BEFORE THE NATIONAL COMPANY LAW TRIBUNAL, MUMBAI BENCH

MA 436/2018 in
CP No. 172/IBC/NCLT/MB/MAH/2017

BEFORE THE NATIONAL COMPANY LAW TRIBUNAL

MUMBAI BENCH

MA 436/2018 in
CP No.172/IBC/NCLT/MB/MAH/2017

Under Section 19, 45 & 66 of the Insolvency and

Bankruptcy Code, 2016

In the Application of
Mr. Ram Ratan Kanoongo
......Applicant
(Resolution Professional)
V.

1. Mr. Sunil Kathuria

2. Mr. Anil Kathuria
3. Mr. Sohail Kathuria
4. Sohail Synthetics Private Ltd.
5. Siddhivinayak Silk Mills (HUF)
6. Balaji Synthetics (HUF)
7. Vincitore Textiles Pvt. Ltd.
8. Avante Texworld
…..Respondents

In the matter of

SBI Global Factors Ltd.

…Financial Creditor

v.

Sanaa Syntex Private Limited

….Corporate Debtor

Date of hearing: 06.05.2019

Date of Pronouncement: 07.05.2019

Coram :
Hon’ble M.K. Shrawat, Member (J)

For the Applicant :

Adv. Khushboo Shah Rajani a/w Ayush J. Rajani

For the Respondents :

None Present.

Per: M. K. Shrawat, Member (J)

ORDER

1. The Corporate Insolvency Resolution Process of Sanaa Syntex Private Limited (the
Corporate Debtor) commenced on 22.08.2017, pursuant to admission of Section 7
application (CP 172/I&BP/NCLT/MB/2017) filed by a Financial Creditor State Bank
of India. The Corporate Debtor could not be revived because the COC had not

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approved the Resolution Plan submitted for due approval of CoC, therefore,
liquidation order was passed on 19.07.2018. Consequently, Mr. Anuj Bajpai was
appointed as the Liquidator. The liquidator/Applicant in this application seeks the
following prayers :

“a. Consider and allow this MA 436/2018 in terms of section 19(2), 45, 66 read
with Section 26 of IBC, 2016;

b. Require the persons as detailed in this above, to pay such sums as stated above
in respect of benefits received by them from the Corporate Debtor as the Hon’ble
Tribunal may direct;

c. Pass appropriate directions/orders in terms of section 48,67,70, 71,72 and 73

of the Code including for recovery/restoration of legitimate amounts due to the
Corporate Debtor”.

2. It is worth to note that during the course of Corporate Insolvency Resolution Process,
the RP noticed certain transactions which appeared to be fraudulent or preferential in
nature, therefore, this application was filed by the RP during the period of Corporate
Insolvency Resolution Process. The Company could not be revived, therefore,
Liquidation order was passed for the Corporate Debtor and the Liquidator was
appointed. Now keeping in view the fact that if there is a syphoning off of funds of
the Corporate debtor, it is important that the money be brought back for the
completion of liquidation proceedings. Section 43 & 45 start with the phrase “Where
the liquidator or the resolution professional…….”, hence it can be understood that
the avoidance or preferential or undervalued transactions can be handled even at the
stage of Liquidation. Therefore, the Code leaves no iota of doubt with respect to the
idea that the defaulters should not go scot free, if the funds have been syphoned away.
Therefore, it is important to decide this application so that the doubtful transactions
be undone and the money be brought back to the Corporate Debtor. Henceforth, the
Liquidator shall take due action as prescribed under law.
3. It is submitted by the Liquidator that on admission of S. 7 Petition, when the IRP
took-over the charge of the Company on 29.09.2017, it was found that the promoters
were not conducting the business from the premises, which was the registered office
of the Corporate Debtor. It was found that the Registered office was sold to a third
party. It was ascertained that operations of the company were made from one of the
offices situated at Andheri (west), Mumbai, which belonged to son of Mr. Sohail
Kathuria, Respondent No. 1 (Promoter/Director of the Company)
4. The IRP attempted to seek information about running of the operations of the
Company; as also with regard to Auditors of the Company who had not completed

