NCLT Ahmedabad (2021.02.09) in Vijay P. Lulla , Resolution Professional (RP) Vs. Technovaa Plastic Indstries Pvt Ltd [I.A. No. 618 of 2019 in C.P. (I.B.) No.189/9/ NCLT/ AHM/ 2018 ] held that;
We further consider it pertinent to observe that the assistance of expert agencies can be taken for determination of preferential, invalid or fraudulent transactions, but in spite of that, independent opinion of Resolution Professional /Liquidator remains a must, meaning thereby, irrespective of the exercise done by the expert agency, the Resolution Professional should independently form a belief / opinion that such transactions, in fact, existed which require appropriate order from this Authority
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.
it appears expedient to observe that the arena and scope of the requisite enquiries, to find if the transaction is undervalued or is intended to defraud the creditors or had been of wrongful/fraudulent trading are entirely different. Specific material facts are required to be pleaded if a transaction is sought to be brought under the mischief sought to be remedied by Sections 45/46/47 or Section 66 of the Code.
We also hold that for pursuing action under Section 43 of the IBC, 2016, in such a situation it is the successful resolution Applicant who can maintain the application or if resolution plan provides otherwise then the same mechanism can be adopted.
In the resolution Applicant has present successful case, categorically stated that it is not interested in pursuing with this application. There is no other mechanism in the resolution plan. Thus, for this reason also, this application is liable to be dismissed.
Excerpts of the order;.
# 17. We have considered the submissions made by all parties involved and material on record. Before we proceed to analyse the nature of transactions involved with reference to facts of the case, we consider it pertinent to briefly review nature of statutory provisions as applicable to different transactions and role and responsibility of Resolution Professional. In this regard, we state that in CA(IB) No.937/KB/2018 connected with CP(IB) No.595/KB/2017 in the case of Allahabad Bank Vs. SPS Steels Rolling Mills Limited NCLT Bench Kolkata legal process / aspects involved in consideration of such those applications. The findings of the bench in that order in para 8 to 13 are reproduced as under:
8. We have considered the submissions made by Ld. Counsel for the Resolution Professional and Ld. Sr. Counsel for the erstwhile Director of Corporate Debtor and material on record. At the first instance, we prefer to deal with the legal aspects associated with these issues. First stage in regard to nature of transactions mentioned in Sections 43, 45, 50 and 66 starts with forming of opinion by the Resolution Professional that the Corporate Debtor has been. subjected to any transaction covered in these sections. This is required by virtue of Regulation 35A of the CIRP Regulations, 2016. As per this regulation, this is to be done on or before 75th day of Insolvency commencement date. After such opinion is formed, Resolution Professional is required to make a determination on or before 115th day that the Corporate Debtor has been subjected to any to be transactions covered in these sections. An intimation to the IBBI is also given. 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 finalization/ 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 Resolution Professional has not formed any opinion and determined, the Liquidator can do so and also Liquidator can continue with the actions so taken by the Resolution Professional under Section 43 of the IBC, 2016. However, in our considered view, for doing so Liquidator would also have to form his independent opinion in spite of the fact that Resolution Professional had formed an opinion earlier. As per Section 45(1) of IBC, 2016, the Resolution Professional or the Liquidator is to determine under-valued transactions as specified in Section 45(2) of the Code. As per Section 50, Liquidator or the Resolution Professional, as the case may be, is required to make an application for avoidance of transaction of the nature of extortionate credit transaction the Corporate Debtor had been subjected to. As per Section 66(1) of the IBC, 2016, if during the course of corporate insolvency process or a liquidation process, it is found that any business of the Corporate Debtor has been carried on with the intent to defraud creditors of the Corporate Debtor or for any fraudulent purpose, Adjudicating Authority, on an application made in this regard, direct the persons. who were a party to such transactions to make such contribution to the assets of the Corporate Debtor as it may deem fit.
10. Thus, on conjoint reading of substantive provisions of IBC, 2016 and regulations made thereunder, the role and responsibility of Resolution Professional or Liquidator become crystal clear and non-compliance of such requirements would result into adverse inference.
