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2022 (5) TMI 1478 - AT - Insolvency and BankruptcyPreferential transaction - Financial Debt - novation of the earlier agreement with an entirely new agreement as per Section 62 of the Indian Contract Act, 1872 - disbursement of amount against the consideration of time value of money as required under Section 5(8) of the Code - Section 43 of I B Code - HELD THAT - It is undisputed fact that money has been received by the Corporate Debtor in different tranches. The object of all these payments are to meet the requirement of Memorandum of Understanding (appearing at page 67 of the appeal paper book) to consider it as advance payment towards future supply of gold coin/Jewelry against the estimated quantity as indicated by the buyer to take place after January, 2019 - It is also very much clear that at this time the advance payment was not attracting any interest. Now in the present case, it is very much clear that the MOU which was entered into long back in the year 2017 was meant for supply of goods in the form of gold coins/gold ornaments and order of initiation of CIRP in Raksha Bullion, Mumbai reflects that the CD was in regular business of buying and selling gold bar. So, the MOU apparently does not look under the grey area when it is also not proved that they are the related party. If they are not related party, then naturally the transactions falling within a period of one year can only be covered under even in the best scenario as preferential transactions. So, the entire amount cannot be put under preferential transaction. The Adjudicating Authority in its impugned order has exceeded its jurisdiction while recording the finding to the effect that the Appellant herein is a related party which is beyond scope of the petition filed in the Tribunal. The Resolution Professional has not filed any application for the preferential transaction as required under Section 43(1) of the Code - apparently while going through the petition and hearing of Ld. Counsels for both the parties, it is very much clear that the Adjudicating Authority on its own has recorded it a related party which is beyond the provisions contend in the Code either explicitly or implicitly. It reflects that the Resolution Professional, a statutory functionary, has not filed an application for initiation of proceedings under Section 43 of the Code in respect of preferential transactions and the Adjudicating Authority has passed the order, then it is supplementing it by fresh reason in through affidavit or otherwise. This is also not acceptable in the case of the Code - let the Adjudicating Authority again go back into the details of these transactions which can be done even in the liquidation proceedings which has commenced from April 2021 and yet to be completed to ascertain and finally determine the voracity whether it is still a preferential transaction or not. Matter remanded back to Adjudicating Authority for reconsidering the case as a fresh case without getting influenced by any comments made in this Judgment and deciding the matter on the merits in accordance with law. Application disposed off.
Issues Involved:
1. Classification of the Appellant's claim as Financial Debt. 2. Determination of Preferential Transaction under Section 43 of the Insolvency and Bankruptcy Code (IBC). 3. Jurisdiction and authority of the Adjudicating Authority (NCLT). Issue-wise Detailed Analysis: 1. Classification of the Appellant's Claim as Financial Debt: The Appellant, a registered firm, entered into a Memorandum of Understanding (MoU) with the Corporate Debtor (CD) for the supply of gold coins/ornaments. The Appellant remitted Rs. 39.95 crore in various tranches from April 2018 to February 2019. The MoU stipulated that these advance payments would not attract any interest, and the price of gold would be fixed at the prevailing market rate at the time of delivery. The CD failed to supply the gold as per the MoU, leading the Appellant to request a refund. The CD proposed converting the advance into an unsecured loan with 10% interest, which the Appellant accepted. The Appellant's claim was submitted in Form-C during the Corporate Insolvency Resolution Process (CIRP). However, the Resolution Professional (RP) did not classify the claim as Financial Debt, leading the Appellant to challenge this decision before the Adjudicating Authority. The Adjudicating Authority dismissed the petition, comparing the facts with the Anuj Jain case and refusing to classify the claim as Financial Debt. The Appellant argued that the MoU was substituted by a loan agreement, constituting novation under Section 62 of the Indian Contract Act, 1872. The Appellant cited various judgments, including Prayag Polytech (P) Ltd. Vs. Shivalik Enterprises (P) Ltd and Swiss Ribbons (P) Ltd. Vs. Union of India, to support their claim. 2. Determination of Preferential Transaction under Section 43 of the IBC: The Adjudicating Authority observed that the conversion of operational debt into financial debt through a loan agreement was intended to prefer the creditor, putting them in a beneficial position. The Authority noted that this arrangement was not in the ordinary course of business and was done within the two-year look-back period required by the Code. The Authority declared the transaction as preferential under Section 43(2)(a) of the Code. The Appellant contended that the Adjudicating Authority could not consider the transaction as preferential without an avoidance application by the RP or Liquidator under Section 44 of the Code. The Appellant argued that the conversion of operational debt to financial debt was due to the CD's inability to supply goods, and hence, the advance payment was converted into an unsecured loan with interest. The Respondents argued that the appeal was infructuous due to the liquidation order dated 16th April 2021. They stated that the Appellant did not file a proof of claim before the Liquidator. On merits, the Respondents contended that the claim was not a Financial Debt under Section 5(8) of the Code but an advance payment for the supply of goods, making it an Operational Debt under Section 5(21) of the Code. 3. Jurisdiction and Authority of the Adjudicating Authority (NCLT): The Adjudicating Authority, while passing the impugned order, observed that the conversion of operational debt to financial debt was a preferential transaction. However, the Authority exceeded its jurisdiction by recording findings beyond the scope of the petition and without an application under Section 43(1) of the Code by the RP. The Tribunal referred to the Supreme Court judgment in Anuj Jain, IRP Vs. Axis Bank Ltd., which emphasized that transactions must be in the ordinary course of business to avoid being classified as preferential. The Tribunal noted that the Adjudicating Authority's findings were beyond its jurisdiction and that the RP had not filed an application for preferential transactions. The Tribunal also referred to the Supreme Court judgment in Godrej Industries Limited and Anr. Vs. Commissioner of Central Excise Mumbai and Anr., which held that findings beyond the scope of the show-cause notice could not be sustained. The Tribunal concluded that the Adjudicating Authority had exceeded its jurisdiction and remanded the matter for reconsideration. Conclusion: The Tribunal set aside the impugned order dated 07.01.2021 and remanded the matter to the Adjudicating Authority for reconsideration. The Tribunal directed the Adjudicating Authority to re-examine the case without being influenced by any comments made in the judgment and to decide the matter on its merits in accordance with the law. Pending applications and interim orders were disposed of, with no order as to costs.
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