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Judgment
ORDER
PER SHRI. ASHOK KUMAR BHARADWAJ, MEMBER (J)
The present IA No. 2527 of 2023 has been filed by Mr. Sajeve Bhushan Deora, (hereinafter referred to as the ‘Applicant/Liquidator’) Liquidator of Nolsar International Limited (hereinafter referred to as ‘Corporate Debtor’) under Section 45 of IBC, 2016 seeking the following relief:
1.“Direct the Respondent Nos. 1 to 6, to jointly and severally, contribute, the amount of Rs. 13,39,200 which has been calculated as the amount of undervaluation in sale of two Cars, and the amount be paid with upto date interest at the rate of 12% pa from the date of sale of vehicles to the date of realisation of amount in the bank account of liquidation estate of the CD;
2.Report the undervalued transactions to the Insolvency and Bankruptcy Board of India for making a complaint to the Special Court under Section 236 of the Code, and/or
3.Issue any other direction/s and / or order/s as this Hon'ble Tribunal may consider fit and proper in the facts and circumstances of the case and in the interest of justice.”
To put succinctly, facts of the case are that the Liquidation Process qua the Corporate Debtor was initiated vide order dated 28.02.2020 and vide the same order the Applicant was appointed as Liquidator of the Corporate Debtor.
It is stated by the Applicant that the Respondents had entered into Undervalued Transactions in respect of Sale of two cars of the CD. The details of which reads thus:
Audi Car, Make 2010, sold vide Invoice No. MISC-09 dated 25.03.2018 for an amount of Rs. 3,25,000 (exclusive of GST); and
(ii). Honda Civic Car, Make 2010, sold vide Invoice No. MISC- 10 dated 25.03.2018 for an amount of Rs. 1,50,000 (exclusive of GST).
To buttress the plea that the transactions are undervalued the Applicant has espoused thus: -
The Liquidator, after examination of the Financial Statements of CD for the year ending 31.03.2018, observed that the vehicles owned by CD and having capitalized value of Rs. 44,13,450/ - were sold to Vee Stone Tyres Pvt. Ltd. (Respondent No.1). The breakup of the Purchase of the vehicles in question reads thus:
| Sl. No. | Date of purchase/put to use | Particulars of Vehicle | Original Cost (Rs.) |
| 1 | 19.02.2010 | Audi car | 30,10,000 |
| 2 | 30.10.2010 | Honda Civic car | 14,03,45 |
| Total | 44,13,4500 | ||
The Audi car, was sold vide Invoice No. MISC-09 dated 25.03.2018 for an amount of Rs. 3,25,000/- and Honda Civic car, make 2010, was sold vide Invoice No. MISC-10 dated 25.03.2018 for an amount of Rs. 1,50,000/-.
The Liquidator vide email dated 28.06.2021 and 01.07.2021 had sought the following details from the Suspended Directors of CD ("Respondent Nos. 4 to 6"). The details espoused in the Application reads thus:
“ a. Vehicle make, model and registration no.,
b. Original value of each of the vehicles sold,
c. Name of the buyers to whom these vehicles were sold,
d. Sale note and relevant documents for sale of vehicles,
e. Basis of ascertaining sale price of the vehicles, and
f. Copies of insurance cover note of vehicles sold ”
United India Insurance had insured the Honda Civic car for the period from 25.06.2017 to 24.06.2018 for Rs. 6,15,400/-, and Audi car for the period from 19.02.2018 to 18.02.2019 for Rs. 11,98,800/-.
The sale had been carried out on the same day, i.e., 25.03.2018, which is within look back period i.e., one year preceding the commencement of CIRP of CD, thus the transaction is covered by Section 45(2)(b) of IBC, 2016.
The Liquidator vide email dated 16.03.2023, addressed to Respondent Nos. 1 to 3 sought payment of amount of Rs. 13,39,200/- from Respondent Nos. 1 to 3.
The sale of the two vehicles at a meagre sum of Rs. 1,50,000/- and Rs. 3,25,000/- was carried out to the detriment of interests of CD thus caused a loss of Rs. 13,39,200/- to the Stakeholders of CD.
Vee Stone Tyres Private Limited is a related party of the CD and the ex-directors of the CD are related to directors of Vee Stone Tyres Private Limited. The amount recoverable is an amount recoverable jointly and severally from Vee Stone Tyres Private Limited, its Directors and ex-Directors of the CD.
The Respondent No.1 to 3 have filed their joint reply and have stated the following:
Liquidator has deliberately suppressed the Written Down Value (WDV) of the assets and thereby made an attempt to show that the assets were realised at a price significantly lower than the value of the assets. The WDV of the two vehicles as per calculation reads thus:
As per Section 133 of the Companies Act, 2013, all the Companies have to comply with the Accounting Standards. Further, AS-16 was applicable with respect to the Depreciation. The relevant excerpts of AS-16 as relied by the Respondents reads thus:
“"Depreciable amount" is the cost of an asset, or other amount substituted for cost, less its residual value.”
"Depreciation" is the systematic allocation of the depreciable amount of an asset over its useful life.”
Useful life is:
(a)the period over which an asset is expected to be available for use by an entity”
The useful life of a vehicle in India is considered as 15 years and therefore systematic allocation of depreciable amount is charged to arrive at Written Down Value (Realisable Value) of the Vehicle.
It is pertinent to note here that the Audi Car purchased by the respondent on 25.03.2018 was more than 8 years old vehicle and due to strict norms in Delhi NCR Region regarding diesel vehicles, the life of the vehicle is reduced to 10 years and such old vehicles needs to be discarded after the completion of 10 years. Therefore, the vehicle i.e. Audi Car 2010 make purchased by the answering respondent was having residual life of just 2 years and therefore the alleged valuation of Rs. 11,98,800/- is just hypothetical and is based on the value assessed for Insurance Premium, which may not be relied upon for the purpose of assessing the value under IBC, 2016.
The premium payable for insuring a vehicle have very little amount of variation for higher IDV (Insured Value), it is a practice to pay little more money and insure the vehicle for higher IDV to safeguard against the eventuality of total loss to the vehicle. Hence, while making a declaration for insuring a vehicle, as a normal practice a self-assessed valuation is made at the time of taking an insurance policy and neither any assessment nor any valuation is made by insurance company.
After getting the assessment of vehicles by competent motor mechanics and considering the cost of repairs and maintenances and also residual life of the vehicles, the vehicles were purchased by the respondent at a fair value which was higher than the depreciated value of the vehicles and therefore terming them as undervalued transactions are totally baseless.
The Respondent No.4 has filed its Reply and Written Submissions and has adopted the same submissions of Respondent No.1 to 3 except the following:
Schedule II of the Companies Act, 2013 read with section 123 of the Companies Act, 2013 prescribes that the depreciation to be charged to arrive at true and fair view of the profit and loss account.
Insured Value (IDV) is not the market value and it is merely representation of insurance in the event of the eventuality of total loss of vehicle and not in the event of any mechanical or other defects.
The Respondent NO.4 has also obtained value of the cars from third party vendors. The copy of valuation of cars reproduced by Respondent No.4 reads thus:
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Respondent No. 5 and 6 have not filed their reply. Further they were proceeded against ex-parte video order dated 19.07.2023 therefore, it is presumed that they have nothing to say in the matter.
We have heard the submissions of both the parties and have perused the documents placed on record. The Liquidator had alleged that the sale of car whose details given in Para 4.1 to be Undervalued on the ground that the United India Insurance had insured the Honda Civic car for the period from 25.06.2017 to 24.06.2018 for Rs. 6,15,400/-, and Audi car for the period from 19.02.2018 to 18.02.2019 for Rs. 11,98,800/-, whereas the Respondents have sold the cars at a meager amount of Rs 4,75,000. Per contra the Respondents have contended that the Liquidator has not computed the Depreciated value of the cars in accordance with the Accounting Standards and has solely relied upon the Insured value of the vehicle.
From perusal of the record it is observed that Liquidator has not conducted the valuation of the cars from the Registered Valuers. We find credence in the submissions made by the Respondent that the Depreciation of vehicle needs to be taken into account while computing Fair Market Value of the vehicles. Further in our considered view, the Insured value of the vehicle cannot be solely relied upon while computing Fair Market value, in absence of valuation computed in accordance with the Accounting Standards.
Since no valuation has been conducted by the Liquidator, we direct that the valuation of the vehicles in question be conducted through the 2 Registered Valuers, in accordance with the Accounting Standards prescribed by law.
In case the value of the 02 vehicles as on date of sale is found more than the average amount computed by the Registered Valuers, the Respondents would be jointly and severally liable to reimburse the differential amount in the Liquidation Account of the Corporate Debtor.
The Application is disposed of with the aforesaid directions.