9911796707
TMI Blog2020 (2) TMI 1313X X X X Extracts X X X X X X X X Extracts X X X X ..... and 66 of the Insolvency and Bankruptcy Code, 2016 ("IBC, 2016") for the following reliefs:- (a) Direct the avoidance of the potential transactions identified by the Forensic Consultant as included in Point A and Point B of the application, if deemed appropriate, and levy an appropriate rate of interest, until the avoidance of the same; (b) Pass appropriate directions for potential transactions identified by the Forensic Consultant as included in Point C, Point D, Point E and Point F of the application, in accordance with Sections 25(j), 43 to 51 and 66 of the Code and other applicable provisions of the regulations framed under the Code and the Companies Act, 2013 including the appointment of an appropriate investigating agency to investigate into the affairs of the directors of the Corporate Debtor and the counter parties 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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & 4 above were identified as related party. In regard to party at S.No. 5, it was observed that Mr Bipin Kumar Vohra, Managing Director of the Corporate Debtor was 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 Rs. 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 y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Inference drawn by the Forensic Consultant is reproduced as under "Considering the facts that: i. CAPL is the only entity 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 Rs. 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 Sureka Exports Limited 15.33 4 Y.R. Traders Private Limited 26.88 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nied 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 - 15.33 3 Concast Ispat Limited 5.22 35.00 (29.78) 4 Concast Global Limited 3.33 - 3.33 5 Dankuni Steels Limited 3.29 - 3.29 6 Concast Steel & Power Limited 1.00 4.72 (3.72) 7 Concast Bengal Industries - 18.36 (18.36) 8 Burdwan Iron & Steel Co. Pvt. Ltd. (BISPL) 67.34 - 67.34 Total 125.63 58.08 67.55 The above summary of net balances receivable from the group companies clearly indicates that amount of Rs. 67.55 Crores is receivable from group companies of Concast Group out of which companies at Serial No. 1 to 5 have since merged with company at Serial No. 6 as stated by you in your observations. (ii) As regards to your observation on reporting offigures of total trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng charges which could not be adjusted due to lack of proper supporting documents. Advance to D.C. Dagara was given for acquiring mining rights. Advance to Ind Power Limited was given for purchase of second hand structural mill and the debit balances in the account is the balance after adjusting the value of supplies received from them. All the debit balances as mentioned in your observation either need to be adjusted or yet to be received. Detailed reasons for the same will require reconciliation/confirmation of the same from the parties. " (iii) Inference drawn by the Forensic Consultant is reproduced as under: "Due to non-availability of supporting documents for the underlying transaction for the Management of SSRML, we are unable to comment on nature and business rationale of debit balances outstanding with sundry creditors. " E. Potential questionable receivables from sundry debtors: (i) As per report, Resolution Professional ("RP") had issued demand notice under Section 20 on selected 76 debtors aggregating to Rs. 243.19 Crores, due as on 22nd December, 2017, representing roughly 6.1% of total outstanding amount receivable with the objective to recover such outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related entity of SSRML ii. There were no sale transactions recorded in the general ledgers of above mentioned 10 entities during our Review Period iii. There is no supporting documents made available to us by the management of SSRMLforjustifying the underlying transactions corresponding to outstanding balances with sundry debtors We are unable to comment on the balances receivable from the entities and it appears that the outstanding receivable of INR 43.19 Crores could possibly be non-recoverable in nature. " 4. There remains one more transaction as regards the potential questionable arrangement for sharing of brand which will be dealt by us in the later part of this order as there have been various claims / counter claims in that regard. 5. The Ld. Counsel Mr. Siddhartha Datta for the RP appeared and took us through the contents of this report and submitted that the application was based upon the report of Forensic Consultant. It was strongly pleaded that no explanation was given by the management of the Corporate Debtor at any stage. It was further argued that RP had formed an opinion as regards the nature of these transactions in terms of the provisions of the IBC, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e did not independently verify the accuracy / reliability / genuineness of the information provided by them or from other independent sources unless specified otherwise specifically in the Report. Hence, the content of this Report 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. 9. Findings and observations may change based on additional information and clarifications provided subsequently to DTTILLP. Observations or work procedures that require further evaluation, information or third-party confirmation as at the date of this Report have been specifically identified in the ensuing sections of the Report. 