11. We further consider it pertinent to observe that the assistance of expert agencies can be taken for determination of preferential, invalid or fraudulent transactions, but in spite of that, independent opinion of Resolution Professional / Liquidator remains a must, meaning thereby, irrespective of the exercise done by the expert agency, the Resolution Professional should independently form a belief / opinion that such transactions, in fact, existed which require appropriate order from this Authority.!
12. Further, even transaction has got it own specific nature and different kind of obligations are being case upon, Resolution Professional or a Liquidator or Adjudicating Authority. Thus, a general yardstick or view cannot be applied as a whole to avoidable transactions of different nature as mentioned in different sections. 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 situation of fraudulent trading, normally no assets of this magnitude exist in the name of Corporate Debtor
# 18. We, further find that the Hon'ble Supreme Court in Civil Appeal Nos. 8512-8527 of 2019 in the case of Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited Vs. Axis Bank Limited also dealt with the scope and nature of these provisions as well as role and responsibility of RP and mechanism to be adopted in the implementation of these provisions by the Resolution. Resolution Professional. The relevant findings. of the Hon'ble Supreme Court are reproduced hereunder: ་
28.1.Looking to the legal fictions created by Section 43 and looking to the duties and responsibilities per Section 25, in our view, for the purpose of application of Section 43 of the Code in any insolvency resolution process, what a resolution professional is ordinarily required to do could be illustrated as follows:
1. In the first place, the resolution professional shall have to take two major but distinct steps. One shall be of sifting through the entire cargo of transactions relating to the property or an interest thereof of the corporate debtor backwards from the date of commencement of insolvency and up to the preceding two years. The other distinct step shall be of identifying the persons involved in such transactions and of putting them in two categories; one being of the persons who fall within the definition of 'related party' in terms of Section 5(24) of the Code and another of the remaining persons.
2. In the next step, the resolution professional ought to identify as to in which of the said transactions of preceding two years, the beneficiary is a related party of the corporate debtor and in which the beneficiary is not a related party. It would lead to bifurcation of the identified transactions into two sub-sets: One concerning related party/parties and other concerning unrelated party/parties with each sub-set requiring different analysis. The sub-set concerning unrelated party/parties shall further be trimmed to include only the transactions of preceding one year from the date of commencement of insolvency.
3. Having thus obtained two sub-sets of transactions to scan, the steps thereafter would be to examine every transaction in each of these sub- sets to find: (i) as to whether the transaction is of transfer of property or an interest thereof of the corporate debtor; and (ii) as to whether the beneficiary involved in the transaction stands in the capacity of creditor or surety or guarantor qua the corporate debtor. These steps shall lead to shortlisting of such transactions which carry the potential of being preferential.
4. In the next step, the said shortlisted transactions would be scrutinised to find if the transfer in question is made for or on account of an antecedent financial debt or operational debt or other liability owed by the corporate debtor. The transactions which are so found would be answering to clause (a) of sub-section (2) of Section 43. 5. In yet further step, such of the scanned and scrutinised transactions that are found covered by clause (a) of sub-section (2) of Section 43 shall have to be examined on another touchstone as to whether the transfer in question has the effect of putting such creditor or surety or guarantor in a beneficial position than it would have been in the event of distribution of assets per Section 53 of the Code. If answer to this question is in the affirmative, the transaction under examination shall be deemed to be of preference within a relevant time, provided it does not fall within the exclusion provided by sub-section (3) of Section 43.
6. In the next and equally necessary step, the transaction which otherwise is to be of deemed preference, will have to pass through another filtration to find if it does not answer to either of the clauses (a) and (b) of sub-section (3) of Section 43.
7. After the resolution professional has carried out the aforesaid volumetric as also gravimetric analysis of the transactions on the defined coordinates, he shall be required to apply to the Adjudicating Authority for necessary order/s in relation to the transaction/s that had passed through all the positive tests of sub-section (4) and sub- section (2) as also negative test of sub-section (3).
28.2. On a motion made by the resolution professional after and in terms of the exercise aforesaid, the Adjudicating Authority, in its turn, shall have to examine if the referred transaction answers to all the descriptions noted above and shall then decide as to what order is required to be passed, for avoidance of the impugned transaction or otherwise.
