TaxTMI 
TaxTMI 
2026 (5) TMI 1172
X X X X Extracts X X X X
X X X X Extracts X X X X
....under Section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the 'Code') assailing the Order dated 10.10.2025 passed by the Ld. National Company Law Tribunal, Mumbai Bench ('Adjudicating Authority') in I.A. No. 4504 of 2024 in C.P. (IB) No. 380 of 2021, whereby the application filed by Mr. Vithal M. Dahake, Resolution Professional of Radius Estate Projects Private Limited/ Respondent No.1 under Sections 43, 45 and 49 of the Code came to be allowed. By the said Impugned Order, the Adjudicating Authority held that the Deed of Mortgage dated 29.07.2021 executed between Radius Estate Projects Private Limited/ Corporate Debtor, and the Suraksha Realty Limited/ Appellant constituted a preferential transaction, and consequently directed that the security interest created in favour of the Appellant be released and discharged. Respondent Nos. 2-5 are the promoters and ex-Directors of the Corporate Debtor. Being aggrieved by the said findings of Ld. Adjudicating Authority in particular the treatment of the mortgage as a preferential transaction, despite it being a perfection of security arising from the Debenture Subscription Agreement dated 18.12.2014, the presen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for further funding, which was agreed to by DHFL subject to creation of a first charge over the entire project. A mortgage deed dated 30.07.2018 was executed in favour of DHFL creating a first charge over the project. Yes Bank had issued a conditional NOC for the creation of such charge on 31.07.2018, subject to the Corporate Debtor fulfilling the repayment conditions as prescribed in the aforesaid conditional NOC. As Corporate Debtor failed to fulfil its repayment obligations, the conditional NOC stood revoked. The DHFL charge was thereafter converted to second charge on the property of CD. vii. Subsequently, due to the subsisting charges and lack of discharge of Yes Bank's dues, the Corporate Debtor and the Appellant agreed upon a commercial arrangement, whereby a second charge would be created in favour of the Appellant over the identified 61,803 square feet area, with a provision for its upgradation to a first charge upon satisfaction of prior charges. In furtherance of the aforesaid arrangement a registered Deed of Mortgage dated 29.07.2021 came to be executed, creating a second charge in favour of the Appellant over 29 identified units aggregating to 61,803 square f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tial transaction under Section 43 of the Code, thereby directing release of the security interest, which has led to the filing of the present Appeal. Submission of the Appellant 3. Mr. Arun Kathpalia, Ld. Senior Counsel for the Appellant submits that the Learned NCLT has gravely erred in mechanically relying upon the judgment rendered by Hon'ble Supreme Court in "Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited vs. Axis Bank Limited & Ors. (2020) 8 SCC 401" without appreciating the completely distinguishable factual background involved in the present case. The factual matrix in Anuj Jain (supra) was fundamentally different and the ratio laid down therein cannot be applied in a blanket manner to every transaction involving creation or perfection of security interest within the look-back period. 4. He submitted that in Anuj Jain, the Corporate Debtor namely Jaypee Infratech Limited had created mortgage transactions solely for the benefit of its related party namely Jaypee Associates Limited ("JAL") in respect of antecedent debts owed by JAL to its own lenders. The mortgages were created not for securing any direct financial assistance availed by the Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 8. It is further submitted that the principle relating to delay and laches could never have been invoked against the Appellant in the present case. The Appellant never approached any court or tribunal seeking delayed enforcement of the Mortgage Deed after seven years. The Appellant consistently relied upon the assurances extended by the Corporate Debtor and the continuing recognition of the Appellant's security interest through subsequent documents and transactions. Therefore, the maxim relied upon by the Learned NCLT was wholly inapplicable. 9. The Appellant further submits that the documents placed on record conclusively establish continuous recognition of the Appellant's security interest much prior to the look-back period. The DHFL Sanction Letter dated 27.07.2018 specifically recorded that 61,803 sq. ft. area comprising 29 units stood earmarked for securing the Appellant's interest. Likewise, 29 allotment letters dated 01.08.2018 were issued in favour of the Appellant. These documents formed part of the official MCA records and were always within the knowledge and possession of the Resolution Professional. 10. It is submitted that these documents clearly demonstrate ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... maintained complete silence and failed to file any meaningful response for several months even after directions dated 27.11.2025, 15.01.2026 and 25.02.2026 passed by this Hon'ble Tribunal. Such conduct, according to the Appellant, is not accidental or inadvertent, but deliberate and calculated. 15. It is submitted that the Resolution Professional was fully aware that the documents relied upon by the Appellant formed part of the MCA records and directly established prior recognition of the Appellant's security interest. Yet, the Resolution Professional consciously chose not to deal with these materials as the same completely undermined the theory of preferential transfer advanced by him in the PUFE proceedings. The Appellant submits that the silence maintained by the Resolution Professional becomes even more significant considering that after vacation of the stay order in Vistra ITCL (India) Ltd. vs. Vithal Madhukar Dahake, Company Appeal (AT) (Insolvency) No. 1110 of 2024 the CoC was proceeding towards voting on the Resolution Plans. In such circumstances, the exclusion of the Appellant from the category of secured creditors and denial of voting rights had serious and irreversi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s statutory domain. It is further submitted that the Hon'ble Supreme Court has consistently held that the NCLT, being a creature of statute, is confined strictly to the jurisdiction conferred under the Code and cannot exercise powers akin to a civil court in adjudicating contractual disputes or title. 20. He submits that the Impugned Order erroneously concludes that the Mortgage Deed, executed seven years after the Debenture Subscription Agreement dated 18.12.2014, altered the position of the Appellant from an unsecured to a secured creditor within the look-back period and therefore could not be said to be in the ordinary course of business. 21. Ld. Counsel further submits that the Adjudicating Authority has failed to consider that the Resolution Professional has, in excess of its statutory powers, reclassified the Appellant from a secured to an unsecured creditor. Such reclassification amounts to an adjudicatory exercise, which is impermissible under the scheme of the Code. The Appellant was always a secured creditor in equity from the date of the DSA. The execution of the Mortgage Deed was merely an act of perfection and not creation of security. Therefore, the assumption u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the transaction was anything other than a bona fide commercial arrangement. The Impugned Order fails to demonstrate how the transfer of 29 units under the Mortgage Deed falls outside the ordinary course of business, particularly when the DSA itself does not prescribe any specific timeline for execution of securities. 27. Ld. Counsel states that the mortgage created only a second charge, which was expressly subordinate to the first charge of Yes Bank and conditional upon repayment of such facilities. Consequently, the Appellant did not derive any immediate or preferential benefit over other creditors. The conclusion of the Adjudicating Authority that the Appellant was placed in a beneficial position is therefore untenable and contrary to the structure of the transaction itself. 28. Ld. Counsel submits that the Impugned Order suffers from arbitrariness and discrimination inasmuch as it treats similarly placed creditors differently. It is submitted that the Adjudicating Authority has placed undue reliance on the Transaction Audit Report dated 26.03.2024, which itself is flawed and ignores material facts, including the absence of a valid NOC in favour of DHFL. 29. He submit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l discharge of the Appellant's lawful security interest. Therefore, the Impugned Order is liable to be set aside as it suffers from errors apparent on the face of the record and proceeds on a complete misappreciation of facts and law. Submission of the Respondent No.1/ RP 34. Mr. Amir Arsiwala Ld. Counsel on behalf of Respondent No. 1/ RP submits that the present appeal has been preferred by the Appellant assailing the order dated 10.10.2025 passed by the Hon'ble National Company Law Tribunal, Mumbai Bench in I.A. No. 4504 of 2024 in C.P. (IB) No. 380 of 2021. It is submitted that the said application had been filed by the Respondent No. 1, being the Resolution Professional of Radius Estate Projects Private Limited, under Sections 43, 45 and 49 of the Insolvency and Bankruptcy Code, 2016. 35. Ld. Counsel submitted that by way of the Impugned Order, the Learned Adjudicating Authority has rightly allowed the said application, inter-alia holding that the Mortgage Deed dated 29.07.2021 executed between the Corporate Debtor and the Appellant, nearly seven years after the Debenture Subscription Agreement dated 18.12.2014, altered the status of the Appellant from an unsecured fin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cing the Appellant in a more beneficial position than it would have occupied in the event of distribution of assets under Section 53 of the Code. It is submitted that prior to the execution of the Mortgage Deed, the Appellant was an unsecured financial creditor. It is further submitted that during the period 2015-16, the Corporate Debtor had already created a first charge in favour of Yes Bank over the entire project. In such circumstances, in the absence of the Mortgage Deed, the Appellant would have continued as an unsecured creditor. However, by virtue of the Mortgage Deed, the Appellant became a secured creditor, albeit a second charge holder, thereby improving its position in the statutory waterfall mechanism. This elevation clearly satisfies the requirement of "beneficial position". 40. It is his submission that the Mortgage Deed does not fall within the exception provided under Section 43(3) of the Code, which pertains to transactions undertaken in the ordinary course of business. It is submitted that the transaction in question cannot be regarded as a routine commercial transaction. 41. Ld. Counsel submits that although the Debenture Subscription Agreement was execute....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s to determine whether a transaction is preferential. It is submitted that the Hon'ble Court has held that the Tribunal must examine whether the transfer is for the benefit of a creditor, whether it is for an antecedent debt, whether it places the creditor in a beneficial position, whether it falls within the look-back period, and whether it is excluded under Section 43(3). 47. Ld. Counsel submits that applying the aforesaid principles to the facts of the present case, all conditions are clearly satisfied. It is submitted that the Mortgage Deed was executed for the benefit of the Appellant, it secured an antecedent debt, it improved the Appellant's position in the waterfall mechanism, it was executed within the look-back period, and it does not fall within any exception. 48. Summing up his arguments Ld. Counsel states that in view of the aforesaid facts and settled legal position, the Mortgage Deed squarely falls within the ambit of a preferential transaction under Section 43 of the Insolvency and Bankruptcy Code and cannot be said to have been executed in the ordinary course of business. It is thus submitted that the Impugned Order passed by the Learned Adjudicating Authorit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... steps were required for perfection of the security, including execution of formal mortgage documents. The relevant clauses of Debenture Security Agreement (DSA) are extracted below: "1.1.20 "Deed of Mortgage" shall mean the deed of mortgage to be entered into among the issuer, Corporate Promoters, the Promoters and the Investor under the terms of this DSA; 8. Securities For the consideration of the said Amount as aforesaid and as security for the repayment of the principal amount of the NCDs, payment of all interest, prepayment charges, liquidated damages, costs, charges and expenses and all other monies as may be payable under this DSA and all costs, charges and expenses, including but not limited to the costs, legal expenses, if any, of preserving the Securities and/ or enforcement thereof, incurred by the Investor in the performance of its duties and obligations under this DSA, the Issuer shall within a period of 30 days from the date of this Agreement create the following Securities: 8.2 Primary Charge 8.2.1 The Issuer hereby grants, conveys, assigns, assures, charges and transfer unto and in favour of the Investor, by way of a Firs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rporate Debtor. However, Yes Bank Limited had sought a first charge on the entire entitlement of the Corporate Debtor in the Project to secure the facilities to be availed by the Corporate Debtor. As the Corporate Debtor required the funds for the Project, the Corporate Debtor executed a Deed of Mortgage dated 23rd December 2015 as well as Deed of Mortgage dated 12th May 2016 read with Supplementary Deed dated 6th February 2018, in favour of Yes Bank Limited, thereby creating a first charge on its entitlement in the Project. f. Pertinently, as per Clause 13 (f) of Schedule 7 of the DSA, the Corporate Debtor had undertaken that it shall not create any charge, lien or encumbrance (which included mortgages) whatsoever over the Securities or any part thereof in favour of any person/bank/financial institution other than Respondent No. 1. Furthermore, as per Clause 13 (h) of Schedule 7 of the DSA, the Corporate Debtor had undertaken that it shall not sell, transfer, assign, mortgage, alienate or otherwise dispose off any of the assets of Corporate Debtor which are charged in favour of Respondent No. I without its approval. Accordingly, upon learning about the execution of the sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... potential to enable the Corporate Debtor to meet its obligations under the DSA. Accordingly, Respondent No.1 waited for the Corporate Debtor to comply with its obligations under the DSA." (Emphasis Supplied) 57. It comes out very clearly from the above averments of Appellant before the Ld. Adjudicating Authority that it was aware of the fact that the Corporate Debtor has created the first charge on its entire entitlements of the project in favour of Yes Bank and in spite of awareness about its rights and obligations of Corporate Debtor in terms of the DSA, the Appellant did not take any legal action to perfect its security. The security is executed by the Corporate Debtor in July 2021 as second charge on the portion of the property, which has been held by Yes Bank as first charge from December 2015 onwards i.e. after a lapse of five and half years from the creation of first charge in favour of Yes Bank. More importantly such a security interest was created by the Corporate Debtor without NOC from the Yes Bank the first charge holder. 58. In this context of the factual matrix, and the relevant section 43 of the code, we now examine whether the execution of the Deed of Mort....
X X X X Extracts X X X X
X X X X Extracts X X X X
....han it would have been in the event of a distribution of assets being made in accordance with section 53. (3) For the purposes of sub-section (2), a preference shall not include the following transfers- (a) transfer made in the ordinary course of the business or financial affairs of the corporate debtor or the transferee; (b) any transfer creating a security interest in property acquired by the corporate debtor to the extent that- (i) such security interest secures new value and was given at the time of or after the signing of a security agreement that contains a description of such property as security interest, and was used by corporate debtor to acquire such property and (ii) ....... (4) A preference shall be deemed to be given at a relevant time, if- (a) ....... (b) a preference is given to a person other than a related party during the period of one year preceding the insolvency commencement date. (Emphasis supplied) 61. Section 43(1) of the Code provides that a transaction shall be treated as preferential if it has been given by the Corporate Debtor in the manner prescribed in Section 43(2)....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... From the material placed on record, it is evident that although the DSA dated 18.12.2014 contemplated creation and perfection of security interest as first charge in favour of the Appellant was to be completed within 30 days, but it was not done. We further note that no effective steps were taken by the Appellant for more than six years seven months to ensure creation of a perfected first charge in its favour. During this prolonged period, the Corporate Debtor proceeded to create first charges in favour of Yes Bank in the years 2015 and 2016 and thereafter further encumbrances in favour of DHFL in 2018. Despite being aware of these subsequent transactions and despite claiming that the DSA contained restrictive covenants against creation of further encumbrances, the Appellant admittedly did not initiate timely proceedings for enforcement of its alleged contractual rights or for securing registration and perfection of its charge. Had the Appellant acted diligently and ensured creation of a perfected first charge at the relevant time, its position in law may have stood on a different footing. However, having remained unsecured for nearly seven years and having permitted subsequent le....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lely for securing antecedent debt, as no fresh loan or financial assistance was granted by the Appellant at the time of execution of the Mortgage Deed in July 2021. The mortgage was admittedly created only to secure liabilities arising under the DSA executed nearly seven years earlier. 67. The Appellant has repeatedly argued that the mortgage created only a second charge subordinate to Yes Bank and therefore no real benefit was conferred upon it. We are unable to accept this submission. Even a second charge constitutes a secured interest in law. The test under Section 43 is not whether the creditor became the highest-ranking secured creditor, but whether the creditor was placed in a more beneficial position, than it would otherwise have occupied under Section 53. In the present case, the answer to this question is clearly in the affirmative. 68. The timing of the transaction is also extremely significant. The Mortgage Deed was executed on 29.07.2021, whereas CIRP commenced on 06.09.2021. We have also verified the records of Ld. NCLT from its portal which shows that the Application for initiating CIRP against the Corporate Debtor was filed by a Financial Creditor SBICAP Truste....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted to obtain security for old unsecured debts immediately before commencement of CIRP merely on the basis of earlier contractual promises, the entire object of Section 43 would stand defeated. 72. The reliance placed by the Resolution Professional on the judgment of the Hon'ble Supreme Court in "Anuj Jain, Interim Resolution Professional for Jaypee Infratech Ltd. Interim Resolution Professional vs. Axis Bank Ltd. & Ors." [(2020) 8 SCC 401] is also well founded. The Hon'ble Supreme Court in this case laid down that while determining whether a transaction is preferential, the Court must examine five questions: whether the transfer was for the benefit of a creditor; whether it related to antecedent debt; whether it improved the creditor's position under Section 53; whether it was within the statutory look-back period; and whether it was excluded under Section 43(3). Applying the above principles to the facts of the present case, we find that all the ingredients of Section 43 stand fully satisfied. 73. The Hon'ble Supreme Court in Anuj Jain (Supra) while analysing Section 43 of the Code has laid down 5 questions which have to be answered in order to arrive at the conclusion, whe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Appellant is the financial creditor who is the beneficiary of such transaction; the transaction was executed in respect of antecedent debt; it materially improved the position of the Appellant under Section 53 of the Code; it was executed within the statutory look-back period; and it does not fall within the ordinary course of business exception under Section 43(3). It is therefore squarely covered by the ratio laid down in Anuj Jain (Supra). Accordingly, we are satisfied that the Mortgage Deed dated 29.07.2021 constituted a preferential transaction within the meaning of Section 43 of the Insolvency and Bankruptcy Code, 2016. 75. The respondent has relied upon several cases which are discussed below: (i) In "Mrutunjay Pani & Anr. vs. Narmada Bala Sasmal & Anr.", the Hon'ble Supreme Court discussed the principle that no person should be allowed to take advantage of his own wrong. The Appellant has relied upon this principle by arguing that since the Corporate Debtor was required under the DSA to perfect the security, the Respondents cannot now rely upon absence of perfected security. However, the issue before us is not limited to contractual obligations between the par....