by SSRML to CAPL during one year (i.e., preceding one year from the insolvency commencement date) could have possibly been preferential in nature. C. Amount receivable from entities potentially connected with the Corporate Debtor: (i) The Forensic Consultant examined the financial statements and noted that trade receivables aggregating to ₹ 399.08 Crores from 742 entities were appearing in the financial statements. They selected 10 entities which formed 54% of total trade receivables. Details of the same are reproduced below :- S.No Name of the Entity Receivable as on 22 Dec 2017 1 Burdwan Iron Steel Company Private Limited ( BISPL ) 67.35 2 Concast Exim Limited 30.12 3 Sure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsuguda unit of the said company. Subsequently, pursuant to a scheme of arrangement, approved by Hon'ble High Court of Calcutta and Cuttack, Divisions at Durgapur Himachal Pradesh units were demerged and vested in SSRML, thus retaining Jharsuguda unit in SPS Steel Power Limited. Mr. Vohra resigned from the said company which is managed, controlled and run by Mr. Sanjay Sureka since then. Accordingly, the name of the company was also changed to Concast Steel Power Limited. It is denied that the company SSRML has any connection with the entities stated in your observation other than the transactions in the normal course of business. Further, we would like to bring your attention to the fact that there are credit balances also in the books of account for companies of same group which have been tabulated below. (Rupees in Crores) Sr.No. Party Name Debit Credit Balance 1 Concast Exim Limited 30.12 - 30.12 2 Sureka Exports Limited 15.33 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and found that no transactions happened in 40 entities who showed a debit balance of ₹ 70.93 Crores as advance to them under the head of Sundry Credito₹ 30 entities out of them had the correct amount due and payable to the Corporate Debtor to the tune of ₹ 50.40 Crores. It was also observed that out of these 30 entities, 4 had already been struck off. (ii) The management response is reproduced as under :- Advances recoverable from Sundry Creditors as mentioned in your list in Observation 4 are provided in the normal course of business and are pending on account of various reasons. Some of the parties including Welspun Steel Limited, Orissa Sponge Iron Limited and Meenakshi Enterprises from whom advances are recoverable relate to Company's Unit at Himachal Pradesh, which has been disposed off three years back. Information required for identifying the reasons for non-recoverability till date needs to be gathered and analysed. In some cases, the debit balances appear due to quality claim and rate difference for purchases from various parties as was in the case of Rungta Mines Limited. In some other cases (for example - Maha Vinayak Roadways and The Liberty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been appropriated by the said company in the account of our associate concern, Bengal India Global Infrastructure Limited. Please note that all the transactions with the parties as in the list have been done in the normal course of the company's business and are fully verifiable with the documents. The company has also entered into purchase sale transactions with the group/associate companies or other contact parties of the said debtors, as was reflected in the case of Concast Group in preceding paras. There is every possibility that for many debit balances in the accounts, there are credit balances in the accounts of group/associate entities or contact parties of the Sundry Debtors and the same have been adjusted by those parties and effect thereof has not been taken by our company. The company requests your kind office to provide copies of ledger accounts and other details received from Sundry Debtors as per list in your observation for proper reconciliation at our end. (iii) The inference drawn by the Forensic Consultant is reproduced as under: Considering thefacts that: i. All debtors who provided responses (i.e. 10 entities out of total 76 entities) hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses under the head, Important Notice to the reader : 2. This Report is confidential to the RP and DTTILLP. No user may copy or redistribute any part of the Report without the prior written consent of DTTILLP in each case and consequently has no recourse against DTTlLLP and/or any other Deloitte Entities. This Report has been prepared solely for the internal use and benefit of the RP for the specific purpose described in the Contract. 5. The scope of our services did not constitute an audit conducted in accordance with generally accepted accounting principles, or an examination of internal controls/procedures or other attestation or review or services to perform agreed upon procedures in accordance with standards established by the Institute of Chartered Accountants of India ( ICAI ). The services also did not involve expressions of any opinion or any other form of assurance, with respect to any matters as a result of performance of our services. 6. Work done by DTTILLP as a part of the Services, was as considered necessary at the given point of time. DTTILLP has relied upon the information/documentation/explanation, verbal as well as documentary provided by the represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t due to these disclaimers / exceptions as well as the limitations of the process as mentioned in those clauses, the findings / inferences were not of any substance. To take this line of argument further, the Ld. Sr. Counsel contended that, in fact, inference drawn by itself was so vague and pointless that nothing could be made out. He also placed reliance on the management response to counter the clauses. 