TaxTMI 
TaxTMI 
2021 (1) TMI 810
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....stered with the Securities Exchange Board of India (SEBI) and floated by UTI Structured Debt Opportunities Trust having SEBI Registration No. IN/AIF/17-18/0358, as per the applicable laws. The Applicant is represented by its investment manager that is UTI Capital Limited. The said IA is filed against Ms. Pinkush Jaiswal, the Interim Resolution Professional (IRP) of Mercator Petroleum Ltd. challenging the rejection of UTI's financial claim of Rs. 2,57,84,25,381/- by the Interim Resolution professional ("IRP") and not considering UTI as a financial creditor of the Corporate Debtor and excluding UTI from the Committee of Creditors. 2. Whereas I. A. 1746 of 2020 in C. P. 3434 of 2019 is filed Under Section 60(2) of the Insolvency and Bankruptcy Code, 2016 (hereinafter called as "Code") by Ms. Pinkush Jaiswal, the Interim Resolution Professional (IRP) of Mercator Petroleum Ltd. against the UTI Structured Debt Opportunities Fund and Anr. seeking avoidance of the transaction between UTI and the Corporate Debtor. Submissions by the Applicant in I. A. 1628 of 2020 and by the Respondent in I. A. 1746 of 2020: 3. The Mercator Limited is a private limited company eng....
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....Bank of Baroda addressed a letter dated 10.05.2018 granting it's final NOC to UTI and UTI's charge on the Corporate Debtor. 11. The Charge created on 15.05.2018 was registered by the Registrar of Companies, Mumbai (on 11.03.2019). The necessary charges for delayed registration have been paid and necessary compliances carried out. 12. The Debenture Trustee by its Notice dated 01.10.2019 called an event of default (occurring on 04.10.2018) under the Debenture Trust Deed, to Mercator Limited and all the Guarantors of Mercator Limited calling for repayment of the entire sums due under the Debenture Trust Deed and thereby invoking the corporate guarantees given by the Corporate Debtor under the Deed of Corporate Guarantee. 13. Various Reminder / Letters were sent inter alia to the Corporate Debtor and Mercator Limited calling upon them to pay the monies due to UTI. Various Litigations ensued between the parties. 14. Between 31.03.2018 and 31.03.2020, the Corporate Debtor received funding from Mercator Limited, directly or through MEPL, of Rs. 41.08 Crores, which included a sum of approx. Rs. 8.53 Crores from an escrow account which w....
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....d(DTD) dated 26.03.2018 ('Deed'). Under the terms of the Deed, the Respondent No. 1 agreed to subscribe up to 1,900 (One Thousand Nine Hundred Only) Secured Non-Convertible Debentures of the face value of Rs. 10,00,000/- (Rupees Ten Lakhs Only) each, aggregating to Rs. 190,00,00,000/- (Rupees One Hundred and Ninety Crores Only) in three tranches of Rs. 100 Crores, Rs. 65 Crores and Rs. 25 Crores respectively. However, this was subsequently amended by way of Deed of First Addendum to the Debenture Trust Deed executed on 27.06.2018, which revised the second tranche amount from Rs. 65 Crores to Rs. 30 Crores. Subsequently, a total of 1,300 Debentures were subscribed by the Holding Company. 23. Corporate Debtor is described as a "security provider" in the said DTD. Under the DTD, pursuant to clause 8.1.9 - 8.1.13, second charge over all the assets movable or immovable including bank accounts, intangibles of the Corporate Debtor was created in favour of the Respondent No. 1 Fund along with the Corporate Guarantee dated 26.03.2018. This was registered on 11.03.2019. 24. To secure the repayment of the amount raised through the Deed, the Corporate Debtor executed an....
