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TMI Blog2021 (1) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... of India (SEBI) and floated by UTI Structured Debt Opportunities Trust having SEBI Registration No. IN/AIF/17-18/0358, as per the applicable laws. The Applicant is represented by its investment manager that is UTI Capital Limited. The said IA is filed against Ms. Pinkush Jaiswal, the Interim Resolution Professional (IRP) of Mercator Petroleum Ltd. challenging the rejection of UTI's financial claim of Rs. 2,57,84,25,381/- by the Interim Resolution professional ("IRP") and not considering UTI as a financial creditor of the Corporate Debtor and excluding UTI from the Committee of Creditors. 2. Whereas I. A. 1746 of 2020 in C. P. 3434 of 2019 is filed Under Section 60(2) of the Insolvency and Bankruptcy Code, 2016 (hereinafter called as "Code") by Ms. Pinkush Jaiswal, the Interim Resolution Professional (IRP) of Mercator Petroleum Ltd. against the UTI Structured Debt Opportunities Fund and Anr. seeking avoidance of the transaction between UTI and the Corporate Debtor. Submissions by the Applicant in I. A. 1628 of 2020 and by the Respondent in I. A. 1746 of 2020: 3. The Mercator Limited is a private limited company engaged in the business of shipping and mercantil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it's final NOC to UTI and UTI's charge on the Corporate Debtor. 11. The Charge created on 15.05.2018 was registered by the Registrar of Companies, Mumbai (on 11.03.2019). The necessary charges for delayed registration have been paid and necessary compliances carried out. 12. The Debenture Trustee by its Notice dated 01.10.2019 called an event of default (occurring on 04.10.2018) under the Debenture Trust Deed, to Mercator Limited and all the Guarantors of Mercator Limited calling for repayment of the entire sums due under the Debenture Trust Deed and thereby invoking the corporate guarantees given by the Corporate Debtor under the Deed of Corporate Guarantee. 13. Various Reminder / Letters were sent inter alia to the Corporate Debtor and Mercator Limited calling upon them to pay the monies due to UTI. Various Litigations ensued between the parties. 14. Between 31.03.2018 and 31.03.2020, the Corporate Debtor received funding from Mercator Limited, directly or through MEPL, of Rs. 41.08 Crores, which included a sum of approx. Rs. 8.53 Crores from an escrow account which was charged to UTI. Thus, as of 31.03.2020, the Corporate Debtor rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greed to subscribe up to 1,900 (One Thousand Nine Hundred Only) Secured Non-Convertible Debentures of the face value of Rs. 10,00,000/- (Rupees Ten Lakhs Only) each, aggregating to Rs. 190,00,00,000/- (Rupees One Hundred and Ninety Crores Only) in three tranches of Rs. 100 Crores, Rs. 65 Crores and Rs. 25 Crores respectively. However, this was subsequently amended by way of Deed of First Addendum to the Debenture Trust Deed executed on 27.06.2018, which revised the second tranche amount from Rs. 65 Crores to Rs. 30 Crores. Subsequently, a total of 1,300 Debentures were subscribed by the Holding Company. 23. Corporate Debtor is described as a "security provider" in the said DTD. Under the DTD, pursuant to clause 8.1.9 - 8.1.13, second charge over all the assets movable or immovable including bank accounts, intangibles of the Corporate Debtor was created in favour of the Respondent No. 1 Fund along with the Corporate Guarantee dated 26.03.2018. This was registered on 11.03.2019. 24. To secure the repayment of the amount raised through the Deed, the Corporate Debtor executed an absolute, unconditional and irrevocable continuing Corporate Guarantee dated 26.03.2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not fall within Section 43(3) of the Code. The section briefly provides that if a transfer is made during the 'ordinary course' of business or financial affairs of the Corporate Debtor and Transferee and if the transfer creating a security interest secures new value then the transaction would not amount to giving any 'preference'. That being said, the IRP submits that the creation of security interest and issuance of Corporate Guarantee is not in the ordinary course of business or financial affairs of the Corporate Debtor. The Corporate Guarantee was neither in the interest of the Corporate Debtor nor advantageous to it. 30. The Corporate Debtor had availed a Term Loan from Bank of Baroda of Rs. 95 Crores in 2016 and had created a first charge on all movable and immovable fixed assets of the Oil Exploration Project, all project contracts and current assets. The IRP submits that since 2016, the Corporate Debtor was already highly indebted and the project undertaken by the Corporate Debtor had long gestation cycle and risks associated with Oil Blocks. In such a scenario, as per the IRP no prudent person would provide any security/guarantee for the borrowing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feature of vital importance is that the matter is examined with reference to the dealing and conduct of the corporate debtor; and qua the health and prospects of the corporate debtor..." 