Ramesh Kumar Suneja & Ors vs Arun Chadha Liquidator Of Pawan ...

(Arising out of the Order dated 30th July, 2021 passed by the Learned Adjudicating Authority (National Company Law Tribunal, New Delhi Bench - II), in IA No. 2499/2020 and I.A. No. 2496/2020 in CA No.365/C-II/ND/2019 in CP No. (IB) - 197/ND/2018)

IN THE MATTER OF:

Mr. Arun Chadha Liquidator of Pawan Buildwell Pvt. Ltd. ...Appellant

Versus

1. Ramesh Kumar Suneja DIN: 01660912 59A, Lane C 5, Central Avenue Sainik Farms, New Delhi - 110062. ...Respondent No. 1

2. Savitri Suneja DIN: 01660899 59A, Lane C 5, Central Avenue Sainik Farms, New Delhi - 110062. ...Respondent No. 2

3. Pankul Suneja DIN: 02460954 59A, Lane C 5, Central Avenue Sainik Farms, New Delhi - 110062. ...Respondent No. 3

4. Bajaj Finance Limited 10th Floor, Aggarwal Metro Heights, Plot no. E-5, Netaji Subhash Palace, Pitampura, New Delhi - 110034.

Also at: Mumbai-Pune Road, Akurdi, Pune, Maharashtra - 411035. ...Respondent No. 4

5. SAKS Developers LLP 59A, Lane C 5, Central Avenue Sainik Farms, New Delhi - 110062. ...Respondent No. 5 6. Skyland International Private Limited 59A, Lane C 8, Central Avenue Sainik Farms, New Delhi - 110020. ...Respondent No. 6

7. S. Kumar & Company Private Limited 59A, Lane C 5, Central Avenue Sainik Farms, New Delhi - 110062. ...Respondent No. 7

Present

For Appellant: Mr. Abhishek Anand and Mr. Nipun Gautam, Advocates.

For Respondents: Mr. Pulkit Deora and Mr. Sanjay Visen, Advocates for R-1 to R-3. Mr. Harsh Sinha with Mr. Abhishek Sharma, Advocates for R-4.

WITH

COMPANY APPEAL (AT) (INSOLVENCY) NO. 748 of 2021 & I.A. Nos. 2125, 2126 & 3016 of 2022

(Arising out of the Order dated 30th July, 2021 passed by the Learned Adjudicating Authority (National Company Law Tribunal, New Delhi Bench - II), in IA No. 2499/2020 and I.A. No. 2496/2020 in CA No.365/C-II/ND/2019 in CP No. (IB) - 197/ND/2018)

IN THE MATTER OF:

1. Ramesh Kumar Suneja 59A, Lane C 5, Central Avenue Sainik Farms, New Delhi - 110062. ...Appellant No. 1

2. Savitri Suneja 59A, Lane C 5, Central Avenue Sainik Farms, New Delhi - 110062. ...Appellant No. 2

3. Pankul Suneja DIN: 02460954 59A, Lane C 5, Central Avenue Sainik Farms, New Delhi - 110062. ...Appellant No. 3

Versus Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 2 of 26 1. Mr. Arun Chadha Liquidator of Pawan Buildwell Pvt. Ltd. (Corporate Debtor) R/o. 727, Brahmpuri, Meerut - 250002, Uttar Pradesh. ...Respondent No. 1

2. Bajaj Finance Limited 10th Floor, Aggarwal Metro Heights, Plot no. E-5, Netaji Subhash Palace, Pitampura, New Delhi - 110034. ...Respondent No. 2

3. SAKS Developers LLP 59A, Lane C 5, Central Avenue Sainik Farms, New Delhi - 110062. ...Respondent No. 3

4. Skyland International Private Limited 59A, Lane C 8, Central Avenue Sainik Farms, New Delhi - 110020. ...Respondent No. 4

5. S. Kumar & Company Private Limited 59A, Lane C 5, Central Avenue Sainik Farms, New Delhi - 110062. ...Respondent No. 5

Present

For Appellant: Mr. Pulkit Deora and Mr. Sanjay Visen, Advocates.

For Respondents: Mr. Abhishek Anand and Mr. Nipun Gautam, Advocates. Mr. Harsh Sinha with Mr. Abhishek Sharma, Advocates for R-2.

JUDGEMENT

(09.05.2023)

[Per: Dr. Alok Srivastava, Member (T)]

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 3 of 26

1. Two Appeals, namely Company Appeal (AT) (Ins.) No.747/2021 ("Appeal

- I") and Company Appeal (AT) (Ins.) No.748/2021 ("Appeal - II"), are being

disposed of through this common judgement.

