M/S Marque Global (Proprietor – Rahul ... vs Anil Goel (Liquidator Of Loha Ispaat)

Comp. App. (AT) (Ins) No. 1088 of 2024 & I.A. No. 3927, 3928 of 2024

(Arising out of the Order dated 30.04.2024 passed by the National Company Law Tribunal, Mumbai Bench in MA 1265 of 2018 in C. P. (IB) No. 724/MB/2017)

IN THE MATTER OF:

M/s Greenfield Overseas (proprietor - Pradeep Joshi) B-10, kripa, willows CHS dadlani Road opposite Ashok nagar, Balkum Thane-400608 ...Appellant

Versus

Anil Goel (Liquidator of Loha Ispaat). E-10/A, Kailash Colony New Delhi - 110048 ...Respondent Present For Appellants: Mr. Shivam Kukreja, Advocate.

For Respondents: Ms. Shalya Agarwal & Mr. Sandeep Vij, Advocate.

With

Comp. App. (AT) (Ins) No. 1089 of 2024 & I.A. No. 3929, 3930 of 2024

(Arising out of the Order dated 30.04.2024 passed by the National Company Law Tribunal, Mumbai Bench in MA 1265 of 2018 in C. P. (B) NO. 724/MB/20l7)

IN THE MATTER OF:

M/s Arihant International (proprietor - Shripal Jain) Satvant villa room.1 1st floor, Aarey Road, Near Railway Sub-way Motilal Nagar, Mumbai-400104 ...Appellant Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

Versus

Anil Goel (Liquidator of Loha Ispaat) E-10/A, Kailash Colony New Delhi - 110048 ...Respondent

Present For Respondents: Mr. Shivam Kukreja, Advocate.

For Respondents: Ms. Shalya Agarwal & Mr. Sandeep Vij, Advocate.

With

Comp. App. (AT) (Ins) No. 1090 of 2024 & I.A. No. 3931, 3932 of 2024

(Arising out of the Order dated 30.04.2024 passed by the National Company Law Tribunal, Mumbai Bench in MA 1265 of2018 in C. P. (IB) NO. 724/MB/2017)

IN THE MATTER OF:

M/s Marque Global (proprietor - Rahul Singh) Sai Pooja CHS, Plot No.33, Room No.76, near Rajendra Ashram, Sector-4, Navi Mumbai, Ghansoli Thane, Maharasthra-400701 ...Appellant

Versus Anil Goel (Liquidator of Loha Ispaat) E-10/A, Kailash Colony New Delhi - 110048 ...Respondent

Present For Appellants: Mr. Shivam Kukreja, Advocate.

For Respondents: Ms. Shalya Agarwal & Mr. Sandeep Vij, Advocate.

Page 2 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

JUDGEMENT

(25.07.2025)

NARESH SALECHA, MEMBER (TECHNICAL)

1. There are three appeals before us arising out of the Impugned Order dated

30.04.2024 under section 61 of the Insolvency & Bankruptcy Code, 2016 (in short

'Code') passed by National Company Law Tribunal, Mumbai Bench, (in short

'Adjudicating Authority') in MA 1265 of 2018 in C.P.(IB) No. 724/MB/2017.

Company Appeal (AT) (Ins.) No.1088 of 2024

2. This appeal has been filed by the Appellant i.e. M/s Greenfield Overseas

which is a proprietorship firm, by, Pradeep Joshi (proprietor of Greenfield)

against Impugned Order dated 30.04.2024 passed by Adjudicating Authority in

MA 1265 of 2018 in C.P.(IB) No. 724/MB/2017.

3. Mr. Anil Goel who is the liquidator of Loha Ispat, the Corporate Debtor is

the Respondent herein.

4. The Appellant submitted that the Impugned Order directed the Appellant

to pay an amount of Rs. 5,49,23,112/-, despite the alleged transaction being

genuine and conducted in the ordinary course of business. During the financial

year 2016-2017, the Appellant legitimately purchased scrap trimming by-

products from the Corporate Debtor, arising as scrap during the manufacturing of

steel, at a gross value of Rs. 29,15,78,735/-.

Page 3 of 34

Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

5. The Appellant submitted that the Corporate Insolvency Resolution Process

(CIRP) was initiated on 28.04.2017 against the Corporate Debtor. Consequently,

the look-back period applicable to transactions with unrelated parties spans from

28.04.2016 to 27.04.2017. The impugned transactions, which occurred between

01.04.2016 and 27.04.2017, fall outside the ambit of this look-back period. As

evidenced by the calculations provided in Exhibit - F, the appellant is entitled to

the benefit of transactions valued at Rs. 2,91,64,518/- conducted during the period

from 01.04.2016 to 27.04.2017.

Company Appeal (AT) (Ins.) No.1089 of 2024

6. This appeal has been filed by the Appellant i.e. M/s Arihant International

which is a proprietorship firm, by, Shripal Jain (proprietor of Arihant

International) against Impugned Order dated 30.04.2024 passed by Adjudicating

Authority') in MA 1265 of 2018 in C.P.(IB) No. 724/MB/2017.

7. Mr. Anil Goel who is the liquidator of Loha Ispat is the Respondent herein.

8. The Appellant submitted that the Impugned Order directed him to pay an

amount of Rs. 2,37,81,057/-, despite the fact that the alleged transaction was

genuine and conducted in the ordinary course of business. During the financial

year 2016-2017, the Appellant legitimately purchased scrap trimming by-

products from the Corporate Debtor, generated as scrap during the manufacturing

of steel, at a gross value of Rs. 10,30,99,223/-. The Appellant stated that the

Respondent, with mala fide intent, has wrongly classified this transaction as a

purchase return.