128. Thus, the enquiry now boils down to the question as to whether the impugned transfers were made in the ordinary course of business or financial affairs of the corporate debtor JIL. It remains trite that an activity could be regarded as 'business' if there is a course of dealings, which are either actually continued or contemplated to be continued with a profit motive. As regards the meaning and essence of the expression 'ordinary course of business', reference made by the appellants to the decision of the High Court of Australia in Downs Distributing Co (supra), could be usefully recounted as under: - "As was pointed out in Burns v. Mcflarlane the issues in sub-s. 2(b) of s.95 of the Bankruptcy Act 1924 - 1933 are "(1) good faith; (2) valuable consideration; and (3) ordinary course of business" This last express it was said 'does not require an investigation of the course pursued in any particular trade or vocation and it does not referto what is normal or usual in the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Holding Company informing about the overdue payment and accrual of penal interest. The IRP contends that the Corporate Guarantee mandates that a Notice of Demand ought to be sent in the form of Schedule annexed to the Deed to invoke the Corporate Guarantee and Invocation Notice is to be addressed to the party. Thus, as per the IRP, the Invocation Notice is inchoate and incomplete. Admittedly, Respondent No. 1 Fund has not made any invocation in accordance with the Deed. The Resolution Professional submits that such uninvoked Corporate Guarantee holder cannot form part of the Creditors of the Company. 36. The IRP mentions that from the letter dated 1st October 2019 it can seen, that the copy of the letter which is purported to be the invocation is in fact not even properly addressed and hence is contrary to all laws. FINDINGS: 37. I.A. 1628 of 2020 in C.P. 3434 of 2019 has been filed by the UTI (Applicant) for a claim of Rs. 2,57,84,25,381/- pursuant of the Corporate Guarantee and security interests created by the Corporate Debtor i.e. Mercator Petroleum Ltd (MPL). The applicant mentions that on 26.03.2018 a Debenture Trust Deed entered into by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having been invoked by the applicant i.e. UTI. 40. It may be noted that the IRP while dealing with the case relies heavily on the judgment of Hon'ble Supreme Court in the case of Anuj Jain, IRP Vs. Axis Bank. While the Applicant in his defense differentiates the matter raised in the Hon'ble Supreme Court in the case of Anuj Jain, IRP Vs. Axis Bank and also relies on the Hon'ble NCLAT's judgment in the case of Ascot Realty Private Limited vs. Ajay Kumar Agarwal, IRP. Therefore, while dealing with the above issues, I will liberally revert back to the above two judgements in deciding on the issues raised. 41. It may be noted that UTI is a financial service provider engaged in providing financial services. The Deed of Corporate Guarantee qualifies as a Financial Debt as per section 5 (8) (h) of the code. "Section 5(8) "financial debt" means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes" "Section 5 (8) (h)any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as 'financial debt' within the meaning of Section 5(8) of the Code. This debt may be of any nature but a part 153 of it is always required to be carrying, or corresponding to, or at least having some traces of disbursal against consideration for the time value of money." 43. The provision contained in section 124, 126, 127 of the Indian Contract Act, 1872, also have a bearing on the issue at hand. This has been quoted in the Hon'ble Supreme case Judgment in Anuj Jain's case. Which reads as under: "The provisions contained in Sections 124, 126 and 127 of the Indian Contract Act, 187224 shall also have bearing on the issues at hand and hence, the same may also be noted as follows:- 124. "Contract of indemnity" defined.- A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a "contract of indemnity." 126. 