Vinod Tarachandra Agrawal vs Rakshit Ashwinbhai Patel & Ors.

1)

Your Lordship may be pleased to allow the present application.

2)

Your Lordship may kindly declare that the transactions mentioned in paragraph no. 7A to 7D are fraudulent trading as provided under section 66 read with section 67 of the Insolvency and Bankruptcy Code, 2016

3)

Your Lordship may kindly issue order requiring any money/benefits transferred fraudulently by the Corporate Debtor in favour of other parties to be restored back to the Corporate Debtor; and or

4)

Your Lordship may kindly issue order for initiating appropriate proceedings against directors of the suspended management as well as the beneficiaries under the said transactions as provided under the Insolvency and Bankruptcy Code, 2016 for fraudulent/wrongful trading with the intention to defraud the creditors; and/or

5)

Your Lordship may be pleased to grant any other relief as may deem fit in the interest of justice.

A. Transaction of Jay Formulations Ltd. with DMP Healthcare: -

B. Status of Fixed Assets:

C. Transaction of Jay Formulations Ltd. With M/s. Sukrut Pharma: -

D. Transaction of Jay Formulations Ltd. with Khodal Pharmaceuticals: -

viii) The applicant thus has a humble submission that aforementioned submissions are formed on the basis of the available books of accounts and transaction audit report dated 14.06.2024. The applicant humbly submitted that the submission made by the applicant is nothing but a genuine analysis and finding from the data made available to him by the suspended management. Hence, the same may kindly be taken into consideration in the interest of justice.

ix) The applicant has further submitted that as per Regulation 35A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016, the applicant as Resolution Professional has made the following determination on fraudulent transactions as under section 66 of the Insolvency and Bankruptcy Code, 2016:

A. On transaction with M/s DMP Healthcare (receivable of Rs.36,21,91,872.60 as per opening balance as on 01.04.2021).

1.

1. DMP Healthcare is a related party to Jay Formulations Ltd.

2.

2. Jay Formulations Ltd. has not made any efforts for recovery from DMP Healthcare, the debtor which shows malafide intentions of the suspended management.

3.

3. The transaction between Jay Formulations and DMP Healthcare does not seem to be in the normal course of business

4.

4. The suspended management has provided no justification for the payment made.

5.

5. Hence, even though having a significant receivable amount, Jay Formulations Ltd. has not made any efforts for the recovery of the same. This will give disadvantage to the creditors of Jay Formulations Ltd. which implies that section 53 of The Insolvency and Bankruptcy Code, 2016 is not adhered.

6.

Thus, as per the aforementioned submissions the same will be treated as Fraudulent in nature.

B. The Transaction of the car and loan amount along with the period is mentioned herein:

Details of the car and loan amount alongwith the period is mentioned herein:

Sr. No.	Car and Loan Amount	Period
1	(BMW Car Loan- 37126978440)	31/08/2017

	Rs.1,23,00,872.22	to 16/12/2024
2	(I20 Car - 36975597782) Rs.13,11,667.02	29/06/2017 to 29/02/2024
3	(Mercedes -Benz - 10140056) Rs.27,48,621.00	18/01/2020 to 24/01/2024
4	(EECO CAR - 39358623055) Rs. 8,13,614.00	30.05.2020 to 09.02.2022

1.

The applicant humbly submits that suspended management was aware regarding ownership of the cars and repayment of personal car loan from the account of Jay Formulations Ltd. hence malafide intension is clearly shown.

2.

The applicant further humbly submits that on the date of payment, Jay Formulations Ltd.'s account was declared a Non-Performing Asset, and payment to secured creditors was overdue. Thus, Section 53 of the Insolvency and Bankruptcy Code, 2016, is violated, and the waterfall mechanism would not be adhered to; hence, such transactions do not give fair treatment to the stakeholders.

3.

The transaction between Jay Formulations Ltd. and its directors does not seem to be in the normal course of business

4.

The suspended management has provided no justification for the payment made.

5.

Hence, the payment made towards the personal loan from the funds of the company i.e. Jay Formulations Ltd. the same will not be treated as fair treatment of the funds of Jay Formulations Ltd. and thus the same will be treated as Fraudulent in nature.

C. Non-availability of Fixed Assets (Cars/Vehicles as on 31.03.2021 amount Rs.18,38,212.85)

1.

The applicant humbly submits that the mentioning of vehicles is missing in the assets of Jay Formulations Ltd. even though Written Down Value is reflecting in the tally records of Jay Formulations Ltd.

2.

