# In the matter of Carnation Auto India Private Limited IB No.-302-(ND)-2017

> NCLT judgment dated 2020-07-24. Citation: TCN-2020-NCLT-00972. The case involves an application filed by the Liquidator of Carnation Auto India Private…

- **Court:** NCLT
- **Order date:** 24 Jul 2020
- **Citation:** TCN-2020-NCLT-00972
- **Category:** IBC
- **Source page:** https://caseease.in/cases/ibc/nclt-chandigarh/carnation-auto-india-private-limited-ib-no-302-nd-2017-a140b273

## Summary

### Background

The case involves an application filed by the Liquidator of Carnation Auto India Private Limited, appointed by the NCLT, seeking to liquidate the Corporate Debtor under Sections 43, 45, 50, and 66 of the IBC, 2016, for avoidance of transactions. The application is based on a Forensic Audit Report submitted by M/s K.G. Somani & Co., Chartered Accountants, which highlights various alleged irregularities, including the sale of fixed assets without permission, loans to related parties, writing off bad debts, and other transactions.

## Facts

Punjab National Bank (PNB) is the financial creditor. Carnation Auto India Private Limited is the corporate debtor undergoing liquidation. The Liquidator, Arvind Garg, filed an application based on a Forensic Audit Report. The forensic audit highlighted that the corporate debtor sold fixed assets worth ₹6,692.48 lakh between 2009-10 and 2016-17 for ₹455.89 Lakh without lender permission. These assets were security for PNB. Depreciation on sold assets was ₹4,367.40 Lakh. The corporate debtor gave loans to related parties, violating loan terms. Bad debts of ₹457.59 Lacs pertaining to related parties were written off. The corporate debtor made investments in subsidiary companies. The corporate debtor wrote off inventory amounting to ₹604.17 lacs. Transactions with

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## Issues and analysis

### Issue 1: Whether the Liquidator's application based on the Forensic Audit Report is maintainable under …

**Ratio:** Section 66 of the IBC casts a duty upon the resolution professional/liquidator to file an

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**Reasoning:** The NCLT found that the Forensic Auditor had not conducted the audit as per the

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**Interpretation:** The IBC requires a thorough and reliable investigation before initiating

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**Application:** In this case, the NCLT determined that the Forensic Audit Report was flawed and

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## Parties

- **Judges:** P.S.N. P…; V.K. SUB…
- **Appellants:** ARVIND…
- **Respondents:** Carnation Auto…; Jagdish K…

## Timeline

- **2008-01-01 — Period S…**: Start of the period covered by the Forensic Audit Report regarding related party…
- **2009-10-01 — Financial Yea…**: Start of the financial year during which the corporate debtor sold off fixed assets…

## Legal provisions

- [Insolvency and Bankruptcy Code, 2016, Section 43 — Preferential transactions and relevant time](https://caseease.in/legal-provisions/insolvency-and-bankruptcy-code-2016/section-43)

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