Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2024 Supreme(Online)(NCLT) 1679

NATIONAL COMPANY LAW TRIBUNAL
Hon’ble (Retd.) T. Krishnavalli, Member (Judicial), Hon’ble Shri Manoj Kumar Dubey, Member (Technical)
Ms. Shirley Mathew Resolution Professional of Maylari Agro Products Limited – Appellant
Versus
Shri. Mahesh Former Director of Maylari Agro Products Limited – Respondent
IA No. 89 of 2022 in C.P. (IB)No.02/BB/2020

Advocates:
For the Applicant : Ms. Aishwarya Prasad
For the Respondent: None

The Resolution Professional failed to demonstrate claims of undervalued or fraudulent transactions due to insufficient evidence and lack of intent to defraud under the Insolvency and Bankruptcy Code.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 43, 45, 66(1), 66(2), and 60(5) - Resolution Professional filed an application to direct former directors to repay funds due to preferential and undervalued transactions. The Tribunal found insufficient evidence to classify transactions as undervalued or fraudulent; thus, dismissing claims against the directors. (Paras 1, 12, 21)

(B) The adjudication focused on whether transactions conducted under corporate insolvency were preferential, undervalued, or fraudulent, emphasizing the lack of intent to defraud. (Paras 14-20)

Facts of the case:
The Corporate Debtor's insolvency proceedings began on 8/3/2021. Transactions scrutinized involved significant payments to related parties without evidence of normal business operations.

Findings of Court:
The Tribunal concluded that financial mismanagement was apparent, but the evidence did not substantiate the claims made by the Resolution Professional under the relevant sections of the Code.

Issues: The key issues addressed concerns whether transactions were preferential or undervalued and if fraudulent intent was present.

Ratio Decidendi: The Tribunal ruled that the Resolution Professional’s claims lacked sufficient evidentiary support to prove transactions were preferential or undervalued, and that intent to defraud credit was not established.

Result: IA No. 89 of 2022 dismissed.

Table of Content
1. application filed under ibc for claim against former directors. (Para 1 , 2 , 3)
2. insufficient evidence to prove fraudulent intent. (Para 4 , 12 , 13 , 14 , 19)
3. discussion on potential preferential and undervalued transactions. (Para 8 , 9 , 10 , 11)
4. court's ruling on fraudulent and undervalued transactions. (Para 15 , 16)
5. final decision to dismiss the application. (Para 20 , 21)

ORDER

Per: BENCH

1. The present Application is filed on 11/03/2022 by the Resolution Professional of Maylari Agro Products Limited (hereinafter referred to as “Corporate Debtor”) under section 43, 45 read with section 66(1) and 60 (5) of the IBC, 2016, interalia praying that this Tribunal my direct:

i. An order in terms of Section 44(1)(d) of the Code, directing the Respondent Nos 1 & 2 to pay a sum of Rs 1,61,93,400/- in respect of the benefits received by them.

ii. An order in terms of Section 44(1)(d) of the Code, directing the Respondent Nos 3 to pay a sum of Rs 25,000/- in respect of the benefits received by them.

iii. An order in terms of Section 44(1)(d) of the Code, directing the Respondent Nos 4 to pay a sum of Rs 52,000/- in respect of the benefits received by them.

iv. An order in terms of Section 45 (1) of the Code, directing the Respondent Nos 1 & 2 to pay a sum Rs 1,72,36,070/- to the resolution professional to reverse the effect of the undervalued transactions.

OR IN THE ALTERNATIVE

v. An order in terms if Section 66 (1) and (2) of the Insolvency and Bankruptcy Code, 2016 directing the Respondnet Nos.1 and 2 to pay a sum of Rs 1,72,36,070/- to the Resolutions Professional as contribution to the asset s of the Corporate Debtor;

vi. Pass an order in terms of Section 66 (1) and (2) of the Insolvency and Bankruptcy Code, 2016 directing the Respondent Nos.1 and 2 to pay a sum of Rs 25,07,37,972/- to the Resolution Professional as contribution to the assets of the Corporate Debtor.

2. The facts of the case are mentioned below:

a) The Corporate Insolvency Resolution Process of the Corporate Debtor commenced on 08/03/2021 vide the order of this Hon’ble Tribunal dated 08/03/2021 in C.P (IB) No. 02/BB/2020, filed under Section 9 of the Code and Shri S. Vishwanath was appointed as the IRP. Further, by way of Order dated 30/11/2021, this Hon’ble Tribunal allowed I.A No. 276/2021 filed by the Canara Bank and accordingly directed IRP (Shri S. Vishwanathan) be replaced, with Ms Shirley Mathew as the Resolution Professional.

b) The Committee of Creditors of the Corporate Debtor held on 21/02/2021 resolved to appoint M/s Pipara & Co. LLP for conducting the Transaction Audit of the Corporate Debtor for the period from 09/03/3019 to 08/03/2021. The transaction auditors duly carried out the transaction audit of the Corporate Debtor and submitted their final report on 08/03/2022. The main findings arrived at in the Transaction Audit Report are as follows:

PREFERENTIAL TRANSACTIONS

The Corporate Debtor has given a preference to related parties in transactions amounting to Rs. 1,64,25,400/-, during the relevant period as follows:

i. Maylari Agro Products is a related party of the Corporate Debtor, controlled by the Respondent Nos.1 & 2, that had advanced a loan of Rs 1,20,59,100/- to the Corporate Debtor. Transactions that were in the nature of payments by way of cash and bank transfers, adjustment of amounts owed by other debtors of the Corporate Debtor and sales transactions, totally amounting to Rs 85,84,998/- were made by the Corporate Debtor in favour of Maylari Agro Products during the period of 2 years preceding the insolvency commencement date.

ii. The Respondent No.1 is a related party of the Corporate Debtor and the following transactions carried out by the Corporate Debtor with the Respondent No.1 during the period of 2 years preceding the insolvency commencement date:

a. The Corporate Debtor paid an amount of Rs 30,80,930/- to the Respondent No.1 towards repayment of an unsecured loan advanced by the Respondent No.1 to the Corporate Deb

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