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statutory audit from the Financial Year 2016-2017. In the first COC meeting held on
26.10.2017, the IRP raised concerns over non co-operation by promoters/Directors
and auditors; pursuant to which information memorandum could not be completed.
The IRP informed that the operations of the company are being managed by one Mr.
Anil Kathuria, Respondent No.2, on a job work basis for a related party company i.e.
Vincetore Textiles Private Limited (Respondent No.7). It was found that the cash
flow of this activity was not routed through Corporate Debtor bank accounts until
30.11.2017. Subsequently, it was made routed through the bank account of the
Corporate Debtor w.e.f. 14.12.2017.
5. The Applicant submits that in the Second COC meeting held in 01.11.2017, the IRP
was replaced by the present liquidator as RP. The RP reviewed the financial
statements. Based on his examination, various transactions were noticed that have
undertaken among the parties of the Corporate Debtor and indirectly benefitting the
promoters/directors of the company raising suspicion of a potential fraud.
6. It is further submitted that the Applicant brought to the notice of the COC members
about fire incidents in some part of their factory premises in one of the units situated
at GIDC, III phase Umargaon, Gujarat in October, 2015, as a result of which
substantial physical stock of goods hypothecated with State Bank of India against
which the loans were availed was lost/damaged.
7. Therefore, the primary concern of the applicant is that the registered office of the
Corporate Debtor has been changed without following the due process as prescribed
by law.
8. The books of accounts of the Corporate Debtor are kept at Gujarat and not at the regd.
Office of the Corporate Debtor thus violating the provisions of section 128(1) of the
Companies Act, 2013 which clearly prescribes that the books of accounts of the
company are to be kept at the registered office of the company.
9. Therefore, in view of above, the Applicant seeks an order u/s 19 of the Code for a
direction for the promoters/directors of the Corporate Debtor to co-operate in
completion of Corporate Insolvency and Resolution Process, (now liquidation)
process of the Corporate Debtor.
10. The Applicant further states that an order under section 43 of the Code is to be
passed because some undervalued transactions have been seen as per the Forensic
Audit Report of April, 2018. It is mentioned that in Unit III in Gujarat, which is being
operated by Respondent No. 2, some job work is being undertaken since June 2015
for the benefit of an associate company ‘Vincitore Textiles Pvt. Ltd’ (R7 Company),
in which son of Respondent No. 2 is a Director and hence a related party, monies of
which were not routed through the bank accounts of the Corporate Debtor until
30.11.2017.

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11. It is submitted that all entries towards job sales which resulted into receivables,
amounting to ₹3,31,56,980/- have been eventually adjusted against various
fictitious expense entries. The Ledger account of R7 Company reflects the job
sales done in their favour, however, there is no money received in the bank
account of the corporate Debtor from the sale proceeds of such transactions.
12. The next contention of the Applicant is that there has been a grave fluctuation in the
sales and other relevant figures in the financials of the Corporate Debtor from 2015
onwards. The sales turnover has reduced from ₹14,143.90 Lakhs in the year 2015 to
₹359.04 Lakhs in the year 2017. Inventories in the year 2015 were worth ₹1490.13
Lakhs, however, in the year 2017, there were no inventories in the company.
13. It is further submitted in support of this contention that the Corporate Debtor suffered
a loss of ₹635 Lakhs during the financial year 2014-15. The movement of cash
balances as per the audited balance sheet for FY 2014-15, FY 2015-16 and FY 2016-
17 were as under:
FY 2014-15: ₹1,45,19,491/-
FY 2015-16: ₹3,09,080/-
FY 2016-17: ₹4,34,716/-.
Therefore, it can be seen that ₹1,42,10,411/- have been wiped off from the Corporate
Debtor’s books of accounts between March 2015 and March 2016, with no payments
being made to the lenders.
14. It is contended that ₹135 Lakhs was paid to Respondent No. 1 as repayment of loan
preferred over secured loans obtained from banks. this fact is corroborated in the
ledger account of Respondent No. 1 as reflected in the books of the Corporate Debtor.
15. Also, it is argued that an amount of ₹132.51 Lakhs taken from various lenders as
stated below has been credited to the account of Respondent No. 1.
a. Fullerton India Credit Company Ltd.: ₹28,69,063/-
b. Religare Finvest Ltd.: ₹22,79,299/-
c. HDFC Bank Ltd. (Business Loan): ₹32,05,310/-
d. Kotak Mahindra Prime Ltd.: ₹23,59,014/-
e. Kotak Mahindra Bank Ltd.: ₹25,37,923/-
Total: ₹1,32,50,609/- (₹132.51 Lakhs)
16. Therefore, the Applicant prays for recovery of ₹135 Lakhs being preferential
transaction with Respondent No. 1, the same needs to be vested into the
Corporate Debtor. Further, recovery of amount of ₹132.50 Lakhs being loan
taken by the Corporate Debtor diverted into the accounts of Respondent No. 1
needs to be vested into the Corporate Debtor.
17. It is submitted that when on 22.10.2015 fire broke out in the factory premises of the
Corporate Debtor, the entire loss of goods/inventory of ₹1,142 lakhs and plant &

