Sahyog Infrastructure Pvt. Ltd vs Anju Agarwal Resolution Professional ...

2022 ("Appeal-II") have been filed by the respective Appellants

assailing common order dated 30.8.2022 (hereinafter called

"Impugned Order') passed by the Adjudicating Authority

(National Company Law Tribunal, New Delhi) in CA No.

1470/2019 filed in CP (IB) / 593(PB)/2018.

2. Appeal-I is filed by the Appellant M/s. Sahyog

Infrastructures Pvt. Ltd. (in short "Sahyog Infrastructures") and

Appeal-II is filed by the Appellants Gem Marketing Pvt. Ltd. (in

short "Gem Marketing") and Mrs. Vidushi Agarwal and Mrs.

Anju Agarwal, Resolution Professional of the corporate debtor

M/s I.P. Construction Pvt. Ltd. is the common Respondent in

both the appeals.

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 2 of 31

3. The brief facts in Appeal-I are that an amount of

Rs.2,90,00,000/- is alleged to have been paid by the Appellant

Sahyog Infrastructures as security deposit to the corporate

debtor in accordance with agreement dated 12.11.2015 and the

repayment was made by the corporate debtor to the Appellant

Sahyog Infrastructure of an amount Rs.2,16,75,000/- between

30.1.2017 to 29.10.2018, which has been held as preferential

repayment of unsecured loan by the corporate debtor. The

Appellant Sahyog Infrastructures has claimed that out of the

amount of Rs.2,16,75,000/-paid by the corporate debtor to the

Appellant, an amount of Rs.2,08,25,000/-was part of refund of

security deposit and an amount of Rs.8,50,000/- was part

payment made by the corporate debtor to the Appellant for

providing construction related services. The Appellant has

further stated that the security deposit was to be refunded after

expiry of two years as was set out in the agreement, which

expired on 12.7.2017, and therefore, major part of the security

deposit was refunded by the corporate debtor to the Appellant

and an amount of Rs.82,75,000/- still remained payable by the

corporate debtor to the Appellant.

4. In Appeal-I, the Appellant has stated that the Transaction

Auditor and the Resolution Professional ("RP") have incorrectly

classified the said refund of security deposit as repayment of

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 3 of 31 unsecured loan, which is to the detriment of the Appellant, and

which has been held as preferential transaction, and by the

Impugned Order, this transaction has been reversed and the

Appellant has been directed to return the money paid by the

corporate debtor to the Appellant.

5. As to the facts in Appeal-II, the Appellants have claimed

that Gem Marketing booked a studio apartment with the

corporate debtor on 8.1.2015 for which Rs.5,00,000/-was paid

as booking amount and this amount was refunded by the

corporate debtor on 29.8.2018 to Gem Marketing on account of

cancellation of the booking of the studio apartment. The

Appellants have also stated that a similar booking amount of

Rs.5,00,000/- was paid by Mrs. Vidushi Agarwal towards

another unit booked with the corporate debtor, which was

cancelled and the booking amount of Rs.5,00,000/- was

returned to the Appellant Mrs. Vidushi Agarwal on 7.6.2018.

The Appellants have further submitted that these refunds, given

to them upon cancellation of their units, were transactions

made in the regular course of business of the corporate debtor

and therefore, they will not qualify as preferential transactions.

Since the Impugned Order has classified these two transactions

as preferential transactions and ordered the Appellants have

been directed to refund the said amounts to the corporate

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 4 of 31 debtor, the appellants who are aggrieved by the said order have

filed Appeal - II.

Arguments in Company Appeal (AT)(Ins) No.1367 of 2022 (Sahyog Infrastructure Pvt. Ltd. vs. Anju Agarwal, RP M/s IP Constructions Pvt Ltd.)

6 The Learned Counsel for Appellant has argued that the

corporate debtor M/s. IP Constructions Pvt. Ltd.("corporate

debtor") was admitted into Corporate Insolvency Resolution

Process (in short 'CIRP') vide order of Adjudicating Authority

dated 11.1.2019 in an application filed under section 7 of the

Insolvency and Bankruptcy Code, 2016 (in short "IBC") by the

Union Bank of India and Mrs. Anju Agarwal was appointed as

Interim Resolution Professional. He has further submitted that

the Respondent carried out a Transaction Record Analysis (in

short "TRA") of the corporate debtor and based on findings in

the TRA, clarification was sought from the Appellant regarding

transactions that were found to be falling in the ambit of section

43 of the IBC. He has further submitted that Mr. Arvind

Agarwal, a suspended director of the corporate debtor, sent an

e-mail dated 18.6.2019 to the RP clarifying that Sahyog

Infrastructures was appointed as an Exclusive Selling Agent

vide an agreement dated 12.11.2015 for selling the stock of the

corporate debtor, and in accordance with the agreement, the

Appellant deposited Rs.2,90,00,000/- as security deposit with

the corporate debtor as performance deposit. Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 5 of 31

