NCLT ND-II (21.08.2023) In Mr. Subhash Kumar Kundra RP Vs. Mr. Shiv Seth [IA. No. 3316/ND/2020 in Company Petition No. (IB)-2144(ND)/2019] held that;
From a perusal of Section 45 of IBC 2016, it is seen that a transaction can be considered undervalued if the corporate debtor transfers one or more assets by the corporate debtor at a value significantly less than the value of the consideration provided by the corporate debtor.
Thus, in effect, the job work performed by the Corporate Debtor was undervalued to the extent that it was rendered without any value or ‘NIL’ consideration. Further, the Respondent No. 1 in the e-mail dated 25.07.2020 sent to the Applicant/RP clearly admitted that if the amount had been deposited to the CD’s bank account, the sole financial creditor, the City Union Bank would have adjusted the same against Bank’s dues.
Excerpts of the Order;
The present IA No. 3316 of 2020 is filed by Mr. Subhash Kumar Kundra, Resolution Professional (now Liquidator) (hereinafter referred to as the ‘Applicant’) of Classic Bottle Caps Private Limited under Sections 45, 49 & 66 read with Section 25(2)(j) 60(5)(a) of IBC 2016 seeking the following reliefs:
“a) Allow the present application;
b) To direct the Respondent No. 2 & 4 to forthwith pay a sum of Rs. 69.93 lakhs (sixty nine lakhs ninety three thousand only/-) to Corporate Debtor along with interest at the rate of Rs.18% p.a.;
c) Alternatively, Treat the above transactions as undervalued transactions under Section 45 of the Code and transactions with intent to defraud the Creditors under Section 49 of the Code and pass necessary orders under Section 48 & 49 of the Code; and
d) To treat the above transaction as fraudulent transaction under Section 66(1) and direct the Respondent 1, 2 & 4 (proprietorship concern of Respondent No.1) to forthwith pay a sum of Rs.69.93 Lakhs (sixty nine lakhs ninety three thousand only/-) along with interest at the rate of Rs.18% p.a. calculated till date of passing of order under this Application as per Section 66(2);
e) Pass such other or further order/order(s) as may be deemed fit and proper the facts and circumstances of the instant case.”
# 2. Stating succinctly, the facts of the case are that the Operational Creditor, GAC Shipping (India) Private Limited filed an application bearing No. (IB)-2144(ND)/2019 under Section 9 of IBC 2016 for initiation of the CIR process against the Corporate Debtor M/s. Classic Bottle Caps Private Limited. This Adjudicating Authority vide order dated 13.02.2020 initiated the CIR process against the Corporate Debtor and appointed Mr. Rattan Chaudhry IP as an IRP of the Corporate Debtor. Subsequently, on the recommendation of COC, he was replaced and Mr. Subhash Kumar Kundra IP was appointed as RP vide order dated 11.06.2020 of this Adjudicating authority. Further, the CD has been ordered to be liquidated and Mr. Subhash Kumar Kundra has been appointed as Liquidator. vide order dated 20.04.2022.
# 3. During the course of the hearing on 12.11.2021, the Applicant sought time to amend the prayers in the instant IA by deleting prayer (d) relating to Section 66 of IBC 2016. Accordingly, the applicant filed an IA-639/2022 to amend the prayers in the instant IA-3316/2020, which was allowed vide order dated 08.02.2022 of this Adjudicating Authority. The revised prayer in the instant IA-3316/2020 reads thus:
“a) Allow the instant application;
b) To direct the Respondent No. 2 & 4 to forthwith pay a sum of Rs. 69.93 lakhs (sixty nine lakhs ninety three thousand only/-) to Corporate Debtor along with interest at the rate of Rs.18% p.a.;
c) Alternatively, Treat the above transactions as undervalued transactions under Section 45 of the Code and transactions with intent to defraud the Creditors under Section 49 of the Code and pass necessary orders under Section 48 & 49 of the Code; and
d) Pass such other or further order/order(s) as may be deemed fit and proper the facts and circumstances of the instant case.”
# 4. It is stated by the Applicant that the Corporate Debtor (CD) is a private unlisted company incorporated on 13th April 2000 in Delhi/NCR and registered under the Registrar of Companies (NCT of Delhi) under the Companies Act, 1956. The CD is a manufacturer and exporter of Aluminium Closures, PVC Shrink Capsules and Flexible Packaging Products produced exclusively for Wines, Sparkling Wines, Liquor, Beverages & FMCG Products.