'Contract of guarantee', 'surety', 'principal debtor' and 'creditor' - A 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... create a mortgage. But in such tripartite arrangement, anything done for the benefit of the principal debtor is a sufficient consideration to the surety for giving guarantee as expressly provided in Section 127 of the Contract Act. Thus, even though there is no consideration to the third party surety for mortgage, the consideration of having done anything for the benefit of the principal debtor is a sufficient consideration." This position of law appears to me not altered by the Hon'ble Supreme Court in the cited decision of Anuj Jain. In para 43 of Anuj Jain, the Hon'ble SC holds that 'financial debt' may include any of the methods for raising money or incurring liability by the modes prescribed in sub-clauses (a) to (f) of Section 5(8); it may also include any derivative transaction or counterindemnity obligation as per sub-clauses (g) and (h) of Section 5(8); and it may also be the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h). For broadening the above view of the Hon'ble SC, I extract para 43 of the judgment as follows: 43. Applying the aforementioned fundamental principles to the definition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Section 43(2)(a) apply only in a case where a transfer of a property or an interest in such property has been created for the purpose of an existing i.e. antecedent financial or operational debt or an existing liability. The purpose of the provisions of Section 43(2)(a) is to bring into question a transfer which has been made by way of giving preference to an existing creditor. In the present case there is no antecedent debt for which the Corporate Guarantee was given. On the contrary in the present case a new debt has been created on account of the transaction documents in favour of the UTI. In view thereof, the contention of the IRP that the provisions of Section 43(2)(a) would apply to the present case are misconceived. The mere fact that there were some antecedent financial debts or liabilities owed by the Corporate Debtor does not make the transaction in question to be a transaction covered by Section 43(2)(a) in as much as the guarantee has been granted for and on account of a new financial debt and not an antecedent financial or operational debt. The same has in fact also been clarified by the Hon'ble Supreme Court in the judgement of Anuj Jain, IRP v. Axis Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, was not accepted. Even before Supreme Court similar effort was made (See Para - 37.4) but it did not succeed. Banks knew that if it is treated as guarantee, they could sail through. 30. The learned Counsel for the Appellant argued that the Adjudicating Authority wrongly relied on Judgement in the matter of "State Bank of India vs. Kusum Vallabhdas Thakkar." In Para 19 (reproduced supra) of the Impugned Order, the Adjudicating Authority referred to the said Judgement and observed that the position of law is not altered by Hon'ble Supreme Court in the decision of "Anuj Jain". Judgment in the matter of "Smt. Kusum" was referred in the Judgement of Hon'ble Supreme Court in "Anuj Jain" in Para - 51 and after discussing the ratio of the said Judgement, Hon'ble Supreme Court in Para - 51.4 observed that it was difficult to stretch the ratio of the said decision which appears to be applied to the issue at hand concerning definition of financial debt. The issue in that case was in the context of mortgage. In any case, even if we do not refer to the Judgement in the matter of "Smt. Kusum", in the facts of the present matter, we find that the Impugned Order has rightly concluded that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is erroneous on the part of the IRP to claim that the UTI is a related party under section 43 of the code. It must be borne in mind that UTI is a financial service provider engaged in providing financial service and is duly registered with SEBI. UTI is fund sponsored by UTI Asset Management Company Limited which has been sponsored by SBI, Bank of Baroda, Punjab National Bank and LIC India. 54. I am of the view that it would be beyond one's imagination even to consider that UTI can be termed as related party and would qualify under related party transaction. 55. It may be noted that the CIRP of the Corporate Debtor commenced on 31.08.2020. Thus, relevant time or look back period under Section 43 (4) of the Code would be one year (non-related party transaction that is from 01.09.2019 and 2 years for related party transaction that is from 01.09.2018). For discussion sake let us assume that it is covered under section 43 of the Code. However, since the deed of corporate guarantee was executed on 26.03.2018 therefore the transaction in question, that is giving the corporate guarantee, is well beyond the look back period. It is to be noted that the creation of the charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t necessary on the part of the UTI to invoke guarantee in a prescribed