7. The learned Counsel for Appellant has further submitted

that due to non-conducive conditions, the Appellant was unable

to perform its obligation as Exclusive Selling Agent and

demanded the refund of security deposit alongwith interest from

the corporate debtor, which the corporate debtor refunded, but

not fully and only to the extent of Rs.2,60,75,000/-. He has

further argued that in the audited balance sheet of the corporate

debtor for the years ended on 31.3.2017 and 31.3.2018, the said

amount has been shown under the head "Other Long Term

Liabilities". On this basis, the Learned Counsel for Appellant

has argued that the said amount was not part of the assets of

the corporate debtor, but was actually security deposit

deposited by the Appellant for a period of two years i.e. the time

period of Exclusive Selling Agent contract (which was upto

11.11.2017) and therefore, the corporate debtor was obliged to

refund the said security deposit amount to the Appellant.

8. The Learned Counsel for Appellant has referred to

clauses 2, 11 and 12 of the Exclusive Selling Agreement in

support of his argument to contend that the said amount of

Rs.2,90,00,000/- was kept by the corporate debtor as

Performance Deposit to be refunded within 60 days of the expiry

of the contracted period, which was two years. The Learned

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 6 of 31 Counsel for Appellant has further argued that the Appellant had

provided in clarification a copy of the Exclusive Selling Agent

Agreement and the audited balance-sheets for the years ending

31.3.2017 and 31.3.2018 in support of his contention that the

said amount was given against the security deposit and the

repayment received between the period 30.1.2017 and

29.10.2018 amounting to Rs.2,16,75,000 is basically part

refund of the security deposit amount, and not repayment of

unsecured loan as has been claimed by the RP/Respondent on

the basis of TRA.

9. The Learned Counsel for Appellant has expanded on his

earlier arguments about the said amount being security deposit

by referring to the balance sheet submitted by the corporate

debtor, wherein in Note 5 an amount of Rs.2,91,00,000/- is

shown under the head "Other Long-Term Liabilities" as 'Security

Deposit received from Sahyog Infrastructurea Pvt. Ltd.'. He has

further argued that this balance-sheet was prepared under the

oversight of RP Mrs. Anju Agarwal and therefore, the entries in

the Note 5 should be taken as true and conclusive and the

amount refunded to the Appellant should be considered as part

refund of the security deposit.

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 7 of 31

10. The Learned Counsel for the Respondent/RP has argued

that in the Transaction Record Analysis undertaken by the RP

and the report submitted by the Transaction Auditor Mehrotra

and Company on 6.5.2019, it is very clearly observed that the

series of transactions amounting to Rs.2,16,75,000/- is a

'preferential transaction' under section 43 of the IBC. He has

submitted that these transactions were made in a look back

period of two years from the date of initiation of CIRP (on

11.1.2019) and therefore, they are clearly infringing section 43

of the IBC. He has further argued that the said amount of

Rs.2,16,75,000/- refunded to the Appellant during the period

30.1.2017 to 30.8.2018 was basically repayment of 'unsecured

loan' and not security deposit. He has referred to the Exclusive

Selling Agreement dated 12.11.2015 entered into between the

corporate debtor and the Appellant to point out that the said

agreement was signed on a stamp paper purchased in Uttar

Pradesh, even though the corporate debtor has its registered

office in New Delhi. He has claimed that such an agreement

creates suspicion since in the State of Uttar Pradesh, non-

judicial stamp papers can be purchased, whereas in New Delhi

only e-stamp papers can be purchased. He has further pointed

out that this agreement is neither notarized nor registered, and

therefore, veracity of this agreement is doubtful.

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 8 of 31

11. Regarding the appearance of the said amount in the

audited balance-sheet for the year ending 31.3.2019, the

Learned Counsel for Respondent/RP has claimed that the

Independent Auditor's Report very clearly points out that the

repayment made to the Appellant of Rs.2,08,25,000/- , which is

reflected in Note 5 of the Financial Statement, is prefaced with

the note that the IRP has recognised this transaction as

preferential transaction falling within the purview of sections 43

and 45 of the IBC. Regarding RP's signature on the said

financial statement, i.e. the balance sheet for year ending

31.3.2019, he has clarified that the responsibility for

preparation of the balance sheet was on ex-directors Arvind

Agarwal and Mrs. Vidushi Agarwal and the RP has merely put

her signature since the balance-sheet was made under her

oversight and hence the signature of RP does not provide

credence to the repayment as being of security deposit.