# 5. The Applicant submits that Respondent No. 1 & 2 are members of the Suspended Board of Directors of the Corporate Debtor. Respondent No. 3 is a Job Work Customer of the Corporate Debtor and Respondent No. 4 is the proprietorship concern of Respondent No.1.
# 6. The Applicant/RP (now, Liquidator) has filed its written submissions and stated that the Corporate Debtor and Respondent No. 3 i.e., Metal Craft Bottle Seals LLP entered into the alleged unsigned and unstamped MOU on 01.04.2019 (pages 32-36 of the Application). It is further stated that
6.1 As per clauses - 1.2, 2, 2.3, 2.5, 3.6 of the said Agreement, Respondent No. 3 was to provide the raw material and packaging material at its cost to the Corporate Debtor for the purpose of manufacturing Aluminum and other caps for the bottles. Respondent No. 3 agreed to pay consideration/charges for job work to the Corporate Debtor as per prevailing market rates mutually agreed between the parties from time to time. Further, it was also agreed that the consideration or proceeds from the Job work will be credited by R-3 to the Corporate Debtor’s Account No. 512020010014588 held at City Union Bank, Karol Bagh Branch.
6.2 As per the Applicant, the R-3 made certain payments for the Job work charges to the accounts of CD, R-2, and R-4 (page 159 of Rejoinder). Out of the payments made between April 2019 to September 2019, only Rs.15,00,000/- was paid to the Corporate Debtor on 29.06.2019 for the job work performed by it and the rest Rs.69.93 lakhs were paid to the personal accounts of R-2 who is the suspended Director and R-4 which is a proprietorship concern of Respondent No. 1.
6.3 CIRP was initiated on 13.02.2020 and Mr. Rattan Chaudhry (IBBI/IIPA002/IP-N00325/2017-2018/10930) was appointed as IRP. Subsequently, the Applicant, who was appointed RP on 11.06.2020, took over the charge of the CD on 18.06.2020. During a visit on 18.06.2020, the Applicant observed nearly 70 workmen were working at the plant of the CD situated at Palwal. On inquiry about the work being performed at the plant, the Promoters/Exdirectors shared a copy of the alleged Agreement dated 01.04.2019 between CD and R3 on 22.06.2020 which was unsigned and unstamped. No board resolution could be provided by the Promoters.
6.4 Till the date of taking over charge by the Applicant, the operations at the CD’s plant situated at Palwal were going on, there was an outstanding liability of GST of Rs.6,72,640/- and Electricity charges of Rs.4,49,061/- for the period from the commencement of CIRP till 11.06.2020. It is pertinent to mention that though liabilities were being incurred in the name of CD, no money flew into the bank account of the CD for any work performed from the commencement of CIRP till the date of taking over charge by the Applicant.
6.5 Accordingly, numerous communications were made between the Applicant and the Promoters. In the following instances, the Respondents admitted to having received the job work charges of the Corporate Debtor to the personal accounts of the promoters:
6.6 It is further submitted by the Applicant that: (a) R1 vide his mail dated 02.07.2020 stated that R-3 paid an amount of Rs. 69.93 lakhs “as an advance payment against consideration of job work services” into the personal bank accounts of R-2 and R-4. (b) The 3rd meeting of CoC was held on 09.07.2020, where R-1 stated that since no bank account was operational, job work charges were routed through their personal bank accounts. On the contrary, the Respondent provided the bank statement, wherein the CD received Rs. 15 lakh of job work charges on 29.06.2019. (c) On 11.07.2020, R-1 added that invoices were generated for Rs.49,02,313/- against which R-3 made a total payment of Rs. 1.24 crores, and out of 1.24 crores, 70 lakhs were paid to the promoters. (d) On 25.07.2020, R1 stated that he received this amount as an unsecured loan for making payment of salary and wages, if they had received it in the Bank Account, the bank would have adjusted this amount against their dues. Also, promoters never produced any document for making payment of salary and wages.
