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Issues: Whether the registered Deed of Mortgage dated 29.07.2021 executed by the Corporate Debtor in favour of the Appellant amounts to a preferential transaction under Section 43 of the Insolvency and Bankruptcy Code, 2016.
Analysis: The Debenture Subscription Agreement contemplated creation of security within 30 days and envisaged a first charge, but no perfected security was created for nearly seven years. During that period, the Corporate Debtor created prior encumbrances in favour of other lenders. The Mortgage Deed executed in July 2021 created, for the first time, a registered second charge in favour of the Appellant on account of an antecedent financial debt, shortly before commencement of CIRP. The transaction improved the Appellant's position from unsecured creditor to secured creditor in the event of distribution under Section 53 and fell within the statutory look-back period. The exception for transactions in the ordinary course of business was held inapplicable because the delayed creation of security, the absence of timely perfection, and the execution of a fresh registered mortgage immediately before insolvency did not constitute a routine commercial transaction.
Conclusion: The Mortgage Deed constituted a preferential transaction under Section 43 of the Insolvency and Bankruptcy Code, 2016 and the appeal failed.
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