12. The Learned Counsel for Respondent/RP has also argued

that the Appellant has neither shown any communication in

support of his claim that the said amount related to security

deposit from the year 2015 when the said deposit was made, nor

he has shown any communication sent by the Appellant to the

corporate debtor asking for refund of the security deposit. and

these deficiencies create further doubt regarding the veracity

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 9 of 31 and the timing of the agreement and the entries made in the

balance-sheet for the year ending 31.3.2019. On such basis,

the Learned Counsel for Respondent has contended that the

refund of Rs.2,16,75,000 is clearly repayment of an unsecured

loan to a related party and therefore is squarely covered under

section 43 of the IBC, and hence the Adjudicating Authority has

not committed any error by deciding that this amount should be

refunded by the Appellant into the account of the corporate

debtor.

13. We note that the Transaction Audit Report of the

corporate debtor (attached at pp.62-83 of the appeal paperbook

CA (AT) (Ins) No. 1367 of 2022) notes the following about the

ex-directors of the corporate debtor also holding directorship of

the Appellant: -

1. "INTRODUCTION 1.3 Details of related parties for the relevant period (11.01.2017 to 10.01.2019)

xx xx xx xx

b) The list of the Companies in which the Directors / KMP of the Company hold Directorships / have significant influence as disclosed to us by the management of the company.

S.No. Name of Related Party Relationship 1 M/s. Sahyog Two Common Infrastructures Pvt. Ltd. Director

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 10 of 31

14. Further, section 43 of the IBC regarding preferential

transactions is as follows:-

"43. Preferential transactions and relevant time As per section 43(2) of IBC 2016, a corporate debtor shall be deemed to have given a preference if -

a) There is a transfer of property or an interest there of the corporate debtor for the benefit of a creditor or 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

b) The transfer under clause (a) has the effect of putting such creditors or a surety or a guarantor in a beneficial position than it would have been in the event of a distribution of assets being in accordance with section 53.

xx xx xx xx 43(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."

15. The Transaction Record Analysis notes the following in

regard to the refund of Rs. 2,16,75,000/-:-

"On application of above provision to M/s I P Constructions Pvt Ltd. we found few transactions which is coming under the preview of section 43 of the Act.

1. Sahyog Infrastructures Pt Ltd:- The said company is the related party of corporate debtor., M/s Sahyog Infrastructures Pt Ltd is owned and control by Mr. Arvind Agarwal & Vidushi Agarwal jointly. Corporate debtor. has been entered into various transaction with Sahyog Infrastructure Pt Ltd such as unsecured loans, supply of Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 11 of 31 labour and building material and Sahyog also booked studio apartment with the corporate debtor. Corporate Debtor has also given preference to M/s Sahyog Infrastructures Pt Ltd in repayment of loan, refund on booking amount.

S. Nature of Repayment Amount Remark No. Transaction Dates Rs. 1. 30-01-2017 100000.00 26-04-2018 25000.00 Repayment 29-05-2018 100000.00 Preference of 25-06-2018 2000000.00 given to Unsecured 29-06-2018 2500000.00 Sahyog on Loan 06-07-2018 1500000.00 repayment 07-07-2018 1000000.00 of 11-07-2018 2500000.00 Unsecured 07-08-2018 200000.00 Loan 14-08-2018 8500000.00 30-08-2018 1000000.00 03-10-2018 500000.00 10-10-2018 500000.00 29-10-2018 500000.00 24-04-2017 300000.00 14-09-2017 250000.00 16-12-2017 200000.00

Total: 21675000.00

16. We now peruse the agreement dated 12.11.2015

appointing the Appellant as Exclusive Selling Agent of the

corporate debtor (attached at pp. 35-41 of the appeal paperbook

- CA 1367/2022) wherein in clause 2, it is mentioned that

second party (Appellant) shall deposit with the first party

(corporate debtor) an amount of Rs.2,90,00,000/- as

'Underwriting Security Deposit' which will be kept by the

corporate debtor as 'Performance Deposit' and which is for

procuring booking of commercial spaces in the 'Coral Brio'

project of the corporate debtor, and this deposit shall be Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 12 of 31 refunded within 60 days of the expiry of the contracted period,

which is two years period. Further, clause 11 of this agreement

provides that for the services rendered by the Appellant, the

corporate debtor will pay the Appellant service charges as per

terms and conditions contained in the agreement.

