1. Classic Transformers Private Limited (Corporate Debtor or CD) was incorporated in 1985. It is classified as Non-Government company and it has its registered office in Ahmedabad. It has one manufacturing unit in Talegaon district in Pune, Maharashtra and a principal office in New Delhi. As per records of MCA, its authorized share capital and paid-up share capital is Rs. 200 lacs. It carries on the business of manufacture of television and radio transmitters and wireless apparatus. The directors of Classic Transformers Private Limited are Mr. Paras Singhania and Mr. Raman Nair.
2. One of the operational creditors, Best Tradex Private Limited filed an application for initiating corporate insolvency resolution process of Classic Transformers Private Limited for non-payment of its dues to the tune of Rs. 1.30 crores. The Adjudicating Authority, after issuing notice to the CD passes an order of admission on 30th August, 2023. Mr. Rajiv Khosla was appointed as Interim Resolution Professional (IRP)on the same date. In its first meeting held on 10th October, 2023, committee of creditors appointed Ms. Anamika Rajendran as Resolution Professional (RP) in place of Mr. Rajiv Khosla.
3. IRP had made a public announcement in Form A on 1st September, 2023 in two newspapers (one english language newspaper and one regional language newspaper) in english language circulating at the location of the registered office of the company and in Pune, as the IRP felt that the CD conducts material business operations from Pune also. It was also published on the website of CD and website designated by IBBI. The last date for submission was stated as 13th September, 2023. Mr. Rajiv Khosla incurred Rs. 80,000/- as cost of publishing. The committee of creditors ratified the expense on publication to the tune of Rs. 50,000/- in its first meeting. IRP has filed application (IA 510 of 2023) against CoC and Best Tradex Pvt Ltd. for payment of remaining publication expenses.
4. The following claims were received and admitted by Mr. Rajiv Khosla, IRP and later on by Ms. Anamika Rajendran, RP :

5. The break-up of claims admitted till date is as under :

Financial Creditors         – Rs. 9.70 crores

Operational Creditors – Rs. 6.15 crores

 Total                               Rs. 15.85 crores

6. The committee of creditors was constituted by IRP as follows:
7. Janta Bank
8. Parivaar Bank
9. Revive Finance
10. Big Lease
11. According to IRP, though Raman Nair is a financial creditor but being a suspended director, he is not part of committee of creditors. IRP had written to all operational creditors to select one of their representatives to participate in the meeting of committee of creditors but despite sending 3 emails, the operational creditors collectively have not named a single representative. 
12. IRP and RP invited suspended directors Paras Singhania and Raman Nair to attend meeting of committee of creditors by sending them notices of all committee of creditors meetings. Three meetings of committee of creditors were held until 12th December, 2023.
13. One of the operational creditors Electrolux Supplies Inc based in New Delhi files its claim on 15th December, 2023 with the RP for Rs. 45 lacs. After receiving the claim RP writes e-mail to Electrolux Supplies Inc. that its claim cannot be considered as it has been filed after the time limit mentioned in the Code read with CIRP Regulations though the books of account also show that Rs. 45 lacs is due to Electrolux Supplies Inc. Based on legal advice, Electrolux Supplies Inc files an application (IA 810 of 2023)  under section 60(5) before Adjudicating Authority against rejection of the claim on the ground that the delay occurred on the following grounds: 
14. Electrolux Supplies Inc was not aware of the initiation of CIRP against the CD as it is based in Gurugram (adjacent to New Delhi) and the public announcement was not made in newspapers circulating in New Delhi. 
15. RP should have admitted the claim of Electrolux Supplies Inc on the basis of books of account and it was not necessary for Electrolux Supplies Inc. to file its claim.
16. Best Tradex has also filed an application (IA 633 of 2023) before Adjudicating Authority that they have not been included in committee of creditors in terms of section 21 and 24 of the Code. RP’s stand is that since individually the operational creditor’s claim is not more than 10% of the total dues, IRP or RP was under no obligation to send notice of committee of creditors meeting to operational creditors. Best Tradex, while reiterating that since total claims of OC’s is more than 10%, being a largest OC, it is entitled to participate in committee of creditors.
17. Revive Finance, whose claim was admitted after more than 3 months of its filing, moved an application (IA 754 of 2023) to the Adjudicating Authority stating that the  decisions taken in all three meetings of committee of creditors held before they were included in committee of creditors as invalid. In these 3 meetings, they claimed, crucial decisions were taken relating to appointment of RP, ratification of expenses, appointment of valuers, approval of fees of RP and other crucial decisions relating to running of CD as a going concern. Thy also claimed that unnecessary queries were raised by IRP/RP to delay the admission of claim. On behalf of RP, it was stated that 3 emails were sent as documents filed by them are deficient, they did not submit loan agreement despite repeated emails.
18. On 1st January, 2024, the promoters of Classic Transformers Private Limited entered  into a settlement with the Applicant Best Tradex and agreed to pay all their dues in exchange of Best Tradex filing an application for withdrawal of corporate insolvency resolution process. The promoters of the CD have filed an application (IA No. 17 of 2024) to Adjudicating Authority for withdrawal on 15th January, 2024 on the basis that their claims have been paid by the promoters in full and final.
19. The books of account of the CD shows that loan of Rs. 1 crore was taken from Raman Nair in 2018 and is still outstanding. Another account “Advance to Raman Nair” appeared in the books of account and the last 2 financial years, 2021-22 and 2022-23 showed the following transactions:

RP has filed an application with the Adjudicating Authority (IA 25 of 2024) on 20th January 2024 claiming Rs 31 lacs (amount outstanding as on 30.8.2021 plus amounts paid by CD to Raman Nair on 20.12.2021, 18.9.2022 and 2.1.2023) as preferential transactions u/s 43 of the Code and prayed for recovery of these amounts. Raman Nair has filed a reply stating that these transactions are not preferential on the following grounds:

1. Advance account was a running account for the expenses to be incurred on behalf of the CD and he has in his possession bills not accounted for in the books of account.
2. RP has aggregated the amounts paid by CD and does not take into account the expense adjustment done or amounts received back by CD.
3. He has given an interest free loan and his claim has been admitted to that extent. Assuming but not admitting that RP is correct, Raman Nair is entitled for set off.
4. RP has filed the application beyond the stipulated period as provided in Regulations and hence the application is time barred.
5. Draft of Forensic Audit report was not shared with the suspended directors and hence there is violation of principles of natural justice.
6. Even otherwise the transactions were in the ordinary course of business.

RP, in rejoinder, claims that payment transaction is not to be mixed with expense adjustment or amount received from Raman Nair. For amounts paid by Raman Nair, he should file a claim and there is no provision of set off in CIRP. The application in filing preferential transaction application was delayed due to non-cooperation of suspended directors in providing information to forensic auditor who had sent 2 emails to them. The final report was placed before committee of creditors who had directed RP to file application.

14. RP, based on forensic audit, in the same IA 25 of 2024, also alleged that substantial amounts to the tune of Rs. 1.50 crores, shown as investments, were written off on 31.3.2023 by the suspended directors as reflected in books of account. The amount was paid to 2 related parties, namely, Hi-life Technologies Pvt Ltd (Rs. 70 lacs) and Super Motors Private Limited (Rs. 80 lacs). These amounts were paid as investment in 2016 and 2017. RP has treated them as fraudulent transactions and has prayed for recovery of the amounts from suspended transactions as fraudulent and wrongful trading under section 66 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016).  

Suspended directors have filed a common reply stating that by no stretch of imaginations, write offs can be treated as fraudulent transaction as there is no outflow. RP has the freedom to revise the accounts and reverse the transactions in books. The amounts relate to 2016 and 2017 and is beyond the purview of scope of RP. Further, the investments were made in good faith to expand the business of CD but could not fructify. Moreover, RP has filed a single IA u/s 43 and 66, which is not permitted.

RP, argues that suspended directors had the knowledge of the fact that CD is going under insolvency and they should have taken steps to recover the amounts. The amounts written off in the books of CD are still being shown in the books of account of Hi-life Technologies Pvt Ltd and Super Motors Private Limited and produced financial statement of both the companies filed with Registrar of companies for FY 2022-23. 

15. The plant and machinery of CD is charged to Janta Bank and is worth 8 crores @ 18% p.a. interest. IRP  was in need of funds to run the CD as a going concern and hence obtained interim  finance of Rs 1 crore by charging plant and machinery to Perfect Finance. Janta Bank has now objected to this action by IRP by stating that neither its consent nor CoC’s consent was obtained. Janta Bank has filed the application (IA 603 of 2023) before the adjudicating authority praying that the amount received from Perfect Finance should not be classified as Interim Finance and the mortgage created on Plant and Machinery should be set aside.
16. RP has taken up the issue of completion of audit but the statutory auditor, RAK Associates is not cooperating. RP has filed an application for non-cooperation against the statutory auditor u/s 19(2) of the Insolvency and Bankruptcy Code, 2016 (IA 540 of 2023).  Statutory auditor contends that he is not covered u/s 19 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) and hence the application should be dismissed in limine. Secondly, he has provided all documents to the RP whatever was in his possession. RP states that the statutory auditor has not supplied working papers containing details of debtors of CD. 
17. RP has also issued a letter terminating the appointment of statutory auditor and appointing a new one. Having done that, he places this fact before the committee of creditors in their meeting, who ratify his action unanimously. Previous statutory auditor is aggrieved and he files an application  (IA 56 of 2024) challenging the decision of RP and its ratification by committee of creditors to replace him.
18. Janta Bank has filed an IA 602 of 2023 objecting the inclusion of Big Lease as financial creditor in the committee of creditors. As per them, Big Lease is an operational creditor and not financial creditor.

CSM 2 Case Study on PPIRP

ABC Ltd., a medium-sized manufacturing company based in India, has been struggling with financial difficulties exacerbated by the economic downturn caused by the COVID-19 pandemic. With mounting debt and dwindling revenues, ABC Ltd. finds itself in a situation where it needs to explore insolvency resolution options to salvage its operations and protect the interests of its stakeholders.

ABC Ltd. is classified as a medium enterprise under the Micro, Small and Medium Enterprises Development Act, 2006 though registration is pending. ABC Ltd. has committed a default of Rs 54 lacs to My Bank. The company has not undergone any insolvency resolution process in the past three years. Financial creditors representing at least 66% of the financial debt due to them have proposed the appointment of an insolvency professional for conducting the PPIRP.

A majority of the directors of ABC Ltd. have made a declaration stating the intent to initiate the PPIRP and affirming that it is not for fraudulent purposes. A special resolution has been passed by the members of ABC Ltd. approving the initiation of the PPIRP. There is an application under section 43 against one of the directors of ABC Limited for his involvement in Bright Star Limited, a company under CIRP. ABC Limited has prepared a draft Base Resolution Plan. ABC Limited files an application to the Adjudicating Authority for initiating pre-packaged insolvency resolution process. Base Resolution Plan prepared by ABC Ltd contains lower payment to financial creditors with a proposal to pay in full to the operational creditors.