8. We have considered the submissions made by Ld. Counsel for the RP and Ld. Sr. Counsel for the erstwhile Directors of Corporate Debtor and material on record. At the first instance, we prefer to deal with the legal aspects associated with these issues. First stage in regard to nature of transactions mentioned in Sections 43, 45, 50 and 66 starts with forming of opinion by the Resolution Professional that the Corporate Debtor has been subjected to any transaction covered in these sections. This is required by virtue of Regulation 35A of the CIRP Regulations, 2016. As per this regulation, this is to be done on or before 75th day of insolvency commencement date. After such opinion is formed, Resolution Professional is required to make a determination on or before 115th day that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any fraudulent purpose, Adjudicating Authority, on an application made in this regard, direct the persons who were a party to such transactions to make such contribution to the assets of the Corporate Debtor as it may deem fit. 10. Thus, on conjoint reading of substantive provisions of IBC, 2016 and regulations made thereunder, the role and responsibility of Resolution Professional or Liquidator become crystal clear and non-compliance of such requirements would result into adverse inference. 11. We further consider it pertinent to observe that the assistance of expert agencies can be taken for determination of preferential, invalid or fraudulent transactions, but, in spite of that, independent opinion of Resolution Professional / Liquidator remains a must, meaning thereby, irrespective of the exercise done by the expert agency, the Resolution Professional should independently form a belief / opinion that such transactions, in fact, existed which require appropriate order from this Authority. 12. Further, every transaction has got it own specific nature and different kind of obligations are being cast upon Resolution Professional or a Liquidator or Adjudicating Authority. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , not repeated. From the perusal of the same, it is apparent that this report does neither make any sense nor lead to any definite conclusion with regard to occurrence of such transactions. We find substantial force in the relevant contentions made on behalf of the erstwhile management of Corporate Debtor. 16. We have reproduced the inference and final conclusion at the end of each type of transactions. From the perusal of the same, even a layman can reach to a conclusion that on the basis of such inference, no order can be passed against the erstwhile management of the Corporate Debtor. Accordingly, for this reason also, this application is liable to be dismissed in regard to all transactions discussed herein before. 17. Having reached to this conclusion, still we would have a look at each of the transactions on merits. A. Potential preferential repayment of unsecured loans: As regards potential preferential repayment of unsecured loans, the figures as on 23rd December, 2015 have been reported. However, no observation has been made as to how this outstanding balances arose i.e., what is the nature of transaction made with such parties, for what purposes these loans w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons narrated in respect of earlier transactions herein before, we again hold that no order of recovery/contribution can be made in respect of this transaction also. 18. Now, we shall take up the remaining transaction i.e. F - Potential questionable arrangement for sharing of brand. The Corporate Debtor entered into contracts with two entities for granting rights for licence use of its trademark Elegant . The details of such contracts are as under:- Name of the Entity Contract Date Royalty per Ton (IN INR) Period of Contract Prashant Properties Private Limited (ttpppL ) 30 May 2014 75 21 years Dytron Marketing Services Private Limited ( Dytron ) 11 May 2016 100 30 years The Resolution Professional appointed independent technical consultant for commercial review of these contracts and as per that report, there existed commercial weakness and unilateral benefit to the user of such trademarks, thereby making such contracts untenable. The Forensic Consultant further re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onale of the commercial terms agreed in contracts. 19. The Ld. Counsel for the RP also submitted that the exclusive user of the brand rested with the successful resolution applicant as prayer in this regard was filed with this Authority by way of Addendum to the original resolution plan which had become part thereof. In this regard, it was also contended that the resolution plan was approved much after and no exclusion or exception was made by this Authority while approving the resolution plan as approved by COC and submitted for its approval including the Addendum seeking various concessions/waivers/annulment etc. 20. The Ld. Counsel for the RP appeared before us and contended that opinion of an expert technical consultant had also been obtained and having regard to tenure and commercial considerations involved in these agreements, such consultant was also of the opinion that normally such types of contracts were not entered into. On a query from the Bench as to how the first contract could come into the look back period of 2 years as this was entered into on 30th May 2014 with Prashant Properties Pvt. Ltd. and there was also contradiction in the findings given in the repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on shared with us as well as discussions with the RP, RP team and the Management, we understand that the company is registered proprietor offollowing trademarks: ELEGANT ELEGANT TMT The company has entered into agreements with following parties for licensed use of the above-mentioned trademarks. i) With Shriramrathi Steels Private Limited via agreement dated December 4, 2012 valid for 5 years. ii) With Prashant Properties Private Limited via agreement dated May 30, 2014 valid for 21 years. iii) With Dytron Marketing Services Private Limited via agreement dated May 11, 2016for 30 years. However, based on further discussions with the Management and the financial statements being made available to us, we understand that the company has not been able to generate any cash flows from these trademarks historically. Hence, the value of these trademarks is not determinable in such a scenario. 