Mr.Kamalesh Kumar Singhania vs NRS Steel Traders LLP
IA No.42/2020 in CP(IB) No.326/7/HDB/2018
Facts:
1.Company Petition No.326/7/HDB/2018 was filed by the Bank of India under Section 7 of the Code for initiating Corporate Insolvency Resolution Process against the corporate debtor, which was allowed on 28.11.2018. In the absence of Resolution Plan, liquidation was ordered and the applicant was appointed as Liquidator by the order dated 23.08.2019.
2.In the transaction/forensic audit report, it was found that the corporate debtor has sold two flats in Kolkata and one flat in Mumbai. The flats in Kolkata were sold to the related party, i.e., respondent-No.1 and the flat in Mumbai was sold to the respondent No.2. The two flats in Kolkata were sold to respondent No.1 on 23.08.2018 for Rs.59,02,340/- which is far less than the fair value of the two properties, i.e., Rs.76,15,000/- as per the valuation report. The respondent No.1 is also a related party as one of its erstwhile partners, Mr.Ashok Jain along with Mr.Om Sharma had acquired 100% stake of M/s.SKK Fans and Appliances Private Limited, which is a related party of the corporate debtor.
3.The flat in Mumbai was sold to respondent No.2 for a sale value of Rs.2,21,39,320/-, whereas the fair market value of the said flat is Rs.2,30,00,000/- as per the valuation report.
4.Application is filed to declare the above transactions as illegal.
Issue: Whether the application can be allowed?
Submissions:
Respondent:
1.Counsel has admitted about selling of the flats in Kolkata, but submitted that this transaction was carried out in the ordinary course of business and further denied that the respondent No.1 is a related party of the corporate debtor. However, it is submitted that the applicant has not filed the present application as per Regulation 35A of the Corporate Insolvency Resolution Process Regulation.
2.It is claimed that the transaction with the respondent No.1 does not fall under Section 43 because the replying respondent is neither a creditor nor any kind of debt holder or beneficiary or any preference holder as required under Section 43(2) of the IBC. The replying respondent No.1 is bonafide purchaser of the flats in Kolkata. The respondent No.1 has not any interest over distribution of the assets under Section 53 of IBC.
3.It was submitted that transactions in question has also not been undervalued as the flats were sold at a much higher rate than the book value and the market value of Rs.54,39,800/- as determined by the valuer in its report. Similarly, the transaction with the respondent No.1 also does not fall under Section 49 as the applicant has miserably failed to prove this fact. It is submitted that the respondent No.1 is neither a debtor nor security holder. The transaction of sale of flats in Kolkata is genuine one.
Decision: NCLT allowed the application
Rationale:
1.NCLT noted that CIRP was initiated against the corporate debtor on 28.11.2018 and the present IA has been filed on 27.11.2019. The applicant came to know about the avoidable transactions after the transaction audit report was verified from 01.04.2018 to 28.11.2018. It has not been mentioned either in the application or in the report as when the applicant came to know about such transaction. This is to be proved by the applicant. On the face of record, it is clear that the present application has not been filed within 135 days after coming to know about the avoidable transactions.
2.It held that Regulation No.35 A is directory and not mandatory. There is no provision as what will happen in case there is violation of this provision and adherence to the timeline is only directory, therefore the present application can’t be dismissed on this ground.
3.It held that the transactions have to be examined. In case of Kolkata, the flats were sold on 23.08.2018 and flat in Mumbai was sold on 19.06.2018. The application under Section 7 of the IBC was admitted on 28.11.2018 and the present application has been filed on 27.11.2019, thus, both the transactions were within the look back period, irrespective of the fact whether they are related party or not.
4.It also noted that In case of transaction of selling flats in Kolkata, the beneficiary does not fall within the definition of creditor or surety or guarantor, but still this transaction can be covered under Section 43 of the IBC if the ultimate sufferer of such transaction would be the creditors as it will reduce the value of the assets to be distributed under Section 53 of IBC. In case of the respondent No.2, the sale of flat in Mumbai, certain creditors of the parent company would also be favoured in the distribution of assets as per waterfall mechanism laid down in Section 53 of IBC.
5.It held that both the flats in Kolkata are undervalued and this is also indirectly admitted by the respondent No.1 in para No.16 of the counter filed by him. It is mentioned that in Kolkata, generally the property fetches minimum 18% to 20% less than the card value/municipal rate, but the stamp duty is always paid on the municipal value of the property. But there is no corresponding evidence to support this view.
6.It held that undervaluation transaction is condition precedent for filing application under Section 49, but there is distinction between Section 45 and Section 49 as both deal with avoidance transactions. The main distinction is that Section 49 is concerned with undervalued transactions carried out with malafide or unlawful purpose and no such element is required under section 45. Likewise, Section 45 has a look back period, but section 49 does not, because once fraud is committed, it is committed forever.
Order Copy:
