NCLT Ahmedabad Directs Promoters To Deposit Rs. 7.78 Crores With Corporate Debtor Based On Forensic Audit Report

The Resolution Professional had filed an application under Section 43 of IBC based on a forensic audit report, seeking reversal of amounts to the Corporate Debtor, in view of preferential transactions undertaken by the Promoters/Suspended Management with a related party.

Background Facts

On 08.09.2021, Sysco Industries Ltd. (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT.

When forensic audit of the Corporate Debtor was conducted, the Transaction Audit Report prepared by the Auditor pointed out suspicious transactions conducted by the Suspended Management of the Corporate Debtor. Mr. Bharatbhushan (Respondent No. 3) belongs to the Suspended Management and owns a HUF Firm named M/s Pratap Associates. The Transaction Audit Report has highlighted that there is an outstanding of Rs.7,78,31,555/- from M/s Pratap Associates in the books of Corporate Debtor for year ending 31.03.2019. No amounts were received from M/s Pratap Associates after 31.03.2019.

Section 43 of IBC provides for avoidance of preferential transaction undertaken by Promoters/Suspended Management of Corporate Debtor during or prior to commencement of CIRP. The NCLT is empowered to direct the Promoters/Suspended Management to reverse the amount of such transactions to the Corporate Debtor.

The Resolution Professional filed an application before the NCLT under Section 43 of IBC, seeking direction to Promoters/Suspended Management (Respondents) to contribute Rs. 7,78,31,555/- being outstanding towards related party.

The Suspended Management submitted that the Corporate Debtor had business transactions with M/s Pratap Associates since 2015. The Corporate Debtor used to supply Jari to M/s Pratap Associates which was further processed at the works of the latter. Due to financial difficulties M/s Pratap Associates could not pay the outstanding amount to the Corporate Debtor.

In the meanwhile, a resolution plan for the Corporate Debtor was approved by the Committee of Creditors (CoC) and subsequently by the NCLT on 01.07.2022.

NCLT Verdict

The Bench observed that the Suspended Management neither denied the outstanding of Rs. 7.78 Crores and nor denied that M/s Pratap Associates is his HUF which is related party.

On a perusal of Section 43 of IBC, the Bench noted that the definition of ‘property’ would include goods, as supplied by the Corporate Debtor to M/s Pratap Associates.

“It is common practice that before commencement of insolvency, the assets of the corporate debtor are stripped many a times by the management. The suspended management conceals the data from the RP during the CIRP process”, the Bench observed.

It was held that the transactions done with M/s Pratap Associates are hit by Section 43 of IBC. Accordingly, the Bench directed the Promoters/Suspended Management (Respondents) to deposit of Rs. 7.78 Crores with the Corporate Debtor, who in turn should distribute the same to the erstwhile members of COC immediately in their respective share.

Case Title: State Bank of India & Ors. v Sidharth Bharatbhushan Jain & Ors.

Case No.: CP(IB) 62 of 2021

Counsel for Applicant: Mr. Pratik Thakkar, Advocate a/w Mr. Jaimin Dave, Advocate

Counsel for Respondent: Mr. Mohit Gupta, Advocate

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