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2023 (3) TMI 245 - AT - Insolvency and BankruptcyPreferential, undervalued and fraudulent transactions - Related party transactions - Appellant Pray Projects has argued that the Appellant was unaware of the imminent initiation of CIRP of the corporate debtor and it entered into separate Option Agreements with the corporate debtor as genuine commercial transactions relating to real estate property, which was done at an arm s length by the Appellants - HELD THAT - Admittedly, SUIL and STPL are related parties of the corporate debtor since they all belong to the same group of companies and therefore the amounts received by the corporate debtor from Pray Projects i.e. Rs. 5 crores and from Fervent Securities i.e. Rs. 1 crore were transferred to the corporate debtor s related parties between 10.12.2018 to 17.12.2018 as is evident from the summary of option agreements in the TAR which is extracted earlier in this judgment and Flow Charts I II. It is thus clear that amounts paid by Pray Projects and Fervent Securities were not retained by the corporate debtor, but were transferred to two entities viz. SUIL and STPL which are companies in the same group as the corporate debtor. While the interest in the property Chambers project was created in favour of Pray Projects and Fervent Securities through the two option agreements dated 15.12.2018 and 17.12.2018 respectively, the consideration amounts were not retained by the corporate debtor, but transferred on receipt to its related entities SUIL and STPL. Thus, these amounts did not remain part of the assets of the corporate debtor. The two Option Agreements thus created fiction of transfer of property in Chambers Project without any consideration being actually retained by the corporate debtor. An analysis of the various transactions which are included in the bank account statements and TAR and which has been shown in the Flow Charts makes it abundantly clear that whatever amount was paid by Pray Projects and Fervent Securities as option advance were immediately transferred on receipt to the SUIL and STPL (which are related parties of the corporate debtor and also companies in the same group) and thus these amounts were not retained by the corporate debtor. It thus becomes clear that while interest in the property Chambers project of the corporate debtor was created in favour of Pray Projects and Fervent Securities, the consideration against these Option Agreements was not retained by the corporate debtor and no amounts were added in the assets of the corporate debtor - no amounts can be claimed from the corporate debtor in its CIRP by the Appellants Pray Projects and Fervent Securities. Pray Projects and Fervent Securities have claimed that they were not aware of the insolvency related proceedings against the corporate debtor MPPL. It is a fact that the corporate debtor MPPL which entered into such agreements with Pray Projects and Fervent Securities was very much aware that the matter relating to admission of section 7 application against the corporate debtor had been reserved for orders on 10.12.2018 and the corporate debtor had admitted the debt and default - if the corporate debtor enters into such transactions even though the other parties may be entering into such transactions without being aware that such transactions could be avoidance transactions, the fact that such transactions are to the detriment of the legitimate interests of the creditors of corporate debtor cannot be denied. It is therefore convincing that the transactions as undertaken in relation to the two Option Agreements are avoidance transactions which infringe sections 43 and 45 of the IBC. It is amply clear that the Option Agreements I II are preferential and undervalued transactions and, therefore, they are avoidance transactions as per sections 43 and 45 of IBC. Therefore, the two Option Agreements No. 1 and II are declared null and void and any interest created in the property Chambers project of the corporate debtor by virtue of these Option Agreements are also declared non est in law and null and void . It is abundantly clear and established that the payment of Rs. 5 crores made by Pray Projects to the corporate debtor in December, 2018 did not remain with the corporate debtor, but were almost immediately transferred to its group entities SUIL and STPL, and Rs. One crore paid by Fervent Securities to the corporate debtor was also not retained by the corporate debtor, but was transferred to the group entity STPL where SUIL and STPL are related parties of the corporate debtor as the corporate debtor MPPL, SUIL and STPL belong to the same group of companies. Thus, these amounts were not part of the assets of the corporate debtor during the CIRP of the corporate debtor. Therefore, the two entities Pray Projects and Fervent Securities cannot claim any payment as a result of insolvency resolution of the corporate debtor. The Impugned Order does not bear any infirmity and needs no intervention - Appeal dismissed.
Issues Involved:
1. Whether the transactions between the appellants and the corporate debtor were preferential, undervalued, and fraudulent under Sections 43, 45, and 66 of the Insolvency and Bankruptcy Code (IBC). 2. Whether the claims lodged by the appellants in the Corporate Insolvency Resolution Process (CIRP) of the corporate debtor were valid and binding. Issue-wise Detailed Analysis: 1. Preferential, Undervalued, and Fraudulent Transactions: The appellants, Pray Projects Private Limited and Fervent Securities Private Limited, challenged the order of the Adjudicating Authority (National Company Law Tribunal, Mumbai) which held their transactions with the corporate debtor, Mayurpankh Properties Private Limited (MPPL), as preferential, undervalued, and fraudulent under Sections 43, 45, and 66 of the IBC. Pray Projects' Transaction: - In 2014, Pray Projects gave an unsecured loan of Rs. 5 crores to Sunshine Housing Infra Pvt. Ltd. (SHIPL). - In 2018, SHIPL transferred Rs. 5 crores to Pray Projects for onward transfer to MPPL as consideration for an Option Agreement (Option Agreement-I). - Pray Projects paid Rs. 5 crores to MPPL in five tranches, and an Option Agreement was signed on 15.12.2018, giving Pray Projects an option to purchase an area in MPPL's "Chambers" project. Fervent Securities' Transaction: - Fervent Securities advanced Rs. 1 crore to MPPL, and an Option Agreement (Option Agreement-II) was signed on 17.12.2018, granting an option to purchase an area in the "Chambers" project. Transaction Audit Report (TAR): - The TAR revealed that the corporate debtor transferred the amounts received from Pray Projects and Fervent Securities to related parties, Sunshine Urban Infrastructure Ltd (SUIL) and Sunshine Tracon Pvt. Ltd. (STPL), almost immediately. - The report suggested that these transactions were used as conduits for fund transfers among related parties, indicating preferential and undervalued transactions. Legal Provisions: - Section 43 IBC: Defines preferential transactions as those benefiting a creditor over others in the period preceding the insolvency commencement date. - Section 45 IBC: Defines undervalued transactions as those where the consideration is significantly less than the value of the assets transferred. - Section 66 IBC: Addresses fraudulent trading and wrongful trading, holding parties liable for defrauding creditors. Analysis: - The transactions were deemed preferential as they were executed within one year preceding the insolvency commencement date and benefited specific creditors (Pray Projects and Fervent Securities). - The transactions were undervalued as the consideration received by MPPL was immediately transferred to related parties, thus not adding value to MPPL's assets. - The timing of the transactions, just before the insolvency commencement date, and the lack of proper documentation and board resolutions, indicated fraudulent intent to defraud actual creditors. 2. Validity and Binding Nature of Claims: Arguments by Appellants: - The appellants claimed that the transactions were genuine commercial transactions done at arm's length and were unaware of the impending CIRP. - They argued that their claims were accepted by the Resolution Professional as unsecured financial creditors. Judgment: - The Tribunal found that the amounts paid by Pray Projects and Fervent Securities were not retained by MPPL but transferred to related parties, thus not forming part of MPPL's assets. - The Option Agreements were declared null and void, and the interest created in MPPL's property was deemed non-existent. - The Tribunal held that the transactions were preferential, undervalued, and fraudulent, and thus the claims lodged by the appellants were not binding on MPPL. Conclusion: - The appeals were dismissed, and the Impugned Order was upheld, declaring the transactions as avoidance transactions under Sections 43 and 45 of the IBC and not binding on the corporate debtor. The appellants' claims were invalidated, and no costs were awarded.
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