TMI Blog2023 (3) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... that amounts paid by Pray Projects and Fervent Securities were not retained by the corporate debtor, but were transferred to two entities viz. SUIL and STPL which are companies in the same group as the corporate debtor. While the interest in the property Chambers project was created in favour of Pray Projects and Fervent Securities through the two option agreements dated 15.12.2018 and 17.12.2018 respectively, the consideration amounts were not retained by the corporate debtor, but transferred on receipt to its related entities SUIL and STPL. Thus, these amounts did not remain part of the assets of the corporate debtor. The two Option Agreements thus created fiction of transfer of property in Chambers Project without any consideration being actually retained by the corporate debtor. An analysis of the various transactions which are included in the bank account statements and TAR and which has been shown in the Flow Charts makes it abundantly clear that whatever amount was paid by Pray Projects and Fervent Securities as option advance were immediately transferred on receipt to the SUIL and STPL (which are related parties of the corporate debtor and also companies in the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d parties of the corporate debtor as the corporate debtor MPPL, SUIL and STPL belong to the same group of companies. Thus, these amounts were not part of the assets of the corporate debtor during the CIRP of the corporate debtor. Therefore, the two entities Pray Projects and Fervent Securities cannot claim any payment as a result of insolvency resolution of the corporate debtor. The Impugned Order does not bear any infirmity and needs no intervention - Appeal dismissed. - Company Appeal (AT)(Insolvency) No. 938 of 2022 Company Appeal (AT)(Insolvency) No. 941 of 2022 - - - Dated:- 3-3-2023 - [Justice Ashok Bhushan] Chairperson And [Dr. Alok Srivastava] Member (Technical) For the Appellant : Mr. Vivek Kohli, Sr. Advocate with Mr. Javus Rawal and Mr. Harsh, Advocates For the Respondent : Mr. Lzafeer Ahmad BF For the Appellant : Mr. Amish Tandon and Mr. Vishwanath Iyer, Advocates. For the Respondent : Mr. Lzafeer Ahmad BF JUDGMENT [ Per. Dr. Alok Srivastava , Member ( Technical ) ] 1. Two appeals viz. CA(AT)(INS) No.938/2022 (filed by Appellant Pray Projects Private Limited) and CA(AT)(INS) No.941/2022 (filed by Appellant Fervent Securities Privat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects to purchase the option area. The Appellant has also stated that vide letter dated 17.12.2018, it exercised its right to purchase the option area. 4. The Appellant Pray Projects has further stated that the corporate debtor was admitted into insolvency by the order of the Adjudicating Authority dated 18.12.2018, though the Appellant Pray Projects was not aware of the that proceedings relating to admission of the application for insolvency resolution of the corporate debtor. The Appellant Pray Projects has further stated that it submitted its claim of Rs. 5 crores in the CIRP of the corporate debtor on 9.1.2019 as an unsecured financial creditor and its status as unsecured financial creditor was accepted by the Resolution Professional alongwith admission of his claim. 5. With regard to the second appeal viz. CA(AT)(INS) No. 941 of 2022, the Appellant Fervent Securities Private Limited (in short Fervent Securities ) has stated that it provided an advance of Rs. One crore to the corporate debtor and an Option Agreement dated 17.12.2018 (called Option Agreement II ) was signed between the Appellant Fervent Securities and the corporate debtor by which the Appellant was gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the respective Appellants and the Learned Counsel of the Respondent in the appeals and also perused the record. 9. The Learned Senior Counsel for the Appellant Pray Projects has argued that the Appellant was unaware of the imminent initiation of CIRP of the corporate debtor and it entered into separate Option Agreements with the corporate debtor as genuine commercial transactions relating to real estate property, which was done at an arm s length by the Appellants. He has further submitted that the Respondent admitted the claims of Appellants as unsecured financial creditor on the basis of the claim forms submitted by the Appellants and the transfer of funds by the Appellants to the corporate debtor is evidenced by bank account statements. 10. In connection with the transactions made by Pray Projects, the Learned Senior Counsel has explained that in the year 2014, Pray Projects advanced a sum of Rs. 5 crores by way of loan to SHIPL and bank statement of Pray Projects clearly show that such payment was made by Pray Projects to SHIPL regarding which regular interest amount was being paid by SHIPL to Pray Projects from time to time till the year 2016. He has further expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant is not related party of the corporate debtor and their claims are valid claims and should be considered in the insolvency resolution of the corporate debtor. 