Page 4 of 34

Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

9. The Appellant submitted that the CIRP commenced on 28.04.2017 and

consequently, the look-back period for transactions involving unrelated parties

extends from 28.04.2016 to 27.04.2017. The impugned transactions, occurring

between 01.04.2016 and 27.04.2017, fall outside the scope of this look-back

period. As detailed in the calculations provided in Exhibit - F, the appellant is

entitled to the benefit of transactions valued at Rs. 2,05,55,152/- conducted during

the period from 01.04.2016 to 27.04.2017. Consequently, these transactions are

not subject to scrutiny or avoidance under Section 43 of the Code.

Company Appeal (AT) (Ins.) No.1090 of 2024

10. This appeal has been filed by the Appellant i.e. M/s Marque Global which

is a proprietorship firm, by, Rahul Singh (proprietor of Marque Global) against

Impugned Order dated 30.04.2024 under section 61 of the Insolvency &

Bankruptcy Code, 2016 (in short 'Code') passed by Adjudicating Authority in

MA 1265 of 2018 in C.P.(IB) No. 724/MB/2017.

11. Mr. Anil Goel who is the liquidator of Loha Ispat is the Respondent herein.

12. The Appellant submitted that the impugned order, directing the payment

of Rs. 26,76,91,364/-, is fundamentally flawed as it erroneously characterizes the

transactions in question as non-genuine, despite these being legitimate

transactions conducted in the ordinary course of business. The Appellant

contended that during the financial year 2016-17, it purchased scraps of mild steel

and trimming by-products from the Corporate Debtor, generated as scrap during

the steel manufacturing process, at a gross value of Rs. 15,92,34,161/-. Page 5 of 34

Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

13. The Appellant submitted that the CIRP commenced on 28.04.2017 and

consequently, the look-back period applicable to transactions with unrelated

parties spans from 28.04.2016 to 27.04.2017. The impugned transactions, which

occurred between 01.04.2016 and 27.04.2017, fall outside the scope of this look-

back period. As per the calculations provided in Exhibit - F, the appellant is

entitled to claim the benefit of transactions amounting to Rs. 6,11,20,189/- that

took place during the period from 01.04.2016 to 27.04.2017. Therefore, these

transactions are not subject to examination or avoidance under Section 43 of the

Insolvency and Bankruptcy Code.

Common pleadings

14. The Appellants submitted that the Adjudicating Authority erred in

classifying the Appellant's purchase of Hot Roll Trimming (a byproduct) from

the Corporate Debtor during the Financial Year 2016-17 as a preferential or

undervalued transaction. The Appellants submitted that Hot Roll Trimming,

being a scrap by-product, was correctly priced based on market forces, which

determine pricing in the steel industry, and not by the contracting parties.

15. The Appellants submitted that the purchase of Hot Roll Trimming was

conducted in the ordinary course of business. The Appellants engaged in regular

trading of steel products, has a historical practice of buying and selling steel-

related products from the Corporate Debtor. The Appellants submitted that this

Appellate Tribunal in Sahyog Infrastructure Pvt. Ltd. v. Anju Agarwal

Page 6 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

(Company Appeal (AT)(Ins) No.1367 of 2022) held that transactions in the

"ordinary course of business" include those entered into in furtherance of the

company's business objectives, considering factors such as routine nature,

frequency, and industry practice. The Appellants contended that its purchase of

scrap was routine, repetitive, and aligned with its business of trading steel

products, thus falling outside the purview of preferential or undervalued

transactions under Sections 43 and 45 of the Code.

16. The Appellants submitted that they were wrongly made parties to M.A.

No. 1265 of 2018 as third parties. The Appellants stated that the Hon'ble Supreme

Court in Gluckrich Capital Pvt. Ltd. v State of West Bengal [(2023) ibclaw.in 75

SC] decided on 19.05.2023 , affirming Usha Ananthasubramanian v. Union of

India [(2020) 4 SCC 122], held that the NCLT lacks jurisdiction to pass orders

against entities other than the Corporate Debtor for business transactions under

Section 66(1) of the Code. The Appellants contended that, as third parties, it

cannot be held liable under Section 66, and any remedy against it must be pursued

through civil proceedings, not under the insolvency framework.

17. The Appellants submitted that the Liquidator's initial analysis of the

impugned transactions on a financial year basis (FY 2016-17) does not align with

the statutory requirement under Section 43(1) of the Code, which mandates a one-

year look-back period from the insolvency commencement date (ICD), i.e.,

28.04.2016 to 28.04.2017.

Page 7 of 34

Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

18. The Appellants relied on judgement of the Hon'ble Supreme Court in Anuj

Jain, IRP for Jaypee Infratech Ltd. v. Axis Bank Ltd. (Civil Appeal Nos. 8512-

8527 of 2019,) where Apex court clarified that transactions with unrelated parties

can only be scrutinized as preferential if these occur within one year prior to the

insolvency commencement date. The Appellants contended that the transactions

in question, occurring during Financial Year 2016-17, fall outside this one-year

period and, being in the ordinary course of business, are exempt from scrutiny

under Section 43 of the Code.