The applicant further humbly submits that the physical handover of the assets to the applicant was not given by the suspended management. Further, it is pertinent to note that till the date of initiation of the Committee of Creditors, physical control of assets was with suspended management only.

3.

The suspended management has provided no justification for the payment made.

4.

Hence, it is humbly submitted that misrepresentation of the assets of the company is not a fair practice opted by Jay Formulations Ltd. and in this way, it will not give advantage to the stakeholders of Jay Formulations Ltd. while distribution under the waterfall mechanism as per Section 53 of the Code. Thus, the same will be treated as Fraudulent in nature.

D. Transaction of Jay Formulations Ltd. with Sukrut Pharma during 02.04.2021 to 29.09.2023 amounting to Rs 14,37,14,242/-

1.

The applicant humbly submits that the payment made to Sukrut Pharma is omitted from the tally records of Jay Formulations Ltd.

2.

The records show that there is a relation between Sukrut Pharma and suspended management of Jay Formulations Ltd.

3.

Further, it is humbly submitted that on the date of payment, Jay Formulations Ltd.'s account was declared a Non-Performing Asset, and payment to secured creditors was overdue. Thus, Section 53 of the Insolvency and Bankruptcy Code, 2016, is violated, and the waterfall mechanism would not be adhered to, which does not give fair treatment to the stakeholders.

4.

The suspended management has provided no justification for the payment made.

5.

Hence, it is humbly submitted that utilization of receipts of sales against the payment to Sukrut Pharma and the same is not represented in the records of Jay Formulations Ltd., which will thus be treated as fraudulent in nature.

E. Transaction done by Jay Formulations Ltd. with Khodal Pharmaceuticals 02.04.2021 to 29.09.2023 amounting to Rs 4,26,13,434/-

1.

The applicant further humbly submits that the payment made to Khodal Pharmaceuticals is a payment made to a related party of Jay Formulations Ltd.

2.

The applicant humbly submits that the payment made to Khodal Pharmaceuticals is omitted from the tally records of Jay Formulations Ltd.

3.

Further, it is humbly submitted that on the date of payment, Jay Formulations Ltd.'s account was declared a Non-Performing Asset, and payment to secured creditors was overdue. Thus, Section 53 of the Insolvency and Bankruptcy Code, 2016, is violated, and the waterfall mechanism would not be adhered to, which does not give fair treatment to the stakeholders.

4.

The suspended management has provided no justification for the payment made.

5.

Hence, it is humbly submitted that utilization of receipts of sales against the payment to Khodal Pharmaceuticals and the same is not represented in the records of Jay Formulations Ltd. which will thus be treated as fraudulent in nature.

x)

The applicant craves leave of this Hon'ble Tribunal to kindly add, amend and alter this application as and when found necessary.

xi) The applicant submits that requisite fee amounting to Rs.1,000/- is paid by the applicant online and receipt of the same is made part of this application.

1.

The captioned interlocutory application was listed before this Hon'ble Tribunal on 09.12.2024 wherein this Hon'ble Tribunal has been pleased to hear the matter for final consideration. However, during the submission, this Hon'ble Tribunal with regard to the fraudulent transactions mentioned in para 7A, 7C and 7D of the captioned interlocutory application raised queries on proof of steps of recovery and proof of the working of the amount receivable from the related parties of the corporate debtor for the relevant period mentioned in the transaction audit report submitted by the Forensic Auditor on 15.06.2024. Hence, this affidavit is filed to bring on record the appropriate proof to substantiate the claim of the applicant as mentioned in the captioned interlocutory application.

2.

The applicant humbly submits that in the audit report, the first fraudulent transaction mentioned as per para 7A is of the transaction of the corporate debtor with DMP Healthcare which is a related party of the corporate debtor. Further, it is humbly submitted that at the financial year ending on 31.03.2021, the corporate debtor has an amount of Rs 36.22 crores receivable from DMP Healthcare. Further, as on 01.03.2022, the corporate debtor has written off bad debt of DMP Healthcare for an amount of Rs 3.40 crores.

3.

In furtherance to the same, it is humbly submitted that when such transaction was found by the applicant, the applicant intimated In furtherance to the same, it is humbly submitted that when such transaction was found by the applicant, the applicant intimated

4.

Thereafter, the third fraudulent transaction mentioned in para 7C is of the transactions entered by corporate debtor with Sukrut Pharma. It is humbly submitted that the corporate debtor has made payment of Rs 14,37,14,242.00/- to Sukrut Pharma during the period 02.04.2021 to 29.09.2023. Further, it is pertinent to note that such transactions are found from the statement of account of Sarvodaya Commercial Cooperative Bank Ltd. which is having mention in form of debit and credit in the tally data available with the applicant but there are no documents to substantiate such transactions. Hence, such transactions suggest of fraudulent activities. Hence, the total working of amount transferred from corporate debtor account to Sukrut Pharma is herein marked and annexed as Annexure B.

