Technico Industries Ltd vs Debashis Nanda (Liquidator. J.V. ...

Technico Industries Ltd. Registered Office 103, Pratap Bhawan Near Indian Express Building Bahadur Shah Zafar Marg New Delhi - 110 002 ...Appellant

Versus

1. Debashis Nanda Liquidator of J.V. Srips Limited In the matter of J.V. Strips Limited (In Liquidation) S-7, Manish Plaza, Plot No. 2 I.P. Extension, Patparganj Delhi - 110 092 Email: dnanda.cma@gmail.com Mobile : (+91) 9717000163 ...Respondent No.1

2. Ashwani and Sons Through Authorized Representative 1246/2, Meerut Road ...Proforma Ghaziabad - 201 003 Respondent No. 2

3. Ilasakaa Steel Limited Through Authorized Representative Z-222, Loha Mandi ...Proforma Naraina Vihar, New Delhi - 110 028 Respondent No. 3

4. Jindal Buildsys Ltd. Through Authorized Representative Plot No. 197, Sector - 4 Phase - II, Indl. Area

Company Appeal (AT) (Ins.) No. 1166 of 2022 1 of 13 Growth Center Bawal ...Proforma Rewari (Haryana) - 123 501 Respondent No. 4

5. Bharti Engineering Co. Through Authorized Representative 1531/24, Daultabad Road ...Proforma Gurugram - 122 006 Respondent No. 5

6. Design O Creations Through Authorized Representative 175, HIS IDC Industrial Estate Barhi, Ganaur Sonepat ...Proforma Harayana - 131 101 Respondent No. 6

7. GSD Components Pvt. Ltd. Through Authorized Representative A-28, Dabua Extn., Debua Pali Road ...Proforma NIT Faridabad, Haryana - 121 001 Respondent No. 7

8. Jaity Steel Strips Through Authorized Representative Basai, Near Basai Flyover Basai Road, Gurugram ...Proforma Haryana - 122 001 Respondent No. 8

9. Muk San Steels Pvt. Ltd. Through Authorized Representative 17/3, Mathura Road ...Proforma Faridabad - 281 001 Respondent No. 9

10. DRT Steels Through Authorized Representative Plot No. 86, Sector - 7 ...Proforma IMT Manesar, Gurugram - 122 051 Respondent No. 10

Present:

For Appellant : Ms. Ritika Gambhir Kohli, Ms. Akshaya Ganpath, Advocates.

For Respondents : Mr. Mohak Sharma, Mr. Sajal Jain, and Mr. Supriyo Banerjee, Advocates.

Company Appeal (AT) (Ins.) No. 1166 of 2022 2 of 13

(Date: 19.07.2023)

[Per.: Dr. Alok Srivastava, Member (Technical)]

The Present Appeal has been filed under Section 61 of the

Insolvency and Bankruptcy Code, 2016 (in short "IBC") assailing

the order dated 07.06.2022 (in short "Impugned Order") passed

by the Adjudicating Authority (NCLT, New Delhi) in Company

Application C.A. No. 1682/2019 filed by Shri Debashis Nanda,

Liquidator of J.V. Strips Limited in C.P. (IB) No. 452/ND/2017.

2. The Appellant is aggrieved by the Impugned Order in that

certain transactions of the Appellant with the Corporate Debtor

J.V. Strips Limited have been held as undervalued transactions

by the Impugned Order and further that the Appellant has been

directed to make payment of an amount of Rs. 31,00,475.00

which is shown against its name in the table included in

paragraph 26 of the Impugned Order.

3. Shorn of unnecessary detail, the Appellant's case is that it

supplied certain raw materials to the Corporate Debtor starting

from September, 2017 and had a running account of payments

being made to the Corporate Debtor against these supplies.

4. According to the Appellant, it had supplied certain raw

materials to the Corporate Debtor for which an amount of

Company Appeal (AT) (Ins.) No. 1166 of 2022 3 of 13 Rs.31,00,474.60 was the balance remaining to be paid to the

Corporate Debtor as on 31.03.2018. After an RTGS payment of

Rs. 16,36,223.40 made by the Appellant to the Corporate Debtor

on 29.01.2018.

