2021 (3) TMI 166 - Tri - Insolvency and Bankruptcy

Maintainability of application - Preferential transactions or not - Seeking to declare certain Corporate Guarantees as fraudulent and preferential transactions and to set them aside and reconstitute/reorganise the Committee of Creditors (CoC) removing Respondent Nos. 2 to 7 - Whether, the admission of R2 to R7 into the CoC of the Corporate Debtor basing on the Corporate Guarantees dated 03/03/2017 reportedly executed by the Corporate Debtor in their favour is proper? - HELD THAT - The Code is a self-contained legislation as per Innoventive Industries Limited V/s. ICICI Bank 2017 (9) TMI 58 - SUPREME COURT which provides specific procedure for collation of claims. Neither the RP nor any authority under the Code could afford to deviate from the procedure prescribed there under. R1 has not been able to show that the claims of the R2 to R7 were submitted to him electronically as provided under Form A. R2 to R7 have also not been able to show that they furnished their claims as provided under Regulation 8 of the CIRP Regulations in Form C of the Schedule. Item 5 of the Form C mandates the Financial Creditor(s) to furnish the details of the documents by reference to which the debt can be substantiated. It was contended by the Applicant that the so called Corporate Guarantees attracted stamp duty in the State of Maharashtra. But in the absence of the documents itself either in the electronic form or physical form, it would not be appropriate for this Authority to comment whether the documents could attract stamp duty under the Maharashtra Stamp Act, 1958 (Bombay Act No. LX of 1957) - thus, the the irresistible conclusion would be that R1 without proper submission of documents before him and without proper verification admitted R2 to R7 as Financial Creditors of the Corporate Debtor - answered in the negative. Whether, the Corporate Guarantees dated 03/03/2017 executed by the Corporate Debtor in favour of R2 to R7 and other members of the Consortium are preferential transactions? - HELD THAT - In order to come under the preferential transactions, the transaction must satisfy the requirements of Section 43(2) of the Code. The execution of the so called Corporate Guarantees dated 03/03/2017 could not be a transfer of property or an interest of the Corporate Debtor for the benefit of one of its Creditors or a body of Creditors. Admittedly on the date of execution of the documents i.e., on 03/03/2017, the R2 to R7 were not Creditors of the Corporate Debtor. Therefore, the execution of the Corporate Guarantees cannot be said to be for the benefit of the Creditors. Therefore, the transaction covered under the Corporate Guarantees would not come within the parameters of the preferential transaction provided under Section 43 of the Code - answered in the negative. Maintainability of application - HELD THAT - The admission of the R2 to R7 as Financial Creditors adversely affected the position of the Applicant in the CoC of the Corporate Debtor. The Applicant was thus entitled to agitate the matter before the Adjudicating Authority seeking appropriate redressal. In view of the findings the Application is maintainable - answered in the affirmative. The Application be and the same is allowed on contest in part. R2 to R7 are not recognised as Financial Creditors of the Corporate Debtor. R1 (RP) is directed to re-constitute the CoC.

Summary

Issues Involved:
1. Maintainability of the Application.
2. Admission of Respondent Nos. 2 to 7 into the Committee of Creditors (CoC) based on Corporate Guarantees.
3. Nature of the Corporate Guarantees as preferential transactions.

Issue-wise Detailed Analysis:

I. Maintainability of the Application:
The Tribunal found that the admission of Respondent Nos. 2 to 7 as Financial Creditors adversely affected the Applicant's position in the CoC. The Applicant was entitled to seek redressal before the Adjudicating Authority. The Tribunal concluded that the Application was maintainable, answering Issue No. I in the affirmative.

II. Admission of Respondent Nos. 2 to 7 into the CoC:
The Tribunal noted that there was no material on record indicating that Respondent Nos. 2 to 7 submitted their claims electronically with proof to the Interim Resolution Professional (IRP) by the required date. The Tribunal emphasized the statutory requirement for strict compliance with the procedure for collation of claims under the Insolvency and Bankruptcy Code (IBC) and related regulations. The Tribunal concluded that the IRP admitted Respondent Nos. 2 to 7 as Financial Creditors without proper submission and verification of documents. Therefore, Issue No. II was answered in the negative.

III. Nature of the Corporate Guarantees as Preferential Transactions:
The Tribunal discussed the provisions of Section 43 of the IBC, which defines preferential transactions. It was noted that for a transaction to be considered preferential, it must involve a transfer of property or interest for the benefit of a creditor. Since Respondent Nos. 2 to 7 were not creditors of the Corporate Debtor at the time of executing the Corporate Guarantees, the Tribunal concluded that the execution of the Guarantees did not constitute preferential transactions under Section 43. Therefore, Issue No. III was answered in the negative.

Order:
The Tribunal allowed the Application in part, directing the Resolution Professional (RP) to reconstitute the CoC without recognizing Respondent Nos. 2 to 7 as Financial Creditors. Prayers related to declaring the Guarantees as fraudulent and preferential transactions were refused. The Tribunal also clarified that decisions already taken by the CoC with Respondent Nos. 2 to 7 as members would not be called into question. No costs were awarded.