TMI Blog2021 (1) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... e admitted to COC in the capacity of being a financial creditor of the Corporate Debtor. The Registry is directed to place the record before the Hon ble Acting President for constituting appropriate 3rd member for his opinion, so that the order in application is rendered in accordance with the opinion of majority. - IA No. 1628 OF 2020 & IA No. 1746 OF 2020 IN CP No. 3434 OF 2019 - - - Dated:- 7-1-2021 - Smt. Suchitra Kanuparthi, Member (J) and Shri. Chandra Bhan Singh, Member (T) For the Petitioner: Mr. Gaurav Joshi, Sr. Advocate a/w Mr. Ankit Lohia, Mr. Hemant Shah, Mr. Pratik Kothari, Mr. Tejas Agarwal, Ms. Komal Agarwal, Advocates i/b IC Legal. For the Respondents: Mr. Amit Jaste, Practising Company Secretary i/b Amit Jaste and Associates. Ms. Bhavika, Ms. Ankita i/b Dua Associates. ORDER The I. A. No. 1628 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 UTI Structured Debt Opportunities Fund I (hereinafter called as Applicant ), who is a financial services provider and a Category II Alternate Investment Fund registered with the Securities Exchange B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der which the Corporate Debtor guaranteed the repayment of UTI s entitlement under the Debenture Trust Deed. Bank of Baroda on 31.03.2018 granted its conditional NOC for UTI s 2nd charge on the Corporate Debtor. 8. The Corporate Debtor received funding in from Mercator Limited, directly and through another subsidiary of Mercator Limited viz. Mercator Energy Pte. Ltd. ( MEPL ), to the extent of ₹ 162.12 crores as on 31.03.2018. As of 31.03.2018, Mercator Limited had provided a Corporate Guarantee of ₹ 152.66 Crores for debts of the Corporate Debtor. 9. Mercator Limited also availed a total disbursement of ₹ 130 Crores (in multiple tranches) by allotment of 1300 Secured Non-Convertible Debentures having a face value of ₹ 10,00,000/- each to UTI. Debenture Certificates were issued accordingly (₹ 100 Crore in March, 2018 and ₹ 30 Crores in June, 2018). 10. The UTI issued a letter dated 26.04.2018 to the Bank of Baroda for final confirmation by Bank of Baroda to the aforesaid charge of UTI. 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 creat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Creditors till such time the claim of UTI is not admitted. 19. On same day the Respondent served on UTI a copy of an Interlocutory Application being filed before this Tribunal U/s.43 for declaring UTI s Charge for the reliefs as more particularly set out therein. 20. Further, UTI through its Advocates addressed a letter dated 04.10.2020 calling upon the Respondent to refrain from holding any meeting of the Committee of Creditors, to UTI s exclusion and once again called upon the IRP to admit the claim of UTI. 21. By a letter dated 05.10.2020, despite no orders being passed by this Tribunal in favour of the Respondent, the Respondent has refused the request of UTI made by letter dated 04.10.2020. Submissions by the Respondent in I. A. 1628 of 2020 and by the Applicant in I. A. 1746 of 2020: 22. In 2018, Mercator Limited (Holding Company) issued Debentures to the Respondent No. 1 Fund and executed a Debenture Trust Deed(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 ₹ 10,00,000/- (Rupees Ten Lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en appointed by the Tribunal and is not a nominee of any Creditor. 28. The IRP thereafter took necessary steps as required under the Code, including collating information and inviting claims by calling the creditors to submit their proof of claims through public advertisement dated 09.09.2020. Pursuant to the above, Respondent No. 1 Fund, as Financial Creditor claimed an amount of ₹ 2,57,84,25,381/- (Rupees Two Hundred Fifty-Seven Crores Eighty-Four Lakhs Twenty-Five Thousand Three Hundred and Eighty-One Only). However, on perusal of the Claim form and other supporting documents submitted by Respondent No. 1 Fund, the IRP concluded that by virtue of the Corporate Guarantee both Respondents were put in an advantageous position than they would have been in the event of a distribution of assets being made in accordance with Section 53 of the Code. 29. The IRP submits that once the transaction come under the ambit of 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 affa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is in shipping business whereas the Corporate Debtor is in the business of Oil Exploration. They do no overlap. He further says that the Corporate Debtor was already reeling under financial stress and there would no reason to secure the indebtedness of the Holding Company by furnishing a Corporate Guarantee. Moreover, the IRP says, it is very important to note that the Corporate Debtor did not have any substantial business or income at the time of issuance of the Corporate Guarantee. The Corporate Debtor was already under financial burden and was in no position to issue the Corporate Guarantee or give security for debts of Respondent No. 2 (Holding Company). Despite that, the Corporate Debtor has issued Corporate Guarantee guaranteeing the debts of the Holding Company. 33. The IRP to buttress his point again quotes the Hon ble Supreme Court, in the case of Anuj Jain (supra) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of business of bankers and financial institutions like the present respondents but on the given set of facts, we have not an iota of doubt that the impugned transactions do not fall within the ordinary course of business of the corporate debtor JIL . 