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....f Section 43(2) and 43(4), the only tests that remains to be seen is that whether the transaction does not fall within Section 43(3) of the Code. The section briefly provides that if a transfer is made during the 'ordinary course' of business or financial affairs of the Corporate Debtor and Transferee and if the transfer creating a security interest secures new value then the transaction would not amount to giving any 'preference'. That being said, the IRP submits that the creation of security interest and issuance of Corporate Guarantee is not in the ordinary course of business or financial affairs of the Corporate Debtor. The Corporate Guarantee was neither in the interest of the Corporate Debtor nor advantageous to it. 30. The Corporate Debtor had availed a Term Loan from Bank of Baroda of Rs. 95 Crores in 2016 and had created a first charge on all movable and immovable fixed assets of the Oil Exploration Project, all project contracts and current assets. The IRP submits that since 2016, the Corporate Debtor was already highly indebted and the project undertaken by the Corporate Debtor had long gestation cycle and risks associated with Oil Blocks. In such a ....
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....pra) while dealing with the issue of 'in the course of ordinary business' where it has observed: "Another feature of vital importance is that the matter is examined with reference to the dealing and conduct of the corporate debtor; and qua the health and prospects of the corporate debtor..." 128. Thus, the enquiry now boils down to the question as to whether the impugned transfers were made in the ordinary course of business or financial affairs of the corporate debtor JIL. It remains trite that an activity could be regarded as 'business' if there is a course of dealings, which are either actually continued or contemplated to be continued with a profit motive. As regards the meaning and essence of the expression 'ordinary course of business', reference made by the appellants to the decision of the High Court of Australia in Downs Distributing Co (supra), could be usefully recounted as under: - "As was pointed out in Burns v. Mcflarlane the issues in sub-s. 2(b) of s.95 of the Bankruptcy Act 1924 - 1933 are "(1) good faith; (2) valuable consideration; and (3) ordinary course of business" This last express it was said 'does not require an investiga....
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.... not been invoked till today by Respondent No. 1. The IRP mentions that Respondent No. 1 Fund has merely sent communications to the Holding Company informing about the overdue payment and accrual of penal interest. The IRP contends that the Corporate Guarantee mandates that a Notice of Demand ought to be sent in the form of Schedule annexed to the Deed to invoke the Corporate Guarantee and Invocation Notice is to be addressed to the party. Thus, as per the IRP, the Invocation Notice is inchoate and incomplete. Admittedly, Respondent No. 1 Fund has not made any invocation in accordance with the Deed. The Resolution Professional submits that such uninvoked Corporate Guarantee holder cannot form part of the Creditors of the Company. 36. The IRP mentions that from the letter dated 1st October 2019 it can seen, that the copy of the letter which is purported to be the invocation is in fact not even properly addressed and hence is contrary to all laws. FINDINGS: 37. I.A. 1628 of 2020 in C.P. 3434 of 2019 has been filed by the UTI (Applicant) for a claim of Rs. 2,57,84,25,381/- pursuant of the Corporate Guarantee and security interests created b....
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....y course of business and also whether as per section 43(4) it falls beyond look back period. c. I would also address the issues raised by the IRP like the Corporate Guarantee not having been invoked by the applicant i.e. UTI. 40. It may be noted that the IRP while dealing with the case relies heavily on the judgment of Hon'ble Supreme Court in the case of Anuj Jain, IRP Vs. Axis Bank. While the Applicant in his defense differentiates the matter raised in the Hon'ble Supreme Court in the case of Anuj Jain, IRP Vs. Axis Bank and also relies on the Hon'ble NCLAT's judgment in the case of Ascot Realty Private Limited vs. Ajay Kumar Agarwal, IRP. Therefore, while dealing with the above issues, I will liberally revert back to the above two judgements in deciding on the issues raised. 41. It may be noted that UTI is a financial service provider engaged in providing financial services. The Deed of Corporate Guarantee qualifies as a Financial Debt as per section 5 (8) (h) of the code. "Section 5(8) "financial debt" means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and inclu....