6.7 It is stated by the Applicant that all the while when payments were being made by R-3 into the personal accounts of the Promoters, the Bank Account of the CD was functioning. The Promoters admitted that they took the money into their personal accounts to defraud the creditors and if they had not done so, the Bank would have adjusted the money against the outstanding loan amount.
6.8 During the hearing held on 05.02.2021, this Hon’ble Adjudicating Authority inquired from the Respondents as to how the unsecured loan was granted to them by R-3, since no such document was placed on record by them in the replies to the Application. The Respondents for the very first time produced a signed but un-stamped job work agreement dated 01.04.2019 and a signed but un-stamped unsecured loan agreement dated 01.04.2019 by way of an additional affidavit.
# 7. The Respondents No. 1 and 2 filed their additional affidavit dated 13.02.2021 and stated the following:
7.1 That there existed a single arrangement between the Corporate Debtor (CD) and Respondent No. 3 - that of the Job Work Agreement dated 01.04.2019. Prior approval was duly taken from the sole financial creditor (namely, City Union Bank) and the terms of the said agreement were vetted by the said sole financial creditor.
7.2 Under the said agreement, the following transactions of receipts and expenses took place between CD and R3: . . . . .
The summary details of the Job work income and rental income are filed in Annexure - 2 (Colly). The summary details of TDS are as under: . . . .
7.3 The summary details of payments made to suppliers of CD on account of CD are as under: . . . .. .
7.4 The above-mentioned payments were made to legitimate 3rd party utility suppliers and against legitimate expenses for the works carried out by CD. All bills were put into the custody of RP and a copy of the ledger is already on record as Annexure I (Colly) to reply in IA no. 3316/2020.
7.5 In order to ensure smooth delivery on a job-work basis, the CD was forced to take shelter under clause 2.1 of the vetted job-work agreement to request R-3 to make direct payments to utility suppliers because its bank account was overdrawn on relevant dates and any credits therein would have gotten adjusted against only one creditor to the detriment of workers and other creditors.
7.6 The said sum of Rs.15,00,000/- was received by CD on 29.06.2019. The CD received in excess a sum of Rs.5,16,974/- from R-3 under the said agreement. There was no transaction of any kind between CD and R-3 other than the job work transactions. All amounts that were receivable from R-3 under the job work agreement were duly received and accounted for in the books of CD. Further, all amounts received from R3 were utilized only in the operations of CD for payments to workmen and utility suppliers.
7.7 No money receivable by CD under the said job work agreement has been received in the accounts of R-2 & R-4. The transactions among R-2, R-3 & R4 were separate, unrelated, and alien to the job work agreement. Such transactions were part of personal loans availed by R-2 and R-4 from R-3.
7.8 The law permits promoters to make contributions in any of the following manners:
a) by directly injecting money into the company's account and deploying it for the company's use; alternatively
b) by making on-account payments for the company's needs and registering a corresponding entry in the company's books of accounts.
In the instant case, promoters made their contribution by way of the latter means. Therefore, sums of Rs.29,10,000/- and Rs.40,83,000/- were personally expensed by R-2 & R-4 respectively, on account of CD and corresponding entries of unsecured loan were duly recorded in the CD's books, which are in the custody of the RP. The alternative means of making promoters' contribution was adopted due to the following reasons:
a) The bank account of CD was frozen by the income tax authority on 18.03.2019 and the expenses were urgent to be paid.
b) Workmen dues were piling up, and further delays would have halted factory operations. Because the bank accounts of CD were overdrawn on the above-mentioned dates, workmen dues and other urgent supplier dues were cleared in the interest of CD.
Accordingly, sums of Rs.29,10,000/- and Rs.40,83,000/- were paid by R-2 & R-4 (being promoter/promoter concerns) respectively from their personal accounts on account of the CD towards various heads of expenses of CD.
7.9 The details of amounts received from R-2 & R-4 and payments made there-against are duly reported in Tally, the custody of which is with the RP.
7.10 There was no occasion where the CD carried out job work for R-3 at rates below the prevailing market rates. Also, the RP neither asserted any such averment nor made any inquiry into prevailing market rates or presented any inquiry to assist this Hon'ble Tribunal in assessing the impugned job-work transactions against the benchmark of market rates.
7.11 No audit was carried out by RP before filing the instant application. It was only after Respondent took an objection in reply in IA-3316/2020 that auditors were appointed by the RP. No finding of such audits has still been brought before this Hon'ble Tribunal.