5.

Further, the fourth fraudulent transaction mentioned in para 7D is of the transactions entered by corporate debtor with Khodal Pharmaceuticals. It is humbly submitted that the corporate debtor has made payment of Rs.4,26,13,434.00/- to Khodal Pharmaceuticals during the period 02.04.2021 to 26.10.2023. Further, it is pertinent to note that such transactions are found from the statement of account of Sarvodaya Commercial Cooperative Bank Ltd. which is having mention in form of debit and credit in the tally data available with the applicant but there are no documents to substantiate such transactions. Hence, such transactions suggest of fraudulent activities. Hence, the total working of amount transferred from corporate debtor account to Khodal Pharmaceuticals is herein marked and annexed as Annexure C.

6.

The applicant in order to substantiate the submission of debit and credit entries done by the corporate debtor with Sukrut Pharma as well as Khodal Pharmaceuticals is hereby marking and annexing the copy of the statement of account of corporate debtor maintained with Sarvodaya Commercial Cooperative Bank Ltd. as Annexure D.

"Now the physical copy of the Reply of R-1 to R-3 is available which was filed vide Diary No. D-366 on 21.01.2025. Further, the Applicant as well as R-1 to R-3 have filed their written submissions.

On perusal of reply of R-1 to R-3, reflects that this reply has been filed by R-1 for self and on behalf of R-2 and 3. But no supporting documents / affidavit on oath qua adoption of reply of the R-1 by R-2 and R-3 has been filed.

Ld. Counsel for R-1 to R-3 undertakes to file within 03 days affidavit / declaration on oath of R-2 and R-3 qua adoption of the reply filed by R-1.

Ld. Counsel for R-1 to R-3, during the course of submissions, made a statement that there are certain documents which are in possession of R-1 to 3 being in voluminous. However, these documents could not be annexed with the reply but are unnecessary for referring in defence in reply, Therefore, they may be permitted to place on record those documents by way of additional affidavit in continuation of reply filed by them with advance copy to the opposite side.

The same be filed within 03 days subject to deposit of cost of Rs. 10,000/- each by the Respondents in the Prime Minister's National Relief Fund.

Ld. Counsel for the Applicant / RP is at liberty to rebut the same within 03 days thereafter.

R-1 to R-3 is directed to remain physically present on the next date of hearing.

Re-list on 05.03.2025."

1.

The respondents have deposited the cost of Rs. 10,000/- in Prime Minister National Relief Fund as directed by the court vide order dated 08.01.2025. A copy of proof of payment is annexed as Annexure-A to the reply.

2.

At the outset, the transactions as mentioned in the present application filed by the Resolution Professional does not fall under the ambit of section 66 of the Code and therefore the application is liable to be rejected as it is filed without application of mind and proper due diligence.

3.

The entire contents of the aforesaid application are untrue and suffer from suppression veri, suggestio falsi as the applicant has suppressed many material facts and stated false things to mislead this Hon'ble Tribunal.

4.

With regard to the contents of para 3 of the affidavit in respect to the allegations raised by the R.P for the transactions between Corporate Debtor and DMP Healthcare, the respondents deny the same and humbly submits that: -

i.

The respondents company i.e. Corporate Debtor and DMP Healthcare have been in business terms since 2015 and in all these years Corporate Debtor have raised multiple invoices to DMP Healthcare which have been paid in full. ii. That from April 2020 to March 2021 Corporate Debtor had supplied goods worth crores to DMP Healthcare and transactions for the same are reflected in the ledger. A copy of Ledger has been annexed as ANNEXURE-B. iii. This is an undisputed fact that the amount in question i.e. 36.22 crore are outstanding and the same is reflecting in the ledger account of Corporate Debtor. There is a common practice that payments are receivable 120 days after date of delivery. Hence the amount mentioned by the R.P was pending receivable in the books. iv. The respondents humbly submit that for the goods supplied the Corporate Debtors have raised various invoices in the name of DMP Healthcare and paid GST for the same. A copy of proof of payment of GST has been annexed as ANNEXURE-C.

v.

That the bank used to conduct stock audits on regular intervals and in last 30 years the bank had never found any discrepancies in any of the stock audit conducted by them. The last stock audit was done on 31.03.2021.

vi.

