TMI Blog2022 (10) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... s therefore been condoned by the Adjudicating Authority on the ground that the delay is properly and satisfactorily explained by the Resolution Professional even though there is no formal application for delay condonation. There are no reason to interfere with the delay condonation allowed by the Adjudicating Authority in filing of the application beyond 135 days by the Resolution Professional. We hold that Regulation 35-A is directory and in the present case the application filed by the Resolution Professional cannot be rejected only on the ground of delay in filing beyond 135 days of ICD in view of explanation offered before the Adjudicating Authority justifying the delay. Whether the Appellants had indulged in fraudulent trade transactions and certain avoidance transactions and in the light of the findings thereon whether the Adjudicating Authority had committed any error while passing the impugned order dated 26.04.2022? - HELD THAT:- The defence taken by the Appellants cannot detract from the plain truth that the Appellants had wrongfully diverted funds which in turn had aggravated the financial liability of the Corporate Debtor and thus an unethical act to defraud cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sabyasachi Mohapatra, Advocates for R-1. Mr. Aditya Kumar, Advocate for R-2. Mr. R.K. Bharani, Advocate for R-4. Mr. Anirban Bhattacharya and Mr. Dhruv Sachdeva, Advocates for R-5. JUDGMENT [ Per : Barun Mitra , Member ( Technical ) ] The present appeal, filed under Section 61 of the Insolvency and Bankruptcy Code, 2016( IBC in short) by the Appellants arise out of order dated 26.04.2022 (hereinafter referred to as Impugned Order ) passed by the Adjudicating Authority (National Company Law Tribunal, Cuttack Bench) in I.A. No. 276/CTB/2020 arising out of TP No. 36/CTB/2019 connected with CP(IB) No. 1292/KB/2019. By the impugned order, the Adjudicating Authority on an application filed by Resolution Professional (present Respondent No.1) under Section 66 of the IBC directed the present Appellants to jointly and severally pay to the Corporate Debtor certain amounts on account of having indulged in fraudulent and under-valued transactions. Aggrieved by this, the present appeal has been preferred. 2. Put briefly, the factual matrix of the present case, necessary for deciding the appeal are as follows: Maa Durga Rice Products Pvt. Ltd./Corporate Debtor having come u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th interest if not paid up within 60 days from date of order. Consequent upon the orders of the Adjudicating Authority in IA no 276/2020, the Adjudicating Authority in IA No 337/2020 held the Resolution Applicant not to be eligible to submit a Resolution Plan and rejected the Resolution Plan under Section 29-A(g) of the IBC. The Adjudicating Authority also discharged the Resolution Professional on finding his conduct inconsistent and disturbing since he had moved two applications, one, for approval of the Resolution Plan and, the other, against the Resolution Applicant and two other suspended Directors of the Corporate Debtor under Section 66 of the IBC for indulging in fraudulent transactions at the same time. 3. Aggrieved by this order of the Adjudicating Authority in IA No 276/2020, the Appellants have come up in appeal. 4. The Learned Counsel for the Appellant submitted that the Adjudicating Authority had failed to consider that the application filed on 09.11.2020 by the Resolution Professional under Section 66 of IBC was not within the time limit prescribed under Regulation 35-A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... temperature due to stacking, pest attack etc. Moreover, the stocks as per the books and physical position stood reconciled and, therefore, in the absence of any discrepancy between stock register and physical stock, no charge of fraudulent transaction can be made. It has also been pointed out that the Adjudicating Authority had erred in questioning that 2352 quintals of paddy amounting to 87% of stock holding on 03.05.2019 were damaged due to arrival of storm of FANI . Further it has been submitted insurance was not only claimed but claim relief also received for the damage suffered which have been adjusted against CIRP costs. The damage caused to stocks being legitimate, it was thus necessary to write off the damaged stocks. 7. As regards the advances made by the Corporate Debtor to certain persons, it has been submitted that this was done during the course of ordinary business without any malafide intention to harm the creditors. Being genuine business transactions and advances made towards purchase of paddy, such transactions have been wrongly classified as transactions defrauding creditors by the Resolution Professional. 8. Pointing out anomaly in the TAR, it has been su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also pointed out that the malafide and fraudulent intention of the Appellants is clearly established from the diversion of funds to the tune of Rs. 13.45 crores of the Corporate Debtor to the sister concern which also led to further loss due to incurring of interest. It was further stated that when the Corporate Debtor did not have sufficient reserve funds of its own to invest in another company, diversion of part loan amount received from the Financial Creditors to any other Company and that too for a purpose which was not approved by the Creditor amounted to wrongful diversion of funds to defraud creditors and fraudulent trade practice. It was also pointed out that the Appellants had indulged in the fraudulent act of unusual write off of inventory particularly the write-off of 2352 quintals of paddy on a single day by attributing it to the storm FANI , though this storm had landed 70 kms. away from the godown location. It was also stated that the Resolution Professional had arrived at these conclusions of fraudulent and under-valued transactions after study and appreciation of the TAR and that the Adjudicating Authority had also affirmed these findings. 