TMI Blog2022 (8) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of Rs.1,38,78,397/-. The Auditor also gave his observations and conclusions on avoidance of undervalue transactions, defrauding creditors and fraudulent trading or wrongful trading. At the end of the report, it is seen that the Auditor addressed letters to Shri Reji Sivankutty, Shri Tinu Jose (Suspended Director) and Giriraj Associates previous Auditor requesting them to provide books of accounts for carrying out the audit. In the report at page 156 under the caption limitation of scope it is mentioned that the Corporate Debtor had discontinued their operations from August 2018. Presently, they neither have a registered office nor employees from who we could extract documents and information for the purpose of our audit - in the present case, though the Respondent/Liquidator mentioned various provision of the I B Code, however a specific relief sought praying the Adjudicating Authority to hold that the loan of Rs.42,50,397/- repaid to the Director during the Financial Year 2017-18 is in preference to trade payables, statutory dues and salary to staff, during that year. Further, it is prayed that to hold that Rs.6,28,000/- paid to Mrs. Revathy Radhakrishnan w/o Suspended Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The documents being Transaction Audit Report and Forensic Audit Report were not provided to the Appellants. It is submitted that the impugned transactions do not fall within the ambit of Sections 43, 45 or 66 of the Code, under which the findings are given. 4. The Learned Counsel further submitted that the Adjudicating Authority erred in entertaining the application filed by the Respondent under multiple provisions of law as stated above. The filing of composite application is against the dicta laid down by the Hon ble Supreme Court in the matter of Anuj Jain IRP for Jaypee Infratech Limited Vs. Axis Bank Ors. in Civil Appeal Nos.8512-8527 of 2019, para 29.1, which expressly held that composite applications cannot be filed seeking reliefs simultaneously under the above provisions as they were inherently different separate and distinctive and they must be subject matter of separate application. 5. The Learned Adjudicating Authority erred in taking cognizance of and relying upon documents and reports particularly Forensic Audit and Transaction Audit Report for Adjudicating the I.A. which were never adduced as evidence by the Liquidator. It is a clear violation of rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said requirement. Further, no proofs have been adduced to show that the said transactions are undervalued within the meaning of the said section. 11. In view of the reasons as stated above, the Learned Counsel prayed this Bench to allow the Appeal by setting aside the impugned order. Respondent s Submissions: 12. The Liquidator filed a detailed reply and submitted that the Hon ble Adjudicating Authority in the impugned order found that the Appellants were part of certain preferential transactions at the relevant time placing themselves at a beneficial position over the creditors of the Corporate Debtor under Section 43 of the I B Code, 2016. The 1st Appellant in his tenure as a Director of the Corporate Debtor and during the relevant period had preferentially transacted for Rs.42,50,397/-. The 2nd Appellant (wife of 1st Appellant) a related party during the tenure of 1st Appellant as the key managerial person of the Corporate Debtor, also had preferentially transacted for Rs.6,28,000/-. The Hon ble Adjudicating Authority held that the Appellants are liable to return to the Corporate Debtor Rs.48,78,397/- under Section 44(d) of the I B Code, 2016. This Respondent is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority assessed each transaction for its amount, nature of transaction, particulars and reason along with the remarks given by the Respondent. The Hon ble Adjudicating Authority confirmed only two transactions from a list of such questionable transactions submitted by the Respondent. The list of such transactions was served to the Appellants as well. 16. It is submitted that the judgment of the Hon ble Supreme Court in Anuj Jain IRP for Jaypee Infratech Limited Vs. Axis Bank is followed in its letter and spirit. Paragraph 29.1 and 29.3 of the judgment bars from filing omnibus and composite applications under Sections 43, 45 and 66 for the same transaction at the same time unlike that present factual matrix wherein each and every transaction that has been distinctly highlighted as preferential, undervalued and fraudulent are independent and separate to each other. 17. It is submitted that Section 43 of the I B Code, 2016 mandates two limbs. It is to state that a loan of Rs.42,50,397/- has been repaid to the Directors by the Corporate Debtor during the Financial Year, 2017-18 in preference to trade payables, statutory dues and salary to staff during the year. The Respondent f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting Authority passed the following order: 43. In view of the fact that after conducting a Transaction Audit and Forensic Audit by Mr. Vibin Vincent, Chartered Accountant, he has reported that based on his analysis of Audited Financial Statements, various bank statements, and other explanations he has found preferential transaction of an amount of Rs.1,38,78,397/- during the relevant period. Out of which Mr. Reji Sivankutty (Suspended Managing Director) has transacted for Rs.42,50,397/- and Mrs. Revathy Radhakrishnan w/o Mr. Reji Sivankutty (Director) has transacted Rs.6,28,000/- (totalling 42,50,397 + 6,28,000=48,78,397). Hence, we are of the considered opinion that this amount should be returned to the Liquidator for distributing among the stakeholders. We direct Mr. Reji Sivankutty and Mrs. Revathy Radhakrishnan to return this amount to the Liquidator within two weeks from the date of receipt of this order. With regard to the payment made by the Sabkaa Payments Limited (subsidiary Company), since they have not been made party to the proceedings, this Tribunal cannot direct them to return the money. 44. Since, the Liquidator has already filed a dissolution application, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t para 6 the Liquidator sought details with regard to Rs.6,28,000/- paid to Mrs. Revathy Radhakrishnan the 2nd Appellant herein, the amount paid on 01.07.2018 as a loan repaid. The clarification as sought by the Respondent in the above letter is as follows: (a) why opening balance was not found in the books for the loan taken. (b) copy of the board resolution for related party transaction under taken during 2015-16 to 2018-19. Further the Respondent requested them to provide details of the said payments stating that the said payments fall under preferential transaction as per the I B Code, 2016. 28. From the records it is seen that the Liquidator filed an application bearing M.A.No.145 of 2020 in MA. No. 05 of 2020 in TIBA No. 1 of 2019 before the Adjudicating Authority praying the Authority to provide and make available to the Liquidator the complete set of books of accounts of Corporate Debtor for the last 4 years and also to make available to the Liquidator the complete set of books of accounts of the subsidiary company M/s Sabkaa Payments Ltd. for the Financial Year 2016-17 and 2018-19. 29. The averments made by the Liquidator in M.A. No. 145 of 2020 is that on v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alary to staff, which were increased by Rs.3,46,43,987.44 during FY 2017-18. ii) A preferential loan of Rs.6,28,000/- paid to Mrs. Revathy Radhakrishnan W/o suspended Managing Director on 01.07.2018. iii) Inventory Balance/SMS, Server Maintenance of worth Rs.90,00,000/- was transferred to M/s Sabkaa Payments Ltd. from August, 2018 which is still pending to be received from the subsidiary company. 32. The Auditor also gave his observations and conclusions on avoidance of undervalue transactions, defrauding creditors and fraudulent trading or wrongful trading. At the end of the report, it is seen that the Auditor addressed letters to Shri Reji Sivankutty, Shri Tinu Jose (Suspended Director) and Giriraj Associates previous Auditor requesting them to provide books of accounts for carrying out the audit. In the report at page 156 under the caption limitation of scope it is mentioned that the Corporate Debtor had discontinued their operations from August 2018. Presently, they neither have a registered office nor employees from who we could extract documents and information for the purpose of our audit. We had couple of online meetings with the Managing Director (suspende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. Sub-section (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. 36. The Liquidator on the basis of report of the Auditor filed the Application invoking the above provisions of law. Though the Liquidator mentioned various provisions of the I B Code, 2016 however, the finding by the Learned Adjudicating Authority vide impugned order dated 21.12.2021 is restricted to only preferential transactions which fall within the ambit of Section 43 of the I B Code. The auditor in his audit report detailed out various observations and conclusions. The duty casts upon the auditor to give full report on the assignment given to it. 37. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssional to keep such requirements in view while making a motion to the Adjudicating Authority. 29.2 In the present case, it is noticed that NCLT in its detailed and considered order essentially dealt with the features of the transaction in question being preferential at a relevant time but recorded combined findings on all these three aspects that the impugned transactions were preferential, undervalued and fraudulent. Appropriate it would have been to deal with all these aspects separately and distinctively. This Tribunal bound by the judgment of the Hon ble Supreme Court, that composite application cannot be filed and the aspects of fraudulent, undervalued and fraudulent aspects are to be dealt with separately and distinctively. 38. Be that as it may, in the present case, though the Respondent/Liquidator mentioned various provision of the I B Code, however a specific relief sought praying the Adjudicating Authority to hold that the loan of Rs.42,50,397/- repaid to the Director during the Financial Year 2017-18 is in preference to trade payables, statutory dues and salary to staff, during that year. Further, it is prayed that to hold that Rs.6,28,000/- paid to Mrs. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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