In the month of December DMP Healthcare had disputed and raised concern with respect to the quality of the goods, damaged goods and excess material supplied other than purchased order and after numerous communications exchanged a certain percentage of discount was given on the goods supplied and hence an amount of 3.40 crores was written as bad debts in the ledger books of Corporate Debtor. Even after such an amount of 2.28 crores in the month of January and 4.33 crores in the month of February was received from DMP Healthcare for earlier orders.

vii.

That because of second wave of covid-19 in the month of April Respondent No.1 & Respondent No.2 both were infected and were treated for about 40-45 days because of which we could not take care of day-to-day operation of the company hence there was a communication gap regarding the pending payment which was receivable from DMP Healthcare as well as other debtors. The same was also communicated to the bank for their delay in repayment of the loan, i.e. SBI vide letter dated 19th May 2021. A copy of letter dated 19th May 2021 has been annexed as ANNEXURE- D.

viii.

Thereafter Corporate Debtor had demanded the payment of pending dues from DMP Healthcare for which they had informed us that because of the second wave of covid-19 the day-to-day business activities have been affected because of which payment got delayed and asked us to grant extra time for payment of pending dues. Considering the current situation of the market which was affected due to covid-19 we extended some time for payment. Since then, Corporate Debtors had repeatedly reminded DMP Healthcare for payment of pending invoices/dues.

ix.

That in around May 2022 DMP Healthcare informed us that the material supplied by Corporate Debtor expired and the material was disposed by them.

5.

The Respondents do hereby humbly submit that the transactions made were not made with intent to defraud creditors of the corporate debtor or for any fraudulent purpose but were made in regular course of business as per law. Hence the respondents do not fall under the preview of section 66 of The Insolvency and Bankruptcy Code 2016.

6.

With regard to the contents of para 5 and 6 of the affidavit in respect to the allegations raised by the R.P for the transactions of Corporate Debtor with Sukrut Pharma and Khodal Pharmaceuticals the respondents deny the same and humbly submits that: -

i.

In March 2021 the account of Corporate Debtor became irregular. Because of the same the Corporate Debtor faced lot of issues in terms of receiving pending payments. Hence in April 2021 Corporate Debtor had no other option but to open a new account in Sarvoday Commercial Cooperative Bank Ltd. to keep the company as a going concern and meet its day-to-day expenses. And on 30.06.2021 the account of the Corporate Debtor was declared NPA by SBI.

ii.

That, to keep the company as a going concern Corporate Debtor undeniably took help from Sukrut Pharma and Khodal Pharmaceuticals and the amounts which were receivable to Corporate Debtor were transferred into the Account of Sarvodaya Commercial Cooperative Bank Ltd. and were further transferred to Sukrut Pharma and Khodal Pharmaceuticals.

iii.

For the amount in question Rs 14,37,14,242.00/- and Rs 4,26,13,434.00/- respectively, each transaction has been taken on record and same is reflecting in the bank statement which was provided to R.P. Each amount which was transferred to Sukrut Pharma and Khodal Pharmaceuticals was only for the payment of the day-to-day operational expense i.e. Salary, Legal & Professional charges, electricity bills, suppliers etc, which occurred in the course of time till CIRP admission order.

iv.

All such transactions and the amount can be accounted for since they are reflecting in the statement of Corporate Debtors, hence the final closing balance of Corporate Debtor with Sukrut Pharma and Khodal Pharmaceuticals is NIL and ledger reflecting the same was provided to the R.P and may be verified by R.P.

7.

The application under section 66 of The Insolvency and Bankruptcy Code 2016 Read with Rule 11 Of the National Company Law Tribunal Rules, 2016 for Fraudulent Transaction is ambiguous in nature and is baseless, not true and is filed with malafide intentions without any conclusive supporting evidence.

"Ld. Counsel for the respondent Nos. 1 to 3 has filed an additional affidavit with the additional documents on 05.03.2025, vide inward diary No. D-1499, for which an IA has also been filed being IA/381(AHM) 2025 in IA/1064(AHM) 2024, which is listed today in the Board seeking condonation of delay of 25 days in filing the affidavit along with additional documents. We have heard the Ld. Counsel for the respondent Nos. 1 to 3 as well as Counsel for the applicant and perused the records.

In view of the above, IA/381(AHM) 2025 is allowed and disposed of, and the delay is condoned.

Accordingly, the affidavit along with additional documents filed on 05.03.2025, vide inward diary No. D-1499, is taken on record.

Further, the applicant has also filed an affidavit in reply to the further affidavit of the respondent Nos. 1 to 3 on 24.03.2025, vide inward diary No. D-1976. The same is also taken on record.