5. The Appellant has further submitted that there were issues

of poor quality of raw material supplied by the Corporate Debtor

and certain other matters relating to processing cost and rate

difference (discounts) which were discussed between the

Appellant and the Corporate Debtor in a meeting on 03.04.2018,

whereafter, after certain discounts, a total amount of

Rs.30,92,710.00 was to be credited to the Appellant's account,

and consequently only an amount of Rs. 7,764.60 was required

to be paid by the Appellant to the Corporate Debtor.

6. The Appellant has further submitted that the amount

relating to poor quality, processing costs, rate difference and

discounts thereof were all decided to be given in the ordinary

course of business, and therefore the adjudication in the

Impugned Order that these amounts relate to undervaluing of the

transaction between Corporate Debtor and the Appellant is not

correct, and on this account the Impugned Order should be set

aside and only a direction be issued for an amount of Rs.7,764.60

Company Appeal (AT) (Ins.) No. 1166 of 2022 4 of 13 which remains as outstanding, to be payable to the Corporate

Debtor by the Appellant.

7. We heard the oral arguments advanced by the Learned

Counsels for the Appellant and the Liquidator / Respondent and

also perused the record with their able assistance.

8. The Learned Counsel for Appellant has argued that the

ledger account maintained by the Appellant regarding

transactions with the Corporate Debtor show very clearly that an

RTGS payment of Rs. 16,36,223.40 was made to the Corporate

Debtor on 29.01.2018 whereafter an amount of Rs. 31,00,474.60

remained to be paid to the Corporate Debtor. She has further

argued that as on 31.03.2018 an amount of Rs. 31,00,474.60

remained to be paid to the Corporate Debtor by the Appellant,

which appears in the ledger account submitted by the Appellant

(attached at pp. 163 to 164 of appeal paper book). She has further

argued that after the meeting dated 03.04.2018, wherein certain

discounts were allowed due to quality problem, labour and other

charges and rate difference amounting to Rs. 13,76,320.00,

Rs.10,00,960.00 and Rs. 7,15,430.00 respectively, these

discounts were entered in the ledger account on 05.04.2018. She

has, thus, contended that only an amount of Rs. 7,764.60

remains to be paid by the Appellant to the Corporate Debtor.

Company Appeal (AT) (Ins.) No. 1166 of 2022 5 of 13

9. The Learned Counsel for Appellant has also referred to

minutes of another meeting held on the same day in which total

amount of Rs. 30,92,710.00 has been shown as the amount for

which debit notes were issued. The minutes of both the meetings

are attached by the Appellant at pp. 153 - 154 of the appeal paper

book. On the basis of the decisions taken in both these meetings,

the learned Counsel for Appellant has argued that a total amount

of Rs. 30,92,710.00 was decided to be recovered by the Appellant

from the Corporate Debtor. The Learned Counsel has also argued

that the two meetings and the decisions taken therein were done

in the ordinary course of business and discussion of issues and

decision about poor quality of raw material and discounts due to

processing cost and rate difference were also done in connection

with the ordinary course of business. Therefore, the order passed

by the Adjudicating Authority whereby the Appellant has been

asked to refund an amount of Rs. 31,00,475.00 in the bank

account of the Corporate Debtor is not correct and should be set

aside.

10. The Learned Counsel for Respondent / Liquidator has

argued that the Corporate Insolvency Resolution Process (in

short "CIRP") against the Corporate Debtor commenced on

13.04.2018 and later order for liquidation of the Corporate

Debtor was passed on 18.02.2019. He has argued that in ledger

Company Appeal (AT) (Ins.) No. 1166 of 2022 6 of 13 account maintained by the Corporate Debtor and available to the

Liquidator as part of record of the Corporate Debtor shows that

after a payment through RTGS of an amount Rs. 16,36,223.40 a

net amount of Rs. 31,00,474.60 remained to be paid by the

Appellant to the Corporate Debtor, and this figure appears clearly

in the ledger account maintained by the Corporate Debtor

(attached at pg. 206 of appeal paper book). He has further pointed

out that on 31.03.2018 a discount of Rs. 6,19,273.00 has been

allowed @ 5% of C/Y sale and further deduction of an amount

Rs. 13,76,320.00 has been allowed due to quality problem,

discount of Rs.10,00,960.00 has been allowed due to labour and

other charges and discount of Rs. 7,15,430.00 has been allowed

as rate difference. He has clarified that among these deductions,

the last three deductions relating to poor quality of raw material,

labour and other charges and rate difference were entered in the

ledger account on 05.04.2018 after the purported meeting of

03.04.2018.

11. The Learned Counsel for Liquidation has argued that the

CIRP of the Corporate Debtor was initiated on 13.04.2018 and

therefore these deductions regarding discount @ 5% C/Y sale,

poor quality issues, labour and other charges and due to rate

difference were allowed during the period of one year immediately

preceding the date of commencement of CIRP. Therefore, in

Company Appeal (AT) (Ins.) No. 1166 of 2022 7 of 13 accordance with Section 46(1)(i) of the IBC, these transactions

are 'avoidable transactions' and further as per Section 45(2)(b)

they are hugely undervalued and have not taken place in the

ordinary course of business of the Corporate Debtor but to

provide undue benefit to the Appellant and to the detriment of

the Corporate Debtor.

12. Regarding the argument that the above mentioned

transactions were not done in the ordinary course of business,

the Learned Counsel for Liquidator has pointed out that the

supplies of raw material was made starting from September 2017

and the Appellant made payments in the running account of the

Corporate Debtor for raw material supplies, with the last

payment of Rs. 16,36,223.40 made through RTGS on

29.01.2018, while the application for initiation of CIRP was under

consideration of the Adjudicating Authority. He has further

argued that even when the raw material was received and before

making any payments on account of such supply, the Corporate

Debtor never raised any objection or demur regarding the poor

quality of the raw material and any other deductions/discounts

that were desired by him, but when the final order for initiation

of CIRP was imminent, the Corporate Debtor and the Appellant

decided on the above stated discounts in meetings held on

03.04.2018, which was just ten days before the commencement

Company Appeal (AT) (Ins.) No. 1166 of 2022 8 of 13 of CIRP. He has argued that in these circumstances, the

discounts allowed to the Appellant amounting to a total of

Rs.30,92,710.00 cannot be considered to be given in the ordinary

course of business. Moreover, when the raw material was

received by the Appellant, there is no contemporaneous

document presented by the Appellant to show that he had

objected to the poor quality of the raw material or of any other

charges, and claimed any discount at that time. Therefore, the

decisions taken in the meeting held on 03.04.2018 arouse

suspicion which in the absence of cogent and reasonable

explanation, are clearly meant to provide unreasonable and

illegal benefit to the Appellant.

13. We first look at the ledger account of the Appellant

submitted by the Liquidator (attached at pg. 206 of the appeal

paper book). Appearing in this ledger account, the following

entries are relevant for this case:

"Ledger Account of J.V. Strips Limited

"J.V. Srips Limited

E8/1, 8th Floor, Kings Mall, Sector 10, Rohini, Delhi-85 (2017-18)-F

Date Fro VR. Particulars Deb Credit Dr Balance m No. it (Rs.) / (Rs.) (Rs. Cr

29.01. B4 129 RTGS No. 16,36,22 Dr 31,00,47 18 01 IDIBR52018012915 3.40 4.60 641581

31.03. J 331 Discount allowed @ 6,19,273. Dr 24,81,20 18 70 5% of C/Y Sale 00 1.60

Company Appeal (AT) (Ins.) No. 1166 of 2022 9 of 13 05.04. J 405 Amt. Allowed due to 13,76,32 18 03 quality problem 0.00

05.04. J 405 Amt. Allowed due to 10,00,96 18 03 labour and other 0.00 charges for material problem

05.04. J 405 Rate Diff. allowed to 7,15,430. Cr 6,11,508. 18 06 Technico Industries 00 40

Ltd.