2. The above-stated Appeals have been filed under Section 61 of the

Insolvency and Bankruptcy Code ("IBC"), assailing order dated 30.07.2021

("impugned order") passed by the Adjudicating Authority (National Company

Law Tribunal, New Delhi), whereby I.A. No.2499/2020 and I.A.

No.2496/2020, both filed in the Company Petition No. (IB) - 197(ND)/2018

preferred under section 7 of the IBC.

3. The impugned order has concluded that the charge on the property of

the corporate debtor with respect to the two Agreements in form of Bajaj

Finance Ltd. (Respondent in both the Appeals) has not been created with an

intent to defraud the creditors of the corporate debtor and hence the said

transactions regarding creation of charge over the property bearing No. K - 3,

5th Floor, Brahm Datt Tower, Sector 18, Noida ("mortgaged property") is not a

fraudulent transaction. Additionally, a transaction amounting to

Rs.1,02,09,360/- between the corporate debtor and Respondent - SAKS

Developers LLP is a preferential transaction and therefore refund of this

amount by Respondent - SAKS Developers has been directed to be made to

the corporate debtor.

4. The facts in Appeal - I are that the corporate debtor went into insolvency

on 04.04.2018, and since no resolution of its insolvency could be achieved in

the prescribed time period, an order for liquidation was passed on

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 4 of 26 05.02.2020. During the liquidation proceedings, the liquidator filed I.A. No.

2499 of 2020 for declaring the security interest created by the corporate

debtor by mortgaging the property bearing No. K-3, 5th Floor, Brahm Datt

Tower, Sector 18, Noida, as being a preferential/fraudulent transaction. In

the Impugned Order, the Adjudicating Authority held that the creation of the

said security interest in favour of Bajaj Finance Ltd. is not a preferential or

fraudulent transaction and the liquidator is aggrieved by this part of the said

Impugned Order.

5. The Appellant has stated that the corporate debtor along with some

individual co-borrowers, who are Mr. Ramesh Kumar Suneja, Mrs. Savitri

Suneja and Mr. Pankul Suneja and also the companies Skyland International

Private Ltd. and S. Kumar and Company Private Ltd. took two loans, namely

(i) Loan Account No. 401 FSP 35751847, for an amount of Rs.3,46,62,656/-;

and (ii) Loan Account No. 401 FSP 35716264, for an amount of

Rs.5,81,32,553/- vide two separate loan agreements dated 28.02.2017 and

the corporate debtor created security interest by mortgaging his property No.

K-3, 5th Floor, Brahm Datt Tower, Sector 18, Noida ("Mortgaged Property") in

favour of Bajaj finance Ltd. (Respondent No. 4 in Appeal - I). He has further

stated that the mortgage on this immovable property was created for the

benefit of the three individuals Mr. Ramesh Kumar Suneja, Mrs. Savitri

Suneja, Mr. Pankul Suneja who actually benefited from the said loans even

though the property was in the ownership of the corporate debtor Pawan

Buildwell Private Limited. He has submitted that in this manner, a fraud was

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 5 of 26 perpetrated to the detriment and disadvantage of the creditors of the

corporate debtor.

6. Insofar as the facts of Appeal - II are concerned, the Appellants Mr.

Ramesh Kumar Suneja, Mrs. Savitri Suneja and Mr. Pankul Suneja have

claimed that a Memorandum of Understanding ("MoU") was executed between

the corporate debtor and SAKS Developers Pvt. Ltd. (Respondent No. 3 in

Appeal - II) on 30.08.2018 at which time no moratorium on account of section

14 of the IBC was in force, and on the basis of the MoU, an amount of

Rs.1,02,09,360/- was transferred by the corporate debtor to SAKS Developers

Private Limited, which was in the ordinary course of business and not a

preferential transaction as held in the impugned order. He has further

submitted that this transaction was for the benefit of the corporate debtor as,

according to the MOU, 50% of the funds to be infused by the corporate debtor

would result in profits for the corporate debtor once development of the project

took place.

7. We heard the arguments advanced by the Learned Counsels for all the

parties and also perused the records of both the Appeals.

8. The issue about impleadment of the financial creditor was taken up by

this bench and an order was passed on 29.08.2022 by this tribunal in I.A.

No. 3007 of 2022 directing for impleadment of the financial creditor, Sri Brij

Mohan Sahani as a party.

9. The Learned Counsel for the Appellant/Shri Arun Chadha Liquidator

initiated his arguments by referring to the two loan agreements dated Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 6 of 26 28.02.2017 in Appeal - I that were entered into between Bajaj Finance Ltd. as

Lender and Respondents No. 1, 2, 3, 6 & 7 (who are jointly referred to as

"Beneficiary Respondents") and the Corporate Debtor as Borrowers, whereby

security interest in respect of the "Mortgaged Property" was created in favour

of Bajaj Finance Ltd. He has further submitted that the security interest was

collusively created by Respondent Nos. 1 to 3 for their and Respondents No.

6 & 7's benefit even though no money for the use/benefit accrued to the

corporate debtor from the said loans. He has submitted that the Adjudicating

Authority has held that since Bajaj Finance Ltd./Respondent No. 4 is not a

'related party', therefore for the transaction regarding creation of security

interest entered into on 28.02.2017, the lookback period should be one-year

period as stipulated under Section 43(4)(b) of the IBC, and therefore such a

transaction would not come under the category for preferential transaction as

it pertains to a date that is earlier than the lookback period. He has argued

that the "Beneficiary Respondents" are 'related parties' to each other and also

to the corporate debtor and therefore a transaction done for their benefit with

Respondent No. 4 whereby security interest was created in the "Mortgaged

Property" for the benefit of the "Beneficiary Respondents" and hence look back

period ought to have been two years as stipulated in Section 43(4)(a) of the

IBC.

10. In the above connection, the Learned Counsel for the

Appellant/Liquidator has cited the judgement of Hon'ble Supreme Court in

the matter of Anuj Jain, Interim Resolution Professional for Jaypee

Infratech Vs. Axis Bank Ltd. & Ors., [(2020) 8 SCC 401] to contend that,

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 7 of 26 in the present case, even though the lender (Bajaj Finance Ltd.) in whose

favour the security interest was created, is not a related party of the corporate

debtor, the decisive question is whether the ultimate beneficiaries of the two

loans are related parties of the corporate debtor.

11. The Learned Counsel for Appellant (in Appeal - I) has rebutted the

argument of the "Beneficiary Respondents" that the security interest was

created in the ordinary course of business. In support he has referred to the

judgement of the Hon'ble Supreme Court in the matter of Anuj Jain (Supra)

to point out that one should look at the scheme and intent of the provisions

of the IBC and purposive interpretation to come to the correct conclusion. He

has further argued that the transaction was for the benefit of the "Beneficiary

Respondents" and as the proceeds of the loan were siphoned off/diverted to

their advantage, Respondents No. 1, 2 and 3, namely Mr. Ramesh Kumar

Suneja, Mrs. Savitri Suneja & Mr. Pankul Suneja have defrauded the creditors

of the corporate debtor, a fact which has also been highlighted in the report

of the Independent Statutory Auditor wherein it is recorded that the amount

of guarantee provided by the corporate debtor was in excess of 60% of the

share capital, reserve and surplus as stipulated under section 185 and 186

of the Companies Act, 2013. He has also pointed out that in the matter of

Anuj Jain (Supra) it is held that any such transaction which has an adverse

bearing on the financial health of the corporate debtor or which turns the

scales in favour of one or few of its creditors at the cost of others is enough to

show that there was an intent to defraud the creditors.

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 8 of 26

12. The Learned Counsel for the Appellant has thus contended that the two

loans given by Respondent No. 4 Bajaj Finance Ltd. were for the benefit of the

related parties of the corporate debtor namely the "Beneficiary Respondents"

and these beneficiaries of the loan are related parties of the corporate debtor.

He has also pointed out that the in accordance with the ratio laid down in

Anuj Jain (Supra) judgement the creation of security interest in favour of

Bajaj Finance Ltd. is squarely covered within section 43(2) and since the

"Beneficiary Respondents" are 'related parties' of the corporate debtor the

lookback period would be two years from the date of initiation of CIRP which

is 04.04.2018, and therefore the said transaction is within the relevant time

as laid down in section 43(4).

13. The Learned Counsel for "Beneficiary Respondents" has argued that the

Adjudicating Authority had considered the issue of security interest in I.A.

No. 367 of 2019, wherein it was held that if the security offered by the

corporate debtor is sought to be released, then the RP has to take into

consideration the claim of Bajaj Finance Ltd. before the security can be

released, and this order which was not appealed against has achieved finality.

He has pointed out that the judgement in the Anuj Jain (Supra) case came

on 26.02.2020 which was after the order of the Adjudicating Authority in I.A.

367 of 2019 and hence the ratio of Anuj Jain judgment would not apply in

the present case.

14. The Learned Counsel for "Beneficiary Respondents" has referred to the

judgement of Hon'ble Delhi High Court dated 17.08.2021, wherein after

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 9 of 26 placing reliance on the order dated 03.01.2020 of the Adjudicating Authority

the matter regarding security interest was firmly and finally settled, and the

Appellant/Liquidator cannot now raise this issue again through I.A. No. 2699

of 2020. He has also pointed out that for section 43 of the IBC to be attracted,

there has to be an antecedent debt, but there is no antecedent debt regarding

which the said security interest has been created, and therefore the

transaction relating to the "Mortgaged Property" is not a preferential

transaction. He has also claimed that the appeal is pre-mature with regard

to the application of section 66 as no pleadings have been made regarding any

fraudulent transactions by the Appellant/Liquidator. He has added that the

mortgage created for the Noida Property was for a fresh loan and is not in

continuation with respect to any past loan. He has also contended that in the

instant case neither the "Beneficiary Respondents" nor Bajaj Finance Ltd.

have been put in any beneficial position due to creation of security interest

and therefore the related transaction of mortgage of property is not a

preferential transaction.

15. With regard to Appeal - II, the Learned Counsel for Appellants has

argued that the relief granted by the Adjudicating Authority through the

impugned order goes out of the scope of section 43 of the IBC since the said

transaction regarding Rs.1,02,09,360/- was done in the ordinary course of

business. In clarification, the Learned Counsel has pointed out that the order

admitting the section 7 application was passed by the NCLT on 4.4.2018,

whereafter the NCLAT passed order in appeal on 07.08.2018 setting aside the

order the initiation of CIRP, and Hon'ble Supreme Court vide order dated

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 10 of 26 30.11.2018 set aside the order of NCLAT and restored the order of NCLT and

thus the moratorium came into force again. He has submitted that the MOU

was signed between the corporate debtor and SAKS Developers 30.8.2018

when the moratorium was not in force since the NCLAT's order had closed the

CIRP. He has added that the MOU was signed for the benefit of the corporate

debtor and the amount of Rs. 1,02,09,360/- was transferred in the ordinary

course of business without infringing any moratorium, since there was no

moratorium in force on 30.8.2018 (when the MOU was signed). He has argued

that the Impugned Order directs Respondent No. 5/SAKS Developers LLP to

make a contribution of Rs.1,02,09,360/-, whereas section 44 of the IBC does

not provide for passing of any contributory order. In this connection he has

referred to the judgement in the case of Hasham Abbas Sayyad Vs. Usman

Abbas Sayyad & Ors., [(2007) 2 SCC 355] wherein it is held that any order

given without jurisdiction will be a nullity.

16. The Learned Counsel for Bajaj Finance Ltd. has presented his

arguments in Appeal - I (CA AT Ins. 747 of 2021) to point out that Bajaj

Finance Ltd. is not a related party of the corporate debtor and since the two

said loans given on 28.02.2017 were loans given to various co-borrowers along

with the corporate debtor, Bajaj Finance Ltd. committed no wrong in

accepting mortgage of the corporate debtor's property located in Sector - 18,

Noida ("Mortgaged Property"). He has further argued that the adjudication

provided by the adjudicating authority in I.A. 367 of 2019 dated 03.01.2020

is quite clear about the correctness of the security interest created in favour

of Bajaj Finance Ltd. and since the resolution professional did not accept the

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 11 of 26 claim of Bajaj Finance Ltd. as a financial creditor, the security interest should

be considered as valid and to be protecting the interest of Bajaj Finance Ltd.

vis-à-vis the two said loans given on 28.02.2017. He has argued out that

Bajaj Finance Ltd. is not a 'related party' of the corporate debtor, and therefore

the lookback period for the transaction regarding creation of security interest

would be one year, and as the said mortgage took place on 28.02.2017, it is

clearly outside the one-year period from the date of initiation of CIRP which

is 04.04.2018.

17. We first examine the issue whether the creation of the security interest

by way of mortgage of the "Mortgaged Property" located at Noida (being

Property No. K-3, Brahm Datt Tower, Sector 18, Noida) is a preferential

transaction under section 43 or a transaction intended to defraud the

creditors of the corporate debtor which is covered under section 66 of the IBC.

18. We note section 43 of the IBC, which is as follows:

"43. Preferential transactions and relevant time.

(1) Where the liquidator or the resolution professional, as the case may be, is of the opinion that the corporate debtor has at a relevant time given a preference in such transactions and in such manner as laid down in sub- section (2) to any persons as referred to in sub-section (4), he shall apply to the Adjudicating Authority 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 Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 12 of 26 operational debt or other liabilities owed by the corporate debtor; and

(b) the transfer under clause (a) has the effect of putting such creditor or a surety or a guarantor in a beneficial position than 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) such transfer was registered with an information utility on or before thirty days after the corporate debtor receives possession of such property:

Provided that any transfer made in pursuance of the order of a court shall not, preclude such transfer to be deemed as giving of preference by the corporate debtor.

Explanation. - For the purpose of sub-section (3) of this section, "new value" means money or its worth in goods, services, or new credit, or release by the transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the liquidator or the resolution professional under this Code, including proceeds of such property, but does not include a financial debt or operational debt substituted for existing financial debt or operational debt.

