Adriatic Sea Foods Pvt. Ltd vs Mr. Suresh Kumar Jain

(Arising out of Order dated 04.10.2021 passed by National Company Law Tribunal, New Delhi (Court No. IV) in I.A. No. 3175 of 2020 in (IB)- 1731/(ND)/2019.

IN THE MATTER OF:

M/s. Adriatic Sea Foods Pvt. Ltd. A company incorporated under the Companies Act, 1956. Having registered office at 87, Sant Savta Marg, Mustafa Bazar, ...Appellant Mumbai - 400010

Versus

Suresh Kumar Jain, Appointed as Resolution Professional Having office situated at B-1/12, 2nd Floor, Safdurjung Enclave, New Delhi - 110029 ...Respondent

Appellant: Mr. Salim A. Inamdar, Mr. Akhil Kumar Gola, Mr. Sanat Tokas, Mr. Modassir Husain Khan, Mr. Vedanta Varma, Advocates. Respondent: Mr. Anoop Prakash Awasthi, Advocate with Mr. Suresh Kumar Jain, RP in person.

JUDGEMENT

Ashok Bhushan, J:

1. This Appeal has been filed against the Order dated 04.10.2021 passed

by the Adjudicating Authority (National Company Law Tribunal, New Delhi,

Court No. IV) in I.A. No. 3175 of 2020 in (IB)-1731/(ND)/2019 filed by the

Resolution Professional-Respondent. The Adjudicating Authority vide an

Order dated 19.09.2019 admitted the Application under Section 7 of the

Insolvency and Bankruptcy Code, 2016 to initiate the Corporate Insolvency -2-

Resolution Process (CIRP in short) against the Corporate Debtor-"M/s. MK

Overseas Private Limited". One of the assets of the Corporate Debtor was

Plant at Plot M-6, Taloja Industrial Area, Village Pale Khurd, Taluka Panvel,

Distt Rajagd, Maharashtra. The plant was mortgaged to Yes Bank for

availing Credit Facilities. Yes Bank on 01st August, 2019 had granted a

conditional No Objection Certificate (NOC in short) to the Corporate Debtor

for sale of the said property for at least Rs. 17.86 Crore. By a Resolution

passed by the Board of Directors of the Corporate Debtor dated 15th April,

2019, a decision was taken by the Corporate Debtor to sell the plant located

at Taloja Industrial Area, Village Pale Khurd, Taluka Panvel, Distt Rajagd,

Maharashtra. There were several transactions made by the Corporate Debtor

within the relevant period which came to be examined under the Transaction

Audit conducted by Transactional Auditor after initiation of Insolvency

Resolution Process. Transactional Auditor submitted a Report dated 02nd

July, 2020 where reference of several preferential and undervalued

transactions was enumerated. The Resolution Professional filed an

Application being I.A. No. 3175 of 2020 praying for reversing the preferential

transactions, undervalued transactions and vesting into the assets of the

Corporate Debtor. In the Application, details of various transactions

including the sale of Plot M-6, Taloja Industrial Area, Village Pale Khurd,

Taluka Panvel, Distt Rajagd, Maharashtra was also mentioned. In the

Application, notices were issued to Suspended Board of Directors namely

Mohd. Shakeel Ahmed, Mohd, Kamil and Mohd Nasira Begum. The

Application was opposed by the Suspended Directors of the Corporate

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Debtor. The Adjudicating Authority after hearing the parties and after relying

on the Transaction Audit Report passed an Order for cancelling the sale of

Plot M-6, Taloja Industrial Area, Village Pale Khurd, Taluka Panvel, Distt

Rajagd, Maharashtra and directing the possession of the said Plant to be

handed over to the Resolution Professional.

2. The Appellant aggrieved by the above Impugned Order of the

Adjudicating Authority dated 04.10.2021 has filed this Appeal. We have

heard Shri Salim A. Inamdar, Learned Counsel for the Appellant and Shri

Anoop Prakash Awasthi, Learned Counsel for Respondent-Resolution

Professional.

3. Learned Counsel for the Appellant made very precise and concise

submissions attacking the Order of the Adjudicating Authority. Learned

Counsel for the Appellant submits that Appellant had obtained possession of

the above said plant by a Registered Agreement for Assignment cum

Transfer of Lease cum Sale dated 05th August, 2019 which registered

document could not have been cancelled by the Adjudicating Authority by

the Impugned Order. It is submitted that the Adjudicating Authority violated

the principles of natural justice in not hearing the Appellant who was

affected party by the said Impugned Order. It is submitted that the Appellant

has already filed an Application seeking various directions from the

Adjudicating Authority being Application I.A. No. 699 of 2020 in CP(IB) No.

