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TMI BlogPreferential transactions and relevant time [ Section 43 & 44 ]X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 section 53 of IBC. Following transfer not include in the preference [ Section 43(3) ] For the purposes of section 43(2), a preference shall not include the following transfers- (a) transfer made in the ordinary course of the business or financial affairs of the corporate debtor or the transferee; (b) any transfer creating a security interest in property acquired by the corporate debtor to the extent that - (i) such security interest secures new value and was given at the time of or after the signing of a security agreement that contains a description of such property as security interest, and was used by corporate debtor to acquire such property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that person as the Adjudicating Authority deems appropriate; (f) 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 (g) 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 in property which was acquired from a person other than the corporate debtor or any interest derived from such interest and was acquired in good faith and for value; (b) require a person, who received a benefit from the preferential transaction in good faith and for value to pay a sum to the liquidator or the resolution pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an unrelated party. However, such deemed preference may not be an offending preference, if it falls into any or both exclusions provided by section 43(3). Section 43(3)(a) exempts transfers made in ordinary course of business of the CD or the transferee. This calls for purposive interpretation. The expression or , appearing as disjunctive between the expressions corporate de btor and transferee , ought to be read as and . Therefore, a preference shall not include the transfer made in the ordinary course of the business of the CD and the transferee. (b) Duties and responsibilities of RP: The RP shall (i) sift through all transactions relating to the property/interest of the CD backwards from the ICD and up to the preceding two years; (ii) identify persons involved in the transactions and put them in two categories: (1) related party under section 5(24) and (2) remaining persons; (iii) identify which of the said transactions of preceding two years, the beneficiary is a related party of the CD and in which the beneficiary is not a related party. The sub-set relating to unrelated parties shall be trimmed to include only the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resolution plan itself, as permitted under section 60. It has no jurisdiction to entertain and decide avoidance applications, in respect of a CD which is now under a new management unless provision is made in the final resolution plan. The RP cannot continue to act on behalf of the CD under the title of `Former RP , once the plan is approved and the new management takes over. His continuation beyond the closure of the CIRP would in effect mean an interference in the conduct and management of the company. The successful resolution applicant cannot file an avoidance application, as it is neither for the benefit of the resolution applicant nor for the CD after the resolution is complete. Section 26 of the Code cannot be read in a manner to mean that an application for avoidance of transactions under section 25(2)(j) of the IBC can survive after the CIRP. Once the CIRP process itself comes to an end, an application for avoidance of transactions cannot be adjudicated. If the CoC or the RP are of the view that there are any transactions which are objectionable in nature, the order in respect thereof would have to be passed prior to the approval of the resolution plan. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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