format. In judgement of Hon'ble NCLAT Exim Bank vs. Resolution Professional - JEKPL Pvt. Ltd. where it has been confirmed by Hon'ble Supreme Court that in respect of where such Corporate Guarantee is invoked or un-invoked, matured or un-matured it is a Financial Debt. Para 56 of the judgment of Exim Bank vs. Resolution Professional - JEKPL Pvt. Ltd. are reproduced as for reference: "56. Therefore, we hold that maturity of claim or default of claim or invocation of guarantee for claiming the amount has no nexus with filing of claim pursuant to public announcement made under Section 13(1)(b) r/w Section 15(1)(c) or for collating the claim under Section 18(1)(b) or for updating claim under Section 25(2)(e). For the purpose of collating information relating to assets, finances and operations of Corporate Debtor or financial position of the Corporate Debtor, including the liabilities as on the date of initiation of the Resolution Process as per Section 18(1), it is the duty of the Resolution Professional to collate all the claims and to verify the same from the records of assets and liabilities maintained by the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to declare certain transactions as preferential and direct avoidance of the said transactions, direct release and discharge of Corporate Debtor guarantee issued by the Corporate Debtor in favour of Respondent No. 1 for benefit of Respondent No. 2 being the preferential transactions and other reliefs as stated in the I.A. 3. The admission order of the CIRP of the Corporate Debtor was passed on 31.08.2020. The applicant herein has taken charge as an IRP and has invited claims from the creditors. The applicant received the claim from Respondent No. 1 as financial creditor claiming an amount of Rs. 257,84,25,381/-. The applicant upon perusal of the claimed formed and other supporting documents submitted by the Respondent No. 1 and verification books of the Corporate Debtor, found that there was no direct borrowing by the Corporate Debtor by the Respondent No. 1. The documents filed by the Respondent No. 1, established the facts that Corporate Debtor is a subsidiary of Mercator Ltd. which is the holding company. The holding company issued debentures to the Respondent No. 1 and executed the debenture trust deed dated 26.03.2018 in terms of which Respondent No. 1 was subscr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... created on 29.08.2016 and registered on MCA on 08.09.2016. e. The Corporate Debtor was highly indebted and looking at the projects long cycle and risk associated with the oil blocks, the Corporate Debtor would not have security/ guarantee for borrowing of the holding company, putting the Corporate Debtor under further stress for huge amount in favour of Respondent No. 1. f. The Corporate Debtor was not having substantial business or income at the time of issuance of Corporate Guarantee and / or creation of security for the benefit of Respondent No. 2. The following table shows the Financial Position of the Corporate Debtor during the relevant period; FY/ Particulars 2017-18 2018-19 2019-20 Revenue from Operations Nil 4.92 2.01 Profit / (Loss) before Tax (1.11) (5.23) (5.64) Bank Borrowings 93.07 92.54 95.29 The aforesaid financial position indicates that the Corporate Debtor was itself under financial burden and was in no position to issue Guarantee or given security for debts of Respondent NO. 2- Related Party. g. The applicant further states that the Corporate Guarantee issued by the Corporate Debtor has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors (COC) excluding the Respondent No. 1. q. Recognising the Respondent No. 1 as financial creditor of Corporate Debtor would amount to giving an advantageous positions as the part of the COC, which it is otherwise is not entitled not being the creditors of the Corporate Debtor. This would alter the structure of the COC, wherein the original and direct financial creditors would be reduced to minority merely due to the size of debt of Respondent No. 1 and Respondent No. 2, without any value or benefits to the Corporate Debtor. 