19. The Appellants submitted that the Respondent, Mr. Anil Goel, acted

improperly by relying solely on a Forensic Audit Report prepared by M/s

Khandelwal & Jain, which was commissioned without prior Adjudicating

Authority approval. The Appellants contended that the report is fraudulent and

adverse, causing harm to the Appellant's interests. Furthermore, the

Respondent's suspension by the Insolvency and Bankruptcy Board of India on

two occasions raises serious concerns about his conduct and credibility in filing

M.A. No. 1265 of 2018.

20. The Appellants submitted that the purchased Hot Roll Trimming was

deteriorated scrap, lying at the Corporate Debtor's premises for 4-5 years, subject

to corrosion and devaluation. The transaction were undertaken in good faith to

mitigate losses due to the Corporate Debtor's failure to clear outstanding dues.

The sales were at a discounted price, reflecting the diminished value of the scrap,

and was transparent and aligned with prevailing scrap market rates. The

Page 8 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

Appellants contended that these do not constitute preferential, undervalued, or

fraudulent transaction under Sections 43, 45, or 66 of the Code.

21. The Appellants contended that the Respondent's reliance on forensic audit

and Tally data to classify the transactions as "Purchase Returns" is misleading.

The Corporate Debtor's books reflect no independent or fresh sale transactions

of Hot Roll Trimming, and the Respondent has not substantiated claims of by-

product sales with documentation. The Appellants asserted that HR Coils, being

non-perishable, do not depreciate significantly, and the alleged discrepancies in

transaction values lack commercial justification, as the transactions were

legitimate purchases, not returns.

22. Concluding their arguments, the appellants requested this appellate

tribunal to set aside the impugned order and allow their appeals.

23. Per contra, the Respondent denied all averments made by the Appellants

as misleading and baseless.

24. The Respondent submitted that the Appellant's assertion of purchasing Hot

Roll Trimming (a by-product) instead of HR Coils is wholly unsupported by any

invoices, ledger entries, or corroborative documentation. The Respondent

submitted that the Hon'ble Supreme Court in K.K. Verma vs. Union of India

(AIR 1954 SC 476) has unequivocally held that the burden of proof rests with the

party asserting a claim, and failure to substantiate such claims renders them

legally untenable. The absence of evidence significantly undermines the

Page 9 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

Appellant's case, as no records from the Corporate Debtor's books or the Forensic

Audit Report support the claim of Hot Roll Trimming transactions.

25. The Respondent contended that the Appellant's argument regarding the

purchase of Hot Roll Trimming was not raised before the Adjudicating Authority,

despite the Appellants filing detailed replies in the original proceedings. The

Respondent further submitted that the Hon'ble Supreme Court in State of Uttar

Pradesh vs. Naresh [(1981) 3 SCC 309] and Deepak Tandon & Anr. vs. Rajesh

Kumar Gupta (Civil Appeal Nos. 1537-1538 of 2019) has consistently ruled that

introducing new arguments or evidence at the appellate stage, absent exceptional

circumstances, violates the principles of res judicata and judicial discipline. The

Respondent submitted that the Appellant have failed to demonstrate any

exceptional circumstances, rendering their plea an afterthought and procedurally

defective. This attempt to introduce a fresh cause of action unrelated to the

impugned transaction undermines the fairness of the adjudicative process.

26. The Respondent asserted that the Appellant's reliance on Gluckrich

Capital Pvt. Ltd. vs. The State of West Bengal and Ors. [(2023) ibclaw.in 75 SC]

is legally erroneous and misleading. The cited judgment pertains to Section 66 of

the Code, which addresses fraudulent transactions requiring proof of intent to

defraud creditors. In contrast, the impugned transactions fall under Section 45 of

the Code, which concerns undervalued transactions and does not necessitate proof

of fraudulent intent, focusing instead on objective undervaluation. The

Respondent submitted that this conflation of distinct legal standards is irrelevant

Page 10 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

and an attempt to obscure the true nature of the transaction, thereby weakening

the Appellant's case.

27. The Respondent contended that the Appellant's portrayal of the impugned

transactions as "purchases" rather than "purchase returns" is a deliberate

misrepresentation aimed at evading liability as ordered by the Adjudicating

Authority. The Respondent submitted that the Corporate Debtor's records,

including Tally data and the Forensic Audit Report, clearly establish these as

purchase returns at significantly discounted prices, resulting in substantial losses

to the Corporate Debtor.

28. The Respondent submitted that the CIRP of Loha Ispaat Ltd. was initiated

by the Adjudicating Authority on 28.04.2017, pursuant to an application by

Bright Steel India under Section 9 of the Code. The Respondent was appointed

as Resolution Professional on 04.09.2017, and subsequently as Liquidator on

26.04.2018, due to the absence of a viable resolution plan. The Respondent

contended that this procedural history provides the necessary context for

evaluating the impugned transactions, which occurred during a period of financial

distress for the Corporate Debtor.

29. The Respondent submitted that the Forensic Audit Report by Khandelwal

Jain & Co., dated 13.01.2018, along with Tally data and financial statements,

conclusively demonstrate that the Corporate Debtor engaged in purchase returns

during FY 2015-16 and 2016-17. These transactions involved returning HR

Coils to the Appellants and other Beneficial Transferees at significantly

Page 11 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

undervalued prices, causing substantial losses to the Corporate Debtor's estate.

The Respondent contended that these transactions were not conducted in the

ordinary course of business, as they lacked commercial justification and

disproportionately benefited specific parties.