1731 of 2019 where prayer was made to restrain the Resolution Professional

from taking control of the Property which Application is pending. Further the

Application bearing I.A. No. 1304 of 2020 filed by the Resolution Professional

Company Appeal (AT) (Insolvency) No. 1057 of 2021 -4-

under Section 25 read with Section 60(5) of the Code seeking direction and

declaring Agreement for Assignment cum Transfer of Lease cum Sale null

and void is also pending. I.A. No. 3175 of 2020 filed under Section 43 and

45 of the Code has been decided by the Impugned Order. It is submitted that

Appellant is bona fide purchaser who could not have been deprived

possession of the property validly obtained.

4. Learned Counsel for the Resolution Professional refuting the

submissions of the Learned Counsel for the Appellant contends that claim of

the Appellant is a fraudulent claim. Board Resolution dated 15th April, 2019

of the Corporate Debtor which was passed with the signatures of Mohd.

Nasira Begum and Mohd. Kamil for executing the sale of said Taloja

Industrial Area was passed by Directors who were no more the directors of

the Corporate Debtor. Mohd Nasira Begam ceased to be director of the

Corporate Debtor with effect from 12.09.2018 whereas Mohd Kamil ceased

to be director of the Corporate Debtor on 12.09.2018 and both of them

claimed to have passed the Board Resolution dated 15th April, 2019 which

Resolution was itself void and inoperative and all actions taken in pursuance

of the said Board Resolution has no legal status and liable to be ignored. It

is further submitted that the said Taloja Industrial Area Plot is mortgaged

with the Yes Bank and Yes Bank has issued conditional NOC on 01st

August, 2019 for sale of the property for value at least INR 17.86 Crore. The

sale which is claimed to be obtained for only 11 Crore out of which only an

amount of Rs. 0.63 Crore have been deposited by the Appellant in the Bank

Account of the Yes Bank itself indicates that the transaction was not bona

Company Appeal (AT) (Insolvency) No. 1057 of 2021 -5-

fide transaction and was undervalued transaction. It is submitted that

Appellant was present before the Adjudicating Authority and was also heard

in Application I.A.No. 699 of 2020.

5. We have considered the submissions of Learned Counsel for the

parties and perused the record.

6. The Adjudicating Authority has placed reliance on Transaction Audit

Report of the Transaction Audit dated 2nd July, 2020. Paragraph 5(i), (ii) and

(iii) of the Impugned Judgment where transaction audit report has been

referred pertaining to property in question are as follows:

"5. The observations made by A.K.G. & Associates (Transaction Auditor) on behalf of the Resolution Professional, in the final report dated 02.07.2020 with respect to the present application made under Section 45 of the code are reproduced as i. It is submitted that the Corporate Debtor had a plant in Mumai bearing address-Plot M-6, Taloja Industrial Area, Village Pale Khurd, Taluka Panvel, Distt Rajagd, Maharashtra. The said plant with a combined book value of Rs. 9.16 crores was mortgaged to YES Bank for availing credit facilities (Post shipment in Foreign Currency and Packing Credit in Foreign) from YES Bank. It is submitted that a conditional NOC dated 01.08.2018 was granted by Yes Bank to the Corporate Debtor for sale of such property. The conditional NOC required the above plant to be sold to Adriatic Sea Food Private Limited for at least 17.86 crore. That during the month of August, 2019, said plant was transferred to Adriatic Sea Food Private Limited vide Agreement for Assignment cum Transfer of Lease-cum-Sale dated 05.08.2019 for Rs. 11.00 crore, against which only Rs. 0.63 crore were received as consideration till 30.08.2019 from the under mentioned parties:

DATE PARTY NAME SALE SALE PROCEEDS IN PROCEEDS Rs. (Crore) RECEIVED IN August Sameer Haji 0.28 YES BANK 2019 Mohammed Latif A/c xx0739

Company Appeal (AT) (Insolvency) No. 1057 of 2021 -6-

(Director of Adriatic Sea Food Private Limited) August Adriatic Sea 0.35 YES Bank 2019 Food Private A/c. xx0739 Limited Total 0.63 ii. It is submitted that as per the information available the possession of the plant has been handed over by the Corporate Debtor to the buyer in the month of August 2019 only which is in anticipation of triggering of the CIRP. It is further submitted to point out that the said property record as available with CERSAI show that the above property has been charged with YES Bank. It is clear that the ex-management of the Corporate Debtor has transferred and handed over the possession of such property at Rs. 0.63 crore only against the amount as per YES Bank's condition NOC i.e. Rs. 17.86 Crore, indicting an undervalution thereof Rs. 17.23 Crore. The relevant extract of the ledger, CERSAI Search report, copy of the conditional NOC from YES Bank and copy of the sale Agreement has been annexed under para 16.2 of the report annexed with this application.

iii. It is further submitted that sale of the above mentioned property was cancelled as the buyer paid Rs. 62.25 lakh and YES Bank kept such amount under lien till the balance amount of Rs. 10.37 crore is received and due to initiation of the CIRP the buyer failed to pay the consideration in full. Hence, the amount was forfeited and necessary entry was passed in the books of account. The application to that affect for treating the sale as NIL and recovery of possession is pending before the Hon'ble Tribunal as C.A. No. 1304/2020."

7. The Application was filed by the Resolution Professional being I.A. No.

1731 of 2019 praying for an order under Section 43 and 45 of the Code

regarding preferential transaction and undervalued transaction done by the

Corporate Debtor. Section 45 of the Code is as follows:

"45(1) If the liquidator or the resolution professional, as the case may be, on an examination of the

Company Appeal (AT) (Insolvency) No. 1057 of 2021 -7-

transactions of the corporate debtor referred to in sub- section (2) determines that certain transactions were made during the relevant period under section 46, which were undervalued, he shall make an application to the Adjudicating Authority to declare such transactions as void and reverse the effect of such transaction in accordance with this Chapter.

(2) A transaction shall be considered undervalued where the corporate debtor--

(a) makes a gift to a person; or

(b) enters into a transaction with a person which involves the transfer of one or more assets by the corporate debtor for a consideration the value of which is significantly less than the value of the consideration provided by the corporate debtor, and such transaction has not taken place in the ordinary course of business of the corporate debtor."

8. Under Section 46 relevant period for avoidable transaction or

undervalued transaction is period of one year preceding the Insolvency

Commencement date. The transaction in question being of 05th August,

2019 is within the period as contemplated under Section 46 as noted above.

Insolvency Commencement date is 19.09.2019 and it was less than one and

half month before the said date that this transaction was made by the

Corporate Debtor. The Adjudicating Authority noted the transaction audit

report and submissions made by the Appellant. It was noted by the

Adjudicating Authority that 'no objection' granted by Yes Bank for sale of the

property, was at least Rs. 17.86 crore. When the mortgagee Bank has issued

conditional NOC for 17.86 crore transaction of the property, at the amount

of 11 crore is undervalued transaction and we do not find any error in the

decision of the Adjudicating Authority holding the transaction as

undervalued transaction.

Company Appeal (AT) (Insolvency) No. 1057 of 2021 -8-

9. One more aspect needs to be noticed in this context is that although

consideration of the Agreement for Assignment cum Transfer of Lease-cum-

Sale dated 05.08.2019 mentioned 11 Crore but total amount paid by the

Appellant in the Account of the Corporate Debtor was 0.63 Crore and the

entire possession of the property was handed over by Directors of the

Corporate Debtor on receipt of only 0.63 crores, which speak for itself. The

Appellant never paid the balance amount of consideration amount apart

from payment of Rs. 0.63 crore. Clause 4 of the deed contemplated handing

over possession after payment in Loan Account in of Seller which clause 4 is

as follows:

"4. On receipt of demand cum NOC from Yes Bank the repayment by Purchaser/Assignee directly to Loan Account in of Seller/Assignor in Yes Bank thereafter peaceful possession of the said plot on as is where basis is shall also be handed over the Purchaser/Assignee on or before execution this present."

10. There is one more reason due to which the Transaction dated

05.08.2019 has to be held to be undervalued. The Agreement for Assignment

cum Transfer of Lease-cum-Sale mentions the consideration of Rs. 11

Crores. In Paragraph 3, 3(A) and 3(B) payments schedule are mentioned. The

Purchaser/Assignee already paid Rs. 25 Lacs and has agreed to pay Rs.

10,75,00,000/- to Yes Bank but in Paragraph 3 (A) and (B) Rs.

10,75,00,000/- which contains heading "Payment Schedule" there is no

period mentioned for payment of Rs. 10,75,00,000/-. The Transaction was

entered for Rs. 11 Crores on payment of only Rs. 25 Lacs itself. Thus, total

consideration paid was 1/44 of the transaction of the sale consideration.

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However, as noted above in Paragraph 4 of the Agreement it was mentioned

that on receipt of demand cum NOC from Yes Bank the repayment by

purchaser directly to loan account in of seller/assignor in Yes Bank

thereafter peaceful possession of the Plot shall be handed over whereas the

Appellant's case is that after execution of the agreement the possession of

the plant was handed over, which indicate that whole transaction was

entered only on payment of Rs. 25 Lacs. The possession was handed over to

the Appellant by the Corporate Debtor at meagre payment of Rs. 25 Lacs of

property for which NOC was issued by the Yes Bank for sale of an amount of

not less than 17.86 Crore, which proves that the transaction dated 05th

April, 2019 was undervalued transaction and the Adjudicating Authority had

rightly come to the conclusion that transaction is an undervalued

transaction.

