Tribunal Rules on Fraudulent Transactions in Bankruptcy Case

The Tribunal concluded that the Interim Resolution Professional (IRP) had the authority to file the application based on Supreme Court orders and regulatory mandates. It found that the impugned transactions were carried out with the intent to defraud creditors, deemed preferential and undervalued transactions under the Insolvency and Bankruptcy Code. The transactions involving a related party were within the two-year look-back period, leading the Tribunal to declare them as fraudulent, preferential, and undervalued under the relevant Code sections. The Tribunal ordered the release of security interest and vested the properties in the Corporate Debtor.

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Issues Involved:
1. Authority of Interim Resolution Professional (IRP) to file the application.
2. Whether the impugned transactions were carried out with intent to defraud creditors or for any fraudulent purpose under Section 66 of the Code.
3. Whether the impugned transactions are preferential transactions under Section 43(2)(a) or undervalued transactions under Section 45 of the Insolvency and Bankruptcy Code (IBC) 2016.
4. Look-back period applicable for the impugned transactions under Section 46(1)(i).

Detailed Analysis:

Issue No. 1: Authority of Interim Resolution Professional to file the application
The respondents contended that the applicant had no locus standi to file the application. However, the Tribunal clarified that the Supreme Court's orders allowed the IRP to proceed with finalizing the Resolution Plan and to take necessary steps required for the same. The IRP is mandated by Regulation 39(2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process of Corporate Persons) Regulation 2016, to submit all details of transactions falling under sections 43, 45, 50, and 66 of the Code to the Committee of Creditors. The duties of the IRP under Section 25 include filing applications for avoidance of transactions under Chapter III of the Code. Hence, the Tribunal concluded that the IRP had the authority to file the application.

Issue No. 2: Transactions carried out with intent to defraud creditors or for any fraudulent purpose under Section 66 of the Code
The Tribunal found that the Corporate Debtor mortgaged 858 acres of unencumbered land to secure the debt of its related party, Jaiprakash Associates Ltd. (JAL), without any consideration or counter guarantee, during a period when it was facing severe liquidity crunch and its account was declared as NPA. The Tribunal noted that the Directors of the Corporate Debtor were aware of the financial stress and failed to exercise due diligence, thereby defrauding the creditors. The Tribunal held that the transactions were carried out with the intent to defraud the creditors of the Corporate Debtor, making them fraudulent and wrongful under Section 66 of the Code.

Issue No. 3: Preferential transactions under Section 43(2)(a) or undervalued transactions under Section 45 of the IBC 2016
The Tribunal determined that the transactions were preferential as they involved the transfer of interest in the property of the Corporate Debtor for the benefit of JAL, a creditor, putting JAL in a beneficial position than it would have been in the event of a distribution of assets under Section 53 of the Code. The Tribunal also found that the transactions were undervalued as they were made without any consideration or economic gain to the Corporate Debtor. The impugned transactions were executed within the look-back period of two years preceding the insolvency commencement date, making them preferential and undervalued under Sections 43 and 45 of the Code.

Issue No. 4: Look-back period applicable for the impugned transactions under Section 46(1)(i)
The Tribunal clarified that for transactions involving a related party, the look-back period is two years preceding the insolvency commencement date. The insolvency commencement date was 9th August 2017, making the relevant look-back period start from 10th August 2015. The Tribunal rejected the argument that the IBC provisions do not apply retrospectively, as the Code itself provides a retrospective effect for the look-back period.

Conclusion:
The Tribunal declared the impugned transactions as fraudulent, preferential, and undervalued under Sections 66, 43, and 45 of the IBC, respectively. It ordered the release and discharge of the security interest created by the Corporate Debtor in favor of the lenders of JAL and deemed the properties mortgaged by way of preferential and undervalued transactions to be vested in the Corporate Debtor. The detailed schedule of the properties involved in the impugned transactions was provided in the judgment.

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