28.3. In our view, looking to the legal fictions created by Section 43 and looking to the duties and responsibilities of the resolution professional and the Adjudicating Authority, ordinarily an adherence to the process illustrated hereinabove shall ensure reasonable clarity and less confusion; and would aid in optimum utilization of time in any insolvency resolution process. Other aspects of the application made by IRP allegations of transactions being undervalued and fraudulent
29. Having found that the transactions in question cannot be countenanced, for being of preference during a relevant time to a related party; and having approved the order passed by NCLT in that regard, we do not consider it necessary to deal with the other length of arguments advanced by the learned counsel for parties on the questions as to whether the transactions are undervalued and/or fraudulent too. In the totality of circumstances, we would prefer leaving the said questions at that only, while also leaving all the related questions of law open; to be examined in an appropriate case. 29.1. However, we are impelled to make one comment as regards the application made by IRP. It is noticed that in the present case, the IRP moved one composite application. purportedly under Sections 43, 45 and 66 of the Code while alleging that the transactions in question were preferential as also undervalued and fraudulent. In our view, in the scheme of the Code, the parameters and the requisite enquiries as also the consequences in relation to these aspects are different and · provisions. As noticed, the Such difference is explicit in the related question of intent is not involved in Section 43 and by virtue of legal fiction, upon existence of the given ingredients, a transaction is deemed to be of giving preference at a relevant time. However, whether a transaction is undervalued requires a different enquiry as per Sections 45 and 46 of the Code and significantly, such application can also be made by the creditor under Section 47 of the Code. The consequences of undervaluation are contained in Sections 48 and 49. Per Section 49, if the undervalued transaction is referable to sub-section (2) of Section 45, the Adjudicating Authority may look at the intent to examine if such undervaluation was to defraud the creditors. On the other hand, the provisions of Section 66 related to fraudulent trading and wrongful trading entail the liabilities on the persons responsible therefor. We are not elaborating on all these aspects for being not necessary as the transactions in question are already held preferential and hence, the order for their avoidance is required to be approved; but it appears expedient to observe that the arena and scope of the requisite enquiries, to find if the transaction is undervalued or is intended to defraud the creditors or had been of wrongful/fraudulent trading are entirely different. Specific material facts are required to be pleaded if a transaction is sought to be brought under the mischief sought to be remedied by Sections 45/46/47 or Section 66 of the Code. As noticed, the scope of enquiry in relation to the questions as to whether a transaction is of giving preference at a relevant time, is entirely different. Hence, it would be expected of any resolution professional to keep such requirements in view while making a motion to the Adjudicating Authority.
29.2. In the present case, it is noticed that 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. and CLT in its detailed
29.3. We are conscious of the fact that IBC is comparatively a new legislation and various aspects expected therein are in the progression of taking proper shape, particularly in the adjudicatory processes envisaged. Having said so, we would leave this aspect at that only, while expecting all the concerned to be more attentive to the scheme, object and requirements of the provisions contained in the Code.
# 19. Now, having understood broad scheme relating to this type of transactions, we come to the facts of the case. It is noted from the heading or subject heading of the application were lefts itself which has been reproduced as such it is noted that in the present case Resolution Professional has not identified any transaction nor formed any opinion before the conduct of forensic audit by the external expert agency. In- fact, in the present case, it is surprising to note that the CoC fearing syphoning of funds has itself appointed the forensic auditor. Thus, this is a clear breach of the mandate of such provisions. Thus, this ground is sufficient itself to dismiss this application. It is for the reason that in such proceedings discharge of burden and arising at the conclusion is a pre-requisite. Apart from this flaw, it is also noted that response of the management has not been sought on the report before finalization / determination of potential diversion and syphoning of funds. It is also that in the present case, transactions with related parties and foreign parties have also been mentioned in the forensic audit report which in our opinion reflects negatively on the approach of the bank because in respect of foreign currency transactions, whether inward or outward, banks act as authorized dealer and in-fact they have been given sufficient powers to scrutinized the transaction so that compliances to RBI direction / FEMA Regulations are done. We are further of the view that when borrowing institution grant credit facilities, they devise a mechanic so as to prevent the misuse of funds or syphoning of funds by the concerned borrowers. In-fact in the report, no comments/ views have been obtained by the forensic auditor from such banks. Thus, for these reasons also, not much reliance can be placed on such forensic audit report.