7.12 Therefore, the said transactions do not attract provisions contained in Ss. 45, or 48, or 49 or 66 of IBC, 2016. Further, all such payments were in actuality utilized only in CD's business operations for meeting out dues of workmen and other creditors.
# 8. The Respondents Nos.1, 2 & 4 have also filed their written submissions stating that in the present case, R-1 and R-2 are promoters and ex-directors of the CD and R-4 is a proprietorship concern of R-1. R-3 is an independent entity that had contracted with the CD to perform job work on the material sourced by R-3. The Respondents have further submitted the following:
8.1 By way of the present application, the following transactions are attempted to be brought into the ambit of Sections 45 and 49 of IBC 2016: a) those originating from Job Work Agreement (JWA) dated 01.04.2019 between CD & R-3;
b) those originating from Loan Agreement dated 01.04.2019 between R-2 & R-3 (hereinafter LA-1); and c) those originating from Loan Agreement dated 01.04.2019 between R-4 & R-3 (hereinafter LA-2).
8.2 It is submitted that a joint reply on behalf of R-1, R-2 & R-4 was filed (under dy. no. 0710102077272020/1 dated 20-09-2020) and taken on record. Also, in compliance with the order dated 04-09-2020, R-1 & R-2 had filed affidavits dated 03-10-2020 (dy. no. 0710102070492020/3 dated 18-10- 2020). Further, in compliance with the order dated 05- 02-2021, R-1 & R-2 had filed identical additional affidavits dated 13-02-2021 on 15-02-2021 and 20-03-2021 respectively.
8.3 The JWA was executed in the ordinary course of business by the CD with R-3. Prior to its execution, the sole lender, the City Union Bank granted approval to the CD to execute the JWA by way of issuing "No Objection Certificate" (Page 17 of the additional affidavit of R2 dated 15-02-21). The validity of the JWA has been admitted by the respondent and the NOC by City Union Bank has not been rebutted. The nature of transactions proposed to be carried out under the JWA was in the ordinary course of business of the CD. The JWA neither restricted the CD from carrying out production under its own brand nor restricted it from adding more job-work customers to its portfolio. In this regard, the mere requirement was to obtain the prior consent of R-2 for adding such new job-work customers. Further, the JWA provided a transparent pricing mechanism and it did not envisage the transfer of any asset of the CD. All works carried out under the JWA are duly recorded in great detail under the ledger for R-3 maintained by the CD in its books. All invoices, vouchers, and other documents recorded in the said ledger are in the custody of the RP. The summary of income booked under the JWA by the CD against the R-3 as extracted from the said ledger is tabulated under para 5 of the additional affidavit of R-2, which is already noted in para 7.2 above.
8.4 It follows that (a) the consideration of value for each transaction has been provided for in its books by the CD at prices stipulated in the JWA and (b) the prices stipulated in the JWA are transparent and in accordance with the prevailing market rates. There is absolutely nothing on record to dispute this. What is left to be determined is whether the consideration of value provided has been received by the CD. In this respect, regard may be had to the table reproduced in para 7.2 above. The receipts of Rs.54,19.287/- were neither denied nor disproved by the RP in any of his pleadings or subsequent affidavits. On the other side, R-2 in his additional affidavit dated 13-02-21 under para 6, 7 and 8 narrates details of each receipt recovered by the CD from R-3 under the job-work agreement. Para 7 provides the breakup of total TDS (standing at Rs. 80,708/-) against each voucher/invoice. Para 8 provides the break-up of payments made by R-3 on behalf of CD to the suppliers of CD. It is to be noted that these payments were made in accordance with the provisions of JWA. Para 8 cross-references each payment against the relevant voucher/invoice no. It is important to reiterate that all invoices, vouchers and other documents recorded in the said ledger have been put into the custody of the RP, which fact has been duly affirmed by him in his affidavit dated 27.09.21 placed before this Court under IA-2763/2020 in the present main petition. Therefore, it follows that the entirety of the value of consideration that has been provided for by the CD in its books/ledgers has been evidently and traceably received by the CD. We have already seen that the consideration of value for each transaction has been provided for in its books by the CD at prices stipulated in the JWA and (b) the prices stipulated in the JWA are transparent and in accordance with the prevailing market rates. There is another aspect to this - no statutory audit or transaction audit was ordered to be conducted at the time of filing the present application. Both audits were ordered to be conducted only after the answering respondents raised an objection by way of their joint reply to the present application. Nevertheless, in the meanwhile, both the statutory audit and the transaction audit were got completed. However, no findings of the audits have been placed before this Hon'ble Court to support the allegations of the present application. In fact, the applicant states in his additional affidavit dated 27-09-2021 in the present application that the transaction audit report has been filed in support of IA4382/2021, which application is made under the provisions of s. 66 of the Code.