11. However, handing over the possession by the Directors of the

Corporate Debtor to the Appellant before even payment indicates the nature

of transaction which transaction was preferential transaction as well as

undervalued transaction. Transaction was a transaction to defeat the rights

of the creditor of the Corporate Debtor.

12. Learned Counsel for the Appellant had laid emphasis that

Adjudicating Authority has passed an order for cancelling the Registered

Agreement which was not within the domain of the Adjudicating Authority.

In the Application filed by the Resolution Professional it was pleaded that

since the buyer failed to pay the consideration in full, hence the sale was

treated to be cancelled and called off and advance amount was forfeited and

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necessary entry was passed in the books of accounts which clearly mean

that the books of accounts of the Yes Bank where sale was treated to be

cancelled. Under Section 45 sub-section 1 of the Code, the Resolution

Professional can make an application to the Adjudicating Authority to

declare such transactions as void and reverse the effect of such transaction.

Where an Application under Section 45(1) is allowed the effect of the Order

has to be treated to be in accordance with Section 45(1). The use of

expression used in the Impugned Order is that "as a consequent to the

cancellation of the sale of the Mumbai Plant, it is hereby directed that the

possession of the Mumbai Plant be handed over to the Resolution

Professional". The Adjudicating Authority itself has not directed for

cancellation of the sale rather cancellation of sale deed was inferred on

account of non-payment of balance consideration and entry made by the

Bank in its books of accounts. Direction in the Impugned Order is only to

hand over the possession of the plant to the Resolution Professional which is

consequential action on account of reversal of the transaction. The Order

passed by the Adjudicating Authority thus cannot be said to be beyond

Section 45(1). However, when transaction is treated to be void it loses all its

legal effect and submissions of Learned Counsel for the Appellant that since

application for declaring the transaction void being Application No. 1304 of

2020 pending no direction could have been issued by the Adjudicating

Authority as has been issued in the Impugned Order cannot be accepted.

The factum of pendency of Application being 1304 of 2020 under Section 25

read with Section 60(5) is not subject application for declaration of sale deed

Company Appeal (AT) (Insolvency) No. 1057 of 2021 -11-

as null and void have no bearing on Application filed under Section 43 and

45 of the Code thus pendency of I.A. No. 1304 of 2020 has no bearing on

disposal of the Application 3175 of 2020. Another submission of the

Appellant is that I.A. No. 699 of 2020 which was filed by the Appellant

seeking direction to restrain the Resolution Professional from taking control

of the property remain pending has also no bearing on the Order passed in

I.A. No. 3175 of 2020. The Application I.A. No. 699 of 2020 is to be held to

have become infructuous in view of the directions issued in I.A. 3175 of

2020.

13. The submission of Learned Counsel for the Appellant that Appellant

has not been heard in the Application I.A. No. 3175 of 2020 filed by the

Resolution Professional. Suffice it to say that Appellant was well aware of the

proceeding and he himself has filed an Application I.A. No. 699 of 2020

seeking direction to restrain the Resolution Professional from taking control

of the property which cannot be said that he was not aware of the issue

which were before the Adjudicating Authority. The Respondent in his Reply

before this Court has stated that Appellant was heard by Adjudicating

Authority on 30th September, 2021 which is apparent from the proceedings

dated 30th September, 2021 which proceedings has been brought on record.

More so it was action of the suspended directors of the Corporate Debtor

which was in question and all suspended directors of the Corporate Debtor

who entered into preferential transactions and undervalued transaction were

heard. Appellant who claimed to be assignee of rights by Corporate Debtor

can have no better case than the Corporate Debtor themselves who have

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assigned the rights to the Appellant. Corporate Debtor who entered into

preferential transactions and undervalued transactions have been issued

notice and heard, we are not persuaded to accept the submission of the

Appellant that order is vitiated on account of violation of principles of

natural justice.

14. Respondent has also brought on record relevant materials to indicate

that both Mohd Nasira Begum and Mohd Kamil who claimed to have passed

resolution for transferring the plants on 15th April, 2019 were ceased to be

directors with effect from 12.09.2018 hence the entire proceedings beginning

from decision to transfer of the property was not legally done and

preferential transaction and undervalued transaction in favour of the

Appellant was only with a intent to defeat the rights of the creditors and no

error have been committed by the Adjudicating Authority in allowing the

Application filed by the Resolution Professional under Section 43 and 45 of

the Code, We do not find any good ground to interfere with the Order passed

by the Adjudicating Authority dated 04.10.2021. The Appeal lacks merit and

is dismissed, accordingly.

[Justice Ashok Bhushan] Chairperson

[Dr. Alok Srivastava] Member (Technical)

NEW DELHI 16th March, 2022 Basant B.

Company Appeal (AT) (Insolvency) No. 1057 of 2021