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2022 (12) TMI 1151 - AT - Insolvency and BankruptcyProtection and recognition of pledge created in favour of the Applicant under Share Pledge Agreement - appropriate directions to the Liquidator to not treat the pledge in favour of the Appellant as a preferential transaction during the pendency of the Appeal - HELD THAT - The issue of attracting preferential transaction arising only after the Appellant has filed the claim. It was also brought to the notice by the Appellant that R1 carried out the auction despite knowing that the Appellant has lodged this claim in January, 2018 and has also accepted EMD money from a third party. The Appellant is suspecting that R1 has filed the application under Section 43 of the Code at a later stage being afterthought in order to save the illegal auction carried out by him. All the problem has erupted from the fact that the Appellants have mentioned about the share pledge agreement of November, 2016 as an extension of earlier share pledge agreement dated 10.06.2014 wherein the substantial portion of shares have been pledged as contemplated by the Appellants. It is also a matter of fact to be recorded that since 2017, Respondent No.1 was having the full knowledge of share pledge agreement of 2016 but he chooses to file Section 43 application after a delay of one year. This reflects, no doubt, that filing of petition under Section 43 of the Code alleging that Share Pledge Agreement dated November 2016 is at belated stage by the R1 to deny the Appellant of their status or rights as financial creditor. Incidentally, impugned pledged largely satisfied all ingredients of Section 43 of the Code. The impugned order dated 29.10.2020 although passed by two separate orders but in concurring orders both the Ld. Members arrived at the conclusion that the impugned pledge is a preferential transaction covered under Section 43 of the Code. The approach of the Appellant to give the colour of pledge as in the ordinary course of business is no longer res integra as per the law laid down under the Code - reliance can be placed in the case of PROFESSIONAL FOR JAYPEE INFRATECH LIMITED VERSUS AXIS BANK LIMITED ETC. ETC. 2020 (2) TMI 1259 - SUPREME COURT . This Pledge Agreement even of 2016 only reflects that the IVL/Appellant does not hold merit for the impugned pledge created during the ordinary course of business. Circumstantial evidence also suggests that there is no another pledge agreement dated 10.06.2014. Even the 2016 pledge agreement does not have backing a board resolution or registration which is a requirement for a listed company. No approval of RBI is available for 2016 pledge agreement. Hence, the Adjudicating Authority has rightly held in the impugned order dated 29.10.2020 that it is a preferential transaction covered under section 43 of the Code. Appeal dismissed.
Issues Involved:
1. Validity and enforceability of the share pledge agreements dated 10.06.2014 and 25.11.2016. 2. Classification of the share pledge agreements as preferential transactions under Section 43 of the Insolvency and Bankruptcy Code (IBC), 2016. 3. Whether the transactions were in the ordinary course of business. 4. The procedural propriety and timing of the Liquidator's application under Section 43 and 44 of the IBC. 5. The Appellant's compliance with the Adjudicating Authority's orders. Issue-wise Analysis: 1. Validity and Enforceability of the Share Pledge Agreements: The Appellant claimed that the Corporate Debtor (CD) pledged its shares in favor of the Appellant through agreements dated 10.06.2014 and 25.11.2016. The 2014 agreement pledged 85% of shares, while the 2016 agreement pledged the remaining 15%. The Appellant argued that these agreements were notarized and genuine. However, the Respondent contended that the 2014 agreement surfaced for the first time in the Appellant's reply to the Liquidator's preference application, raising suspicions about its authenticity. The Liquidator and Central Bank of India could not locate the 2014 agreement in their records. The 2016 agreement, which was invoked by the Appellant, did not mention the 2014 agreement, further casting doubt on its existence. 2. Classification as Preferential Transactions: The Adjudicating Authority held that the 2016 pledge agreement was a preferential transaction under Section 43 of the IBC. The Appellant argued that the pledge was created in the ordinary course of business and should not be considered preferential. However, the Authority found that the transaction favored the Appellant, a related party, and was executed to secure an antecedent liability, thus meeting the criteria for a preferential transaction. 3. Ordinary Course of Business: The Appellant argued that the pledges were made in the ordinary course of business. However, the Respondent cited the Supreme Court's judgment in Anuj Jain, IRP for Jaypee Infratech Limited Vs. Axis Bank Limited & Ors., which clarified that transactions must be part of the "undistinguished common flow of business" to be considered ordinary. The Authority concluded that pledging shares to secure the debts of a related party was not in the ordinary course of the CD's business, which involved manufacturing precision steel tubes. 4. Procedural Propriety and Timing of the Liquidator's Application: The Appellant claimed that the Liquidator's application under Section 43 was an afterthought to save an illegal auction. The Liquidator filed the application after the Appellant had lodged its claim, and the Authority admitted the petition for liquidation. The Appellant argued that the delay in filing the application indicated a lack of genuine concern about the preferential nature of the transaction. 5. Compliance with Adjudicating Authority's Orders: The Appellant filed a recall application against the Authority's order directing it to release the pledged shares and hand over the share certificates to the Liquidator. The recall application was dismissed, and the Appellant was found to be non-compliant with the Authority's orders. The Authority held that it did not have the power to review its own orders but could only correct mistakes apparent from the record. Conclusion: The Appellate Tribunal upheld the Adjudicating Authority's orders dated 29.10.2020 and 06.01.2021, dismissing the Appellant's appeal. The Tribunal found that the 2016 pledge agreement was a preferential transaction under Section 43 of the IBC and that the Appellant failed to prove the existence and validity of the 2014 pledge agreement. The Tribunal also held that the transactions were not in the ordinary course of business and that the Liquidator's application was procedurally proper. The Appellant's non-compliance with the Authority's orders further weakened its case.
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