8.5 The LA-2 transactions were carried out under the Loan Agreement executed between R-4 & R-3 on 01.04.2019. The loan agreement runs on pages no. 28-31 of the additional affidavit of R-2 dated 13-02-2021. The execution and validity of the loan agreement have been admitted by all the respondents. It is pertinent to note that R-4 is an independent proprietorship concern of R-1 who is the erstwhile promoter of CD. It is also important to note that the CD was suffering financial distress at the time. In view of the three-year tenure of the JWA, which in itself was brought into force on the production strengths of the CD, R-3 agreed to grant an unsecured loan to R4 for a sum of Rs.50,00,000/- repayable on the terms stipulated in the loan agreement. As submitted under para 18 of the additional affidavit of R-2 a sum of Rs.40,83,000/- was availed under the loan agreement. Further, the proceeds were utilized by R-4 towards paying out the dues of several operational creditors of the CD and the manner of utilization has been stated by the R-1 in the affidavit dated 03-10-2020 dated 18-10-2020. The expense of Rs.40,83,000/- incurred by the R-4 on behalf of the CD has been duly recorded in the ledgers of the CD. It is submitted that the factum of expense personally incurred by R-4 on behalf of the CD and the documentary evidence available in respect thereof same has neither been denied nor disproved by the RP. Therefore, the bona fide of the LA-2 transactions is made out, particularly when there is nothing adverse has been reported in the transaction audit. It is clear that there is nothing in the transaction report to support the contentions of the present application otherwise the same would have been put forth for the purposes of rebuttal. It is important to note that the JWA transactions have been proven to have been concluded in a fair manner.
8.6 Having regard to provisions of sections 45-49 of the Code along with regulations framed thereunder, it is clear that the scheme envisages a formulation of determination on the part of a resolution professional, which is distinct from an opinion. Sub-regulation (1) of Regulation 35-A requires the RP to form an opinion on whether the corporate debtor has been subjected to any transaction covered under sections 43, 45, 50 or 66. Once such an opinion is made, sub-regulation (2) of Regulation 35-A requires the RP to make a determination. Clearly, a difference has been carved between opinion and determination. The opinion has to cross the hurdle of determination before an application can be preferred before the adjudicating authority.
# 9. The RP too filed its Affidavit in compliance with the order dated 05.02.2021 stating the following –
9.1 The tally record provided by the promoters only had entries up to 17.03.2020. There was no data to show what work was performed at the factory premises of the CD since the insolvency commencement date against which liabilities of GST and electricity dues were generated and remained unpaid. It is reiterated that even after operating the factory of the Corporate Debtor, not a single penny was received by the CD rather, on the contrary, a liability of Rs.6,72,640/- towards GST and Rs. 4,49,061/- towards electricity charges was accrued by the CD.
9.2 Respondent No. 1 admitted this fact in his evasive reply dated 02.07.2020 that the Metal Craft (R-3) made payments to Mr. Shiv Seth's Proprietorship concern (R-4) and Sanjeev Seth (Suspended Directors/R-2) in their personal accounts as advance payment towards job work charges. For most of the information sought, the promoter replied either no records were maintained by the CD or information is at the factory and the RP may find on its own. The promoters admitted that no secretarial records of the Company were maintained such as minutes of meetings, inventory list and FAR, and other statutory records a company needs to maintain under law.