21. On the basis of such observations, a query was raised that based on a historical data there was no contribution in generation of cash flows form the brands in the past, hence, these brands were not valued at all, meaning thereby, NIL value was assigned to brand in the val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the Corporate Debtor, submitted that the external technical expert relied and considered the aspect of tenure only and no other circumstances were examined. The Ld. Sr. Counsel further placed reliance on the decision of the NCLAT in the case of Company Appeal (AT) (Ins) No. 1007 of 2019, in the matter of Anil Goel, Liquidator, VISA Power Ltd. Vs. Vishambhar Saran Ors., order dated 30.09.2019 to contend that definite conclusion was required and in the similar circumstances for the same reason a conclusion was reached by this Authority that there was no undervalued or fraudulent transaction and the application was rejected. The Ld. Sr. Counsel contended in the present case also that the inference of the Forensic Consultant led to nowhere. 26. The Ld. Counsel for the RP, in the rejoinder, contended that the proposal for cancellation of the impugned agreement was always there even in the original resolution plan. He also submitted copy of Form H to show that such transaction was notified in the relevant column thereof. It was also contended that Prashant Properties Pvt. Ltd. was a party in application CA(lB)No.05/KB/2019 and they participated in the proceedings related there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo situations i.e., when an order had been obtained by committing fraud or there was non-compliance of provisions of Section 30(2) of IBC, 2016. In the present case, both these two situations were non-existent, hence, this Authority had no jurisdiction to decide this issue and the only remedy which was available to the applicant was to file an appeal which had not been done, meaning thereby that the applicant had also accepted the resolution plan. The Ld. Sr. Counsel further contended that in any case the claims made by Prashant Properties Pvt. Ltd. were of the nature of civil dispute and for that reason also this Authority had no jurisdiction under Section 60(5) or any other provisions of IBC, 2016. 30. The Ld. Sr. Counsel further harped upon that trademark was not used at all by Prashant Properties Pvt. Ltd. It was further contended that it was a case of fraudulent transaction and, therefore, no limit of time for look back period was applicable, particularly when Prashant Properties Pvt. Ltd. i.e., Intervenor, was a real estate company and was not engaged in manufacturing of steel bars. It was also contended that even Memorandum of Association as on the date of the agreement d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor and Prashant Properties Pvt. Ltd. is concerned, that has been definitely executed before the look back period of two years as the Resolution Professional and/or Forensic Consultant have not been able to make out a case that it was a back-dated transaction or an instance of fraudulent transaction. No specific finding in this regard has been given even by external technical consultant. Thus, on this preliminary ground itself, no adverse conclusion can be arrived at against the erstwhile management of Corporate Debtor. Further, there is another aspect of the matter. In valuation of the business / enterprise of the Corporate Debtor, no value has been assigned to this brand based upon the fact that no historical contribution has been made by such trademark owned by Corporate Debtor to the revenue of Corporate Debtor and once Resolution Professional or COC has not valued such brand, then, how the amount of recovery/consideration, even if it is assumed that it was a case of undervalued transaction, can be determined in terms of provisions of Section 48(1)(c) 48(1)(d) of IBC, 2016. If it is so, then for non-applicability of machinery to calculate the amount also, such allegation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, in view of this discussion, we reject all claims made by the Intervenor i.e., Prashant Properties Pvt. Ltd. 34. Before parting, we may add that the parties were required to give written notes of argument upto a scheduled date; however, those were not given by that time, hence, based upon their arguments and material on record we proceeded to dispose of the matter. In this regard, we further observe that in the written notes certain additional case laws have been cited which are not being considered as such decisions have not been confronted to other parties. We further make it clear that we have taken into consideration all their submissions/case laws cited during the course of hearing although these do not find mention separately for the sake of brevity as well as due to the fact that we have already held that this Authority does not have any power of review. 35. In the result, application, being CA(IB)No. 937/KB/2018 connected with CP (1B) No. 595/KB/2017 filed by Resolution Professional is rejected and dismissed in terms indicated above. The claims made by the Intervenor are also rejected. 35. Urgent Certified copy of the order may be issued to all the concerned part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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