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machinery worth ₹31 Lakhs was reported. The insurance policy expired on
05.10.2015, and was not renewed by the promoter directors of the Corporate Debtor.
The inventories were not covered by the insurance policy. Consequently, there was no
insurance policy to cover the inventory which is hypothecated to SBI, the lenders
have lost approx. ₹1,141 Lakhs as the Corporate Debtor received only ₹117 Lakhs
towards loss to building, plant & machinery, furniture & fixtures, electrical fittings
etc.
18. The Applicant further states that only partial stock of raw material was destroyed by
fire, while the auditor without any verification has relied on the management’s
information and written on the entire stock/inventory worth ₹1,141 lakhs as loss by
fire, whilst the final assessed loss as per the fire insurance survey report is merely
₹117.18 lakhs which includes damage to building, plant & machinery, electrical
goods, furnitures & fixtures etc.
19. Therefore, the Applicant states that due to gross negligence and wilful
conspiracy of the Respondent No. 1, the overall loss due to fire incident, caused
to the lenders being SBI is approx. ₹1,141 lakhs as claimed in the audited
financial statements ought to be vested back to the lenders.
20. The next contention of the Applicant is that the Corporate Debtor has shown inflated
debtors and incorrect Book Debts and stock statements filed by the Corporate Debtor.
Mismatch of ₹490.93 lakhs was noted between total amount of receivables as per
audited balance sheet and as per list of receivables submitted to SBI. Further, list of
receivables as per audited statement did not match with the list of receivables
submitted for DP Limits. Audited statement contained 132 receivables while the list
submitted to SBI contained only 85 receivables. Total difference noted in balance of
these 31 receivables amounted to ₹853.39 lakhs.
21. Therefore, the Applicant states that the overall loss to the lenders aggregates to
approx. ₹1,344.32 lakhs which includes ₹490.93 lakhs + ₹853.39 lakhs as stated
above.
22. It has also been brought to my notice that certain fraudulent transactions with related
parties (Respondent No. 5 & 6 being HUF of Respondent No. 1 & 2 respectively)
have taken place.
21.1. Transactions with Respondent No. 5: On evaluation of ledger accounts, multiple
adjustment entries in the form of Journal Voucher Entries (JV’s) are passed adjusting
receivables against payables/loan payables, purchases adjusted by transferring the
payable amount to the loan account of Respondent No. 5 & 6.
(₹ in Lakhs)
Sr. Name Inflow Outflow Net Outflow

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MA 436/2018 in
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No. from
Corporate
Debtor
1 Siddhivinayak Silk Mills 128.89 1,063.04 934.14
(hereinafter as
“Siddhivinayak”)
Sales: ₹97 lakhs
Purchase: ₹1,048 lakhs
2 Balaji Synthetics - 350.26 350.26
(hereinafter as “Balaji”)
Sales: ₹276 Lakhs
Purchase: ₹545 Lakhs
Total 1,284,40

