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2019 (4) TMI 1208 - Tri - Insolvency and BankruptcyCorporate Debtor - applicability of section 43, look back period - related party transaction - section 5(24) of the I&B Code - preferential transaction - undervalued transactions - initiation of Corporate Insolvency Resolution Process - HELD THAT:- On perusal of the definition of the “Related Party” as given in Section 5(24)(i) of the Code, it is clear that body corporate, which is a holding company, the subsidiary or an Associate Company of Corporate Debtor, or a subsidiary of a holding company to which the Corporate Debtor is also a subsidiary, is covered u/s.5(24)(i)of I&B Code as a related party. In the present case, the impugned transactions are with the holding company of the Corporate Debtor. Thus, the transaction can be said to be with a related party of the Corporate Debtor. Further, the look-back period as provided u/s.43(4)(a) will be two years preceding the insolvency commencement date. In this case, the insolvency commencement date is 27.6.2017. Therefore, only the transaction made between 28.6.2015 to 27.6.2017 will fall within the look-back period, as provided under section 43(4)(a) of the Code. The look-back period in the present case, as per the provisions of section 43(4)(a), would start from 28.6.2018. Therefore, the transactions carried on during the period 01.04.2015 to 26.6.2015 will be out of the purview of the Preferential Transactions. The Bottling agreement as entered into between the holding company and the Corporate Debtor is not produced on record by either side. As per the submission of the Applicant, the change in business model took place in F.Y. 2015-16 and without any specific date, it would be an obvious assumption that the transaction of change in business model took effect on 01.04.2015. Therefore, the transaction of change in the business model of the corporate Debtor falls beyond the look-back period and cannot be challenged as a preferential transaction under section 43 of the I&B Code. Undervalued transaction - HELD THAT:- In the present case, on perusal of the forensic audit report, we found it written in the report that as per the agreement of the Corporate Debtor with MS Biotech Pvt. Ltd., the operating cost of the Corporate Debtor electricity, labour, security, etc. is to be borne by the MS Biotech Pvt. Ltd. however it is not the actual practice followed and the operating cost is born by the Corporate Debtor itself - The impugned transaction took place in the ordinary course of business of the Corporate Debtor and therefore exempted from being undervalued transaction. Sub-lease Agreement - HELD THAT:- Where the company is facing a financial crunch, the management of the company, in their commercial wisdom, would make all possible efforts to generate funds from whatever resources the company possess. The Corporate Debtor had a licence to operate its unit at an enhanced capacity but lacked the required funds to operate and utilise its resource optimally. In such a scenario, if the management of the company decides to sub-lease its extra and idle resource, which the company is neither utilising or can utilise in future due to the paucity of funds, it cannot be said as a transaction to defraud the creditors. It is a transaction in the ordinary course of business of the Corporate Debtor and cannot be held as undervalued, preferential or a transaction defrauding creditors - the relief sought by the Applicant against the sub-lease agreement is not maintainable and rejected. Machinery transferred - HELD THAT:- It is clear that the impugned assets were transferred to the holding company with an intent to protect the value of the assets. However, there is no consideration received by the Corporate Debtor against the said transfer, and the assets were not sold but only transferred to the holding company for its utilisation. Had the assets not being transferred, there was a risk of them getting wasted and spoiled. It is not disputed that the ownership of the assets is still with the Corporate Debtor and they are part of the liquidation estate of the Corporate Debtor - the assets of the Corporate Debtor shall be returned and restored to the Corporate Debtor by the holding company within one month from the date of this order. Application disposed off.
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