34. The IRP mentions that the Corporate Debtor and the Holding Company s business are entirely different. The Holding Company is in shipping business, whereas the Corporate Debtor is in the business of Oil exploration. Therefore, in view of the IRP, it cannot be said that issuance of Corporate Guarantee is part of the undistinguished common flow of business done by the Corporate Debtor. Therefore, the IRP adds, that the Corporate Guarantee was not issued in the ordinary course of business . 35. I view of the IRP, the Corporate Guarantee issued by the Corporate Debtor has 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 Dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2020 was appointed as an RP. 39. In the following paragraphs, I would address and try to arrive at a conclusion after looking at the arguments from both the sides on the following issues a. Whether the Deed of Guarantee dated 26.03.2018 comes under a Financial Debt as per section 5(8)(h) of the Code. This is important because if it is a Financial Debt under section 5(8) r/w (i) of the Code then the Corporate Debtor is liable to pay an amount being a liability in respect of guarantee. b. Whether the transaction in question falls within the section 43 of the I and B Code and will try to see whether it is a preferential transaction in terms of section 43(2) and whether this transaction has been made in the ordinary 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in sub-clauses (a) to (i) of Section 5(8), even if it is not necessarily stated therein. In any case, the definition, by its very frame, cannot be read so expansive, rather infinitely wide, that the root requirements of disbursement against the consideration for the time value of money could be forsaken in the manner that any transaction could stand alone to become a financial debt. In other words, any of the transactions stated in the said subclauses (a) to (i) of Section 5(8) would be falling within the ambit of financial debt only if it carries the essential elements stated in the principal clause or at least has the features which could be traced to such essential 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me that once a guarantee is invoked against the Guarantor, the Guarantor steps into the shoes of the principal borrower, the debt that originally is a financial debt under section 5(8) towards the principal borrower becomes a financial debt towards the guarantor and the same could be enforced as if it were being enforced against the principal borrower. The above said view also seems to have strengthened from the very same judgment cited by the applicant. The Hon ble SC has discussed at length section 127 and 128 of the Contract Act and referred to a judgment of the High Court in State Bank of India vs. Kusum Vallabhdas 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 consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncipal Debtor qualifies as financial debt and therefore is recoverable from the Corporate Debtor as per the deed of guarantee. 46. It may be noted that the IRP escaped this aspect and had tried to drag the whole issue under section 43 of the IBC and tries to make it as a preferential and related party transaction. 47. The IRP claims that this Corporate Guarantee falls within the purview of section 43. The contention of the IRP that this case is very similar to the case of Anuj Jain vs. Axis Bank regarding preferential transaction, is completely misconceived. Section 43 (2) (a) apply in a case 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any difference between mortgage and Corporate Guarantee. In fact, the Hon ble NCLAT in the case of Ascot Realty Pvt. Ltd. Vs. Ajay Kumar Agarwal, IRP has interpreted the judgment of the Hon ble Supreme Court in the case of Anuj Jain and inter alia held that the judgment in the case of Anuj Jain, IRP v. Axis Bank would not apply to Corporate Guarantees which are in the nature of a Corporate Guarantee as sought to be enforced by UTI in the present case. The judgment of the Hon ble NCLAT is binding on the IRP. The relevant paras are reproduced herein below for ready reference: - 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of a guarantee. 52. Be it may, UTI has clearly mentioned that in clause 5.1 of the Deed of Corporate Guarantee, it is clearly stated that the Guarantee is given in addition to and independent of every other security held in favour of UTI. Further, clause 5.8 of the Deed specifically provides that the Guarantee is enforceable against the Corporate Debtor notwithstanding any security or securities comprised in any instrument (s) executed or to be executed in favour of UTI, at the time when any proceedings are taken against the Guarantor - Corporate 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor to make payments as stated in the notice ( Notice of Demand ) in the form and manner set out in the Schedule - 1 hereto or such other format as it may deem fit. The Guarantor shall, on receipt of the Notice of Demand from the Debenture Trustee, without any demur, protest, contest or delay, pay to the Debenture Trustee within a period of 7 (seven) days from the date of such Notice of Demand, the Amounts Due as if it were the principal obligor and E (Application) Vol. I Pg.131 F (Application ) Pg.292 3 in addition 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. Resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2020 is Allowed and I.A. 1746 of 2020 in C.P. 3434 of 2019 is Dismissed . 