a. The Applicant states that the Corporate Debtor has received loans of Approx.
₹102.32 Lacs from Siddhivinayak. Out of the total loans received, only ₹0.75
lacs was the actual inflow of money which could be traced in the Bank
statements, remaining ₹101.57 lacs were adjustment entries (JV) passed in the
books of accounts (Loan account of Siddhivinayak was credited and ledger
accounts of Sunil Kathuria, Sohail Kathuria, Sunita Kathuria, Sakshi Kathuria
and Sales/Purchase ledgers of Siddhiniyank were debited.)
b. Loans were repaid by the Corporate Debtor to Siddhivinayak amounting to
₹102.32 Lacs. Out of the total loans repaid, only ₹0.33 Lacs was actual
outflow of money which could be traced in the bank statements, remaining
₹101.99 Lacs were shown as repaid by passing adjustment entries. (Loan
account of Siddhivinayak was debited and ledger accounts of Sunil Kathuria,
Sohail Kathuria, Sunita Kathuria, Sakshi Kathuria, Siddhivinayak, K.D.
Fabrics and Amar Fab (Andheri) were credited).
c. Debtors account of Respondent No. 5 was settled by passing two journal
entries, one crediting the creditors ledger of Siddhivinayak with approx. ₹31
lakhs and one crediting the loan account of Siddhivinayak with approx. ₹20
lakhs reducing the balance to Nil in all the three ledger accounts.
21.2. Transactions with Respondent No. 6:
a. The Applicant states that the Corporate Debtor also received loans of approx.
Rs. 155.88 Lacs from Balaji. Out of the total loans received, only traced in the
Bank statements remaining Rs. 155.23 Lacs were adjustment (JV) passed in
the books of accounts (Loan account of Balaki was credit and ledger accounts

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of Anil Kathuria, Neeta Kathuria, Sales/purchases ledgers of Siddhivinayak

and Balaji were debited),
b. Loans were repaid by Corporate Debtor to amounting to ₹155.88 lacs. Out of
the total loans repaid, only rs.0.04 Lacs was actual outflow of money which
could be traced in the bank statements, remaining Rs. 155.84 Lacs were
shown as repaid by passing adjustments entries. (Loan account of Balaji was
debited and ledger accounts of Anil Kathuria, Neeta Kathuria and Balaji were
credited).
23. Hence, the total amount recoverable from Respondent No. 5 is ₹ 985.14 lakhs
[934.14 lakhs + 51 lakhs]; and the total amount recoverable from Respondent
No. 6 is ₹459.26 lakhs [₹350.26 lakhs + ₹109 lakhs].
24. The Applicant further submits that fictitious sales have been noticed to third party
Konark Synthetics Ltd. (“Konark”) for obtaining inflated bill discounting facility
from SBI. It is seen in the forensic audit report that the Corporate Debtor has also
availed bill discounting facility with SBI Global factor for one of its customer Konark
Synthetics Limited (Konark). Total limit sanctioned by SBI Global was of ₹422 Lacs
towards bill discounting facility. Review of Bank transactions around amount
credited by SBI Global for the bill discounting of sales to Konark indicated below;
a. Since 2012, approx. Rs. 3,103.30 Lacs was credited by SBI Global factor in the
Bank of the Corporate Debtor.
b. Of which approx. Rs. 592.55 Lacs (were transferred) by Corporate Debtor to its
related parties (Respondent No. 5 (Rs.392.61 Lacs), Respondent No. 6 (Rs.94.84
Lacs), Respondent No. 1 (Rs.52 Lacs) and Respondent No.4 (Rs.53.10 Lacs) from
the amount credited by SBI Global Factor.
c. It is also worthwhile to note that all the sales made to Konark were returned to the
Corporate Debtor as sales returns. In fact the last transaction with Konark is
reported on 24.03.2015, while the sales return is booked on 01.06.2015. Though
the entire sales of Rs.427.03 Lacs were returned, the Corporate Debtor continued
book sales to Konark. Such an act is clearly to defraud the creditor i.e. SBI Global
Factor.
d. The Applicant also states that Konark is located on the 2nd Floor of the same
commercial structure as that of the Corporate Debtor. Though Konark is an
unrelated party, the possibility of collusion cannot be ignored.
e. Based on the finding of the Forensic Auditor, the amounts received from SBI
Global have also been siphoned off to other related parties.
25. Hence, it is stated that the total overall loss to the lenders towards misuse of bill
discounting facility aggregates to ₹3,103.30 lakhs
26. The transactions with respect to respondent No. 3 are stated below:

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a. Review of the Bank statements indicate a total Rs. 26.77 Las of outflows and rs.
14.11 Lcas of inflow to /from Sohail during the period of 1st April, 2012 to 31st
March, 2016. The net outflows was Rs.12.66 Lacs to Sohail. No justification is
made available for such outflow.
b. A bank transaction dated 30, March, 2015 wherein rs.9.10 Lac was transferred to
Sohail Kathuria. Books of accounts indicate the same as loan given to Sohail. On
review of financial statements, forensic auditor could not establish any
relationship of Corporate Debtor with Sohail and the purpose of extending the
loan to him. As can bee seen from (iv) above, there is already an outflow of
Rs.12.66 Lacs to Sohail without any justification, the said outflow of Rs. 9.10
Lacs is additional.
c. Corporate Debtor has paid salary of Rs.2.5 Lacs and Rs.3.5 Lacs to Sohail in the
FY 2012-2013 and 2013-2014 respectively. Further, Corporate Debtor has also
booked sales of Rs.47.89 Lacs with Sohail proprietary firm Avante Texworld,
Respondent No. 8. Whilst at the end of the Financial year, accounting journal
entries.
27. Hence, it is stated that the amount recoverable from Respondent No. 3 is ₹75.65
lakhs [12.66+9.10+2.5+3.5+47.89].
28. The transactions with respect to respondent No. 4 (Parent Company of the Corporate
Debtor) is stated below:
a. Loan account of Sohail Synthetiics Private Limited was settled by adjusting it
against all receivable account to the tune of approx. Rs.191 Lacs (Refer table 2
and 3) of Forensic audit report.
29. Hence, it is stated that the amount recoverable from Respondent No. 4 is ₹191
lakhs.
30. The Applicant further states that there are adjustment entries with regards to fictitious
receivables as stated below:
a. Adjustment entries were passed for certain parties having a total transaction value
of ₹ 9,450 Lacs. Detailed are annexed in the Petition.
b. There are also indications of fictitious receivables booked by the Corporate
Debtor. Balance Confirmation letter were posted by the Applicant to 37 customer
having a receivable balance as on 31.03.2017. Total receivable balance as on
31.03.2017 for these 37 customer was Rs.1,254.91 Lacs.
c. Balance confirmation letters sent to certain 8 customers (details annexed in the
Petition) could not be delivered due to reasons like insufficient address available,
change of address by the customer, incorrect address etc. Total value of receivable
balances as on March, 3, 2017 was ₹1,137.95 Lacs.

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d. The Applicant states that letters were also sent to certain 10 customers (details
annexed in the Petition) amounting to Rs.42.69 Lacs responded stating that all the
dues were paid off and there were no outstanding payables in their books of the
Corporate Debtor.
e. The Applicant also states that letters were sent to two related parties namely Jade
Fabrics, (Proprietorship of Sakshi Kathuria and Vincitore Textiles Pvt. Ltd.),
Respondent No 7 (Varun Kathuria, Son of Respondent No.2, is a Director).
 Jade Fabrics: Total balance due was Rs.16.32 Lacs. They replied stating that
since April, 1, 2017 they had made several payments on behalf of Corporate
Debtor and it resulted into mere Rs.0.16 Lac receivable from Corporate Debtor
instead of the outstanding due of Rs.16.32 Lacs. Further on the basis of reply
from Jade, the Applicant requested for some more information and Jade
Fabrics is yet to provide their reply.
 Respondent No. 7;- Total balance due was INR 17.84 Lacs. They replied
stating that the balance dues was not matching with the balance as per their
books and requested for detailed ledger to confirm the balance. Subsequently,
ledgers were provided and Vincitore are yet to provide their reply.