7. Reply of Respondent No. 1 a. The Respondent No. 2 claimed that the application is filed on complete misreading and erroneous misrepresentation of the judgement dated 26.02.2020 in the matter of Anuj Jain, Interim Resolution Professional for JP Infratech Ltd. Vs. Axis Bank reported in 2020 SSC online 237. b. There was a disbursal of debt by the Respondent No. 1 to Respondent No. 2, which is the holding company of Corporate Debtor, the Corporate Debtor further gave guarantee for repayment of such debt. The amount advanced charged by the Corporate Debtor has the element of consideration for time, value and mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uity from Respondent No. 2 to the extent of Rs. 162.12 crores. viii. On 31st March, 2018 R2 provided a Corporate guarantee of Rs, 125.66 cores for debts of the Corporate Debtor. ix. In view of the initiation of CIRP of the Corporate Debtor on 31stAugust, 2020 the Respondent No. 2 lodge his claim of Rs. 257,84,25,381/- in Form C. the applicant on 2nd October 2020 by an email rejected the claim of Respondent No. 1 and observed that this transactions are of preferential nature as there were related party and the claim was not admissible. x. The Respondent No. 1 counsel vide letter dated 3.10.2020 relied upon the contentions of the Applicant and called upon the applicant not to take any further steps or hold meetings of the COC. Instead of considering the letter of Respondent No. 1, the applicant on 3.10.2020 served the Respondent filed the above I.A. seeking relief of avoidance of transactions. 8. I.A. 1628/2020 in CP 3434/2019 a. The applicant is a financial service provider and is aggrieved by the rejection and non-admittance of financial claims of Rs. 2,57,84,25,381/- by the Respondent.2. Mercator Ltd. is a Pvt. Ltd. company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admittance of the applicants claims and reasons thereto and called upon the respondent inter alia not to take any further steps or call the meeting of the COC till such time the claim of the applicant is not admitted. g. At about 10 p.m. the applicant served a copy of the I.A. 1746 of 2020 filed by them before the Hon'ble Tribunal. The applicants on 4thOctober, 2018 sent another letter to the responded calling upon not to hold any meetings of the COC to the applicant exclusion. However, on 5th October the respondents refused the request. The respondent has wrongfully not admitted the claim of the applicant who is the financial creditor who is having the substantial claim against the Corporate Debtor and is entitled to be the part of the CoC. Hence, the applicant prayed that the Tribunal be pleased to order and direct respondent to admitted the claim as a financial debt amounted to Rs. 2,57,84,25,381/- of the applicant as a financial creditor and declare that the applicant to be a member of the COC, pending the hearing and final disposal of the present application also restrained the Respondent from holding any meeting of COC, permit the applicant to attend all m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Debtor would not have created security/ guarantee for borrowing of the holding company, putting the Corporate Debtor under further stress for huge amount in favour of Respondent No. 1. h. The Corporate Debtor was not having substantial business or income at the time of issuance of Corporate Guarantee and / or creation of security for the benefit of Respondent No. 2. The following table shows the Financial Position of the Corporate Debtor during the relevant period; Rs in Crores FY/ Particulars 2017-18 2018-19 2019-20 Revenue from Operations Nil 4.92 2.01 Profit / (Loss) before Tax (1.11) (5.23) (5.64) Bank Borrowings 93.07 92.54 95.29 The aforesaid financial position indicates that the Corporate Debtor was itself under financial burden and was in no position to issue Guarantee or given security for debts of Respondent NO. 2- Related Party. i. The holding company of the Corporate Debtor and the Corporate Debtor business are completely different. The holding company is in the shipping business and whereas the Corporate Debtor is in the business of oil exploration. j. The Respondent further stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Whether date of registration of charge as contemplated under section 77 of the companies act, 2013 is the date of reckoning as notice of charge and hence amounts of preferential transaction within the 2 years of look back period as prescribed under section 43 of the Code. b. I.A.1746 of 2020 is filed by the IRP seeking declaration that the issuance of the Corporate Guarantee in favour of Respondent No. 1 and creation of second charge of the assets of Corporate debtor in favour of Respondent No. 1 is a preferential transaction under section 43 of the I and B Code, whereas the I.A. 1628 of 2020 is filed by the UTI against the rejection of claim as financial creditor and non-admittance of its claim as financial creditor by the IRP. Both the I.A.s are have identical issues/mirror issues and hence a common order is been passed. c. In 2018 Mercator Ltd. (holding company) issued debentures to Respondent No. 1 vide a Debenture Trust Deed dated 26.03.2018, under the terms of the deed the Respondent No. 1 (UTI) agree to subscribe up to 19000secured non-convertible debentures of face value of Rs. 10 lakhs aggregating to Rs. 190 crores in three tranches ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor or the resolution professional, as the case may be, is of the opinion that the corporate debtor has at a relevant time given a preference in such transactions and in such manner as laid down in sub-section (2) to any persons as referred to in sub-section (4), he shall apply to the Adjudicating Authority for avoidance of preferential transactions and for, one or more of the orders referred to in section44. (2) A corporate debtor shall be deemed to have given a preference, if- (a) there is a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and (b) the transfer under clause (a) has the effect of putting such creditor or a surety or a guarantor in a beneficial position than it would have been in the event of a distribution of assets being made in accordance with section53. (3) For the purposes of sub-section (2), a preference shall not include the following transfers- (a) transfer made in the ordinary course of the business or financial affairs of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms to the liquidator or the resolution professional, as the Adjudicating Authority may direct; direct any guarantor, whose financial debts or operational debts owed to any person were released or discharged (in whole or in part) by the giving of the preference, to be under such new or revived financial debts or operational debts to that person as the Adjudicating Authority deems appropriate; (e) direct for providing security or charge on any property for the discharge of any financial debt or operational debt under the order, and such security or charge to have the same priority as a security or charge released or discharged wholly or in part by the giving of the preference; and (f) direct for providing the extent to which any person whose property is so vested in the corporate debtor, or on whom financial debts or operational debts are imposed by the order, are to be proved in the liquidation or the corporate insolvency resolution process for financial debts or operational debts which arose from, or were released or discharged wholly or in part by the giving of the preference: Provided that an order under this section shall not - (a) affect any interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and confirms that any person acquiring such property, assets undertaking, share or interest therein shall be deemed to have notice of that charge from the date of such registration. Chapter VI of the Companies Act, 2013 deals with registration of charges and the scheme of Act further prescribes the reckoning date as the date of registration. The section 77 and 80 of the Companies Act. 2013 are as follows; "Section 77--Duty to register charges, etc.- (1) It shall be the duty of every company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise, and situated in or outside India, to register the particulars of the charge signed by the company and the charge-holder together with the instruments, if any, creating such charge in such form, on payment of such fees and in such manner as may be prescribed, with the Registrar within thirty days of itscreation: Provided that the Registrar may, on an application by the company, allow such registration to be made within a period of three hundred days of such creation on payment of such additional fees as may be prescribed: Provided further that if regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated an enforceable charge on the assets of the company in liquidation. We are of the opinion that the learned Counsel for the Respondents are quite right in their submissions that an injunction was issued only to ensure that the company in liquidation does not further encumber or create charges in favour of third parties over the assets of the company in liquidation. In our opinion, neither the interim order dated 15th April, 1987 nor the undertaking given pursuant thereto can be said to be a charge on the assets of the company in liquidation. This Court in the case of Indian Bank v. Official Liquidator, Chemmeens Exports (P) Ltd. and Ors. MANU/SC/0364/1998 : (1998) 5 SCC 401 whilst considering the provisions contained in Section 125 of the Companies Act has observed as follows: 6. Since the preliminary decree is assailed as being void Under Section 125 of the Act, it would be useful to read here the said provision, insofar as it is relevant for our purposes. It reads: 125. Certain charges to be void against liquidator or creditors unless registered.