9.3 In the third meeting of the CoC conducted on 09.07.2020, the promoter/R1 admitted to receiving the money in his personal account. The relevant extracts of the discussion are reproduced below: “4. The Chairperson informed the CoC Members that on the visit to the Factory at Palwal on June 18th, 2020, it was observed that the Job-work was being carried and around 70 workers/ employees were working in the Factory. The team of the RP enquired from the Suspended Board of Directors to inform of the particulars of all parties on whose behalf the Corporate Debtor is performing the Job Work and to detail the volume of the work that Corporate Debtor carries per month. 5. It was further enquired how the sale proceeds of the Job-work charges are being routed and through which Bank A/C. 6. Mr. Shiv Seth, Member of the Suspended Board of Directors informed that there is no operative Bank A/C as all the accounts are either frozen or inactive, hence all the Job Work Transactions are either routed through his/ other Directors Personal Bank A/cs or through adjustment of expenses. The undersigned further updated the CoC members that there is a huge difference between the figures recorded in the tally of the CD and the statements provided by CD to the Bank.
9.4 Further Respondent No. 1 himself vide e-mail dated 25.07.2020, informed the RP as follows:
“2. As explained earlier, the payments made by the metal craft are either made directly to meet the cost of electricity or gas expenses for the factory and balance payment has been made to the promoters and sister concern to meet the expenses for salary and other expenses payment of the company. In fact, they have made excess payments to us in the shape of an unsecured loan on personal basis. In a way the directors have taken on personal liability to reduce the liability on the company. Tally ledgers of Mr. Sanjeev Seth and SSS Foods have been attached for your perusal which were shared earlier also. The proceeds against the Job Work were routed as above because if any amount is deposited in the bank account of the company the same would have got adjusted against the dues and we would not have money to make payment for salary etc.”
9.5 When a payment of Rs.15,00,000/- could be received from the R-3 directly into the account of the CD on 29th June 2019, there was no reason as to why the remaining proceeds against the job work were routed through the accounts of the promoter or the sister concern.
9.6 The Respondents/Promoters changed their stance, from their statement that money was taken into their personal account since the bank accounts of Corporate Debtor were frozen, in the third meeting of CoC on 09.07.2020 to that the money was taken in the form of an unsecured loan by the promoters from R-3 because if the amount was taken in the bank account of the company, the same would have been adjusted against the dues of the Bank.
9.7 The Respondents/Promoters could not produce any unsecured loan agreement with R-3 i.e., Metal Craft Bottle Seals LLP nor could they mention when such an agreement was entered into. Only after the order dated 05.02.2021 of this Tribunal, R-1 vide his mail dated 12.02.2021 provided loan agreements between R-3 and Respondents No. 2 & 4. The R-3 also filed an additional affidavit, which was served upon the RP’s counsel on 11.08.2021. The RP states that R-3 vide its affidavit submitted as follows:
a) R-3 agreed to grant a loan of Rs. 85,00,000/- to promoter and promoter entities (the affidavit mentions Rs. 85,000/-);
b) That a loan agreement dated 01.04.2019 was entered by and between R-2 i.e., Sanjeev Seth and R-4 i.e., SSS Foods & Health Care for Rs. 50,00,000/- and a loan agreement dated 01.04.2019 was entered by and between R-3 i.e., Metal Craft and R-2 i.e. Sanjeev Seth;
c) However, the R-3 provided (as annexure) only one loan agreement dated 01.04.2019 between R-3 and R-4 for Rs. 50,00,000/-;
d) No agreement of Rs. 35,00,000/- with R-2 is annexed with the additional affidavit;
e) The loan carries an interest @15% per annum payable at an annual rate however, there is nothing on record to show that the said interest was being paid;
f) The agreement is not stamped.
g) The sum was disbursed by R-3 to R-2 & R-4 so that the same may be deployed to clear overdue and critical wages, salaries, utility expenses, etc. However, this is contrary to the stand taken by the Respondents/Promoters, since the promoters adjusted the personal loan liability amount against the consideration of the Job Work for the Corporate Debtor. It is submitted that vide mail dated 11.07.2020 the R-1 stated that the CD has received excess payment from R-3. The relevant extract of the mail is reproduced herein below:
9.8 It is submitted that R-3 did not produce any job work orders and invoices raised by the CD against which consideration was paid and/or adjusted. It is further submitted that if the amount received by Promoters has been adjusted to the consideration of job work then the same should have been credited to the Corporate Debtor and personal liability of the promoters cannot be adjusted against the consideration due to the Corporate Debtor.