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 13 of 26 (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."

19. Section 66 of the IBC, which is regarding fraudulent trading or wrongful

trading, is as follows:

"66. Fraudulent trading or wrongful trading. -

(1) If during the corporate insolvency resolution process or a liquidation process, it is found that any business of the corporate debtor has been carried on with intent to defraud creditors of the corporate debtor or for any fraudulent purpose, the Adjudicating Authority may on the application of the resolution professional pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit."

20. We note the fact that Respondent No. 4 in Appeal - I, Bajaj Finance Ltd.

gave two loans viz. Loan Account No. 401 FSP 35751847 for a loan amount

of Rs.3,46,62,656/- and Loan Account No. 401 FSP 35716264 for a loan of

Rs.5,81,32,553/- in favour of the following borrowers, namely (i) Mr. Ramesh

Kumar Suneja, (ii) Mrs. Savitri Suneja. (iii) Mr. Pankul Suneja, (iv) Skyland

International Pvt. Ltd., (v) Pawan Buildwell Pvt. Ltd., and (vi) S. Kumar and

Company Pvt. Ltd.

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 14 of 26

20. We also note that information was sent by the corporate debtor by letter

dated 28.02.2017 (attached at page 166 of Appeal Paper Book in Comp. App.

(AT) (Ins.) No.747/2021) regarding the mortgage of property with details No.

K-3, 5th Floor, Brahm Datt Tower, Sector 18, Noida - 201301 as security

interest debtor in favour of Bajaj Finance Limited for the two loans as

mentioned above. We further note that this creation of security charge was

registered in Form No.CHG-1 (attached at pp 167-172 of Appeal Paper Book

in Comp. App. (AT) (Ins.) No. 747 of 2021).

21. Further, it is also noted that in clause 12(d) of Form CHG-1 the

following was stated by the corporate debtor regarding the extent and

operation of the charge:-

"First and exclusive charge by way of equitable mortgage over the mortgaged property to secure the loan amount along with all other dues payable by borrowers. The loan shall in all circumstances rank superior to any subsequent mortgage/charge on the mortgage property".

22. We also note that in clause 14 of Form CHG - 1 it is very clearly stated

that the property regarding which charge is created is 'immovable property'

situated at Plot No. K - 3, Commercial Space on 5th Floor, Sector - 18, Noida

- 201301. This charge has been created for the loan of amount 3,46,62,656/-

. A conjoint reading of Form CHG - 1 and the letter of the corporate debtor

dated 28.02.2017 regarding mortgage in respect of the Noida Property in

favour of Bajaj Finance Ltd. makes it clear that for the two loan accounts as

stated above the corporate debtor provided security charge on its said

property located at No. K-3, 5th Floor, Brahm Datt Tower, Sector - 18, Noida.

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 15 of 26

23. The Hon'ble Supreme Court has held as following in the Anuj Jain

(Supra) case:

22.2.1. As noticed, 9-8-2017 is the insolvency commencement date in this case. The transactions in question, even if of putting the properties concerned under mortgage with the lenders, carry the ultimate effect of working towards the benefit and advantage of the borrower i.e. JAL who obtained loans and finances by virtue of such transactions. It is true that there had not been any creditor-debtor relationship between the lender banks and corporate debtor JIL but that will not be decisive of the question of the ultimate beneficiary of these transactions. The mortgage deeds in question, entered by the corporate debtor JIL to secure the debts of JAL, obviously, amount to creation of security interest to the benefit of JAL.

25.3. Needless to reiterate that if the transfer is examined with reference to the ordinary course of business or financial affairs of the transferee alone, it may conveniently get excluded from the rigour of sub-

section (2) of Section 43, even if not standing within the scope of ordinary course of business or financial affairs of the corporate debtor. Such had never been the scheme of the Code nor the intent of Section 43 thereof. It has rightly been contended on behalf of the appellants that for the purpose of exception under clause (a) of sub-section (3) of Section 43, the intent of legislature is required to be kept in view. If the ordinary course of business or financial affairs of the transferee (lenders of JAL in the present case) would itself be decisive for exclusion, almost every transfer made to the transferees like the lender banks/financial institutions would be taken out of the net, which would practically result in frustrating the provision itself.

25.5. Looking to the scheme and intent of the provisions in question and applying the principles aforesaid, we have no hesitation in accepting the submissions made on behalf of the appellants that the said contents of clause (a) of sub-section (3) of Section 43 call for purposive interpretation so as to ensure that the provision operates in sync with the intention of legislature and achieves the avowed objectives.

Therefore, the expression "or", appearing as disjunctive between the expressions "corporate debtor"

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 16 of 26 and "transferee", ought to be read as "and"; so as to be conjunctive of the two expressions i.e. "corporate debtor" and "transferee". Thus read, clause (a) of sub- section (3) of Section 43 shall mean that, for the purposes of sub-section (2), a preference shall not include the transfer made in the ordinary course of the business or financial affairs of the corporate debtor and the transferee. Only by way of such reading of "or"

as "and", it could be ensured that the principal focus of the enquiry on dealings and affairs of the corporate debtor is not distracted and remains on its trajectory, so as to reach to the final answer of the core question as to whether corporate debtor has done anything which falls foul of its corporate responsibilities.

(emphasis supplied)

24. Section 43 of the IBC stipulates that if 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 on an account of an antecedent financial debt or

operational debt or other liabilities owed by the corporate debtor, such a

transaction would be considered a preferential transaction. Moreover, if the

transaction is with a 'related party' then the lookback period will be two years

and if it is a party other than a 'related party' the lookback period would be

one year preceding the insolvency commencement date as per sub-section 4

of section 43. Further, as stated in the previous paragraph, the Hon'ble

Supreme Court has held in the matter of Anuj Jain (Supra) that mortgage

deeds entered by the corporate debtor JIL should be considered alongwith the

fact as to who are the real beneficiaries of the transaction.

25. The Hon'ble Supreme Court has thus held that if there is a transfer of

property or interest thereof of the corporate debtor for the 'benefit of related

parties' and not necessarily be the corporate debtor, then the look back period

would be two years and such a transaction will be considered as a transaction

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 17 of 26 which infringes sub-section (2) of section 43. Moreover, the said creation of

security charge is not in the ordinary course of business nor the corporate

debtor through the two loan agreements dated 28.02.2017 has benefitted for

the said loans. Admittedly the said loans were utilized by the Respondent

namely Mr. Ramesh Kr. Suneja, Mrs. Savitri Suneja and Mr. Pankul Suneja.

26. It is thus clear that while the corporate debtor was in default of its

financial creditors, it entered into the said transaction of mortgaging its

property for the benefit of the "Beneficiary Respondents", and these

"Beneficiary Respondents" who are all related parties of the corporate debtor

stood to benefit by creation of such security interest even though the

corporate debtor did not revive any benefit out of the loan agreements.

27. Moreover, the creation of security interest, particularly in the light of

para 12(d) points the Form CHG-1, uploaded on the website of Ministry of

Corporate Affairs by the corporate debtor makes it clear that the Respondent

Bajaj Finance Ltd. has 'first and exclusive charge' over the mortgaged property

and 'the loan shall in all circumstances run superior to any subsequent

mortgage/charge on the mortgaged property'. It is thus clear that by creation

of the mortgage on the property of the corporate debtor and in the event of

default, the mortgaged property would have provided benefit to all the related

parties of the corporate debtor to the detriment and disadvantage of the actual

creditors of the corporate debtor by diminishing the liquidation estate of the

corporate debtor.

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 18 of 26

28. We also note the argument of the Learned Counsel for the Appellant

that the Independent Auditor's Report (at para 4(i) of the Report on pg. 113A

of the Appeal Paper Book, CA(AT)(Ins) 747 of 2021) that the corporate debtor

has given advances and its guaranteed for certain loans taken by its

associates/related Person in terms of section 185 and 186 of the Companies

Act, 2013, and the corporate debtor has not received counter-guarantees of

equivalent amount from the respective related parties/co-applicants and has

created guarantee in excess of 60% of its share capital and reserve and

surplus in terms of the section 186 of the Companies At, 2013. Looking at the

mortgage of the "Mortgaged Property" provided by the corporate debtor in the

instant case we tend to agree with the observation of the Independent Auditor

and are of the view that the corporate debtor should have taken note of this

observation of the Auditor and made necessary corrections, which it did not

do, and thereby put the creditors of the corporate debtor at a clear

disadvantage. We are also of the opinion that the corporate debtor, working

through the Respondents No. 1, 2 and 3, did not take any corrective action

on the basis of the Independent Auditor's Report as they stood to derive

advantage from the security charge created through the "Mortgaged Property"

being beneficiaries of the two said loans.

29. Therefore, it is amply clear that the transaction relating to creation of

security charge on the "Mortgaged Property" by the corporate debtor was

clearly and unambiguously for the benefit of its related parties, namely Mr.

Ramesh Kumar Suneja, Mrs. Savitri Suneja, Mr. Pankul Suneja, Skyland

International Pvt. Ltd. and S. Kumar and Company. The relevant time with

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 19 of 26 regard to look back period is two years for the date of initiation of CIRP i.e.,

04.04.2018 and therefore a creation of security charge on 28.02.2017 is well

within the two years look back period. Therefore, the said transaction of

creation of security interest on mortgaged property in favour of Bajaj Finance

Ltd. infringes section 43 for which an order can be made under section 44 of

the IBC.