13. We have heard the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried out by such director or partner, as the case may be, in relation to the corporate debtor. (3) Notwithstanding anything contained in this section, no application shall be filed by a resolution professional under subsection (2), in respect of such default against which initiation of corporate insolvency resolution process is suspended as per section 10A. Regulation 35-A of IBC reads as follows: - 35-A Preferential and other transactions (1) On or before the seventy-fifth day of the insolvency commencement date, the resolution professional shall form an opinion whether the corporate debtor has been subjected to any transaction covered under section 43,50 or 66. (2) Where the resolution professional is of the opinion that the corporate debtor has been subjected to any transactions covered under sections 43,45, 50 or 66, he shall make a determination on or before the one hundred and fifteenth day of the insolvency commencement date, (3) Where the resolution professional make a determination under sub-regulation (2), he shall apply to the Adjudicating Authority for appropriate relief on or before the one hundred and thirty-fifth day of the insolvenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intent is clothed. The meaning and intention of the legislature must govern, and these are to be ascertained, not only from the phraseology of the provisions but also by considering its nature, its design, and the consequences which would follow from construing it the one way or the other Going further, this Tribunal in the same judgment also relied on the observations of the Hon ble Apex Court in (2016) 11 SCC 31 in Lalaram Vs. Jaipur Development Authority as below: 106. As noticed hereinabove, it is affirmatively acknowledged as well that where provisions of a statute relate to the performance of a public duty and where the invalidation of acts done in neglect of these have the potential of resulting in serious general inconvenience or injustice to persons who have no control over those entrusted with duty and at the same time would not promote the main object of the legislature, such prescriptions are generally understood as mere instructions of the guidance of those on which the duty is imposed and are regarded as directory. It has been the practice to hold such provisions to be directory only, neglect of those, though punishable, should not, however, affect the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear delay beyond 135 days in filing the Section 66 application from the date of initiation of CIRP. From material on record, we have reasons to believe that some part of this delay was on account of the CIRP proceedings having been stalled on the ground of the Appellants entering into OTS with one of the creditors, Bank of India. The creditor had informed the Resolution Professional on 09.12.2019 during the 3rd CoC meeting asking the Resolution Professional not to proceed further in the transaction audit as they were going to file withdrawal application having entered into OTS. On 17.12.2019, a letter was also issued by them to hold back the said audit work. The Resolution Professional was permitted to recommence transaction audit on 18.02.2020. It is also noted that the Appellants/Suspended Board of Directors of Corporate Debtor had taken time to provide reconciled account. There was lack of cooperation by the Suspended Directors as documents and registers were not handed over on time. The tallied accounts were submitted on 03.12.2019 which was the 90th day of CIRP and hence constituted another factor for delay. There has been delay on the part of the Corporate Debtor to also fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction to be a case of diversion of funds for the reason that the Corporate Debtor not having sufficient surplus funds of its own and having borrowed a loan along with interest, diverted such borrowed funds which is not permitted under the Companies Act and amounts to violation of bank lending norms. The TAR further mentions that such diversion of funds is against prudent business practice as instead of yielding better returns, it saddled the Corporate Debtor with huge interest loss. 20. Given the above facts, on balance of consideration, we are inclined to agree with the Adjudicating Authority that the defence taken by the Appellants cannot detract from the plain truth that the Appellants had wrongfully diverted funds which in turn had aggravated the financial liability of the Corporate Debtor and thus an unethical act to defraud creditor tantamounting to fraudulent trade practice. 21. The other fraudulent transaction, which the Resolution Professional had pointed based on the TAR was the unusual write-off of inventory of Rs. 3,65,90,960/- by the Appellants. The TA also raised question marks on the write-off of 2352 quintals of paddy on a single day due to the storm FA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not erred in coming to the conclusion that the Appellants had indulged in this fraudulent act to siphon off the amount and defraud the creditors of the Corporate Debtor. 23. The Learned Counsel for the Appellant has also held that the under-valuation of the income of the Corporate Debtor to the extent of Rs. 2,79,18,940/- is not correct as the TA while calculating the revenue had also included the market value of written off stocks/damage stocks and this is not a correct accounting principle. It is found that the TA in its report has found that the Corporate Debtor during the period 2009-2013 clocked a gross profit ratio of around 20% which fell precipitously to a negative figure except for financial year 2017-2018. The Adjudicating Authority has not accepted the contention of the Corporate Debtor that decrease in profit margin was due to changes in the fixed cost like increased cost of paddy, increased tariffs etc. The sudden fall in the gross profit from around 20% to a negative figure has been found to be unreasonable. 24. On the issue of undervalued transactions, it has been admitted by the Appellants that advances were made to nine parties including one related part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions/ transactions to defraud the creditors, it has rightly issued directions for recovery of amounts from the Appellants jointly and severally for the benefit of the corporate debtor. Company Appeal (AT) (Insolvency) No. 850 of 2022 26. The present appeal, filed under Section 61 of the IBC by the Appellants arise out of order dated 26.04.2022 passed by the Adjudicating Authority in I.A. No. 337/CB/2020 arising out of TP No. 36/CTB/2019 connected with CP(IB) No. 1292/KB/2019. By the said order, the Adjudicating Authority on an application filed by Resolution Professional under Section 30(6) of the IBC rejected the Resolution Plan of the Resolution Applicant in view of the bar provided under Section 29-A(g) of the IBC and, inter-alia, ordered liquidation of the Corporate Debtor, which has been challenged. 27. The factual matrix of IA No. 850/2022 is the same as in IA No. 869/2022 which has been outlined at Para 2 above. Recapitulating the salient points therefrom in the context of this appeal, the Resolution Applicant submitted a Resolution Plan under Section 240-A of the IBC along with eligibility affidavit affidavit under section 29-A of IBC. The said Resolution P ..... X X X X Extracts X X X X X X X X Extracts X X X X
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