11. The findings of this Report are not binding on any person, entity, authority or Court, and hence, no assurance is given that a position contrary to that expressed herein will not be asserted by any person, entity, authority and/or sustained by an appellate authority or a court of law. The results of the work with respect to revie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thereafter, Resolution Professional has to apply to the Adjudicating Authority for appropriate relief on or before 135th day of the insolvency commencement date. Two things which emerge from the above discussion are that stage-wise timelines have been given so that final decision on such transactions may happen in all probabilities before the finalisation/approval of resolution plan or liquidation, as the case may be. This would enable the Resolution Professional / Liquidator to determine the final amount available for distribution to various stakeholders in terms of provisions of the Code. Secondly, it is not only the opinion which is required to be formed but determination is also to be done by the Resolution Professional. Thus, the initiation of such transactions starts with the onus being put on Resolution Professional to form opinion and do determination. The onus to rebut the same rests with the erstwhile management of Corporate Debtor. 9. Now, we have to look into the relevant provisions of the Code. Section 43(1) of the Code also refers to Liquidator, though Regulation 35A of IBBI (CIRP) Regulation, 2016 refers only to Resolution Professional, meaning thereby, if the Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Further, there is one more exception as far as Section 43 is concerned that such transaction should not be made in the ordinary course Of the business or financial affairs of the Corporate Debtor or the transferee. 13. In the present case, there are no transactions of the nature as mentioned in Section 50 of the IBC, 2016, though it has been so mentioned in the application. Similar is the case with regard to applicability of Section 66 of the IBC, 2016. Further, it can also be safely concluded that the provisions of Section 66 of the IBC, 2016 are also not applicable because the business of the Corporate Debtor has been continued over years and no such finding / opinion has been given by the Resolution Professional or the Forensic Consultant on the one hand and on the other hand, the Corporate Debtor has remained a going concern and its business has been disposed of as a going concern under a resolution plan duly approved by Committee of Creditors at the first instance and subsequently by this Authority. The prima facie reason for such view is that in the cases or situations of fraudulent trading, normally no assets of this magnitude exist in the name of Corporate Debtor. 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Bank statements not only of Corporate Debtor but from the Bank account of such parties. This preliminary exercise has not been done and all the onus has been shifted on the management and a disclaimer has been made that such documents of minutes of Board meetings, Loan Agreement, approval from Banks and other correspondences were not provided. All general vouchers do have supportings. Further, no material has been brought on record to show that direct confirmation or other enquiries were also made from bankers etc. to determine the true nature of the transactions. The management has, in its response, submitted that such loans were taken to meet the urgent capital requirements which were payable on demand which has not been effectively controverted. Thus, report fall short of degree of proof which is required to empower an Authority to pass an order for recovery to be made. B. Potential preferential payment to sundry creditor: The transaction with CSPL has been reported only for the reason that there were no transactions of purchase & sale during the review period which has been explained by the management that such outstanding balance was on account of transactions of purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Corporate Debtor (Prashant Properties Private Limited) * Technical consultant has confirmed that the contract is commercially untenable and one sided based on the following grounds mentioned in the report submitted to RP: * As per general practice, these type of contracts are usually for a duration of 3 to 5 years but SSRML executed these contracts with PPPL and Dytron for the duration of 21 years and 30 years respectively. * These contracts appear to be a 'giveaway' by SSRML to PPPL and Dytron as there is no provision for revision/review of terms before the expiry of contract term i.e. 21 years and 30 years respectively * In the contract with Dytron, the present value of royalty of INR 100 per ton at the end of respective years (5 to 30 years) works out to be in the range of INR 57 to INR 3 which appears commercially weak * In the contract with PPPL, the present value of royalty of INR 75 pr ton at the end of respective years (5 to 20 years) works out to be in the range of INR 43 to INR 7 which appears commercially weak * As per general practice, value added items mentioned in these contracts (i.e., doors and window fittings (hardware goods), handles, k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a query from the Bench again as to the fact that Dytron Marketing Services Pvt. Ltd. was not a related party and contract was before one year period of initiation of insolvency commencement date and Prashant Properties Pvt. Ltd. being a related entity, how these contracts could fall within the