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2018 (5) TMI 1937 - NATIONAL COMPANY LAW TRIBUNAL, ALLAHABADDirection that the transaction entered into by the promoters and Directors of the Corporate Debtor creating mortgage of 858 acres of immovable properly owned and in possession of the Corporate Debtor, to secure the debt of related party - fraudulent and wrongful transactions within the meaning of Section 66 of I&B Code - Whether Interim Resolution Professional has authority to file this application? - HELD THAT:- Sub-section (1) of sec. 25, casts a duty upon the Resolution Professional to preserve and protect the assets of the Corporate Debtor, including the continued business operations of the Corporate Debtor. For this purpose, clause (J) of sub-section (2) of sec. 25 casts a duty upon the resolution professional to apply for the avoidance of any such transaction before the Adjudicating Authority by chapter III of the code. Thus, in view of the provisions of the Code and the orders passed by the Hon'ble Supreme Court, the applicant has a duty to file an application for avoidance of any such transaction before the Adjudicating Authority in accordance with chapter III of the code and therefore, contention of the applicant that the RP has no locus standi to file the present application, is without any basis. The contentions raised by the respondent number 15 that the applicant does not have jurisdiction to Act as Resolution Professional deserves to be rejected - the issue decided in negative in favour of the applicant Resolution Professional. Whether impugned transactions have been carried out with intent to defraud creditors of the corporate debtor or for any fraudulent purpose and is covered under section 66 of the Code? - Whether impugned transactions are preferential transactions covered u/s 43(2)(a) of the code or undervalued transaction covered under section 45 of the Insolvency in Bankruptcy Code 2016? - Whether look-hack period available for the impugned transactions as per provision of section 46(1)(i) is one year or two years? - HELD THAT:- The statutory requirement under sub-section (1) of section 43 of IBC requires that RP has to form an opinion and this opinion can only be formed by perusing the records available with him. Under the Code, the Resolution Professional is not required to give a judgment for initiating action under section 43. In case, if the resolution Professional has formed an opinion that the corporate debtor has at the relevant time given a preference in such transactions and such manner as laid down in sub-section (2) to any persons as referred in sub-section (4) then he shall apply to the Adjudicating Authority for avoidance of preferential transactions referred to in section 44 of the code. Thus statutory requirement to take the decision is on the Adjudicating Authority not on the Resolution Professional. The opinion formed by the Resolution Professional can be based on the records available with him. The subsidiary and its holding company is defined as the related party given the provision of section 5(24) of Insolvency and Bankruptcy Code. Admittedly corporate debtor Jaypee Infratech Ltd. JAL is a subsidiary of Jaiprakash Associates Ltd. (JAL.) - It is clear that for transactions of a related party look back period is two years preceding the insolvency commencement date. Admittedly, in this case, the insolvency commencement dale is 9th August, 2017. Therefore the two years look back period as provided in the code commences from 10th August, 2015. It appears that approval of JLF was not taken for the impugned transactions. It is important to point out that the corporate debtor was facing financial crunch and its account was declared as NPA, Joint Lenders Forum, a core committee of lenders was constituted under the directions of RBI and meeting of JLF was also held during 2015-2017. In the circumstances, why approval of JLF was not taken for the impugned transactions whereby unencumbered land of the corporate debtor was mortgaged to create security for the debt of JAL, i.e. a holding company of the corporate debtor. The subject of transfer must be property or an interest in such property of the corporate debtor. The expression "of the corporate debtor" may be interpreted so as to refer to assets that qualify to be included in the liquidation estate under section 36. What forms part of the liquidation estate, in terms of section 36, is to be distributed in terms of section 53. Therefore, if any action on the part of the corporate debtor has the effect of affecting the availability, marketability or value of the any of (he ingredients of liquidation estate, must be covered by the section. Whether creation of security interest or collateral may come within the purview of 'preferential transaction is to be observed'? - HELD THAT:- It is an undisputed fact, that a secured creditor is better placed than an unsecured creditor in insolvency/liquidation proceedings. Therefore, when a security is being offered to a creditor, he is being placed in a better position than other creditors. However, that does not necessarily result in preference. Grant of security interest, per se. is not preference, but may be proved to be a preference on fulfilment of conditions. In this case, it is undisputed that after the release of earlier mortgage deeds, fresh deed has been executed in favour of the creditors of JAL, which happens lo be holding company of the corporate debtor. Holding company and subsidiary company are separate legal entities. After the release of earlier mortgage and creation of fresh mortgage cannot be treated as a continuation of the earlier mortgage - it is clear that the said act appears to have been committed to defraud the creditors of the Corporate Debtor which are certainly preferential transactions covered u/s. 43(2)(a) of the Code. Therefore, this issue is also decided in positive in favour of Resolution Professional. The impugned transaction are preferential transactions as defined in the sub-section (2)(a) of Section 43 of insolvency and bankruptcy code 2016. We have found that corporate debtor Jaypee Infratech Ltd. (JIL) has by way of mortgage of unencumbered land created security interest in favour of lenders of the Jaiprakash Associates Ltd. (JAL), which happens to be the holding company of JIL, without any consideration - The said mortgage of immovable properties, i.e. of the unencumbered land of the incorporate debtor has been made without any consideration to the corporate debtor. Therefore the said transaction is covered under the umbrella of Sec. 45(1) of the Code and will be treated as an undervalued transaction as defined under section 45 of the Code. The impugned mortgage of unencumbered land parcels of the Corporate Debtor in favour of lenders of the JAL to create a security interest are transactions between the Corporate Debtor, lenders of JAL and JAL, who happens to be an Operational Creditor of the Corporate Debtor - It is true that the collateral security is common practice in loan transactions. It is tin record that in this case, the Corporate Debtor was under liquidity crunch and its accounts were declared NPA by LIC and other creditors. The Joint Lender Forum was formed to deal with the situation. But the Corporate Debtor entered into the transaction even without taking prior approval of Joint Lender Forum and mortgaged its unencumbered land in favour of the lenders of the JAL. It is clear that the impugned preferential transactions are also undervalued transactions and covered under section 45(1) of the Code. It is also clear that these transactions are undertaken during the relevant period of 2 years from the date of initiation of Corporate Insolvency Process as provided under section 46(1)(ii) of the Code. Therefore, this issue is also decided in positive, in favour of applicant Resolution Professional and against the Corporate -Debtor - it is clear that the mortgage of land of JIL in favour of tenders of JAL, amounts to transfer of interest in property of JIL for the benefit of its creditor i.e. JAL and putting it in a beneficial position vis-a-vis other creditors is a preferential transactions U/s 43(2)(a) & (b). The transactions were executed within the look back period of two years before the commencement of Insolvency proceeding and is therefore covered U/s 43(4)(a). Further, transaction cannot be treated is in ordinary course of business or financial affairs of Corporate Debtor and is not excluded U/s 43(3) - the company application filed by the Resolution Applicant deserves to be allowed. Application allowed.
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