13. The Learned Senior Counsel for Appellant Pray Projects has further argued that during the course of CIRP of the corporate debtor, a transaction audit was undertaken by the Resolution Professional for the period 1.4.2015 to 18.12.2018 and on the basis of the TAR an avoidance application being MA No. 3155/2019 under sections 43, 45 and 66 of the IBC was filed by the Respondent against both the Appellants and certain other parties on which the Impugned Order come to be passed by the Adjudicating Authority. 14. The part of the Impugned Order with which both the Appellants are aggrieved is as follows:- (i) The claim lodged by Respondent Nos. 1, 2 and 3 against the corporate debtor emanates from fraudulent transactions under section 66 of the Code and also hit by the undervalued transaction and therefore is not binding on the Corporate Debtor. (In MA 3155/2019, Respondent No.1 is Appellant Pray Projects and Respondent No. 2 is Fervent Securities) 15. We first look at the transactions between Pray Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween 10.12.2018 to 14.12.2018. This amount of Rs. 5 crores was transferred to SUIL and STPL between 11.12.2018 to 15.12.2018 as is evident from bank statement, and it is corroborated by the Transaction Audit Report. 17. The recitals and clauses of the Option Agreement-I, which are relevant, are as follows:- OPTION AGREEMENT THIS OPTION AGREEMENT made at Mumbai on this 15th day of December in the Christian Year Two Thousand Eighteen. BETWEEN M/S MAYURPANKH PROPERTIES PRIVATE LIMITED . AND M/S. PRAY PROJECTS PVT. LTD. xx xx xx xx B. The Parties hereto have agreed that the Company would grant to the Option Holder an option to purchase Option Area (as defined hereinafter) in the Project on the terms to be mutually agreed between the Parties; C. The Company is now desirous to grant to the Option Holder an irrevocable right but not the obligation to purchase Option Area in the Project and the Option Holder is desirous to obtain the right but not an obligation to purchase the Option Area in the Project from the Company, in accordance with the terms and conditions herein agreed and specified; xx xx xx xx AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Pray Projects has given an advance to SHIPL totalling of Rs. 5 crores between10.12.2018 to 14.12.2018 and further an amount of Rs 3,33,60,000/- was transferred by the corporate debtor to Sunshine Urban Infrastructure Ltd (SUIL) in four transactions. Also, an amount of Rs.1,66,20,000/- was transferred to Sunshine Tracon Pvt. Ltd. (STPL) in three transactions. The bank statement submitted by the Pray Projects shows that an amount of Rs. 5 crores was transferred by SHIPL to Pray Projects between 11.12.2018 to 15.12.2018, and further PRAY PROJECTS transferred a total amount of Rs.5 crores to the corporate debtor which was transferred immediately thereafter to SUIL and STPL as explained above. These facts also come out of the various bank statements submitted by the Appellants. 20. The transactions between Pray Projects, SHIPL, Corporate Debtor MPPL, SUIL and STPL and the findings of the TAR can be depicted in the form of a flow chart as following :- 21. We now look at the transactions between the Fervent Securities and the corporate debtor in the light of Option Agreement-II entered between them. 22. The Appellant Fervent Securities has claimed that it transferred a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority for avoidance of preferential transactions and for, one or more of the orders referred to in section 44. (2) `A corporate debtor shall be deemed to have given a preference, if (a) there is a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and xx xx xx xx (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. 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 corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an order direct that a director or partner of the corporate debtor, as the case may be, shall be liable to make such contribution to the assets of the corporate debtor as it may deem fit, if- (a) before the insolvency commencement date, such director or partner knew or ought to have known that the there was no reasonable prospect of avoiding the commencement of a corporate insolvency resolution process in respect of such corporate debtor; and (b) such director or partner did not exercise due diligence in minimising the potential loss to the creditors of the corporate debtor. 25. The Flow Charts I and II depicting the transactions entered into between Pray Projects, Fervent Securities, SHIPL, corporate debtor MPPL, SUIL and STPL make clear the following:- (i) That an amount of a little over Rs. 5 crores was transferred by Pray Projects to SHIPL but the purpose of this loan/ transfer is not made clear by either Pray Projects or SHIPL by submitting any documentary evidence. (ii) SHIPL transferred Rs. 5 crores in five different tranches between 11.12.2018 to 15.12.2018 to Pray Projects which is evident by the bank statement of Pray Projects attached at pg. 57 of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erential transactions within the relevant time, which is one year preceding the insolvency commencement date viz. 18.12.2018. Therefore, these transactions will be clearly preferential transactions as defined under section 43(2)(a). 28. Further, we also note that the actual amounts received and then retained by the corporate debtor from Pray Projects and Fervent Securities as consideration against the two Option Agreements are actually Nil since the amounts received of Rs. 5 crores and Rs. 1 crore respectively were transferred immediately thereafter to the corporate entities SUIL and STPL belonging to the same group of companies as the corporate debtor and the effective value received by the corporate debtor with respect to the two Option Agreements is Nil . Therefore, these transactions are also undervalued transactions in accordance with section 46(1) (i) of IBC. Moreover, these transactions were made within a period of one year preceding the insolvency commencement date. Therefore, the transactions made through the Option Agreement-I and Option Agreement-II are avoidable transactions in accordance with sections 45 and 46 of IBC. 29. It is further noted that the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Securities Private Ltd. to enter into Option Agreement. Further, there is no resolution by the Board of Directors of the corporate debtor or the Appellants for execution of the two Option Agreements. Moreover, the Option Agreements are under-stamped documents which are not duly registered. Such deficiency in the Option Agreements, particularly when they were executed after the section 7 application case had been reserved for order, raises grave doubt about the bonafide nature of the documents relating to Option Agreements and whether they were really executed at arm s length. Therefore, we are of the view that such transactions which are also circular in nature as is evident from the flow charts given in this judgment earlier, were meant to defraud the actual creditors of the corporate debtor by creating an interest in the assets of the corporate debtor in favour of such alleged creditors as the Appellants through fictitious transactions, when even the consideration for such transactions did not remain in the corporate debtor s account. 32. We also consider the arguments of the Learned Senior Counsel of Appellant Pray Projects that TAR was not in the knowledge of the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present appeals, there is documentary material to support and strengthen the plea of the Resolution Professional that said option transactions were carried out in the relevant period by the corporate debtor and were therefore in contravention of sections 43 and 45 of the IBC. The bank statements, the Option Agreements provide substantial documentary proof of fact that the transfer of funds by the Appellants to the corporate debtor and their almost immediate transfer to SUIL and STPL which are companies of the same group as the corporate debtor is clearly indicative of the fact that the amounts in question were siphoned off to these entities by the corporate debtor, thereby reducing the asset base of the corporate debtor in an illegal manner. 35. We note that the Chambers project was mortgaged to ICICI bank with the condition no third-party rights would be created in respect of any property in Chambers project by the corporate debtor, but there is no evidence of any NOC being obtained by the corporate debtor from the ICICI Bank before executing the option agreements with both the Appellants. We also note that Option Agreement-1 and Option Agreement-2 are insufficiently stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that the corporate debtor having admitted the debt and default, was reasonably certain about the admission of the section 7 application against him which would lead to initiation of CIRP. It is also a fact that Pray Projects, one of the Appellants, had received an amount of approximately Rs. 5 crores from SHIPL in 2014 and SHIPL is a sister company of the corporate debtor. It is, therefore, reasonable to infer that PRAY PROJECTS had business dealing with SHIPL, a sister concern of the corporate debtor, both belonging to the same group of companies. To arrive at a decision regarding applicability of sections 43 and 45, the Adjudicating authority has to be subjectively satisfied, which he appears to have been on the basis of the TAR in the instant case. 38. On the basis of aforesaid discussion, it is amply clear that the Option Agreements I II are preferential and undervalued transactions and, therefore, they are avoidance transactions as per sections 43 and 45 of IBC. Therefore, the two Option Agreements No. 1 and II are declared null and void and any interest created in the property Chambers project of the corporate debtor by virtue of these Option Agreements are also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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