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....ntial elements in the principal clause. In yet other words, the essential element of disbursal, and that too against the consideration for time value of money, needs to be found in the genesis of any debt before it may be treated as 'financial debt' within the meaning of Section 5(8) of the Code. This debt may be of any nature but a part 153 of it is always required to be carrying, or corresponding to, or at least having some traces of disbursal against consideration for the time value of money." 43. The provision contained in section 124, 126, 127 of the Indian Contract Act, 1872, also have a bearing on the issue at hand. This has been quoted in the Hon'ble Supreme case Judgment in Anuj Jain's case. Which reads as under: "The provisions contained in Sections 124, 126 and 127 of the Indian Contract Act, 187224 shall also have bearing on the issues at hand and hence, the same may also be noted as follows:- 124. "Contract of indemnity" defined.- A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a "contract of indemnity." ....
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....allabhdas Thakkar, 1994CivilCC89. It is good to read para 10 of the decision in Smt. Kusum: It read as follows: 10. As regards consideration, it is true that no direct consideration flowed from the plaintiff to the defendant who has made the promise to create a mortgage. But in such tripartite arrangement, anything done for the benefit of the principal debtor is a sufficient consideration to the surety for giving guarantee as expressly provided in Section 127 of the Contract Act. Thus, even though there is no consideration to the third party surety for mortgage, the consideration of having done anything for the benefit of the principal debtor is a sufficient consideration." This position of law appears to me not altered by the Hon'ble Supreme Court in the cited decision of Anuj Jain. In para 43 of Anuj Jain, the Hon'ble SC holds that 'financial debt' may include any of the methods for raising money or incurring liability by the modes prescribed in sub-clauses (a) to (f) of Section 5(8); it may also include any derivative transaction or counterindemnity obligation as per sub-clauses (g) and (h) of Section 5(8); and it may also be the amount of any liability in respect of any of the ....
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....e where transfer of property or interest in the property has been created for the benefit of a Creditor or a surety or a Guarantor for on account of Antecedent Debt or Operational Debt or other liabilities owned by the Corporate Debtor. In other words, the provisions of Section 43(2)(a) apply only in a case where a transfer of a property or an interest in such property has been created for the purpose of an existing i.e. antecedent financial or operational debt or an existing liability. The purpose of the provisions of Section 43(2)(a) is to bring into question a transfer which has been made by way of giving preference to an existing creditor. In the present case there is no antecedent debt for which the Corporate Guarantee was given. On the contrary in the present case a new debt has been created on account of the transaction documents in favour of the UTI. In view thereof, the contention of the IRP that the provisions of Section 43(2)(a) would apply to the present case are misconceived. The mere fact that there were some antecedent financial debts or liabilities owed by the Corporate Debtor does not make the transaction in question to be a transaction covered by Section 43(2)(a) ....
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.... "22. From the above, the distinction between matters which came up for consideration before Hon'ble Supreme Court in the matter of "Anuj Jain" and the present matter became clear. There the attempt to get Mortgage treated as if it is in the nature of guarantee, was not accepted. Even before Supreme Court similar effort was made (See Para - 37.4) but it did not succeed. Banks knew that if it is treated as guarantee, they could sail through. 30. The learned Counsel for the Appellant argued that the Adjudicating Authority wrongly relied on Judgement in the matter of "State Bank of India vs. Kusum Vallabhdas Thakkar." In Para 19 (reproduced supra) of the Impugned Order, the Adjudicating Authority referred to the said Judgement and observed that the position of law is not altered by Hon'ble Supreme Court in the decision of "Anuj Jain". Judgment in the matter of "Smt. Kusum" was referred in the Judgement of Hon'ble Supreme Court in "Anuj Jain" in Para - 51 and after discussing the ratio of the said Judgement, Hon'ble Supreme Court in Para - 51.4 observed that it was difficult to stretch the ratio of the said decision which appears to be applied to the issue at hand concer....
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.... Debtor on the said Deed of Corporate Guarantee, be unrealized, or outstanding or lost. Thus, the Deed of Corporate Guarantee is independent of any and all other transaction documents and charges/ securities executed in favour of UTI. 53. I am of the view that it is erroneous on the part of the IRP to claim that the UTI is a related party under section 43 of the code. It must be borne in mind that UTI is a financial service provider engaged in providing financial service and is duly registered with SEBI. UTI is fund sponsored by UTI Asset Management Company Limited which has been sponsored by SBI, Bank of Baroda, Punjab National Bank and LIC India. 54. I am of the view that it would be beyond one's imagination even to consider that UTI can be termed as related party and would qualify under related party transaction. 55. It may be noted that the CIRP of the Corporate Debtor commenced on 31.08.2020. Thus, relevant time or look back period under Section 43 (4) of the Code would be one year (non-related party transaction that is from 01.09.2019 and 2 years for related party transaction that is from 01.09.2018). For discussion sake let us assume th....
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....ion thereto shall also pay all Interest, Penal Interest, Premium, charges, costs, fees, dues and / or expenses payable by the Company to the Debenture Trustee for the benefit of the Debenture Holders" 57. It clearly shows that as per relevant clause of the Corporate Guarantee it was not necessary on the part of the UTI to invoke guarantee in a prescribed format. In judgement of Hon'ble NCLAT Exim Bank vs. Resolution Professional - JEKPL Pvt. Ltd. where it has been confirmed by Hon'ble Supreme Court that in respect of where such Corporate Guarantee is invoked or un-invoked, matured or un-matured it is a Financial Debt. Para 56 of the judgment of Exim Bank vs. Resolution Professional - JEKPL Pvt. Ltd. are reproduced as for reference: "56. Therefore, we hold that maturity of claim or default of claim or invocation of guarantee for claiming the amount has no nexus with filing of claim pursuant to public announcement made under Section 13(1)(b) r/w Section 15(1)(c) or for collating the claim under Section 18(1)(b) or for updating claim under Section 25(2)(e). For the purpose of collating information relating to assets, finances and operations of Corporate Debtor or fin....
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.... and with the direction that Applicant in IA 1628/2020 to be considered as financial Creditor by the IRP for the following reasons: IA 1746/2020 in CP 3434/2019 2. This is an application filed under section 43 r/w section 65 of the I and B Code, 2016 and rule 11 of NCLT rules, 2016 and have claimed certain directions to declare certain transactions as preferential and direct avoidance of the said transactions, direct release and discharge of Corporate Debtor guarantee issued by the Corporate Debtor in favour of Respondent No. 1 for benefit of Respondent No. 2 being the preferential transactions and other reliefs as stated in the I.A. 3. The admission order of the CIRP of the Corporate Debtor was passed on 31.08.2020. The applicant herein has taken charge as an IRP and has invited claims from the creditors. The applicant received the claim from Respondent No. 1 as financial creditor claiming an amount of Rs. 257,84,25,381/-. The applicant upon perusal of the claimed formed and other supporting documents submitted by the Respondent No. 1 and verification books of the Corporate Debtor, found that there was no direct borrowing by the Corporate Debtor by the R....
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....te Debtor itself requires huge investments and funding for its own survival and operations. d. The Corporate Debtor had availed a term loan from Bank of Baroda for Rs. 95 crores in 2016 and had created first charge on all movable and immovable, fixed assets of oil exploration projects, all project contracts and current assets. The charge was created on 29.08.2016 and registered on MCA on 08.09.2016. e. The Corporate Debtor was highly indebted and looking at the projects long cycle and risk associated with the oil blocks, the Corporate Debtor would not have security/ guarantee for borrowing of the holding company, putting the Corporate Debtor under further stress for huge amount in favour of Respondent No. 1. f. The Corporate Debtor was not having substantial business or income at the time of issuance of Corporate Guarantee and / or creation of security for the benefit of Respondent No. 2. The following table shows the Financial Position of the Corporate Debtor during the relevant period; FY/ Particulars 2017-18 2018-19 2019-20 Revenue from Operations Nil 4.92 2.01 Profit / (Loss) b....
