Bhrugesh Amin vs Mr. Kesharmal Nensukhlal Gandhi & Ors.
IA-1074/2023 IN C.P.(IB)-68/(MB)/2021
Facts:
1. Corporate Insolvency Resolution Process (CIRP) was filed by Beacon Trusteeship Limited in the matter of Corporate Debtor i.e. Modella Textile Industries Limited vide order dated 04 May 2022 and Bhrugesh Amin was appointed as the Interim Resolution Professional.
2. During the course of CIRP, transaction auditor viz. Nangia & Co LLP was appointed to undertake the transaction audit of the books of the Corporate Debtor for the period from 05 May 2020 to 04 May 2022. The Transaction auditors have filed their Transaction Audit Report dated 10 March 2023 which provides sufficient reasons to believe that the Respondents has undertaken certain preferential transactions with an intent to defraud the creditors which are covered under the provisions of Section 43 of the Code.
3. Application is filed under Section 43 of the Code for the above transactions.
Issue: Whether the application can be admitted ?
Arguments:
Applicant:
1. Counsel relying on the provisions of Section 43 of the Code and case of Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited Vs. Axis Bank Limited & Ors. Civil Appeal Nos.8512-8527 of 2019 submitted that transaction clearly falls within the provisions of section 43 of the Code and the same ought to be held as such in terms of provisions of section 44 of the Code.
2. Counsel submitted that as per the books of account of the Corporate Debtor, M/s Guju Ads had an opening credit balance of Rs.76,70,000/- as on 05 May 2020. The above amount was adjusted by the Respondents transferring the same in to the account of Nirmal Developers, thereby reducing the balance payable to M/s Guju Ads and increasing the balance payable to Nirmal Developers. Counsel further submitted that management has not provided any explanations as to the reason for conducting the transactions through a separate entity and the purpose of the transactions.
3. Counsel submitted that in case if the above adjustment had not been made then NLDPL would have a credit balance of Rs.5,03,000/- in the Books of Account of the Corporate Debtor and would have been paid as per the Order of Priority stated in Section 53 of the Code.
4. Counsel informed the bench about various transaction and various adjustment done through the transaction of which no proper explanation was submitted.
Decision: NCLT partly allowed the application.
Rationale:
1. It held that balance of one creditor has been transferred to another creditor, who is a related party. This transfer does not result into any priority being given to such creditor, as it rather result into consolidation of two creditors in one single creditor, having no impact in distribution of liquidation estate in terms of Section 53 of the Code, as far as Creditors other than such creditors are concerned. Hence, it can not be said that such creditor has been placed in a beneficial position than it would have been in the event of a distribution of assets being made in accordance with section 53.
2. It also held that in case where the related party had the debit balance and debit balance of other party has been transferred to it, it also result into consolidation of receivable, having no bearing, whatsoever, on the priority u/s 53 of the Code. Hence, the provisions of Section 43 can not be invoked. Further, a debit balance does not constitute antecedent debt.
Order:
