Tribunal upholds sale agreement as preferential transaction under Section 43 of IBC, 2016

The Tribunal upheld the Adjudicating Authority's decision, confirming the sale agreement as a preferential transaction under Section 43 of the IBC, 2016. The Appeal was dismissed, setting aside the sale agreement dated 22.06.2018. The Tribunal exempted the Appellant from the cost imposed by the Adjudicating Authority.

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Issues Involved:
1. Whether the sale agreement dated 22.06.2018 between the Appellant and the Corporate Debtor constitutes a preferential transaction under Section 43 of the Insolvency and Bankruptcy Code (IBC), 2016.

Detailed Analysis:

Issue 1: Preferential Transaction under Section 43 of IBC, 2016

Appellant's Submissions:
The Appellant, an Operational Creditor, supplied cotton worth Rs. 5,95,05,918/- to the Corporate Debtor. To partially settle this debt, a sale agreement was executed on 22.06.2018, transferring land valued at Rs. 88,54,790/- to the Appellant. The Appellant argued that this transaction was a legitimate business deal, free from any collusion or fraud, and should be considered as made in the ordinary course of business under Clause (a) of Sub-Section (3) of Section 43 of the IBC, 2016. The Appellant also contended that the Adjudicating Authority failed to recognize the legitimacy of the business relationship and the absence of any encumbrances on the transferred property.

Respondent's Application:
The Resolution Professional filed an application on 03.07.2019 to set aside the sale agreement, arguing that it was a preferential transaction under Section 43 of the IBC, 2016. The Adjudicating Authority allowed this application, setting aside the sale agreement and imposing a cost of Rs. 50,000/- on the Appellant.

Tribunal's Analysis:
The Tribunal considered whether the transaction was preferential under Section 43(1) of the IBC, 2016. It relied on the Supreme Court's judgment in Anuj Jain, Interim Resolution Professional for Jaypee Infratech Ltd. v. Axis Bank Ltd., which outlined the steps for determining preferential transactions. The Tribunal noted that the Appellant was not a related party and the transaction occurred within one year preceding the insolvency commencement date, satisfying the criteria under Section 43(4)(b).

The Tribunal further examined whether the transaction was in the ordinary course of business. It concluded that the sale agreement did not fall within the ordinary course of business or financial affairs of the Corporate Debtor. The transaction was deemed preferential as it put the Appellant in a beneficial position over other creditors, violating the distribution mechanism under Section 53 of the IBC, 2016.

Findings:
The Tribunal upheld the Adjudicating Authority's decision to set aside the sale agreement, confirming it as a preferential transaction. However, the Tribunal exempted the Appellant from paying the Rs. 50,000/- cost imposed by the Adjudicating Authority.

Conclusion:
The Appeal was dismissed, and the sale agreement dated 22.06.2018 was set aside as a preferential transaction under Section 43 of the IBC, 2016. The Tribunal found no illegality in the Adjudicating Authority's order but exempted the Appellant from the cost imposed.

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