relevant period, the Ld. Counsel for the Resolution Professional placed reliance on the observations made in the report of the Forensic Consultant. Apart from this, a query was also raised as regards the valuation of this brand during the course of CIR process as this trademark belonged to the Corporate Debtor. The Ld. Counsel for the Resolution Professional produced before us the report of the Valuers, namely, RBSA Valuation Advisors LLP and Duff & Phelps and relied on the observations given in their report at page 48 of both the reports which are reproduced as under:- Report of RBSA Advisors "Specific Brand: The company sells it TMT product under the brand name "Elegant". The company had in the past entered into a Royalty agreement through which it was supposed to receive a specified royalty for use of the Brand. However, the accounts of the company does not depict any royalty incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cutory Application being CA No.124/KB/2020, through which it sought to be considered as an Intervenor which was granted, hence, as an Intervenor, he was challenging the action of the RP as well as claiming that his client was entitled to use the brand "Elegant" as holder of the same. 23. Thereafter, he referred to various documents relating to waivers & concessions which were included in the prayers forming part of addendum to resolution plan. He particularly harped on the point that it was not a precondition and only a plea was made for direction and, therefore, mere such presentation could not be construed to lead to a conclusion that subject Permitted User Agreement ("PUA") had been set aside by Adjudicating Authority. He further pleaded that provisions of sections 43, 45, 49, 50 and 66 of the IBC, 2016 provided for decisions in regard to avoidable agreements in a specific manner, hence, these were to be decided only in that manner. He also referred to the order of the Tribunal dated 8th April 2019 and stated that as per directions in that order, this application i.e. CA(IB) No.937/KB/2018 had to be considered separately, which meant that issue of sharing of brand with his clie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration for execution of such agreement, hence, this fact also showed that they were aware of every proceeding. It was also contended that no money came till 2018 and only when the issue of cancellation of such agreement cropped up, they paid some money in December 2018 and January 2019. 27. Thereafter, the Ld. Sr. Counsel, Mr. Joy Saha for the Successful Resolution Applicant initiated his arguments by stating that appeal against the order of the Civil Court filed by Prashant Properties Pvt. Ltd. was pending. He further emphasised on the fact that the injunction granted by the Civil Court to Prashant Properties Pvt. Ltd. was vacated and suit was also dismissed. He further submitted that since the appeal was pending and an application was also filed by the applicant with this Authority, hence, it was an instance of claiming relief simultaneously at two Forums which was not permissible. For this proposition, he placed reliance on the following two decisions: i) Kabari Pvt. Ltd. -Vs.- Shivnath Shroff & ors. , reported in (1996) 1 SCC 690 ii) State of H.P. and Ors. Vs. Surinder Singh Banolta, reported in (2006) 12 SCC 484. 28. The Ld. Sr. Counsel further contended that it was a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it should have been appropriately stamped and registered as per the provisions of Section 35 of Indian Stamp Act. He further referred to clause no. 3 of the agreement to show that around a sum of Rs. 15 crores was outstanding from Corporate Debtor which had been extinguished due to approval of resolution plan which had not been challenged, hence, because of this, permitted user agreement had come to an end. 31. In the rejoinder, the Ld. Counsel for the Intervenor, submitted that merely publishing of notice did not extinguish the agreement which could be done only through a Court order. For this proposition, he placed reliance on M Mohamedkutty & ors. Vs. State of Kerala & ors., reported in AIR 2003 Kerala 39. It was also contended that permitted user agreement was used before CIRP though the use was less. It was also argued that mere existence of permitted user agreement did not deprive the Intervenor of its status of a creditor and submission of claim as creditor was independent of this agreement. He further contended that Resolution Professional was under legal obligation to admit claim of an operational creditor. He finally submitted that if it was assumed that brand was part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as the resolution plan has already been approved and, thereafter, this Authority has become functus officio as far as resolution plan is concerned. We find substantial merit in this argument for the reason that 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 contention of Successful Resolution Applicant is accepted particularly when there does not exist a case of fraud or violation of provisions of Section 30(2) of IBC, 2016 in getting the approval of Resolution Plan. We further note that no appeal under Section 61 of IBC, 2016 against approval of Resolution Plan has been preferred by Prashant Properties Pvt. Ltd., Intervenor, who also happens to be operational creditor of the Corporate Debtor and time limit for doing so has already expired, hence, Resolution Plan has become final. Such Resolution Plan is binding on all stakeholders as per provisions of Section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