# 10. We heard the submission of both the parties and perused the pleadings on record including the written submissions and additional affidavits of all the parties. The R-3 neither filed its reply nor written submissions. Hence, it is presumed that R-3 has nothing to say in the matter and is proceeded ex parte. It is contended by the Applicant that the CD was carrying out Job Work for the R-3 pursuant to one Memorandum of Understanding (MoU) dated 01.04.2019 executed by and between R-3 and the CD.
# 11. It is the contention of the Applicant that R-3 made the following payments (except the one which is mentioned at Sr. No. 1) for the job work done by the CD between 02.04.2019 and 13.08.2019 to the accounts of the Respondents: . . . .
The Applicant has further stated that only Rs.15,00,000/- were credited to the account of the Corporate Debtor and the rest amount of Rs.69.93 lakhs was paid to the personal accounts of R-2 (Mr. Sanjeev Seth, Suspended Director of the CD) and R-4 (proprietorship concern of R-1).
# 12. The Respondents have justified withholding the amount of Rs.69.93 lakhs on the ground that prior to the execution of the Agreement dated 01.04.2019, the “No objection Certificate” was obtained by them from the sole creditor of CD i.e., City Union Bank.
# 13. In order to examine this contention of the Respondent, we would like to peruse the “No Objection Certificate” (as placed by the Respondents) given by the sole creditor of CD i.e., City Union Bank, which reads thus: . . . .
On perusal of the abovementioned NOC, it is observed that the Bank’s letter dated 10.05.2019 is of a later date than the execution of the MOU dated 01.04.2019. Further, the Bank’s NOC dated 10.05.2019 specifies that the “Entire Business Transaction should be routed through the CC Account No. 512020010014588” only. However, the same has not happened in this case, rather the transactions were routed through the personal accounts of R2 and R-4. Therefore, the Bank’s NOC, which is of subsequent date, nowhere justifies Respondents No. 2 and 4 to withhold the amount of Rs.69.93 lakhs, which was owed to the Corporate Debtor. Hence, this argument of the Respondents is far from the truth and therefore, cannot be relied upon.
# 14. Nevertheless, it is contended by the Respondent that sums were paid by R-2 & R-4 (being promoter/promoter concerns) respectively, from their personal accounts on account of CD towards various heads of expenses of CD. Details of the said expenses have been submitted before this Adjudicating Authority by way of Affidavits in compliance with the order dated 04.09.2021, which are reproduced below, at the cost of repetition - . . . .
# 15. We have gone through the affidavit and observe that only the Bank Statement of R-4 i.e., “SSS Foods & Health Care Address” has been placed on record. Therefore, we would like to examine the same to ascertain whether any payment as claimed to have been made in the aforesaid table to the vendors of CD is reflected in the Bank Statement of R-4. The Bank Statement reads thus: . . .
# 16. We went through the Bank Statements and failed to find any entry as claimed by R-2 & R-4 in support of the payments alleged to have been made by them on behalf of the CD to the vendors of the CD. Hence, we find no merit in this defence too.
# 17. The next contention as raised by Respondents No. 1, 2 and 4 in their subsequent Affidavits that payments were made to them pursuant to the unsecured loans given by Respondent No. 3. It is contended that R-3 had granted an unsecured loan of Rs.35 lakhs to R-2 and of Rs.50 lakhs to R-4. The alleged Loan Agreements, as placed on record, reads thus: . . . .
# 18. In this regard, during the course of the hearing on 05.02.2021, this Adjudicating Authority raised a query as to how the unsecured loans were granted by R-3. It was only thereafter by filing additional affidavits dated 13.02.2021, Respondent No. 2 and 4 brought on record the Loan Agreements for the very first time. The Replies filed by the Respondents neither made any reference to such Loan Agreements nor were they annexed to the replies. Further, the above-mentioned Loan Agreements are alleged to have been entered in the year 2019 with a tenure of 03 years each, which is over now. But there is nothing placed on record to demonstrate that Respondent No. 2 and 4 have either paid interest or discharged the said Loan Amounts of R-3 and if not, whether R-3 has taken any steps for recovery. Furthermore, both the above-mentioned Loan Agreements are unstamped. Hence, the veracity of such unstamped loan agreements produced subsequent to the filing of replies by the respondents is not free from doubts. Resorting to such agreements could be an afterthought to overlap one transaction with the other. Hence, no reliance can be placed on the said Loan Agreements.