30. The Respondent asserted that the impugned transactions fall into two

categories: (a) preferential transactions under Section 43 of the Code, involving

stock transfers in preference to certain creditors, which the Adjudicating

Authority rejected; and (b) undervalued transactions under Section 45, where

stocks were returned at prices significantly below market value, which the

Adjudicating Authority allowed. The Respondent submitted that the Adjudicating

Authority correctly held that purchase returns at heavily discounted prices

constitute undervalued transactions, as these caused undue financial loss to the

Corporate Debtor.

31. The Respondent submitted that in FY 2015-16, the Corporate Debtor

returned stocks worth Rs. 68,19,71,955 to Beneficial Transferees, including the

Appellants, at a reduced price of Rs. 49,57,31,767, resulting in a loss of Rs.

18,62,40,188. In FY 2016-17, stocks worth Rs. 90,03,07,622 were returned at

Rs. 55,39,12,089, leading to a loss of Rs. 34,63,95,534. The Respondent

contended that these losses, totalling Rs. 53,26,35,722 across both years, reflect

a pattern of undervalued transactions designed to benefit specific parties at the

expense of creditors. Specifically, the Appellants were directed to pay reflecting

the loss from returning stocks.

Page 12 of 34

Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

32. The Respondent submitted that the Corporate Debtor returned HR Coils to

the Appellants, in FY 2015-16 and 2016-17, despite retaining the materials for

over a year. The Respondent contended that HR Coils are non-perishable

commodities, and their value does not typically diminish significantly over time,

except in cases of gross negligence such as rusting due to improper storage. The

prolonged retention undermines the Appellant's claim of quality defects,

suggesting that the returns were a pretext for undervalued transactions.

33. The Respondent asserted that the Forensic Audit Report and Tally data,

including the stock item register for HR Coils, confirm that the transactions

involved HR Coils, not Hot Roll Trimming as claimed by the Appellants. No

records indicate sales of Hot Roll Trimming, and the Corporate Debtor recorded

0% non-return sales in FY 2016-17. The Respondent submitted that the

Appellant's failure to provide invoices or documentation further validates the

Corporate Debtor's records, which classify the transactions as purchase returns.

34. The Respondent submitted that the average rates for HR Coils reveal

significant undervaluation. The Respondent explained that for the Appellant in

FY 2015-16, the opening stock was valued at Rs. 37,414 per MT, purchased at

Rs. 32,346 per MT, returned at Rs. 27,300 per MT, and closing stock valued at

Rs. 25,915 per MT. In FY 2016-17, the opening stock was valued at Rs. 25,915

per MT, returned at Rs. 21,808 per MT, with no closing stock. The Respondent

contended that these discounted returns lack commercial justification, as HR

Page 13 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

Coils' value does not typically depreciate significantly, indicating deliberate

undervaluation.

35. The Respondent asserted that the Corporate Debtor's account was declared

a Non-Performing Asset (NPA) in September 2014 by consortium lenders,

suggesting that the impugned transactions were undertaken to divert assets

beyond the reach of creditors, particularly secured creditors. The Respondent

submitted that financial distress context supports the classification of the

transactions as undervalued under Section 45, as these were not conducted in the

ordinary course of business.

36. The Respondent contended that the Hon'ble Supreme Court in Swiss

Ribbons Pvt. Ltd. vs. Union of India [(2019) 4 SCC 17] has emphasized that

transactions at significantly less than market value, intended to prefer certain

creditors, fall under Section 45. Similarly, in Anuj Jain IRP of Jaypee Infratech

Ltd. vs. Axis Bank Ltd. (Civil Appeal Nos. 8512-8527 of 2019), the Hon'ble

Supreme Court clarified that transactions causing losses to the estate through

undervaluation are subject to avoidance. The Respondent submitted that these

precedents affirm the Adjudicating Authority's findings.

37. The Respondent submitted that the Beneficial Transferees, including the

Appellants, have inconsistent office addresses across audit reports by Deloitte

(2012-2014), Amit Ray & Co. (2012-13, 2014-15), and Khandelwal Jain & Co.

The Appellant's address in the Appeals differs from prior addresses, raising

doubts about their genuineness. The Respondent contended that these entities,

Page 14 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

dealing in transactions exceeding Rs. 100 crores, lack credible business premises,

suggesting potential manipulation to siphon funds.

38. The Respondent asserted that Section 45 of the Code defines undervalued

transactions as those where the value received is significantly less than the asset's

market value. The impugned transactions meet this criterion, with HR Coils

returned at prices causing losses of Rs. 18,62,40,188 in FY 2015-16 and Rs.

34,63,95,534 in FY 2016-17. The Respondent submitted that these transactions

lack commercial rationale and were not in the ordinary course, as they

disproportionately benefited the Appellant and others.

39. The Respondent contended that the impugned transactions, involving

significant discounts, lack of documentation, and a pattern of benefiting specific

parties, are not in the ordinary course of business. The Appellant emphazised that

the Hon'ble Supreme Court in Anuj Jain (supra), N.R. Dongre vs. State Bank of

India (2017), and Gopal Krishna Shetty vs. State Bank of India (Civil Appeal

No.1499 of 2020), and this Appellate Tribunal in Sreevatsa Industries Ltd. vs.

Bank of India [Company Appeal (AT) (Ins) No. 363 of 2020], Crisll Ltd. vs.