f. Responses for the confirmation letter sent to 17 other parties are still awaited. The
above indicates that the collections from debtors might have been diverted to other
beneficiaries and not recorded as collections.
g. Considering the fact that the Corporate Debtor was declared as an NPA on 28
June 2015, the Applicant submits that without obtaining any prior consent or a no
objection from the financial creditors/ lenders of the Corporate Debtor, such
transactions could not be entered into and carried out. More so, the amounts have
been routed without the knowledge and consent of the financial creditors/lenders
of the Corporate Debtor. It is thus clear that the above said transactions were
executed only for the wrong and beneficial advantage of the respective related
parties.
31. It is worth to note that there are no submissions produced on record by the
Respondents. The Respondents despite service of notice by the Applicant for the
Miscellaneous Application in hand, chose neither to file any reply nor to appear
before this Bench. Affidavit of service has been produced on record by the Applicant.
It is informed by the Ld. Counsel for the Applicant that Mr. Anil Kathuria was
present on the hearing of 04.06.2018 but he chose to stay silent on this application.
Hence, it can be said that the respondents have nothing to say in their defence. The
Applicant has made out its case that the respondents were indulged in preferential,

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fraudulent and undervalued transactions. The conduct of the Respondents since the
initiation of Corporate Insolvency and Resolution Process was unacceptable and not
satisfactory to this Bench. The Erstwhile IRP also reported and recorded the same in
the 1st CoC meeting about the non co-operation by the
Respondents/Promoters/Directors.
32. Hence, in respect of the prayer of the Applicant seeking co-operation from ex
promoters/directors of the Corportae Debtor, an order is passed under section 19(3) of
the I&B Code on the ex promoters/directors to comply with the instructions of the
liquidator and to co-operate with him in collection of information and management of
the Corporate Debtor and now in completing the liquidation proceedings as well.
33. In respect of Para 10 of this order, it can be understood that this transaction falls
under section 45(2)(b) of the I&B Code, which states that:
“45. Avoidance of undervalued transactions:
(1)…………..
(2) A transaction shall be considered undervalued where the corporate debtor—
a. …………….
b. enters into a transaction with a person which involves the transfer of one or more
assets by the corporate debtor for a consideration the value of which is significantly less
than the value of the consideration provided by the corporate debtor, and such
transaction has not taken place in the ordinary course of business of the corporate
debtor.”
34. Hence, the transaction discussed in para 10 of this order is not done in the ordinary
course of business of the Corporate Debtor as assets (stock) has been transferred and
no money/payment has been received in respect of the same. Hence, exercising
jurisdiction under section 48(1)(c) of the I&B Code, it is ordered to Respondent No. 7
to pay an amount of ₹3,31,56,980/- in respect of benefit received, to the Liquidator.
35. The transactions stated in paras 15, 18, 20, 22, 24, 26 & 28 of this order are covered
under section 43(1)(a) of the I&B Code, which states as follows:
“43. Preferential transactions and relevant time:
1. ………..
2. A corporate debtor shall be deemed to have given a preference, if—
(a) there is a transfer of property or an interest thereof of the corporate debtor for the
benefit of a creditor or a surety or a guarantor for or on account of an antecedent
financial debt or operational debt or other liabilities owed by the corporate debtor;
and
(b) ……….
3. For the purposes of sub-section (2), a preference shall not include the following
transfers—
(a) transfer made in the ordinary course of the business or financial affairs of the
corporate debtor or the transferee;
(b) ………….”

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36. The transactions stated above are not made in the ordinary course of business or
financial affairs of the Corporate debtor and satisfy the criteria of section 43 of the
I&B Code to be labelled as preferential transactions. Therefore, the prayers of the
Applicant at para 15, 18, 20, 22, 24, 26 & 28 of this order are also allowed being
preferential transactions and the power is exercised under section 44(1)(d) of the I&B
Code to require the aforesaid respondents to pay such sums in respect of the benefits
received by them from the Corporate Debtor
37. In view of these observations and considering the totality of facts & circumstances of
this case, this MA is allowed in its entirety. The Respondents are directed to return
the syphoned sums as stated above in this order. The Respondents are also directed to
revert back an equal amount of benefits received by them from the Corporate Debtor.
Failure to comply with this order will push this Bench to take penal actions under
sections 70-73 of the Code.
38. MA 436 of 2018 Allowed. Ordered Accordingly.

Sd/-
Dated : 07.05.2019 M. K. SHRAWAT
MEMBER (JUDICIAL)
js

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