# 19. At this juncture, we also refer to the e-mail dated 25.07.2020 sent by Respondent No. 1 (Proprietor of R-4) to the Applicant, which reads thus: . . . .
Through the above-mentioned e-mail, the Respondent No. 1 has admitted that “The proceeds against the Job work were routed as above because if any amount is deposited in the bank account of the company, the same would have got adjusted against the dues and we would not have any money to make payment for salary etc.” This is further corroborated by the statement given by R-1 in the 3rd meeting of the CoC held on 09.07.2020 (as already noted in para 9.3 above), where the promoter/R1 admitted to receiving the money in his personal account.
# 20. We further observe that Respondents No. 2 and 4 did not route the entire business transactions/proceeds through the CC Account No. 512020010014588” of CD as stipulated by the sole creditor of CD viz., City Union Bank in its NOC letter dated 10.05.2019.
# 21. At this stage, we refer to Section 45 and 48 of IBC 2016, the contents of which reads thus: . .
# 22. From a perusal of Section 45 of IBC 2016, it is seen that a transaction can be considered undervalued if the corporate debtor transfers one or more assets by the corporate debtor at a value significantly less than the value of the consideration provided by the corporate debtor. In the instant case, the ExPromoters/Respondents 1, 2 & 4 routed the proceeds/charges for Job Work done by the CD into their personal accounts, and job work revenue of Rs.69.93 lakhs was not credited to the books/accounts of the CD despite such condition imposed by the sole Creditor City Union Bank vide their NOC letter dated 10.05.2019. Thus, in effect, the job work performed by the Corporate Debtor was undervalued to the extent that it was rendered without any value or ‘NIL’ consideration. Further, the Respondent No. 1 in the e-mail dated 25.07.2020 sent to the Applicant/RP clearly admitted that if the amount had been deposited to the CD’s bank account, the sole financial creditor, the City Union Bank would have adjusted the same against Bank’s dues.
# 23. The term ‘asset’ as referred to in section 45 has not been defined under IBC, however, the term ‘property’ as referred to in section 45 is defined under Section 3(27) of IBC 2016, which inter alia, includes ‘money’. Hence, we conclude that the job work revenue of Rs. 69.93 lakhs of CD, which was deposited by Respondents NO 1, 2 and 4 into their own accounts at the cost of CD and its sole Creditor the City Union Bank, is an undervalued transaction under section 45 and in terms of Section 48(1)(a) of IBC 2016, we allow the prayers (b) and (c) of the applicant with an interest @ 10%, and direct the Respondents No. 2 and 4 to contribute jointly a sum of Rs. 69.93 Lakhs (sixty-nine lakhs ninety-three thousand) only to the CIRP account of Corporate Debtor as to be specified by the Applicant/RP within 30 days from the date of this order.
# 24. The application accordingly stands allowed.
# 25. Lastly, this Adjudicating Authority vide order dated 13.02.2020 initiated the CIR process against the Corporate Debtor and appointed Mr. Rattan Chaudhry IP (IBBI/IIPA-002/IP-N00325/2017-2018/10930) as IRP of the CD. Subsequently, on the recommendation of COC, he was replaced by Mr. Subhash Kumar Kundra as RP vide order between CD and R3 on 22.06.2020 which was unsigned and unstamped. No board resolution could be provided by the Promoters.” It is not clear how and under what circumstances, the plant premises of the CD continued to be utilised by the promoters/suspended Directors despite the CD already being into CIRP since 13.02.2020 and under the control of IRP for a period of more than 04 months. Let IBBI enquire into the matter after providing the due opportunity of hearing to the IRP and take action, as deemed appropriate if required. dated 11.06.2020 of this Adjudicating authority. Mr. Subhash Kumar Kundra/the Applicant herein, who took over the charge of the CD on 18.06.2020, as noted in para 6.3 above, has stated that “….during a visit on 18.06.2020, the Applicant/RP observed nearly 70 workmen working at the plant of the Corporate Debtor situated at Palwal. On inquiry about the work being performed at the plant, the Promoters shared a copy of the agreement dated 01.04.2019.
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