M/s. Venkatesh & Co. [Company Appeal (AT) (Ins) No. 34 of 2020], and

International Assets Reconstruction Company Ltd. vs. Shriram Transport

Finance Co. Ltd. (Company Appeal (AT) (Ins) No. 662 of 2020) have

consistently held that transactions with substantial undervaluation and

preferential intent fall outside ordinary business operations. The Respondent

Page 15 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

submitted that the transactions' scale, timing, and lack of commercial justification

align with these precedents.

40. The Respondent submitted that the Appellant's reliance on Gluckrich

Capital (supra) is misplaced, as it pertains to Section 66, which requires

fraudulent intent, whereas Section 45 focuses on objective undervaluation. The

Respondent contended that no relief under Section 66 was sought in the

Avoidance Application, rendering the Appellant's reference to third-party

transactions under Section 66 irrelevant and misleading.

41. The Respondent asserted that no Tally records or documentation reflect

sales of Hot Roll Trimming in FY 2016-17, with 100% of recorded transactions

being purchase returns of HR Coils. The Respondent contended that the

Appellant's claim of purchasing a by-product lacks substantiation and contradicts

the Corporate Debtor's records, which are corroborated by the Forensic Audit

Report.

42. The Respondent submitted that 99% of sales in FY 2015-16 and 100% in

FY 2016-17 were recorded as purchase returns, indicating a pattern inconsistent

with regular business conduct. The revised loss for the look-back period (April

28, 2016-March 31, 2017) is Rs. 24 crores, reinforcing the undervalued nature of

the transactions. The Respondent contended that the questionable authenticity of

the Beneficial Transferees and the NPA status in 2014 suggest an intent to divert

assets, further evidencing non-ordinary course transactions.

Page 16 of 34

Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

43. The Respondent contended that the Appellant's reliance on Anuj Jain

(2020) (supra) to argue that separate applications are required under Sections 43,

45, and 66 is misplaced. The Respondent submitted that MA No. 1265/2018 was

filed in 2018, before the Anuj Jain judgment, and was well-bifurcated to address

each section's requirements. The Respondent submitted that the Adjudicating

Authority rightfully allowed the composite application, as it satisfied the

ingredients of undervalued transactions under Section 45 of the Code.

44. Concluding arguments, the Respondent requested this Appellate Tribunal

to dismiss all these Appeals with cost.

Findings

45. Based on the above discussion and the record available with us, following

issues are required to be determined in order to decide these three appeals.

Issue No. I Are the transactions covered in forensic audit and Impugned Order in

nature of purchased return as alleged by the Liquidator or are they in nature of

fresh purchase as submitted by the Appellants.

Issue No. II a) What is the lookback period with reference to under value

transaction under section 45 of the Code.

b) Whether Look-back period is to be counted with respect to CIRP date or period

is to be treated as full financial year preceding the CIRP date.

Page 17 of 34

Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

c) Whether calculations were correctly made in the present case with respect to

stipulated Look-back period in the Code.

Issue No. III Whether the alleged misconduct by the Resolution Professional in

some other cases as well as non- approval of appointment of Forensic Auditor by

Adjudicating Authority will have any bearing or impact in the present appeals.

Issue No. IV Whether the impugned transaction covered under forensic report as

well as impugned order, are arising out of ordinary course of business of

Corporate Debtor or otherwise.

Issue No. V Whether, the transactions done by the Third Party can be covered

under Section 45 of the Code.

46. At the outset, we would like to refer to the relevant Sections and the

Regulations which affects the present appeal. These sections are Section 20 (2)

(a), 25(2) (d), 45 of the Code and Regulation 34 of the IBBI CIRP Regulation,

2016, which reads as under: -

"Section 20: Management of operations of corporate debtor as going concern.

*

20. (1) The interim resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concernJ1.

(2) For the purposes of sub-section (1), the interim resolution professional shall have the authority--

Page 18 of 34

Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

(a) to appoint accountants, legal or other professionals as may be necessary;

Section 25: Duties of resolution professional.

*

25. (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor.

(2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:

--

(d) appoint accountants, legal or other professionals in the manner as specified by Board;

"Section 45: Avoidance of undervalued transactions.

45. (1) If the liquidator or the resolution professional, as the

case may be, on an examination of the transactions of the corporate debtor referred to in sub-section (2) 1[**] 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

Page 19 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

debtor, and such transaction has not taken place in the ordinary course of business of the corporate debtor."

Regulation 34: Resolution professional costs.

34. The committee shall fix the expenses to be incurred on or by the resolution professional and the expenses1 shall constitute insolvency resolution process costs.

2 [Explanation. - For the purposes of this regulation, "expenses" include the fee to be paid to the resolution professional, fee to be paid to insolvency professional entity, if any, and fee to be paid to professionals, if any, and other expenses to be incurred by the resolution professional.]"

(Emphasis Supplied)

47. Similarly, we have taken into consideration the relevant portion of the

forensic audit, opinion of the Resolution Professional on such forensic audit while

submitting avoidance application under Section 45 of the Code and the Impugned

Order on the subject.

48. Issue No. I Are the transactions covered in forensic audit and Impugned

Order in nature of purchased return as alleged by the Liquidator or are they in

nature of fresh purchase as submitted by the Appellants.

(i) It is the case of the Appellants that the transactions which have been treated

as undervalued transactions by the forensic auditor, Liquidator and finally

approved by the Adjudicating Authority in the Impugned Order, were in

the nature of fresh purchase from the Corporate Debtor and not purchase

return by the Corporate Debtor to the Appellants.