30. We, therefore, come to the conclusion that the Adjudicating Authority

erred in holding that the security interest created in the "Mortgaged Property"

was correct and we accordingly set aside this part of the Impugned Order and

hold that the mortgage created on the "Mortgaged Property" and which is

registered by Form CHG-1 shall be cancelled and the said property shall

become a part of the assets of the corporate debtor in an unencumbered form,

available in the liquidation estate of the corporate debtor for the benefit of its

creditors.

31. With regard to the transfer of Rs.1,02,09,360/- by the corporate debtor

in favour of SAKS Developers LLP, we note that an MoU was signed between

the corporate debtor and SAKS Developers on 30.08.2018 (attached at pp 121

- 127 of the appeal paper book, Comp. App. (AT) (Ins.) No.747 of 2021).

Notably, Mr. Ramesh Kumar Suneja as director of the corporate debtor and

Mr. Pankul Suneja as managing partner/partner of SAKS Developers signed

this MoU who are father and son respectively. Moreover, this MoU was

executed on a non-judicial stamp paper purchased in Uttar Pradesh (where

stamp papers in hard copy as against e-stamp paper could be purchased)

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 20 of 26 even though the corporate debtor and SAKS Developers have their registered

offices in New Delhi. It is also noted that in New Delhi only e-stamp papers

can be purchased. Moreover the MOU is neither notarized or registered.

Therefore the veracity about the signing of the MoU on the date claimed

cannot be firmly established.

32. Be that as it may, we note the following from the Recitals and the Profit

Sharing clauses of the MoU:-

"And Whereas the Developer has shared with the Collaborator, the relevant details of the Project, including the project architectural plans, estimated cost of land, constructions etc. and thereafter the Collaborator has inclined to invest in the Proposed Project as Financial Partner in the Proposed Project".

"2. Profit Sharing

2.1. The profit sharing of the Collaborator in the project shall be in the ratio of the amount provided by the Collaborator to the total cost of the Proposed Project.

xxx xxx xxx

2.3. The final profit - sharing ratio (in percentage terms) of the Collaborator shall be determined based on the finalized project cost vis-à-vis of the financial continuation by the Collaborator & Developer."

33. A close perusal of the recital and profits sharing clauses of the MoU

reproduced above shows that while on one hand the Developer had ostensibly

shared with the Collaborator the relevant details of project including

architectural plans, estimated cost of land and constructions etc. and after

due consideration the Collaborator had agreed to invest in the proposed

project, the clauses in the "Profit Sharing" section as extracted above show

that the plans and final project cost etc. are not yet clear and therefore the

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 21 of 26 actual profit sharing ratio and the total cost of the proposed project are not

indicated in the MoU. The absence of these details in the MoU shows that

the MOU was perhaps executed in a hurry. The intention of the Developer

and Collaborator for development of the proposed project also then appears

either half-baked or suspicious. It stands to reason as to why the Collaborator

would agree to invest a sizeable amount in the Project when the details

including the actual cost of the project are not clear to him. We are therefore

inclined to accept the contention of the Learned Counsel for the Liquidator

that the MoU was entered into in a hurried manner, during a 'small window

of time' that was available to the corporate debtor fortuitously, when after the

NCLAT order setting aside the NCLT order on 07.08.2018 was set aside by

Hon'ble Supreme Court vide its order dated 30.11.2018. We find that the

MoU was executed on 30.08.2018 in this 'small window of time' that luckily

got available to the Developer/SAKS Developers LLP and the Collaborator/

Pawan Buildwell Pvt. Limited primarily to siphon off the R. 1,02,09,360/- from

the corporate debtor to another family concern SAKS Developers LLP.

34. From the above, it is clear that when the corporate debtor was

experiencing insolvency, it still chose to transfer an amount of

Rs.1,02,09,360/- to a related party SAKS Developers LLP and which is also a

family concern of Mr. Ramesh Kumar Suneja to siphon off the said amount

from the corporate debtor to SAKS Developer LLP even though it could have

used the said amount to pay off its debtors and resolve its insolvency. This

act of transferring the said amount to SAKS Developers LLP is clearly to the

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 22 of 26 disadvantage of the creditors of the corporate debtor and a definite violation

of section 43(2) of the IBC.

35. We are therefore in agreement with the observation of the Adjudicating

Authority made in paragraph 46 of the impugned order and hold that even

though the said MoU was signed and the transfer of Rs.1,02,09,360/- was

made during the period when the moratorium was technically and legally not

in force, the fact that after the NCLAT had set aside the order of NCLT

regarding admission of section 7 application, an appeal had been filed before

Hon'ble Supreme Court which could have gone either way, there was no

imminence or urgency for the corporate debtor to enter into an MoU for

development of a property held by another company and take on further

commitments when the sword of insolvency was hanging over its head.