The appearing Counsel for the parties' states that now the pleadings in this IA is also complete.

Let the revised written submissions along with Convenience Compilation Chart in Tabular Form along-with relevant pages of Annexures with page No. forming part of pleadings, mentioning the facts, considering the reply, rejoinder, various issues involved, and point of law therein, citation, if any, in support of their submissions within three working days not more than five pages, with exchanging each other through both modes.

Re-list IA/1064(AHM) 2024 on 02.04.2025."

i. TRANSACTION WITH KHODAL PHARMACEUTICALS AND SUKRUT PHARMA;

A. The respondents with regard to transactions with Khodal Pharmaceuticals and Sukrut Pharma has merely provided ledger details with regard to both the parties which are generated from the tally data of Jay Formulations Ltd. The same ledger details are also provided by the applicant in the application filed before this Hon'ble Tribunal. Hence, nothing substantial is submitted primarily in the ledgers provided by the respondents with regard to transactions with Khodal Pharmaceuticals and Sukrut Pharma.

B. Further, the respondents have provided the vouchers which are also from the books of Jay Formulations Ltd. However, the same are incomplete and improperly formatted, lacking essential elements such as signatures and stamps, which significantly undermines their authenticity and reliability as supporting evidence. Furthermore, critical third-party documents such as the Bank Statements of Khodal Pharmaceuticals and Sukrut Pharma for the stated periods have not been provided, which are essential for verifying financial transactions.

C. Further, in addition to the above, no ledger of Jay Formulations Ltd. in the books of third-party Khodal Pharmaceuticals and Sukrut Pharma have been submitted, which would have been crucial to establish the accuracy and completeness of the financial records.

D. Moreover, no third-party documents have been provided that would substantiate actual payments made on behalf of Jay Formulations Limited.

E. Hence, taking into consideration the aforementioned circumstances as per the documents submitted by the respondent no. 1 to 3. The opinion of the applicant has been formed that the further documents has been submitted for merely hard copy print from books of accounts. Hence, no legitimate document is submitted by the respondent no. 1 to 3 which can be sufficient to consider that an expense has been on a particular date to a particular party in a particular mode for a particular person. Hence, in absence of sufficient evidences against the transactions entered with Khodal Pharmaceuticals as well as Sukrut Pharma, the applicant humbly submits that the transactions entered by Jay Formulations Ltd. with Khodal Pharmaceuticals as well as Sukrut Pharma has to be classified as fraudulent transactions in the interest of justice.

TRANSACTION WITH DMP HEALTHCARE

F. Further, with regard to the transactions entered with DMP Healthcare, the respondents have submitted various letters and even response of DMP Healthcare against the same wherein DMP Healthcare has raised concerns regarding the quality of supplies, delayed deliveries, and instances of supply being made without any order. Documents supporting these claims have been shared. However, since these transactions occurred before CIRP, and there are no documents evidencing the actual mode of correspondence like email copy/post receipt. Hence, an opinion on such letter or documents cannot be formed.

STATUS OF FIXED ASSETS

G. The respondent themselves has stated in the further affidavit that the cars were in name of respondents and that the payments were paid by corporate debtor i.e. Jay Formulations Ltd. as director perquisites. Hence, the respondents have themselves submitted about the status of fixed assets.

ii.

The applicant hence humbly submits that the documents submitted vide the further affidavit are insufficient to prove that the transactions entered by Jay Formulations Ltd. with Khodal Pharmaceuticals, Sukrut Pharma and DMP Healthcare were genuine. Moreover, the missing of essential things in a document showcases that the documents submitted are not genuine and have less evidentiary value to take into consideration as a proof that the transactions entered with aforementioned parties are genuine and not fraudulent.

Section 66(1): If, during CIRP, it is found that the business of the corporate debtor was carried on with intent to defraud creditors or for any fraudulent purpose, the Adjudicating Authority may direct any person who knowingly carried on such business to make contributions to the assets of the corporate debtor.

Section 66(2): If the directors were knowingly party to carrying on the business in a manner that caused wrongful trading, knowing that insolvency was inevitable, they may be directed to make contributions.

"The cars mentioned in the present application are in the name of the respondents and the instalments were paid by the Corporate Debtor as Directors Perquisites."

Directions of this Tribunal:

A. In relation to M/s. DMP Healthcare:

B. In relation to Automobiles owned in the name of the Directors: -

D. In relation to the Transaction with M/s. Sukrut Pharma:

E. In relation to the Transaction with M/s. Khodal Pharmaceuticals: