2019 (8) TMI 1710 - AT - Insolvency and Bankruptcy

Transactions not preferential under Insolvency Code

ICICI Bank Ltd. Versus Mr. Shailendra Ajmera, Committee of Creditors

The Tribunal found that the transactions in question were made in the ordinary course of business and did not fall within the one-year period preceding ... Seeking reversal of the amounts debited from the account of the ‘Corporate Debtor’ maintained with the ‘ICICI Bank Limited’ before the ‘insolvency commencement date’ - main plea taken by the Appellant, ICICI Bank is that the ‘Resolution Professional’ before filing an application under Section 43(1) of the I&B Code formed no opinion independently nor afforded an opportunity to the Appellant to explain about the transactions in question - HELD THAT:- Sub-section (3) (a) of Section 43 of the ‘I&B Code’ makes it clear that ‘preferential transaction’ does not include transfer made in the ordinary course of the business or financial affairs of the ‘Corporate Debtor’ or the transferee - As per sub-section (4) of Section 43 of the ‘I&B Code’ preference shall be deemed to be given at a relevant time, if it is given to a related party during the period of 2 years preceding the insolvency commencement date; or a preference is given to a person other than a related party during the period of one year preceding the insolvency commencement date. In the present case, the transactions were made by the Appellant Bank on 8th December, 2017, 11th December, 2017 and 14th December, 2017, as per ‘Renewal Credit Arrangement Letter’ letter dated 20th January, 2017 which was valid up to 16th December, 2017 - Admittedly, the Appellant Bank is not a related party and, therefore, for the purpose of relevant time clause (b) of sub-section (4) of Section 43 of the I&B Code can be said to be applicable i.e. period of one year of ‘insolvency commencement date’. The application under Section 7 was admitted on 8th December, 2017 and the ‘Resolution Professional’ was appointed on the said date. The order was passed on 8th December, 2017 and was pronounced on 15th December, 2017, and uploaded in the website - In the present case the application under Section 7 of the ‘I&B Code’ was admitted on 8th December, 2017 and the ‘Interim Resolution Professional’ was appointed on the same date. Therefore, the ‘corporate insolvency resolution process’ commenced on 8th December, 2017. The Adjudicating Authority has failed to notice the fact that all the transactions were made on or after the date of commencement of the ‘corporate insolvency resolution process’ and in ordinary course of business and in view of such position the impugned order dated 12th March, 2019 cannot be upheld - appeal allowed - decided in favor of appellant. Issues Involved:1. Whether the transactions dated 8th December, 2017; 11th December, 2017; and 14th December, 2017 were 'preferential transactions' under Section 43 of the Insolvency and Bankruptcy Code, 2016.2. Whether the transactions were made in the ordinary course of business.3. Whether the transactions fall within the relevant time period as defined under Section 43(4) of the Insolvency and Bankruptcy Code, 2016.4. Whether the Resolution Professional formed an independent opinion before filing the application under Section 43(1) of the Insolvency and Bankruptcy Code, 2016.Detailed Analysis:1. Preferential Transactions:The main plea taken by the Appellant – ICICI Bank was that the transactions in question were not 'preferential transactions' and were made in the usual course of business. The Resolution Professional argued that for a transaction to be considered preferential under Section 43, it must meet certain criteria, including whether the transfer was made in respect of an existing financial debt or other liability, and whether it put the creditor in a beneficial position than it would have been in the event of a distribution of assets under Section 53 of the Insolvency and Bankruptcy Code, 2016.2. Ordinary Course of Business:The Appellant contended that the transactions were made in the ordinary course of business, citing Clause 10(iii) of the Agreement, which allowed the bank to debit amounts from the Corporate Debtor’s account. The Resolution Professional, however, argued that the transactions exposed the Corporate Debtor to other liabilities and were not in the ordinary course of business. The Tribunal found that all transactions were indeed made in the ordinary course of business, as evidenced by the email from the Resolution Professional requesting the bank to allow the Corporate Debtor to purchase goods on the basis of 'Letters of Credit'.3. Relevant Time Period:Section 43(4) of the Insolvency and Bankruptcy Code, 2016, defines the relevant time period for preferential transactions. For non-related parties, the period is one year preceding the insolvency commencement date. The Tribunal noted that the transactions were made on 8th December, 2017; 11th December, 2017; and 14th December, 2017, and the insolvency commencement date was 8th December, 2017. Therefore, the transactions were either on the date of commencement of the corporate insolvency resolution process or during its pendency, and not within the one-year period preceding the insolvency commencement date.4. Independent Opinion by Resolution Professional:The Appellant argued that the Resolution Professional did not form an independent opinion before filing the application under Section 43(1). The Tribunal did not find this argument compelling, as the focus was more on whether the transactions were preferential and within the relevant time period.Conclusion:The Tribunal concluded that the transactions were made in the ordinary course of business and not within the one-year period preceding the insolvency commencement date. Consequently, the transactions could not be treated as preferential. The Tribunal set aside the impugned order dated 12th March, 2019, and allowed the appeal.