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2021 (2) TMI 1201 - Tri - Insolvency and BankruptcyPreferential transactions or not - waterfall mechanism - sale by way of sale/transfer deed - Section 43 of IBC, 2016 - HELD THAT - In order to ascertain the transaction as to whether it is falling under the provisions of Section 43 of IBC, 2016 as a preferential transaction, the Hon ble Supreme Court has dealt in detail as to how the Resolution Professional is required to approach the transaction as preferential before filing an Application before this Tribunal impugning the said transactions as between the parties as a Preferential Transaction in the matter of ANUJ JAIN VERSUS AXIS BANK LTD. 2020 (2) TMI 1259 - SUPREME COURT has held that The constitutional validity of the Insolvency and Bankruptcy (Amendment) Act, 2019 was also under challenge. The problem arose essentially with the decision of NCLAT holding that in a resolution plan, there could be no difference amongst the creditors in that, a financial creditor and operational creditor deserve equal treatment under a resolution plan. In view of all the six steps as formulated by the Hon ble Supreme Court of India in Anuj Jain case, in relation to consideration of the transaction as a preferential transaction have been satisfied from the facts and circumstances of the case, we are of the view that the transaction indeed falls within the provisions of Section 43 of the IBC, 2016 and the transaction cannot be considered to be excepted from the ambit of transactions as provided under the said Section itself. The 1st Respondent also not being the related party, it is also seen that the transaction under consideration in this Application has been carried as between the parties within one year period being the prescribed period for an unrelated party i.e., the 1st Respondent - application allowed.
Issues Involved:
1. Preferential Transactions under Section 43(1) of the Insolvency & Bankruptcy Code, 2016 (IBC, 2016). 2. Validity of Sale Deed executed between the Corporate Debtor and Operational Creditor. 3. Compliance with natural justice principles. 4. Application of Section 53 waterfall mechanism for claim settlement. 5. Ordinary course of business exception under Section 43(3) of IBC, 2016. Issue-wise Detailed Analysis: 1. Preferential Transactions under Section 43(1) of IBC, 2016: The Resolution Professional (RP) filed an application alleging that the transaction between the Corporate Debtor (CD) and the 1st Respondent (Operational Creditor) was preferential. The transaction involved the sale of land worth ?1,69,07,520/- to settle an operational debt. The RP argued that this transaction, executed within 12 months before the initiation of the Corporate Insolvency Resolution Process (CIRP), put the 1st Respondent in an advantageous position, violating Section 43(2) of IBC, 2016. 2. Validity of Sale Deed Executed: The Sale Deed dated 04.07.2018 was executed by the 2nd Respondent (Director of CD) in favor of the 1st Respondent. The RP contended that the transaction was preferential and sought relief under Section 44 of IBC, 2016, to vest the property back to the Corporate Debtor. The Sale Deed involved 99,456 sq.ft. of land, and the consideration was adjusted against the operational debt owed by the CD to the 1st Respondent. 3. Compliance with Natural Justice Principles: The 1st Respondent challenged the application on the grounds that the RP did not provide prior notice regarding the transaction, violating natural justice principles. The 1st Respondent argued that the transaction was not carried out with the intent to frustrate the insolvency proceedings and that no material evidence was provided to prove the violation of IBC provisions. 4. Application of Section 53 Waterfall Mechanism: The Tribunal considered the claims lodged with the RP by various creditors. The liquidation value of the Corporate Debtor was assessed at ?20,69,00,000/-. The RP provided a tabulation showing the application of the liquidation value under Section 53 of IBC, 2016, which prioritized secured financial creditors over operational creditors like the 1st Respondent. The Tribunal found that the transaction gave undue preference to the 1st Respondent, prejudicing other creditors. 5. Ordinary Course of Business Exception under Section 43(3) of IBC, 2016: The Tribunal referred to the Supreme Court's guidelines in the Anuj Jain case to determine whether the transaction was in the ordinary course of business. The Tribunal concluded that the transaction did not fall within the ordinary course of business or financial affairs of the Corporate Debtor. Thus, the transaction could not be excluded from the ambit of preferential transactions under Section 43(3) of IBC, 2016. Conclusion: The Tribunal allowed the application filed by the RP, declaring the transaction as preferential under Section 43 of IBC, 2016. The Sale Deed dated 04.07.2018 was set aside, and the property was ordered to vest back in the Corporate Debtor. The 1st Respondent was directed to surrender all original documents related to the transfer, and the Sub-Registrar was instructed to cancel the Sale Deed and record the cancellation in the encumbrance records.
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