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....on 11.03.2019 the charge creation is within preceding 2 years of insolvency commencement date. o. The applicant also relied upon the decision of the Hon'ble Supreme Court in Anuj Jain case reported in MANU/SC/0228/2020 and hence claim that the transaction are liable to the set aside as preferential transactions. p. The based on the above decision the Applicant has not admitted the claim of Respondent No. 1 and has constituted the Committee of Creditors (COC) excluding the Respondent No. 1. q. Recognising the Respondent No. 1 as financial creditor of Corporate Debtor would amount to giving an advantageous positions as the part of the COC, which it is otherwise is not entitled not being the creditors of the Corporate Debtor. This would alter the structure of the COC, wherein the original and direct financial creditors would be reduced to minority merely due to the size of debt of Respondent No. 1 and Respondent No. 2, without any value or benefits to the Corporate Debtor. 7. Reply of Respondent No. 1 a. The Respondent No. 2 claimed that the application is filed on complete misreading and erro....
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.... vii. The charge were created by the Respondents and registered with ROC. The Respondent No. 2 defaulted in fulfilment of its obligations under Debenture Trust Deed as the result, the debenture trustee called an event of default occurring on 24th of October, 2020, issued notice on 1stOctober 2019 calling upon payment of entire sums of dues under the debenture trust deed. The review of accounts of the Corporate Debtor for the period from 31st March 2018 to 31stMarch 2020 shows that the Corporate Debtor has been beneficiary in the form of debt and equity from Respondent No. 2 to the extent of Rs. 162.12 crores. viii. On 31st March, 2018 R2 provided a Corporate guarantee of Rs, 125.66 cores for debts of the Corporate Debtor. ix. In view of the initiation of CIRP of the Corporate Debtor on 31stAugust, 2020 the Respondent No. 2 lodge his claim of Rs. 257,84,25,381/- in Form C. the applicant on 2^nd October 2020 by an email rejected the claim of Respondent No. 1 and observed that this transactions are of preferential nature as there were related party and the claim was not admissible. x. The Respondent No. 1 coun....
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.... order of admission on 31.08.2020. The applicant lodge his claim of Rs. 257,84,25,381/- crores in the prescribed form C as per the Code and rules made there under. d. The Respondent sought some documents and clarifications regarding the invoking of guarantee regarding the applicant and duly shared by the applicant. e. On October 2nd, 2020 the Respondent address an email to the applicant stating that the Respondent was not admitting the applicant claim as financial creditor. f. On 3rdOctober, 2019 at 9 p.m. The applicant through its advocates addressed a letter inter alia reputing the nonadmittance of the applicants claims and reasons thereto and called upon the respondent inter alia not to take any further steps or call the meeting of the COC till such time the claim of the applicant is not admitted. g. At about 10 p.m. the applicant served a copy of the I.A. 1746 of 2020 filed by them before the Hon'ble Tribunal. The applicants on 4thOctober, 2018 sent another letter to the responded calling upon not to hold any meetings of the COC to the applicant exclusion. However, on 5th October the respondents refused the....
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....; The Corporate Debtor were also required to create a second charge on the assets of the company being oil blocks and the exploration at CB9, situated at Bharuch, Gujarat and second charge over all assets, current and future, movable and immovable, tangible and intangible of second charge over all bank accounts of the Corporate Debtor in favour of Axis Trustee Services Ltd. acting as debenture trustee for Respondent No. 1 for repayment of debts of the holding company to Respondent No. 1. The charge was registered on MCA portal on 11.03.2019. g. The Corporate Debtor was highly indebted and looking at the projects long cycle and risk associated with the oil blocks, the Corporate Debtor would not have created security/ guarantee for borrowing of the holding company, putting the Corporate Debtor under further stress for huge amount in favour of Respondent No. 1. h. The Corporate Debtor was not having substantial business or income at the time of issuance of Corporate Guarantee and / or creation of security for the benefit of Respondent No. 2. The following table shows the Financial Position of the Corporate Debtor during the relevan....