Page 20 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

(ii) We note the contentions of the Appellants that they were in business

relationship with the Corporate Debtor for a reasonably long period and of

such transactions were done in an ordinary course of business.

(iii) On the other hand, the Liquidator submitted that after examination of tally

books, balance sheets read with forensic audit report, it is evident that the

Corporate Debtor had purchased the same items from the Appellants and

later given back to the Appellants at heavy discounts indicated as

purchased return in the books of the Corporate Debtor during financial year

2015-16 and 2016-17. These transactions were done at much reduced price

and not at the original purchased price.

(iv) We also note from the submissions of the Liquidator that purchases were

made by the Corporate Debtor from various parties including three

appellants worth Rs. 158,22,79,577/-, however, the same material was

returned back to the beneficiary parties including the Appellants at a much

lower price of Rs. 104,96,43,856/- thus, causing a loss of Rs.

53,26,35,721/-.

(v) Thus, we need to differentiate terms like the purchase, sales, purchase

return and sales return. In essence all these four terms, form the core of

Corporate Debtor's trading activities.

(vi) A purchase typically refers to the acquisition of goods from another

supplier which are required for the business operations of the Corporate

Debtor. These goods may include raw material, finished goods,

Page 21 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

consumable, plant and machinery etc. Whenever Corporate Debtor

purchase goods, it usually pays GST to the supplier which is input tax

credit. The Corporate Debtor can claim input tax credit (ITC) for GST

purchase on the purchases, if such purchases are used for making taxable

supplies i.e., GST paid on the input can be set off against GST calculated

on sales (output tax liability). As regard, the purchase return also called as

return outward, occur when Corporate Debtor returns back goods it

purchased from supplier. There may be several reasons for such purchase

returns like defective or damaged goods, incorrect items or quantity

delivered, goods not as per specification etc. When company return goods

to supplier, the supplier issues the credit note to the Corporate Debtor

which effectively reverse the original tax liability for the supplier and

allows the company to reverse the ITC it had claimed on the return goods.

(vii) In contrast, sales refer to revenue generated by a company from selling its

goods to customers and is required to collect GST from its customers i.e.,

output tax and finally the company make the payment to government of

such calculated GST after adjusting it with ITC available from its own

purchases. Sales return, also called as return inward, occur when customers

return goods, they have previously purchased which may be due to quality

or quantity issues, damaged during transit, deviation from specification on

quality issues etc.

Page 22 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

(viii) As noted earlier, when a customer return goods, the company issue a credit

note to the customer which allow the company to reduce its original output

tax liability (GST calculated on sales) since the sale has been reversed.

(ix) During pleadings before us, the Appellants tried to impress upon that these

goods were purchased from the Corporate Debtor in ordinary course of

business and the Corporate Debtor sold these goods to the Appellant and

thus these goods were not purchased returns. However, at no stage of

pleadings before us nor in the appeal paper book or written submissions,

the Appellants have brought out the facts regarding GST payments on these

transactions which might have helped the claims of the Appellants.

Similarly, no documentations have been submitted to substantiate their

claims of fresh purchases.

(x) We also note that the Appellants have not denied the fact that the

Appellants had sold the same/ similar material to the Corporate Debtor in

earlier years. Thus, the contentions of the Appellants seem to be on weak

wicket.

(xi) On the other hand, we note that the forensic audit clearly brings out the

facts that the same material was purchased by the Corporate Debtor from

the same Appellants earlier at much higher prices and were returned during

Financial Year 2015-16 and 2016-17 at substantial reduced prices, causing

losses to the Corporate Debtor.

Page 23 of 34

Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

(xii) We also find merit in the contentions of the Liquidators that by nature, HR

Coil etc are non-perishable items and do not deteriorate, therefore, there

was no reason for Corporate Debtor to return back i.e, purchase return at

later stage at heavy discounted price which was done purely with intentions

of giving undue benefit to the Appellants.

(xiii) We tend to agree with the logic of the Respondent. We also find that the

forensic auditor and the Resolution Professional/ Liquidator, based on the

tally books, balance sheets and other records, have established these facts

and the contentions of the Appellants could not be corroborated with

respect to books as maintained by the Corporate Debtor.

(xiv) In this connection, we have already noted the relevant portion of the

forensic audit, opinion framed by the Liquidator and on the Impugned

Order forensic audit which they submitted to the Adjudicating Authority

while filing avoidance application under Section 45 of the Code. We do

not find any mistake.

(xv) Based on the above analysis, we do not find any error in the Impugned

Order on this account.

49. Issue No. II a) What is the lookback period with reference to under value

transaction under section 45 of the Code.

b) Whether Look-back period is to be counted with respect to CIRP date or period

is to be treated as full financial year preceding the CIRP date.

Page 24 of 34

Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

c) Whether calculations were correctly made in the present case with respect to

stipulated Look-back period in the Code.

(i) The Code provides specific look back period for different type of

avoidance transactions. The look back period, twilight period, or relevant

period stipulates as to how far back the Resolution Professional or

Liquidator can investigate and challenge transactions to bring assets back

into the Corporate Debtor estate. The avoidance transactions are primarily

covered under Section 43 (preferential transaction), Section 45 (under

value transaction), Section 50 (extortion transaction) and Section 66

(fraudulent transaction) under the Code.

(ii) Since, the present appeals are with respect to undervalued transactions, we

shall confine our examination only with respect to Section 45 of the Code.