17. We, further, note that this Exclusive Selling Agent

Agreement is made on non-judicial stamp paper of Rs.100/-

purchased in Uttar Pradesh even though the registered office of

the corporate debtor is situated in Delhi and that this agreement

is neither notarised nor registered. We, therefore, agree with the

argument of the Learned Counsel for Respondent that the

registered office of the corporate debtor was situated in New

Delhi, where only e-stamp papers can be used in making such

agreements, but the corporate debtor/Appellant purchased the

non-judicial stamp paper in Uttar Pradesh, where e-stamp

papers are still not being used and therefore, we are unable to

place reliance on this agreement.

18. We also note that there is no communication from the

corporate debtor regarding the need for such an agreement, nor

there is any communication sent by the Appellant, when he

deposited the said amount as security deposit with the

corporate debtor in pursuance of the agreement. We further

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 13 of 31 note the Independent Auditor's Report of the corporate debtor

for the year ending 31.3.2015 (attached at pp.176-203 of the

appeal paperbook), a caveat is made as follows:-

"That in terms of the report of the Insolvency Resolution Professional (IP) dated 22.07.2019, such IP has recognized various transaction for FY 2018-19 as preferential transaction with the purview of the section 43 and 45 of Insolvency and bankruptcy Code, 2016 which are listed as under:

- Repayment made to Sahyog Infrastructure Private Limited of Rs. 2,08,25,000/-

(Reflected in Note 5 of financial statement)

- Refund of booking advance to Gem Marketing Private Limited of Rs. 5,00,000/-

(Shown as Sales Return in Note No. 17 of Financial Statement)

- Repayment of loan of Mr. Arvind Agarwal of Rs. 67,25,000/-

(Reflected in Note 26 of financial statement)

- Repayment of loan of Mrs. Vidushi Agarwal of Rs. 5,00.000/-* (Reflected in Note 26 of financial statement) *(Reported as booking advance in IP report however the same is classified as Unsecured Loan in Financial Statement)

In reference to the above, no additional explanation has been provided to us by the management during the course of audit apart from what is mentioned in the report of TRP. Further, since the matter is under the review of Hon'ble National Company Law Tribunal, New Delhi, we are unable to comment regarding the genuineness and reasonableness of the said transactions."

19. It is also noted by us that the said financial statements

were prepared under the oversight of the RP, but the primary

responsibility vested with Mr. Arvind Agarwal and Mrs. Vidushi

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 14 of 31 Agarwal, both ex-directors of the corporate debtor, who have

also signed on the financial statement and the date for

preparation of this statement is 29.6.2019 and therefore, the

inclusion of the deposited money as security deposit cannot be

taken as conclusive evidence of the same.

20. The Learned Counsel for Appellant has cited the judgment

of Hon'ble Supreme Court in the matter of Rai Bahadur Seth

Jessa Ram Fatehchand Versus Om Narain Tankha And

Another [(1967) 2 SCR 429: AIR 1967 SC 1162], wherein the

following has been held:-

"14. Another circumstance which may have to be taken into account in a case where the agreement does not indicate clearly that the security deposit is impressed with a trust is the payment of interest. Where there is no payment of interest provided for an inference may be readily drawn that the deposit was in the nature of a trust. But where the person with whom the deposit is made is to pay interest It may be possible to infer that payment of interest is a pointer towards there being no trust. Further any other provision in the agreement and any other circumstance as to the manner in which the deposit was dealt with may also have to be taken into account in coming to the conclusion whether the security deposit in a particular case was impressed with a trust or not."

21. The Learned Counsel for Appellant while citing the above

judgment has emphasised that when there is no payment of

interest provided, the security deposit should be considered to

be kept in a trust, which implies that it will be the asset of the

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 15 of 31 person making the security deposit. This judgment is

distinguishable on the fact that in the scheme of IBC, a

preferential transaction covered under section 43 has to revert

to the corporate debtor, to ensure a proper and adequate

resolution of the corporate debtor and since in the present case

the refund of the amount of Rs. 2,16,75,000/- is not related to

refund of the security deposit, but is repayment of unsecured

loan to a related party.

22. The Learned Counsel for Appellant has also referred to the

judgment in the matter of Kshetra Mohan Das V. D. C. Basu [

1 CAL. Indian Law Reports, 1943, pg.313, Appellate Civil],

wherein it is held that the money deposited as security would

not establish the relationship between the payer and payee as

that of creditor and debtor, and the money so deposited would

still be regarded as trust money in the hands of the company.

