Transactions must be substantiated with evidence of wrongdoing to be established as preferential, undervalued, or fraudulent under IBC.

JUDGMENT

1. This application is filed under Sections 60 (5), 43, 45 and 49 of the IBC, 2016. The applicant is the liquidator of M/s. Silver Proteins Pvt. Ltd. situated in Gujarat. The Corporate Insolvency Resolution Process (CIRP) was initiated against M/s. Silver Proteins Pvt. Ltd. on an application filed by the financial creditor i.e. Central Bank of India, from 29.06.2020 in CP (IB) 554 of 2018. Liquidation order was passed on 27.01.2021.

2. The brief facts of the case are that on verification of books of account (Tally Data) and other documents, it was observed by the auditor that the company had made payment of Rs.89.77 lakhs in the name of repayment of unsecured loans to directors/related parties two years prior to CIRP. It was also found that unsecured loans outstanding from 2014-15 were repaid during 2018-19. So there are probable chances that these are preferential transactions as per Section 43 of IBC. The applicant also stated other preferential transactions with associate company M/s.Mahendra Oil Cake Industries Limited. By passing general entries in the name of rent, the corporate debtor credited Rs.56.70 lakhs and outflow fund of Rs.24.42 lakhs. The applicant also stated that there is related party transaction of corporate debtor with proprietorship firm of director Mr. Himanshu J Domadia i.e. Silver Proteins Pvt. Ltd, it was total debit of Rs.303.75 lakhs and total credit was Rs.236.44 lakhs. Some discrepancies were also found in the record. The company has also made payment to directors in the name of remuneration amounting to Rs.54.91 lakhs during F.Y.2013-14 to 2018-19 though the corporate debtor was suffering losses.

3. The applicant also stated that some undervalued transactions covered under Section 45 of the Code. According to applicant, there was huge decline of Rs.2463.66 lakhs in the closing inventory during F.Y. 2014-15. The ratio of stock to sales was fluctuating every year. The reason given for decline is cancellation of contract by one China Company. The stock was sold at very low rate i.e.Rs.100 to Rs.128 per ton, instead of Rs.10,000 per ton. There is no documentary evidence to show the valuation. Therefore, auditor is forced to believe that the sale of stocks is done for consideration less than market value. The company has not implemented any standard pricing policy and the rates have been changed from customer to customer. According to applicant, all these are undervalued transactions covered under of the Code. It is also alleged that the company had realized from debtors an amount of Rs.5600.27 lakhs. No documents in this regard were provided. Therefore, applicant and auditor are forced to believe that hiding of information is done with ulterior motive to defraud the creditors and are comes under scanner of Section 49 of the IBC. The corporate debtor had also written off balance of the debt amounting to Rs.10.82 lakhs without any reason. On the observation of report, clarification was sought from suspended management but it was not given. Hence, prayed for directing respondents to appropriate all these sums in the account of the corporate debtor maintained by the applicant.

4. The respondents, by filing reply, denied all the allegations leveled against them. The respondents contended that as per Regulation 35A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the Resolution Professional/Liquidator has to form an opinion whether transactions are covered under Section 43 , 45 and 49 of the IBC, 2016 of the Code, then to take a decision to file application. No such opinion was formulated by the liquidator nor any determination has been made. Only the Stakeholders Consultation Committee resolved to move an applicat