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Gujarat Foils Ltd: Bankruptcy court dismisses liquidator’s plea in favour of former management of Gujarat Foils


Mumbai: Any transaction carried out during a normal course of business can’t be termed as an undervalued transaction without any evidence.

The dedicated bankruptcy court has held in the case of the country’s third-largest manufacturer of aluminium foils and sheets, Gujarat Foils Ltd (GFL) that a transaction can’t be termed an undervalued transaction if the former management sells goods at the below market price, in the normal course of business.

The company’s liquidator had approached the Ahmedabad bench of the National Company Law Tribunal (NCLT) to declare certain transactions carried out by the former management of over Rs 46.53 crore as void for allegedly selling certain goods below market price.

The tribunal, while dismissing the plea of the liquidator, observed that the corporate debtor has entered into some transaction with a non-related party which can be considered as undervalued, but the same is not covered under Section 45 (2) of Code, as this was in the ordinary course of business. Hence, the instant application is required to be dismissed for the lack of enough evidence to show that the suspended management made undervalued transactions.

Gujarat-based GFL was admitted under the Corporate Insolvency Resolution Process (CIRP) in November 2017 on a petition filed by the Allahabad Bank. The company owes over Rs 436 crore to its financial creditors. The company was admitted for liquidation on September 16, 2019, after the lenders failed to receive any viable revival plan.

Company’s resolution professional (RP) and subsequently liquidator, Alok Kailash Saksena had approached the tribunal and argued that auditors had reported certain undervalued transaction between April to June 2017 at a substantial loss of Rs 46.55 crore. Hence, the lenders had asked him to approach the tribunal to declare those transactions undervalued and hence void.

However, the counsel for the former management challenged this move and argued that the goods were sold below its value during that period because it was lying at the depot and its quality was deteriorated due to passage of time.

“On account of such deteriorated quality, no customer came forward to buy such materials,” argued counsel for the former promoters of GFL. “Some customer had shown interest in purchasing the materials at a lower cost, in view of which, the same was sold at a discounted price.”

The counsel for the former management also argued that Section 45 of IBC (Insolvency & Bankruptcy Code) shall be invoked only in the cases where any such undervalue transaction has not taken place on the ordinary course of business.

“If the tribunal would have found the alleged transactions as undervalued then the effect of same would have been upon the suspended board of directors and they might have been asked to compensate for such transactions,” said Ashish Pyasi Associate Partner Dhir & Dhir Associates. “Further, such value would have been added in the corporate debtor’s kitty for distribution amongst the creditors. However, the tribunal came to the finding that those were done in the ordinary course of business which is an exception to the allegations of undervalued transactions.”

According to Abhishek Nagori, an independent insolvency professional and partner of audit and consulting firm JLN US & Co., forensic audit requires a deep understanding of commercial laws, fund flow and intention. “The bankers generally presume that the insolvent company have done transactions to siphon off but it may not always be true and some commercial exigencies may exist,” adds Nagori.

As per GFL website, company’s clients include several pharmaceutical companies including Sun Pharmaceutical, Lupin, Cadila and Sanofi among others.

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