The relevant portion of the this judgment is as follows:-

"Proceeding on the view that that is the test, these decisions have given great weight to the stipulation for the payment of interest by the company, in cases where there is no express term in the contract that the latter would be entitled to use the money for its own purposes. The reason that is employed is that a stipulation for payment of interest necessarily implied that the company was to employ the deposit-money for its own purposes, or in such manner as it may choose. In our view, the fact that has been overlooked is that it would not be the necessary or the only implication. A trustee, when authorised, can use the trust fund and can be required by express terms to pay interest. That is what has been laid down in Gee v. Liddell. The Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 16 of 31 decision of the Judicial Committee of the Privy Council in Official Assignee of Madras v. Krishnaji Bhat shows that a stipulation for payment of interest on money deposited would not necessarily militate against the case that a trust was created........ The judgment of the original Court is Sub-nomine T. Krishnajee Bhat v. Sadasiva Tawker and that of the appellate Court is Official Assignee of Madras v. T. Krishnaji Bhat. The admission made by the learned counsel before the Judicial Committee under these circumstances can only be taken to mean that in his opinion the point was not worth arguing.

xx xx xx xx As we have already pointed out, the mere fact that there is a stipulation for payment of interest on the deposit-money, or the fact that in certain contingencies the employer or the company, as the case may, would be entitled to liquidate his or its claim from out of it against the employee or the selling agent would not establish the relationship of creditor and debtor. The money deposited as security would still be regarded as trust-money in the hands of the employer or the company."

23. In the above stated judgment, we note that the payment

of interest on money deposited with the company leads to the

inference that a trustee can use a fund kept in and can be

required to pay interest. We do not think that the observations

in this judgment apply to the facts and context of the present

case as the money refunded by the corporate debtor relates to

an unsecured loan of a related party and not a security deposit

kept in trust with the corporate debtor.

24. On the other hand, the Learned Counsel for Respondent

has cited the judgment of the Hon'ble Supreme Court in the Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 17 of 31 matter of Jaypee Infratech Ltd. Interim Resolution

Professional V. Axis Bank Ltd. [(2020) 8 Supreme Court

Cases 401] regarding preferential transactions, wherein the

following has been held:-

"Insolvency and Bankruptcy Code, 2016: Historical background, objects, scheme and structure of the relevant parts

19. The basic issue raised in the matter being related with the effect and operation of Section 43 of the Code, concerning "preferential transactions and relevant time", appropriate it shall be to comprehend the principles underlying the concept of "preferential transactions". A little insight into the objects sought to be achieved by the Insolvency and Bankruptcy Code, 2016 and its historical background shall be apposite.

"19.3. Though the provisions relating to "preferential transactions and relevant time" (in Section 43 of the Code) occur in Chapter III of Part II, relating to liquidation process, but such provisions being for avoidance of certain transactions and having bearing on the resolution process too, by their very nature, equally operate over the corporate insolvency resolution process, and hence, the resolution professional is obligated, by virtue of clause () of sub- section (2) of Section 25 of the Code, to file application for avoidance of the stated transactions in accordance with Chapter III. That being the position, Section 43 of the Code comes into full effect in CIRP too.

Preferential transaction at a relevant time: Concept and connotations

20. Having regard to the questions involved, a brief insight into the theory relating to avoidance of certain transactions as being preferential would be pertinent at this stage.

xx xx xx xx Analysing Section 43 of the Code Xx xx xx xx

21.2. However, merely giving of the preference and putting the beneficiary in a better position is not enough. For a Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 18 of 31 preference to become an offending one for the purpose of Section 43 of the Code, another essential and rather prime requirement is to be satisfied that such event, of giving preference, ought to have happened within and during the specified time, referred to as "relevant time. The relevant time is reckoned, as per sub-section (4) of Section 43 of the Code, in two ways: (a) if the preference is given to a related party (other than an employee), the relevant time is a period of two years preceding the insolvency commencement date; and (b) if the preference is given to a person other than a related party, the relevant time is a period of one year preceding such commencement date. In other words, for a transaction to fall within the mischief sought to be remedied by Sections 43 and 44 of the Code, it ought to be a preferential one answering to the requirements of sub- section (2) of Section 43; and the preference ought to have been given at a relevant time, as specified in sub-section (4) of Section 43.

xx xx xx xx Indicting parts - deemed preference at a relevant time xx xx xx xx 22.1. To put it more explicitly, the sum total of sub-sections (2) and (4) is that a corporate debtor shall be deemed to have given a preference at a relevant time if:

(i) the transaction is of transfer of property or the interest thereof of the corporate debtor, for the benefit of a creditor or surety or guarantor for or on account of an antecedent financial debt or operational debt or other liability;

(ii) such transfer has the effect of putting such creditor or surety Or guarantor in a beneficial position than it would have been in the event of distribution of assets in accordance with Section 53; and

(iii) preference is given, either during the period of two years preceding the insolvency commencement date when the beneficiary is a related party (other than an employee), or during the period of one year preceding the insolvency commencement date when the beneficiary is an unrelated party.

xx xx xx xx

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 19 of 31 Net concentrate of Section 43 22.5. Thus, the net concentrate of Section 43 is that if a transaction entered into by a corporate debtor is not falling in either of the exceptions provided by sub-section (3) and satisfies the three-fold requirements of sub-sections (4) and (2), it would be deemed to be a preference during a relevant time, whether or not in fact it were so; and whether or not it were intended or anticipated to be so."