The look back period for all transactions covered under Section 43, 45, 50

have been bifurcated into two categories i.e., transactions with related

parties and transactions with unrelated parties. As per Code, for related

parties, (as defined in Section 5(24) of the Code) look back period has been

defined as two years preceding the CIRP date, whereas for unrelated

parties, the look back period has been specified as one year from the CIRP

date.

(iii) We note that the Code specifically stipulate that look back period are to be

counted from insolvency commencement date. We further observe that the

Page 25 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

Resolution Professional has a statutory duty under Section 25(2) (j) of the

code r/w Regulation 35 (a) of CIRP Regulation, to investigate and form an

opinion on whether the Corporate Debtor has been subjected to any

avoidance transactions including under Section 45 of the Code. Thus, the

Resolution Professional has to act within the laid down time limits as

provided in the Code and cannot go further back. The Resolution

Professional is also required to file an application for avoidance

transactions before the Adjudicating Authority only for the relevant period

covering the relevant transactions of such nature. This is unlike no look

back period under Section 66 of the Code i.e., fraudulent transaction, where

the Resolution Professional/ Liquidator can go to any extent and examine

any transactions since inception of the Corporate Debtor.

(iv) Having noted these facts, we note that the CIRP commenced on

28.04.2017, thus, the relevant period of look back period has to be between

28.04.2016 to 28.04.2017. Thus, we tend to agree with the contentions of

the Appellants that transactions beyond the look back period could not have

been covered in the avoidance applications and consequently, the

Adjudicating Authority could not have passed the Impugned Order with

respect to such transaction beyond the look back period.

(v) While orders were being reserved, opportunities were given to by the

parties including the Respondent/Liquidator to submit the written

submissions with correct revised calculations strictly with respect to

Page 26 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

correct look back period. We specifically advised Liquidator to re-work out

the calculations based on the look back period of one year i.e., 28.04.2016

to 28.04.2017. In the written submissions the Liquidator has submitted that

the correct figures in the tables in all three appeals. These tables read as

under: -

(vi) From the above table, we see that there is a significant difference in the

amounts mentioned by the Respondent/Liquidator. The first table shows a

total loss of Rs. 34.65 Crores (approx.) which has now been revised by the

Respondent/ Liquidator, which works out to be Rs. 24.14 Crores (approx.),

as shown in the table above.

(vii) Thus, we agree with the contentions of the Appellants to limited extent

based on reworked out figures, which can legally be enforced, as calculated

by the Liquidator and submitted to us in the written submissions.

Page 27 of 34

Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

(viii) We accept the reworked out figures of the Liquidator and hold that

M/s Greenfield Overseas will be entitled to reduce figures of

Rs. 2,70,87,587 from Rs. 5.49 Crores (approx..); M/s Arihant International

will be entitled to reduce figure of Rs. 77,43,946 from Rs.2.38 Crores

(approx.); M/s Marque Global will be entitled to reduced figure of

Rs. 20,66,33,868 from Rs. 26.76 Crores. The Respondent will pursue

recovery from the Appellants as per Liquidator's reworked out revised

figures.

50. Issue No. III Whether the alleged misconduct by the Resolution

Professional in some other cases as well as non-approval of forensic auditor by

the Adjudicating Authority will have any bearing or impact in the present appeals.

(i) Although, no such ground has been taken regarding alleged misconduct of

the Liquidator Mr. Anil Goel in the appeals, however, the Appellants,

during pleadings as well as in the written submissions, have raised issue

regarding conduct of the Resolution Professional/ Liquidator. The

Appellants brought out that the Liquidator has got conducted forensic audit

from M/s Khandelwal and Jain of the Corporate Debtor without approval

of the Adjudicating Authority.

(ii) The Appellants also brought out that Mr. Anil Goel/ Liquidator of the

Corporate Debtor was suspended twice by IBBI on 29.10.2020 and

16.05.2024 and have attached the IBBI's orders in the written submissions

and the Appellants further stated that on 28.05.2024, a complaint was also

Page 28 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

filed by Mr. Rajesh Begur with IBBI against the Liquidator/ Anil Goel for

professional misconduct.

(iii) As regards, appointment of forensic auditors, the reference is required to

be made to Section 20(2)(b) and 25 (d) of the Code which we have already

noted in earlier discussions. It is clear from these sections that it is purely

in the domain of Interim Resolution Professional/ Resolution Professional

to appoint the forensic auditor. It also needs to be understood that the CoC

is empowered to approve the cost of such forensic auditor since, the same

will form the CIRP cost. Nowhere, in the Code or Regulation it has been

stipulated that the approval of the Adjudicating Authority is required.

Hence, we do not accept the contention of the Appellants in this regard

where they have alleged misconduct against the Liquidator for not taking

approval of the Adjudicating Authority before appointing M/s Khandelwal

and Jain as forensic auditors.

(iv) As regard, other two alleged misconduct by the Respondent/Liquidator

which the Appellants has raised, where IBBI had suspended the liquidator,

we observe that in reply, the Liquidator has not submitted any facts or

counter viewpoint. Be that it may, we find that alleged misconduct of

Liquidator in other cases, will not have any impact on the present case

unless present case was also covered by such misconduct and thus, we shall

not go any further into this aspect. We do not find merit in the pleadings of

the Appellants on this ground.