14. As against the ledger account submitted by the Liquidator

attached at pg. 206 of the appeal paper book, the Appellant has

also attached a ledger account maintained by the Corporate

Debtor (attached at pg. 163-164 of the appeal paper book),

wherein the following entries are recorded:

"J.V. Srips Limited

E8/1, 8th Floor, Kings Mall, Sector 10, Rohini, Delhi-85 (2017-18)-F

Date Fro VR. Particulars Deb Credit Dr Balance m No. it (Rs.) / (Rs.) (Rs. Cr

29.01. B4 129 RTGS No. 16,36,22 Dr 31,00,47 18 01 IDIBR52018012915 3.40 4.60 641581

05.04. J 405 Amt. Allowed due to 13,76,32 18 03 quality problem 0.00

05.04. J 405 Amt. Allowed due to 10,00,96 18 03 labour and other 0.00 charges for material problem

05.04. J 405 Rate Diff. allowed to 7,15,430. Dr 7,764.00" 18 06 Technico Industries 00

Ltd.

15. From a perusal of the ledger account submitted by the

Liquidator, who has access to the records of the Corporate

Debtor, the Corporate Debtor appears to have given a discount of

Company Appeal (AT) (Ins.) No. 1166 of 2022 10 of 13 Rs.6,19,273.00 for C/Y sale, Rs. 13,76,320.00 for poor quality of

raw material, Rs. 10,00,960.00 for labour and other charges due

to material problem and Rs. 7,15,430.00 for rate difference.

16. We are of the view that the ledger account maintained by

the Corporate Debtor correctly depicts that amounts of discounts

given to the Appellant and the amount due and payable by the

Appellant to the Corporate Debtor, since the Corporate Debtor

would not have any ostensible reason not to record the entries

relating to Appellant incorrectly and further no reason has been

given by the Appellant why this Corporate Debtor's Ledger

Account should not be relied on. We therefore, place reliance on

the ledger account produced by the Liquidator which is attached

at pg. 206 of the appeal paper book.

17. The main issue in contention is whether the

abovementioned discounts were given by the Corporate Debtor

for the benefit of the Appellant in the ordinary course of business.

In this regard, we look at the recording of the reply of the

Appellant in paragraph 5 of the Impugned Order wherein the

Appellant has claimed that such discounts were mutually

decided between the Appellant and the Corporate Debtor that the

Appellant shall not pay a sum of Rs. 30,92,710.00 owing to

factors such as poor quality, processing cost and rate difference

Company Appeal (AT) (Ins.) No. 1166 of 2022 11 of 13 of the raw material. Further, the Appellant has not produced any

document apart from the minutes of meetings dated 03.04.2018

to show that he had raised issue about poor quality and other

issues for claiming discount with the Corporate Debtor at the

time of supply of the raw material, but he is now claiming these

discounts on the basis of meeting held on 03.04.2018 which took

place barely ten days before the passing of the CIRP initiation

order.

18. We have also noticed that the Appellant has not produced

any other document apart from the minutes of the meeting dated

3.4.2018 to buttress his claim that the said discounts were given

in the ordinary course of business and why these discounts were

admitted after a lapse of many months after the supply of raw

material. Moreover, we find that such benefit of discounts were

given to the Appellant within the look-back period of one year,

and therefore in the absence of cogent explanation regarding

these discounts it clearly infringes Section 45(2)(b) and fall in the

relevant period for 'avoidable transactions' as laid down

stipulated in Section 46(1)(i) of the IBC.

19. In the above mentioned situation and as per detailed

discussion in previous paragraphs, we are of the clear view that

the Adjudicating Authority has not committed any error in

Company Appeal (AT) (Ins.) No. 1166 of 2022 12 of 13 holding that the balance as on 31.03.2018 (before discount) in

respect of material supply to Technico Industries Ltd. (Appellant)

is Rs. 31,00,475.00, which is the balance shown in paragraph 26

of the Impugned Order. We thus hold the unambiguous view that

the Adjudicating Authority has not committed any error in

passing the Impugned Order.

20. We, therefore, find that the Appeal is devoid of merit and

consequently dismiss it.

21. No order as to costs.

[Justice Rakesh Kumar] Member (Judicial)

[Dr. Alok Srivastava] Member (Technical) New Delhi 19th July, 2023

pks

Company Appeal (AT) (Ins.) No. 1166 of 2022 13 of 13