25. It is evident from the above extracted observations of the

judgment in the Jaypee Infratech Ltd. Interim Resolution

Professional (supra) matter that the net effect of section 43 is

that for a transaction to be a preferential transaction the only

exception could be as per sub-section (3) of section 43. We note

that neither the transactions made by the corporate debtor

regarding refund of Rs.2,16,75,000 to Sahyog Infrastructures

nor the transactions made by the corporate debtor with the two

Appellants Gem Marketing Pvt. Ltd. and Mrs. Vidushi Agarwal

fall in the exceptions as provided in section 43(3). This

judgment, therefore, provides support to the case of the

Respondent/RP.

26. When we consider the financial statements of the

corporate debtor for the year ending 31.3.2019 along with said

balance-sheets and Note 5 in the Independent Auditor's Report

and the agreement dated 20.11.2015, which are not

corroborated by any communication either regarding deposit of

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 20 of 31 the said security deposit amount and the purpose for said

deposit, and later the absence of any request of refund by the

Appellant made to the corporate debtor, we arrive at the

conclusion that the agreement and the balance-sheets on their

own will not provide the necessary basis to support the

contention of the Appellant that the deposit of Rs.2,90,00,000

made by the Appellant was against security deposit. As has

been brought out in the Transaction Record Analysis, we are

also of the same view that the said deposit relates to 'Unsecured

Loan', which is taken from related parties and which is coming

out from the note 25 on page 138 of the appeal paperbook,

wherein the amount of Rs.2,90,00,000/- is shown as received

from the related party Sahyog Infrastructures Pvt. Ltd.

27. On the above basis, we are of the clear opinion that the

Adjudicating Authority has not made any error in holding that

the amount of Rs.2,16,75,000/- that has been repaid by the

corporate debtor to the Appellant is actually repayment of

"Unsecured Loan" and is, therefore, a preferential transaction

fully covered under section 43 of the IBC, and the RP has,

therefore, been correctly directed to recover the money from the

Respondent.

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 21 of 31 Arguments in Company Appeal (AT)(Ins) No.1370 of 2022 (Gem Marketing Pvt Ltd & Anr. vs. Anju Agarwal, RP M/s IP Constructions Pvt Ltd.)

28. With regard to Appeal-II, the Learned Counsel for the

Appellants has argued that the Appellants have made two

separate bookings of studio apartments with the corporate

debtor. He has argued that after the initiation of CIRP of the

corporate debtor, a Transaction Record Analysis ("TRA") was

undertaken by the RP, wherein two transactions viz. one

between Appellant No.1 Gem Marketing Pvt. Ltd. and the

corporate debtor involving refund of Rs. 5 lakhs and the other

transaction between Appellant No. 2 Mrs. Vidushi Agarwal,

which is also of refund of Rs. 5 lakhs, were found to be falling

under in the ambit of section 43 of the IBC as being preferential

transaction. He has claimed that after the receipt of the TRA,

the suspended director of the corporate debtor Mr. Arvind

Agarwal vide e-mail dated 18.6.2019 explained to the RP that

both the transactions between the corporate debtor and the

Appellants were done in the ordinary course of business and

therefore, they were not preferential transactions infringing

section 43 of the IBC. He has further claimed that such refunds

were made to other allottees too, who had cancelled their booked

flats, and therefore there was no intention of the corporate

debtor to make any payment to the advantage of the Appellants. Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 22 of 31 He has further clarified that in the financial statement for the

year ending 31.3.2019, the Note 4 mentions 'Other Long Term

Current Liabilities', wherein the advances received from the

customers against bookings have been included.

29. The Learned Counsel for Respondent/RP has in turn

argued that in the Transaction Record Analysis, the two

transactions relating to refund of Rs. Five lakhs each to

Appellant No. 1 and Appellant No. 2 have been flagged as being

the preferential transactions, which violate section 43 of the

IBC. He has pointed out that the CIRP of the corporate debtor

was initiated on 11.1.2019 and the refund by the corporate

debtor to Appellant No.1 was done on 29.08.2018, which is

within one year of CIRP initiation. He has also pointed out that

a similar transaction carried out by the corporate debtor in

favour of Appellant No. 2 Mrs. Vidushi Agarwal in which an

amount of Rs. Five lakhs was refunded to her on 7.6.2018,

which was also within one year of CIRP initiation. He has also

pointed out that Mrs. Vidushi Agarwal and Mr. Arvind Agarwal

are directors of Gem Marketing and were also directors of the

suspended board of the corporate debtor M/s. IP Construction

Pvt. Ltd. at the time of the two transactions, and therefore, both

transactions are made to related parties.