# 20. When we look at the scope of works approach and execution summary and limitation expressed by the forensic auditor, the report itself becomes a piece of documents where more disclaimers exist then actual observations. Even the conclusions and observations are not definite to the extent of desirability so that the Respondents could be called upon to contribute or repay any undue advantage gained by them or return the assets. The observations are vague and inconclusive that we can pass order to annul the transaction or recover the money. We have already reproduced the significant portion of the forensic report as such to show the reasons for the conclusion arrived by us.
# 21. As regard to issue of show-cause notice issued by Excise Department, it has been contended that the proceedings initiated thereby have suitably been resolved under Vivad Se Vishwas Scheme. As regard to non-maintenance of time-line for completion of forensic audit and submissions of application, it has been argued vehemently on behalf of Respondent no.1 and Respondent no.2 that Resolution Professional did not maintain time-line of 135 days as such audit was completed in 300 days and application was made thereafter. Further, alleged documentary evidence has resulted into a general / vague report. Thirdly, such report was also not circulated. These submissions, in our view, have merits and support the claim of Respondent that for this reason, report was liable to be rejected consequently application was to be dismissed. Another contention that has bene taken on behalf of Respondent that audit report has exceeded the look back period both in case of transactions with related parties as well as non-related party, hence, such transactions were also to be ignored. In addition to this, we also find substantial merit in the contentions of the Respondent no.1 & 2 that in the absence of documentary evidence / records, leave apart who should bear the responsibility of that, the evidentiary value of such report as well legal significance of such observations becomes practically made out particularly when result is going to be of significant nature. The report, accordingly, appears to be without any basis.
# 22. We find that the transactions relating to excise assessment proceedings, it has been submitted that such proceedings had been settled and claims of the Corporate Debtor have been accepted by the department as made by the Corporate Debtor in Vivad Se Vishwas Scheme, hence, one of the primary reasons / substantial allegations gets diluted to large extent. Apart from this, we have already seen that forensic audit report is more or less in the nature of internal audit report or merely a financial transactions analysis report in accounting sense and not appears to be in the manner and format of forensic audit report by applying various techniques which are commonly available to identify complete trail of particular transaction, and of the motives along with aspect of illegality attached thereto. These aspects are clearly absent in the present case in all transactions forming part of forensic report including dispute with the excise department.. \
# 23. We also find substantial merit in the contention of the Learned Senior Counsel, which is based upon the decision of the Hon'ble Delhi High Court in the case of M/s Venus Recruiters v. Union of India (Supra), that after the approval of the resolution plan, Resolution Professional has no locus to maintain application filed under Section 43 r.w 66 of IBC, 2016. In this regard, we also hold that after the approval of the resolution plan, the role of CoC and Resolution Professional gets limited to the implementation of resolution as well as plan and, in fact, both CoC Resolution Professional become functus-officio as soon as CIRP gets over with the approval of resolution plan by Adjudicating Authority, and they become responsible for implementation of the approved resolution plan. We also hold that for pursuing action under Section 43 of the IBC, 2016, in such a situation it is the successful resolution Applicant who can maintain the application or if resolution plan provides otherwise then the same mechanism can be adopted. In the resolution Applicant has present successful case, categorically stated that it is not interested in pursuing with this application. There is no other mechanism in the resolution plan. Thus, for this reason also, this application is liable to be dismissed.
# 24, In view of the above facts and applicable legal position, we hold that it is not a fit case to pass an order against Respondents herein. Accordingly, IA 618 of 2019 stands dismissed and disposed-off in terms indicated above.
# 25. Urgent certified copy of this order, if applied for, to be issued to all concerned parties upon compliance with all requisite documents.
3 26. Accordingly, the present I.A. No. 618 of 2019 in CP(IB) 189 of 2018 stands disposed of.
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