36. Even if we consider that the said MoU was signed during the period

when the moratorium under section 14 was strictly not in force for bonafide

reasons, the fact that the admission order against the corporate debtor was

restored on 30.11.2018 by the order of Hon'ble Supreme Court makes the

signing of MoU on 30.08.2018 by the corporate debtor with a 'related party'

SAKS Developers LLP an act that clearly infringes section 43(2) of the IBC

since the MoU was signed within the lookback period of two years as

stipulated in section 43(4). Thus the transfer of Rs. 1,02,09,360/- on account

of the said MoU is clearly a preferential transaction under section 43.

37. In order to rebut the argument of the Respondents Ramesh Kumar

Suneja and Others that there is no specific pleading of fraud, the Learned

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 23 of 26 Counsel for Appellant has cited the judgment of this Tribunal in the matter of

CA(AT)(Insolvency) No. 405, 369 and 412 of 2022 to rebut the contention of

the Respondents. In the said judgment, it is held as hereunder:-

"54. What has been emphasized by the Hon'ble Supreme Court is that ingredients of Section 43, 45 and 66 are different and Resolution Professional is expected to keep such requirement in view while making motion to the Adjudicating Authority. When we look into the Application which has been filed in the present case the Resolution Professional has in the avoidance application in his application has dealt with preferential transaction undertaken by the Corporate Debtor and undervalued transaction undertaken by the Corporate Debtor as well as fraudulent transaction in different heads i.e. 'i', 'ii' and 'iii' thus allegations and averments were separately made and filing of composite application does not lead to any infirmity in the Application. We are not persuaded to accept the submission of the Appellant that since the composite Application was filed it ought to have been rejected."

38. While following the above judgment, we note that the Appellants had

specifically pleaded the issue of fraud in paragraphs 18, 20 and 27 of IA

No.2499/2020 and again in IA No. 2496/2020 in paragraphs 12, 13 and 14.

39. We also note the argument of the Learned Counsel for the Appellants

(in Appeal - II) that this MoU was signed in the 'ordinary course of business'.

Regarding this argument, we are of the view that when the corporate debtor

itself was under the throes of insolvency and was unable to take care of its

debts, it is certainly curious as to why it would decide to get into an MOU for

development of land that was owned by another party SAKS Developers and

parting with a handsome amount of Rs.1,02,09,360/- without even being

clear about the various parameters of the project. This act of the corporate

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 24 of 26 debtor arouses suspicion which is strengthened by the fact that both SAKS

Developers LLP and the corporate debtor are owned and run by members of

the same family, and which have their registered offices at the same address

which is 59 - A, Lane C-5, Central Avenue, Sainik Farms, New Delhi - 110062.

40. On the basis of the detailed discussion as above, we come to an

inescapable conclusion that the amount of Rs.1,02,09,360/- which was

transferred by the corporate debtor to the related party SAKS Developers LLP

during the lookback period of two years was in clear violation of section 43 of

the IBC. Therefore, the order made by the Adjudicating Authority directing

SAKS Developers LLP to repay/refund the amount of Rs.1,02,09,360/- to the

corporate debtor is correct and does not require any interference.

41. On the basis of discussion in this judgement regarding the creation of

security interest in "Mortgaged Property" owned by the corporate debtor and

transfer of Rs.1,02,09,360/- transferred by the corporate debtor to SAKS

Developers LLP, we come to the following conclusion that:

(i) The order of the Adjudicating Authority holding that the security

interest created in the "Mortgaged Property" by the corporate debtor

is not a violation of section 43 of the IBC is erroneous. Therefore the

mortgage on property K - 3, 5th Floor, Brahm Datt Tower, Sector 18,

Noida, which is registered in Form CHG -1 should be cancelled and

the property, in unencumbered form, shall revert into the assets of

the corporate debtor. The impugned order is therefore set aside to

this extent.

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 25 of 26

(ii) The transfer of Rs.1,02,09,360/- which is directed to be refunded by

SAKS Developers LLP to the corporate debtor is correctly held so by

the Adjudicating Authority and the part of the impugned order

relating to repayment/refund of this amount by SAKS Developers

LLP to the corporate debtor is held to be correct thereby not requiring

any interference.

42. With the above modifications in the impugned order, we allow the

appeal.

43. There is no order as to costs.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Dr. Alok Srivastava] Member (Technical)

New Delhi 09.05.2023

himanshu

Comp. App. (AT) (Ins.) Nos.747 & 748/2021 Page 26 of 26