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 23 of 31

30. The Learned Counsel for RP has claimed that both the

transactions, therefore, infringe section 43 of the IBC, as has

been brought out in the TRA and therefore, the RP preferred an

application being CA No. 1470 of 2019 under sections 43 and

44 of the IBC read with section 25(2)(j) before the Adjudicating

Authority seeking appropriate directions for avoidance of these

transactions among certain other transactions. He has further

claimed that a vague clarification regarding the said

transactions was provided by Mr. Arvind Agarwal vide his e-mail

dated 18.6.2019, whereby it was stated that the said

transactions were done in the ordinary course of business. He

has contended that since transactions were made to the related

parties during the look-back period and they amount to transfer

of corporate debtor's property of the corporate debtor for the

benefit of creditors, who are Appellant No.1 and Appellant No.

2, and they are clearly preferential transactions under section

43(2) which should be annulled. He has further referred to

Explanations I and II of section 44 (1) to strongly argue that the

corporate debtor had sufficient information regarding the

imminent initiation of CIRP and it made these transactions to

related parties thereby putting the creditors at disadvantage.

31. We note that the Transaction Record Analysis Report

(attached at pp.61-62 of CA(AT)(Ins) 1370/2022) makes the

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 24 of 31 following observations regarding the two transactions entered

into by the corporate debtor with Appellant No. 1 and Appellant

No. 2: -

"Transaction Record Analysis Report

Xx xx xx xx xx

1.3 Details of related parties for the relevant period (11-01-2017 to 10-01-19)

a) Directors, Relative of Directors, Key Management Personnel and Relative of Key Management Personnel of corporate Debtor - Disclosed by the Corporate Debtor with whom transactions were made.

S. No. Related DIN Relationship Party Name 1 Arvind Director cum Agarwal share holder 2 Vidushi Director cum Agarwal share holder

Xx xx xx xx

c) List of related parties to whom with financial transactions were done by the Corporate Debtor but not disclosed by the management.

S. No. Name of Related Relationship Party 1 M/s. Gem Marketing Two common Pvt. Ltd. Director

xx xx xx xx

4. EXECUTIVE SUMMARY

xx xx xx xx

4.3 Preferential transactions under section 43

As per section 43(2) of IBC Act 2016, a corporate debtor shall be deemed to have given a preference if -

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 25 of 31

a) There is a transfer of property or an interest there of the corporate debtor for the benefit of a creditor or surety or a guarantor for or on account of an antecedent financial debtor or operational debt or other liabilities owed by the corporate debtor; and

b) The transfer under clause (a) has the effect of putting such creditors or a surety or a guarantor in a beneficial position than it would have been in the event of a distribution of assets being in accordance with section

53.

xx xx xx xx

2. Gem Marketing Pvt Ltd:- The said company is also a related party of corporate debtor. M/s. Gem Marketing Pvt. Ltd. also owned and controlled by Mr. Arvind Agarwal and Vidushi Agarwal. M/s. Gem Marketing Pvt. Ltd. on 08th January 2015, booked a studio apartment with corporate debtor for which they paid Rs.5,00,000 as booking amount. The said booking amount were refunded by corporate debtor on 29th August, 2018.

xx xx xx xx

4. Mrs. Vidushi Agarwal:- Mrs. Vidushi Agarwal is the director of M/s. I P Construction Pvt. Ltd. She also hold 8.92% share of I P Construction Pvt. Ltd. Corporate debtor has returned booking amount to Mrs. Vidushi Agarwal with details as under :-

S. Nature of Repayment Amount Remark No. Transaction Dates 1 Refund of 07-06-2018 5,00,000 Preference booking given to Mrs. cancellation Vidushi Agarwal on refund of booking cancellation.

32. Reference to preferential transactions is made as

defined in section 43 of the IBC, which is extracted in para

14 of this judgment. Further, section 44 of IBC is as

hereunder:-

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 26 of 31

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;

xx xx xx xx

(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, as the 53 Adjudicating Authority may direct;

Xx xx xx xx

Explanation-II. - A person shall be deemed to have sufficient information or opportunity to avail such information if a public announcement regarding the corporate insolvency resolution process has been made under section 13."

33. A perusal of section 43(4) and the timings of the said

transactions make it clear that these transactions are within the

look-back period of two years which is the 'relevant time' for

related party transactions. Further, it is clear that these

transactions are for transfer of property of the corporate debtor

for the benefit of two Appellants, and fully covered under section

43(2). In addition, the amount of Rs. five lakhs each given as

booking advance by both the Appellants are in the nature of

antecedent operational debt/other liabilities owed by the

corporate debtor.