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....dent No. 1(being a Creditor of Related party/Holding Company) and creation of second charge on all assets including moveable, immoveable assets and oil blocks of the Corporate Debtor in favour of Respondent No. 1 is a preferential transaction under section 43 of IBC. ii. Whether the Respondent No. 1 UTI can be admitted to COC in the capacity of being a financial creditor of the Corporate Debtor. iii. Whether the deed of guarantee can be construed as financial debt under section 5(8) (i) of I B Code more so when this transaction amount to related party transaction. iv. Whether there is evidence to show the indebtedness/no business of the Corporate Debtor it is evident from the financial statements and execution of the Corporate Guarantee is to prefer any creditor. v. Whether date of registration of charge as contemplated under section 77 of the companies act, 2013 is the date of reckoning as notice of charge and hence amounts of preferential transaction within the 2 years of look back period as prescribed under section 43 of the Code. b. I.A.1746 of 2020 is filed by the IRP seeking declaration that the ....
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.... before Tax (1.11) (5.23) (5.64) Bank Borrowings 93.07 92.54 95.29 g. The financial position therefore indicates that the at the relevant time the Corporate Debtor was itself under the financial burden and was in no position to issue guarantee or debts of Mercator Ltd, being holding company and related party. The Corporate debtor has no revenue from business operations having consistent losses, further looking at the projects long cycle and risk associated with the oil blocks, the Corporate Debtor could not have provided security/ guarantee for borrowing of the holding company, putting the Corporate Debtor under further stress for huge amount in favour of Respondent No. 1. h. It is relevant to refer to section 43 of the Code. Section 43 is extracted below; 43. "Preferential transactions and relevant time.- (1) Where the liquidator or the resolution professional, as the case may be, is of the opinion that the corporate debtor has at a relevant time given a preference in such transactions and in such manner as laid down in sub-section (2) to any persons as referred to in sub-section (4), he shall appl....
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.... during the period of two years preceding the insolvency commencement date; or (b) a preference is given to a person other than a related party during the period of one year preceding the insolvency commencement date." Sec 44 : Orders in case of preferential transactions.- (1) The Adjudicating Authority, may, on an application made by the resolution professional or liquidator under sub-section (1) of section 43, by an order: (a) require any property transferred in connection with the giving of the preference to be vested in the corporate debtor; (b) require any property to be so vested if it represents the application either of the proceeds of sale of property so transferred or of money so transferred; (c) release or discharge (in whole or in part) of any security interest created by the corporate debtor; (d) require any person to pay such sums in respect of benefits received by him from the corporate debtor, such sums to the liquidator or the resolution professional, as the Adjudicating Authority may direct; direct any guarantor, whose financial debts or operational de....
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....at any transfer of interest or creation of security interest in favour of guarantor so as to put such guarantor in a beneficial position than it would have been in the distribution of assets being made in accordance with section of the Insolvency and Bankruptcy Code, 2016, is a preferential transactions and was registered as charge under section 77 of the Companies Act, 2013 on 11.03.2019. b. It is very important to refer section 77 of the Companies Act 2013. The scheme of the Act and intention of legislature which mandates that the duty cast upon any company to register the charges within 30 days of its creation and further stipulates that notwithstanding anything contained in any other law for the time being enforced no charge created by the company shall be taken in to account by the liquidator or any other creditor unless it is duly registered under sub section (1) of Sec 77 within 30 days of execution and a certificate of registration of such charge is given by the Register under sub-section 2. Section 80 of the Companies Act, 2013 also prescribes the date of notice of charge and confirms that any person acquiring such property, assets under....
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....f its undertakings is registered under section 77, any person acquiring such property, assets, undertakings or part thereof or any share or interest therein shall be deemed to have notice of the charge from the date of such registration." c. It is a settled law that certain charges are void against liquidator or creditor unless registered. This would also include the Resolution Professional/liquidator under IBC, as IBC was promulgated in the year 2016, which is after the enactment of Companies Act 2013. Sec 77 of Companies Act contemplates registration of charge within 30 days and the Registrar may allow the registration with a late fee, it seems from the facts that the present case that though execution of Corporate Guarantee was on 26.03.2018, the registration of charge was done on 11.03.2019. d. The Hon'ble Supreme Court in its judgement in Oil and Natural Gas Corporation Ltd Vs. Official Liquidator of Ambica Mills Co. Ltd. and Ors. reported in AIR2014SC3011 at para 20 have categorically held as follows: "20. We have considered the submissions made by the learned Counsel for the parties. In our opinion, the Appellant cannot claim that the o....
