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TMI Blog2021 (11) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of manufacturing and dealing in high carbon ferro chrome, stainless steel flats and mild steel billets. The Corporate Debtor was admitted into Corporate Insolvency Resolution Process (CIRP) on 07.02.2020 and Mr. Supriyo Kumar Choudhuri was appointed as the Interim Resolution Professional (IRP) of the Corporate Debtor. Upon assuming the position, the IRP issued Public Announcement on 11.02.2020. Mr. Supriyo Kumar Choudhuri was confirmed as the Resolution Professional (RP) by the Committee of Creditors (CoC) in its first meeting held on 05.03.2020. 4. On 07.04.2020, the RP appointed Ernst & Young LLP to carry out transaction cum forensic audit of the Corporate Debtor to identify the transactions under sections 43, 45, 50 and 66 of the Code for the period 01.04.2015 to 31.03.2020. 5. On the basis of information available with the RP, on 08.07.2020, he formed an opinion that the Corporate Debtor has been subjected to certain avoidable transactions, and informed the CoC in its third meeting held on 17.06.2020. A copy of the said opinion in annexed to the application and has been marked with letter A-3 on Pages 62-64. 6. Thereafter, on 17.08.2020, upon identification of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondents about these debts, the Respondents replied that these debts were irrecoverable. The RP issued notice to top fifty debtors and sent representatives to their office; it was found that the debtors owing Rs. 191 crore have either closed down or do not exist. The Respondents were at all times aware that the aforesaid debtors are non-existent and the debts are not realisable, however, they continued to treat them as genuine in the books of accounts. This had been done purposely to inflate the current asset value of the Corporate Debtor and misrepresent its creditors. c. Inflation of fixed assets of the Corporate Debtor: the operation of Haldia Plant belonging to the Corporate Debtor has been suspended since 01.07.2015. In the Financial Statement for the year 2018-2019 it is mentioned that the plant was robbed and damages were inflicted during the Financial Year 2016-2017. Upon physical inspection of the said plant, it was found that majority of assets were non-existent due to theft and other alleged reasons; nothing except certain old dilapidated structures exist there, there are no trace of any movable property. However, in the Financial Statement for the period 2018-2019, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iphoned off. e. Transaction with MSTC Limited: the Corporate Debtor had entered into an agreement with MSTC Limited (a government of India Enterprise) whereunder MSTC was to facilitate procurement of raw materials from suppliers on behalf of the Corporate Debtor. Central Warehousing Corporation (a government of India Enterprise) was appointed as the custodian. Chrome ore so procured were stored in a separate demarcated area at Corporate Debtor's Jajpur plant. After initiation of the CIRP, the Applicant had the volumetric measurement of the stock of the said ore done which was 11,300 MT. Upon comparison of this measurement with the records maintained by MSTC it was found that there was a shortfall of 28,346 MT ore, for, as per the records, there ought to be 39,646 MT available. Copies of volumetric assessment of stock dated 26.02.2020 and 06.11.2019 are annexed to the application and marked with letters A-12 and A-13 respectively. It was also found on verification that upon earlier occasions too there have been shortfall in the ore lying there. The Respondents have either caused the Corporate Debtor to consume the missing stock or have illegally sold it off before initiati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contribution of an amount aggregating to Rs. 191 crore to the assets of the corporate debtor or such other amount as this Hon'ble Tribunal may deem fit and proper." b. Pass order declaring that the transactions to which the corporate debtor has been subjected to as mentioned in detail in paragraph (k)(iii) are fraudulent and wrongful transaction within the meaning of section 66 of the Code and direct the Respondents to make contribution of an amount aggregating to Rs. 137.89 crore to the assets of the corporate debtor or such other amount as this Hon'ble Tribunal may deem fit and proper." c. Pass order declaring that the transactions to which the corporate debtor has been subjected to as mentioned in detail in paragraph (k)(iv) are fraudulent and wrongful transaction within the meaning of section 66 of the Code and direct the Respondents to make contribution of an amount aggregating to Rs. 44 crore to the assets of the corporate debtor or such other amount as this Hon'ble Tribunal may deem fit and proper." d. Pass order declaring that the transactions to which the corporate debtor has been subjected to as mentioned in detail in paragraph (k) above are fraudulent a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the Respondents. The Applicant has placed reliance on the Forensic Auditor's report to form the opinion. Further, the auditor has not come to any conclusive finding on any of the transactions referred to in the application. The report is qualified with various disclaimers and the auditor does not own any responsibility for the statements made therein. However, the Applicant has come to a conclusive finding on the self-same facts. Such finding is based on conjectures and surmises. The Applicant has not produced any cogent proof that supports his opinion. 19. With regard to the allegations against the specific transactions, the Respondents submit as follows:- a. Adjustment entries made in the receivables of the Corporate Debtor: it is denied that the entries made in the year-on-year closing balances of trade receivables as per the audited balance sheet for the Financial Year 2017-2018 and 2018-2019 do not match with the entries made in the year-on-year trade receivable balance as per the audited cash flow statement or that any adjustment entries have been passed in accounts of various parties that changed the amount receivable. There is no discrepancy in year-to-year cash c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was complained against to the local Police Station form time to time and it is a matter of record. The Respondents deny that during the alleged physical verification, the Applicant found only dilapidated structures or that there were no trace of any immovable property including plants and machinery. The Respondents deny that no disclosure with respect to the impairment of plant and machinery of Haldia Plant was published in the Financial Statement. The notes on accounts of the Financial Statement ending on 31.03.2020 provide all classifications. It