-(1) Subject to the provisions of this Part, every charge created on or after the 1st day of April, 1914, by a company and bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quidator and any creditor of the company. This, however, is subject to the provisions of Part V of the Act. The proviso enables the Registrar to relax the period of limitation of thirty days on payment of specified additional fees, on being satisfied that there has been sufficient cause for not filing the particulars and instrument or a copy thereof within the specified period. Sub-sections (2) and (3) deal with repayment of money secured by the charge. Subsection (2) provides that the provision of Sub-section (1) shall not prejudice the contract or obligation for repayment of money secured by the charge and Sub-section (3) says that when a charge becomes void under that section, the money secured shall become payable immediately. Though as a consequence of non-registration of charge under Part V of the Act, a creditor may not be able to enforce the charge against the properties of the company as a secured creditor in the event of liquidation of the company as the charge becomes void against the liquidator and the creditor, yet he will be entitled to recover the debt due by the company on a par with other unsecured creditors. It is also evident that Section 125 applies to every cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d created a second charge on its assets including moveable and immoveable properties and the oil blocks of Corporate Debtor. 2) From the facts of the present case, it is evident that Mercator Ltd. is the holding company of the Corporate Debtor and holds 76.53 % of shares in Corporate Debtor, holding the value of Rs. 47,93,00,000/-. 3) The issuance of Corporate guarantee in favour of the Respondent no.1/UTI Trust at the relevant time as on 11.03.2019 and creation of security interest to secure the antecedent debt of the Related party Holding company demonstrate that this transaction was preferential and beneficial to Respondent No.1 than it would have been at the time of distribution of assets under Sec 53 of IBC. 4) This transaction to create further securities to related parties at the relevant time within two years look back period as provided under Sec43 of IBC and when the Corporate Debtor was facing financial crunch and was facing insolvency claims from several operational creditors, squarely falls within the ambit of preferential transaction as prescribed by law under Sec 43 of IBC and cannot be done in the ordinary course of business. As a flow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's judgement at para 20 has laid down the test to conclude a certain transaction squarely falls within the ambit of Sec43 of the code. Para 20 is extracted below: (i) "As to whether such transfer is for the benefit of a creditor or a surety or a guarantor? (ii) As to whether such transfer is for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor? (iii) As to whether such transfer has the effect of putting such creditor or surety or guarantor in a beneficial position than it would have been in the event of distribution of assets being made in accordance with Section 53? (iv) If such transfer had been for the benefit of a related party (other than an employee), as to whether the same was made during the period of two years preceding the insolvency commencement date; and if such transfer had been for the benefit of an unrelated party, as to whether the same was made during the period of one year preceding the insolvency commencement date? (v) As to whether such transfer is not an excluded transaction in terms of sub-section (3) of Section 43?" 8) In v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Kumar Agarwal(IRP) in Company Appeal(CT)No. 668/2020, . wherein the Hon'ble NCLAT declared that the corporate guarantee is a financial debt under Sec5(8) of IBC and concurred with the inclusion of Financial creditor in the COC. 13) In view of the above judgement, it is a settled law that Corporate Guarantee constitutes form of financial debt under Sec5(8) of the Code, the only question remains is whether such Corporate Guarantee was created to prefer any particular creditor amounting to a preferential transactions as envisaged under Sec43 of the Code. In view of the discussions in the aforesaid paras, it can be said that the impugned transaction in question has been executed within the two years look back period i.e., on 11.03.2019 and Corporate Debtor's conduct of securing the antecedent debt of related party/holding company at the crucial time when it was facing insolvency claims from several operational creditors and was facing severe financial crunch given such bad financial position as detailed above and having no revenue from business, therefore it is declared that the Corporate Gurantee as executed on 26.03.2018 and registered as charge on 11.03.2019 is a preferent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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