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 27 of 31

34. Regarding the other issue that is raised by the Learned

Counsel for Appellants that the refund of Rs. five lakhs each to

the Appellants by the corporate debtor was done in the ordinary

course of business, we note that the Appellants have not filed

any document or communication to show that the said booking

of flats was cancelled by the Appellants. The claim that the

refund of the amount of Rs. five lakhs each to the two Appellants

was done as the flats booked in their names were cancelled

appears an afterthought and cannot be accepted. We are,

therefore, persuaded by the argument of the Learned Counsel of

the Appellants that these transactions were made in the

ordinary course of business. Therefore, the Appellants claim

claim that the said transactions are covered within the exception

provided in section 43 does not appear convincing.

35. The Learned Counsel for Appellant has referred to the

"Guidance Note on Related Party Transactions" prepared by the

Institute of Company Secretaries of India, wherein the term

'Ordinary Course of Business' has been defined. The relevant

portion of the Guidance Note cited is as follows:-

"Guidance Note on Related Party Transactions 1.2 'Ordinary course of business' The Act uses the term 'ordinary course of business', however it does not define the said term.

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 28 of 31 The ordinary meaning of the expression 'in the ordinary course of business' in dictionaries is 'part of doing regular business; the regular or customary condition or course of things; as things usually happen.

Black's Law Dictionary defines 'ordinary course of business' as the 'normal routine in managing trade or business'.

In common parlance, 'ordinary course of business' would include transactions which are entered into in the normal course of the business pursuant to or for promoting or in furtherance of the company's business objectives, as per the charter documents of the company. For example, in case of a manufacturing company, purchase and sale of goods, taking premises on lease/rent, construction of factory, employing workers, etc. will be considered as ordinary course of business. To carry on a business, several activities are carried on by the company; all such activities will be considered to be in the ordinary course of business.

xx xx xx xx To decide whether an activity which is carried on by the business is in the 'ordinary course of business', the following factors may be considered:

a. Whether the activity is covered in the objects clause of the Memorandum of Association b. Whether the activity is in furtherance of the business c. Whether the activity is normal or otherwise routine for the particular business (i.e. activities like advertising, staff training, etc.) xx xx xx xx j. Resources committed to the activity "

36. The Guidance Note as reproduced above may have a

persuasive value, but cannot be read in place of legal or

statutory provisions. Therefore, the Guidance Note could be

correct in attempting a definition of 'Ordinary Course of

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 29 of 31 Business', but we note that in the instant case we have clearly

found that the said refunds to Appellants were not made in the

'Ordinary Course of Business' when we look at the facts and

circumstances of the refund transactions.

37. In the case of Jaypee Infratech Ltd. Interim Resolution

Professional V. Axis Bank Ltd [(2020) 8 Supreme Court

Cases 401] in CA (AT)(Ins) No. 1370 of 2022, it is clarified that

a transaction should be part of the common flow of business.

The relevant portion of the judgment is as hereunder:-

28.6.1. ".......... But it does suppose that according to the ordinary and common flow of transactions in affairs of business there is a course, an ordinary course. It means that the transaction must fall into place as part of the undistinguished common flow of business done, that it should form part of the ordinary course of business as carried on, calling for no remark and arising out of no special or particular situation."

38. In the present case, as we have already noted that the

transactions were not part of the common flow of business,

which should have been evidenced by any letter or

communication requesting cancellation of booking of the unit

and through a request by the appellants for refund of the

booking amount which is not the case in the instant matter. We

are, therefore, of the view that this judgment provides support

to the contention of the RP that 'ordinary course of business'

should mean common flow of transactions.

Company Appeal (AT)(Ins) No.1367 of 2022 Company Appeal (AT)(Ins) No.1370 of 2022 Page 30 of 31

39. On the basis of the discussion above, we are of the clear

opinion that the Impugned Order does not suffer from any

infirmity regarding reversion of the amounts repaid to the

Appellants back into the account of the corporate debtor, and

the RP has, therefore, been correctly directed to recover the said

amounts from the Appellants.

40. In conclusion, in the light of detailed discussion in

relation to CA (AT) (Ins) No. 1367 of 2022 and CA (AT) (Ins) No.

1370 of 2022 as aforementioned, we are clear that the Impugned

Order does not require any interference. The two appeals being

considered in this judgment are, therefore, dismissed.

41. There is no order as to costs.

(Justice Rakesh Kumar) Member (Judicial)

(Dr. Alok Srivastava) Member (Technical) New Delhi 9th May, 2023 /aks/

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