is also a matter of record that pursuant to the robberies and thefts at the said plant, the Corporate Debtor had filed insurance claim with United India Insurance Limited in the Financial Year 2016-2017. This is evident from note 45 of the Balance Sheet for the Financial Year 2016-2017. Since the insurance company did not take any steps on the Insurance Claim of the Corporate Debtor under the erstwhile management also filed a Complaint Case No. 1635/2018 before the National Consumer Disputes Redressal Commission, a copy whereof is annexed to the Reply Affidavit and marked with letter D. The books and accounts of the Corporate De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Jakarta High Court that set aside the decision of the learned South Jakarta District Court vide verdict no. 8/PDT/2017/PT DKI. The verdict of the Hon'ble High Court was appealed against before the Hon'ble Supreme Court of Republic of Indonesia that reversed the decision of the Hon'ble High Court. Resultantly, the investments of the Corporate Debtor in the Indonesian Company were wiped out completely. A communication dated 17.07.2019 received from the Indonesian Embassy in this regard is annexed to the Reply Affidavit and marked with letter G. The Corporate Debtor had exhausted all the remedies to recover the money, however, having lost before the Supreme Court of Republic of Indonesia, the Corporate Debtor had no option but to write off the amount of Rs. 93 crore. This is also recorded in Note 35 of the Financial Statement for the Financial Year ending on 31.03.2020. This is in accordance with Ind AS 109 Accounting Standards which have the force of law. Further, this transaction is older than eight years and no investments have been made or loans or advances have been given after the Financial Year 2013-2014. Furthermore, Corporate Debtor's creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Corporate Debtor. A copy of the letter dated 28.02.2020 is annexed to the Reply Affidavit and marked with letter M. Vide letter dated 10.06.2020, the custodian brought on record the fact that unauthorised lifting of the pledged stocks were still continuing. Letter dated 10.06.2020 is annexed to the Reply Affidavit and marked with letter N. The Respondents submitted that the CIRP against the Corporate Debtor was initiated on 07.02.2020, and at the time when the complaint was filed, the Corporate Debtor was under the RP's control. It appears from the two volumetric reports dated 07.11.2019 and 26.02.2020 that huge quantity of stocks were removed from the site during the time when the RP was in control of the Corporate Debtor. The custody of the ore was never with the Respondents. Therefore, the Respondents cannot be made liable for the loss of the said ore. It is denied that Rs. 44 crore is due to the MSTC, the claim has been accepted by the RP without basis; it is denied that the Respondents are responsible for illegal lifting of ore from the site. f. Inventory written off: there is no illegality in the amount of Rs. 199.34 crore having been written down on account of raw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derlying Company Petition. 26. As per the provisions of the Code, the Directors and other Key Managerial Personnel are required to continue to perform their duties and obligations that they have been doing prior to the initiation of CIRP. However, the Respondents have admitted that they had severed themselves from the affairs of the Corporate Debtor after initiation of CIRP. The Respondents have refused to cooperate on all context with respect to managing the affairs of the Corporate Debtor. 27. The Forensic Auditor had been appointed on 07.07.2020, the RP did not have Audit Report when he formed the opinion dated 08.07.2020. The RP did not rely on the Audit Report to form an opinion. The RP has formed his opinion upon examination of the published financial statements of the Corporate Debtor. 28. With regard to the postal receipt and tracking details, there is no proof that the tracking detail pertain to the relevant postal receipt. It is not mentioned in the tracking report that four sundry creditors have shifted to another place. The Respondents have sent the communication to the debtors in Corporate Debtor's name without any authority from or information to the RP, this i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usly lifting the materials without making payments to MSTC. A copy of plaint filed before the Hon'ble High Court of Calcutta is annexed to the Rejoinder and marked with letter A-7. 33. The shortage of chrome ore from Jajpur plant is because of the failure and negligence of Respondents. On 19.11.2019, MSTC also made a police complaint complaining of fraud, criminal conspiracy, dishonest misappropriation of money, theft and fraudulent removal of property against the Corporate Debtor, one Mr. R.K. Burnwal, who was overseeing the affairs of the Jajpur plant, Respondent No. 1 and Respondent No. 2. A copy of the said police complaint is annexed to the Rejoinder and marked with letter A-8. 34. MSTC had lodged a formal complaint with the police station much prior to the commencement of CIRP complaining about unauthorised removal of goods. It has been denied that huge amount of pledged stocks were lifted from the site of the Corporate Debtor when the RP was in control. Analysis and Findings 35. Heard Ms Swati Dalmia, learned Counsel appearing for the Applicant and Mr. Joy Saha, learned Senior Counsel appearing on behalf of the Respondents and perused the records. 36. The Applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.09.2020. As has been rightly pointed out by the learned senior Counsel appearing for the Respondent, although this pleading has been made, no prayer to condone the delay in filing the application has been made. 44. In Rejoinder, the applicant submitted that the period of eighty-eight days has been excluded for determining the expiry of 135 days and the same has been confirmed by this Adjudicating Authority vide its order dated 03.11.2020 passed in IA (IB) No. 1029/KB/2020 in the underlying Company Petition. However, it is seen from the said order that the period of lockdown was excluded from the calculation of 180 days CIRP period and a further extension of ninety days was granted, nothing with respect to the present application has been mentioned in the said order. 45. Even in the light of regulation 40C, the order of Hon'ble NCLAT in Suo Moto Company Appeal (CT) (Insolvency) No. 01/2020 and the order of this Adjudicating Authority in IA (IB) No. 1029/KB/2020 is considered for the purpose of condonation of delay in this application without any specific prayer seeking such condonation, all the requirements under regulation 35A do not stand satisfied, for the Applicant has ..... 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