Page 29 of 34

Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

51. Issue No. IV Whether the impugned transaction covered under forensic

report as well as impugned order, are arising out of ordinary course of business

of Corporate Debtor or otherwise

(i) It is the case of the Appellants that the Appellants were engaged with the

Corporate Debtor for a long period and all transactions were carried out in

ordinary course of business.

(ii) We need to understand as to what is the ordinary course of business.

Generally speaking, the transactions which are carried by the Corporate

Debtor with counter parties, which are related its companies business

objective and are carried out on regular basis in furtherance of coil of the

company, are to be treated as done in the ordinary course of business. Such

factors can be determined based on Memorandum of Association, Annual

financial statements, nature of transactions, frequency of transactions to

establish that these transactions done time and again like ordinary purchase

and sale of raw material for manufacturing industries. There can be dozens

of parameters to determine whether transactions were in ordinary course of

business or not.

(iii) We understand that the Corporate Debtor, Loha Ispat Limited, was primary

involved in steel processing and related activities. The Corporate Debtor

used to purchase its requirements from suppliers including the Appellants.

The Corporate Debtor was involved in serving the requirement of various

industries like automobiles, fabrication, packaging, general engineering,

Page 30 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

manufacturing, white goods, infra, construction, etc. For this purpose, the

Corporate Debtor used to procure various types of goods from the vendors.

It is not disputed fact that there was a relationship between the Corporate

debtor and the Appellants and the Corporate Debtor used to procure

material from the Appellants.

(iv) The Appellants have submitted that owing to Corporate Debtor's failure to

clear its outstanding dues and few of deteriorating financial conditions of

the Corporate Debtor, the Appellants under commercial compulsion, had

to purchase the available material which were in nature of scrap from the

Corporate Debtor to mitigate their losses. During pleadings, the Appellant

reiterated same facts. In fact, in the written submission the Appellants have

recorded "the purchase of such material was not an act of acquiring fresh

inventory or useable raw material the scrap which were lying in the

premises of the Corporate Debtor were sold to the Appellants to adjust

outstanding debts".

(v) On the other hand, we have noted from submissions of the Liquidator that

such transactions were not in ordinary course of business. The Respondent

strongly pleaded that the goods purchased by the Corporate Debtor from

the same vendors and after passage of some time, returned back to the

Appellants at huge discount which has been established by the forensic

auditors in their forensic report.

Page 31 of 34

Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

(vi) We note that the liquidator could not verify the alleged fresh purchases by

the Appellants as pleaded in the Appeal Paper Books with respect to tally

books and other accounts available with the Corporate. We take into

consideration the fact that material like HR coil or even hot roll trimming

(bye product) are not prone to deterioration. Therefore, we find logic in the

contentions of the Liquidator that such huge discount cannot be treated as

done in ordinary course of business.

(vii) Taking overall view, thus we do not find merit in the arguments of the

Appellants on this ground and reject the same.

52. Issue No. (V) Whether, the transactions done by the Third Party can be

covered under Section 45 of the Code.

(i) It is the case of the Appellants that they had no relationship with the

Corporate Debtor. We also note that the Appellants were not declared as

related party. The Appellants pleaded that third party could not be roped

into the avoidance transactions application by the Resolution Professional/

Liquidator and to buttress their point, they cited the judgment of Gluckrich

Capital Private Limited (Supra).

(ii) At the outset, we would like to make it clear that the above cited judgment

delivered by the Hon'ble Supreme Court of India was with respect to

Section 66 of the Code i.e., regarding fraudulent transactions and not with

respect to under valued transactions which has been challenged in the

present appeals. We must understand that both preferential and under

Page 32 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

valued transactions involved transfer of assets or an interest therein from

the Corporate Debtor to another party. Another party can be a related party

or third party.

(iii) The intent of Section 45 of the Code is with respect to transactions done by

the Corporate Debtor which involves transfer of one or more assets for a

consideration the value of which is significantly less. Thus, such third

parties, like the Appellants in the present three appeals, become beneficiary

of undervalued transactions. We also take into consideration the fact that

intention Section 45 of the Code, is to reverse the effect such transfers and

bring back assets or their value back to the Corporate Debtor's estate for

the benefit of all creditors. We note that transactions, as in the present case,

were done by way of purchase returns by the Corporate Debtor to the

Appellants at significantly low prices.

(iv) Naturally and logically, such third parties are required to be examined

while going in details of the avoidance transactions. If the arguments of the

Appellants are to be accepted as gospel truth, then avoidance application

need to be restricted only to the related party. The Code do not make such

differentiation.

(v) In fact, the Code provides two different lookback period with respect to

related party and unrelated party and the third party falls in the category of

unrelated party. Therefore, the contentions of the Appellants, that being

Page 33 of 34 Comp. App. (AT) (Ins.) No. 1088, 1089 & 1090 of 2024

unrelated party, they could not have been proceeded against under Section

45 of the Code, do not warrant any merit and stand rejected.

53. Thus, on all accounts, except the impugned transactions beyond stipulated

look back period as per code, the appeals fail and stand dismissed. However, the

Appellants are entitled to relief based on reduced figures as reworked out by the

Liquidator and submitted to us in the written submissions. The impugned order

stands modified to this limited extent and the Respondent is directed to pursue

recoveries based on his revised calculations submitted to us in written

submissions subject to final verifications by the liquidator. On all other counts,

we dismiss the appeals.

54. I.As, if any are closed. No cost.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Justice Mohammad Faiz Alam Khan] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

Sim

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