Tribunal upholds sale deed as preferential transaction under Insolvency & Bankruptcy Code

The Tribunal upheld the Impugned Order, declaring the sale deed dated 04.07.2018 as a preferential transaction under Section 43 of the Insolvency and Bankruptcy Code, 2016. The transaction did not qualify for the exception under Clause (a) of Sub Section (3) of Section 43, as it was not in the ordinary course of business and favored the Appellant over other creditors. The Tribunal found the transaction prejudicial to other creditors and dismissed the Appeal, affirming the preferential nature of the transaction.

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Issues Involved:
1. Whether the sale deed dated 04.07.2018 executed by the Corporate Debtor is a preferential transaction under Section 43(1) of the Insolvency and Bankruptcy Code (I & B Code) 2016.
2. Whether the transaction falls within the ambit of the exception provided by Clause (a) of Sub Section (3) of Section 43 of the I & B Code 2016 as a transfer made in the ordinary course of business.

Issue-wise Detailed Analysis:

1. Preferential Transaction under Section 43(1) of the I & B Code 2016:

The Appellant challenged the Impugned Order dated 26.02.2021 passed by the Adjudicating Authority, which allowed the Miscellaneous Application filed by the Resolution Professional, declaring the sale deed dated 04.07.2018 as a preferential transaction. The Appellant, an Operational Creditor, argued that the Corporate Debtor owed a sum of Rs. 1,92,39,541/- for the supply of cotton and settled part of the debt by transferring land through a sale deed dated 04.07.2018. The Resolution Professional alleged that this transaction was preferential under Section 43 of the I & B Code 2016.

The Tribunal noted that the Adjudicating Authority, relying on the Supreme Court's judgment in Anuj Jain, Interim Resolution Professional for Jaypee Infratech Ltd. -Vs- Axis Bank Ltd., held that the transaction fell within the provisions of Section 43 of the IBC, 2016. The Tribunal observed that the Corporate Debtor executed the sale deed on 04.07.2018, and the insolvency application was admitted on 04.02.2019, making the transaction within the one-year period preceding the insolvency commencement date, thus fulfilling the criteria for a preferential transaction.

2. Exception under Clause (a) of Sub Section (3) of Section 43 of the I & B Code 2016:

The Appellant contended that the transaction was in the ordinary course of business and thus should fall under the exception provided by Clause (a) of Sub Section (3) of Section 43 of the I & B Code 2016. However, the Tribunal, referring to the Adjudicating Authority's observations, concluded that the transaction was not in the ordinary course of business or financial affairs of the Corporate Debtor. The Tribunal emphasized that the transaction gave the Appellant a preferential position over other creditors, which is against the principles of equitable distribution of assets as per Section 53 of the I & B Code in case of liquidation.

The Tribunal further noted that the Corporate Debtor's property was transferred to the Appellant, an unrelated party, within one year preceding the insolvency commencement date, thus meeting the criteria for a preferential transaction. The Tribunal also highlighted that the transaction prejudiced the interests of other creditors who have precedence in the distribution of assets during liquidation.

Findings:

The Tribunal found no illegality in the Impugned Order dated 26.02.2021 passed by the National Company Law Tribunal, Division Bench - I, Chennai. It held that the transaction was indeed a preferential one and not in the ordinary course of business, thereby dismissing the Appeal as devoid of merits.

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