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....e becomes void under this section, the money secured thereby shall immediately become payable. (4) This section applies to the following charges: (a) a charge for the purpose of securing any issue of debentures; (b) a charge on uncalled share capital of the company; (c) a charge on any immovable property, wherever situate, or any interest therein; (d) a charge on any book debts of the company; (e) a charge, not being a pledge, on any moveable property of the company; (f) a floating charge on the undertaking or any property of the company including stock-in-trade; (g) a charge on calls made but not paid; (h) a charge on a ship or any share in a ship; (i) a charge on goodwill, on a patent or a licence under a patent, on a trade mark, or on a copyright or a licence under a copyright. (5) to (8)* * * 7. On a plain reading of Sub-section (1) it becomes clear that if a company creates a charge of the nature enumerated in Sub-section (4), after 1-4-1914 on its properties, and fails to have the charge together with instrument, if any, by w....
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....gh as a consequence of non-registration of charge under Part V of the Act, a creditor may not be able to enforce the charge against the properties of the company as a secured creditor in the event of liquidation of the company as the charge becomes void against the liquidator and the creditor, yet he will be entitled to recover the debt due by the company on a par with other unsecured creditors". Emphasis supplied g. Therefore, it can be said that date of registration of charge is to be considered while admitting the claim of a creditor whether it is a liquidation under Companies Act or Resolution Process/Liquidation under IBC. No charge shall be taken into account by liquidator or creditor unless it is duly registered as laid down by Hon'ble Supreme Court. h. The Corporate Guarantee was registered on 11.03.2019, which is within the two year look back period as prescribed by Sec.43 of the Code. The only question further remains is whether such creation of security interest amounts to preference being given to him. 1) Section 43(2)(a) essentially provides that preference is deem to be given if there is a transfer of property or an inte....
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....ency Law at para 165, 166 and 183. Article 165, 166 and 183 is reproduced below; "165 State define the "ordinary course of business" with varying emphasis on different elements. However, in most jurisdictions a common purpose of the definition is to determine what constitutes routine conduct of business and allow a business to make routine payments and enter into routine contracts, without subjecting those transactions to possible avoidance in insolvency. Those routine payments might include the payment of rent, utilities such as electricity and telephone and possibly also payment for trade supplies. 166 To define what constitutes "ordinary course of business" with respect to a particular debtor, some loss focus on the prior conduct of the debtor and the parties with which it deals, focusing on elements of their relationship such as the method, quantity and regularity of supply and payment. In such a case, any variation from contract, custom or what may be deemed to be regular practice between the parties, for example a payment by abnormal means, will be regarded as being outside the "ordinary course of business". Another approach focuses on the intention of one o....
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....could not have been done in ordinary course of business. 9) The rights enforcement of Guarantee under the Guarantee document is well defined/protected under the Law of Contract, but the conduct of Corporate Debtor to create security interest to a Guarantor of a Related Party at a relevant time to favour a particular creditor, the respondent No.1 having knowledge about the financial position and indebtedness of Corporate Debtor and that there is an imminent threat of insolvency, in view that he would substantially stand to be benefitted by this transaction is under challenge. 10) The execution of the Corporate Guarantor in favour of Respondent No. 1 entitles him to receive large percentage of his claim from the Corporate Debtor assets, than other creditors of same rank or class. 11) The Corporate Debtor having availed a term loan of Rs. 95 crores in the year 2016 had created a first charge on all its movable and immoveable assets of oil exploration project and was highly indebted. In such a scenario no prudent person would provide any guarantee or security of the holding in the ordinary course of business. The fact that Bank of Baro....