64. Here I would very humbly state that Member, Judicial has arrived at a different conclusion and, therefore, her Order is at variance with mine and forms a separate Order. Sd/- Chandra Bhan Singh Member (T) ORDER 1. I have gone through the order of my learned brother and with great respect I disagree with the dismissal of IA 1746/2020 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from the Respondent No. 1 and there is no direct lending by the Respondent No. 1 to the Corporate Debtor. b. The Corporate Debtor has not received any value and benefit from the said claimant either before or after issuance of the Corporate Debtor or creation of security. c. The Corporate Debtor is in the business of oil exploration and considering nature of business, the Corporate 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent No. 2 was benefited by the Corporate Guarantee and Respondent No. 1 was benefited by the way of securing additional charge on the valuable assets of the Corporate Debtor. Both the Respondents were put in beneficial position and in the event of distribution of assets under section 53 of IBC. n. The charge created on the assets of the Corporate Debtor in favour of Respondent No. 1 for benefits of Respondent No. 2 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ursement of ₹ 130 crores in multiple tranches by allotment of 1300 secured nonconvertible debenture having face value of ₹ 10 lacs each only to the Respondent. Out of this, ₹ 75 lacs were directly utilised for the benefit of the Corporate Debtor. 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 ₹ 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 ₹ 257,84,25,381/- in Form C. the applicant on 2 nd Octob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en buy the Corporate Debtor under the deed of Corporate Guarantee. By admission of CIRP in respect of Corporate Debtor, Respondent i.e. the IRP was appointed by an order of admission on 31.08.2020. The applicant lodge his claim of ₹ 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 up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly executed a Corporate Debtor guarantee on 26.03.2018. f. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Findings a. The legal questions for consideration arises are as follows; i. Whether the issuance of the Corporate guarantee in favour of Respondent 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2018-19 2019-20 Revenue from Operations Nil 4.92 2.01 Profit / (Loss) 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 resolut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational debt. (4) A preference shall be deemed to be given at a relevant time, if (a) It is given to a related party (other than by reason only of being an employee), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid that 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 undertaking, share or inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, 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 order dated 15th April, 1987 created an enforceable charge on the assets of the company in liquidation. We are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which the charge is created, registered with the Registrar of the Companies within thirty days, it shall be void against the liquidator and any creditor of the company. This, however, is subject to the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 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 interest thereof of the Corporate Debtor. In the instant case, the Corporate Debtor executed the Corporate Guarantee to secure repayment of holding company/Related party and created a second charge on its assets including moveable and immoveable properties and the oil bloc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or both of the parties and asks whether the creditor had knowledge, or ought to have had knowledge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 Baroda has given NOC to create this second charge cannot change/alter the position of Bank of Baroda, it will only negate the claim of third party creditors of Corporate Debtors. 12) The learned Senior coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referential nature and consequently creation of second charge on the assets (Moveable, Immoveable and oil blocks) of Corporate Debtor in favour of Respondent No. 1 is set aside. b. The Respondent No. 1 is directed to release/ discharge security created by the Corporate Debtor under the Corporate Guarantee dated 26.03.2018/registered charge dated 11.03.2019, in favour of Respondent No.1 to the IRP forthwith immediately. c. I.A. 1628 of 2020 is dismissed. Sd/- Suchitra Kanuparthi Member (J) ORDER 1. The orders were reserved on 27.11.2020 by this bench, the order was pronounced today, the lead judgement was rendered by Shri Chandra Bhan Singh, Member, technical and the dissenting judgement is passed by Member Judicial. 2. The members are divided on two legal issue: a. Whether the issuance of the Corporate guarantee in favour of Respondent 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. b. Whether the Respondent N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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