C. A. Kizhakkekara Kuriakose Jose vs Jomer Properties & Investments Private Limited & Ors.

The present application has been filed by the Applicant being the Resolution Professional (hereinafter referred to as "RP") under Section 43(1) and 60(5)(C) of the Insolvency and Bankruptcy Code, 2016 read with Regulation 35(A) of the IBBI (Insolvency Resolution of Corporate Persons) Regulations 2016 and Rule 11 of the NCLT Rules, 2016 for direction directing the respondents 1 and 2 to return the amount paid by the 3 and 4 respondents in preference to other creditors.

The facts as narrated in the application and explained by the RP are summarized hereunder:

On 15.09.2022 Respondents 1 and 2 filed their reply statements. Respondents 3 and 4 have not filed their reply statement. They have stated that Section 43 ought to be read keeping in mind the intention of the legislature in introducing such provision, in order to protect the creditors against siphoning away of corporate assets by the management of the company, who have special knowledge of the company’s financial troubles by virtue of its position. Preferential transactions are avoided so that such assets would be available either with the resolution professional or with the liquidator, as the case may be, to put the corporate debtor back on its wheels or if that is not possible, to ensure that the creditors of the corporate debtor get a fair deal.

It is stated that the transactions were in the ordinary course of business or financial affairs of the Corporate Debtor and would be excluded under Section 43(3)(a). These payments were done because the Corporate Debtor had taken an unsecured loan from these Respondents and the outstanding amount as on 31.03.2020 was Rs. 2,68,93,967.17 and Rs. 6,49,17,041.00. It is further stated that clause (a) of sub-section (2) of Section 43 is not attracted in any of the cases, and it comes within the meaning of ‘deemed to have given a preference’, as used in Section 43. The Audited Report of the year 2015-16 clearly proves this fact.

It is stated that the loan was availed by the Corporate Debtor in order to Pay the Bank Dues, Pay Back the Unsecured Loans availed by the Company, Part Payment of the Salary Dues payable by the Company as well as for the Completion of the Work of the Hotel Project. Before providing these Unsecured Loans, these Respondents had also made substantial investments in the Corporate Debtor Company as Equity Investments and these investments remain with the Corporate Debtor till date.

It is further stated that these Respondents were in need of money for running their day-to-day activities and were requesting the Corporate Debtor to repay the Unsecured Loan borrowed by them. It was only after a series of requests from these Respondents that the meagre portion of the Borrowed Unsecured Loans was repaid to them from funds available with the Corporate Debtor.

On 29.08.2022 the Applicant filed a rejoinder to the reply of the 1^st Respondent and submitted that the foundation of the instant application is the observations made by the Forensic Auditor and consequently the Committee of Creditors has directed the Applicant to file this application seeking appropriate direction to Respondents to deposit the said amount of Rs 16,08,221/- into the account of the Corporate Debtor. In paragraph 8 of the reply statement, the 1^st Respondent makes an admission of debt by the Corporate Debtor to them to the tune of Rs 2,68,93,967.17 as on 31.03.2020. Therefore, the said amount is an antecedent financial /operational debt or other liabilities as specified in Section 43(2)(a). It is further stated that thirty (30) numbers of payments totalling Rs. 16,08,221/- were made by the Corporate Debtor to 1^st Respondent during the look-out period (01.01.2020 to 31.12.2021) as specified in Section 43(4)(a), giving preference to 1^st Respondent over other creditors have put them into beneficial position as specified in Section 43(2)(b). Therefore, the admission of the outstanding amount on 31.03.2020 by the 1^st Respondent that there is an antecedent debt of Rs 2,68,93,967.17 and placing the 1^st Respondent in a beneficial position over other creditors of Corporate Debtor squarely falls within the ambit of Preferential transactions as provided in Section 43 of the IBC 2016.

It is further stated that the Corporate Debtor by paying Rs. 16,08,221/-to the 1^st Respondent within the look-out period of 01.01.2020 to 31.12.2021, by giving preference over other creditors essentially proves that the said transactions are preferential transactions, which is covered in Section 43 of IBC.

On 29.08.2022, the Applicant filed another rejoinder to the reply of the 2^nd Respondent and stated that 2^nd Respondent in paragraph 8 of the reply statement stated that there is an admission of debt by the Corporate Debtor to them to the tune of Rs 6,49,17,041/- as on 31.03.2020. Therefore, the said amount is an antecedent financial /operational debt or other liabilities as specified in Section 43(2)(a). It is stated that the payment of Rs 40,000/- made by the Corporate Debtor to 2^nd Respondent during the look-out period (01.1.2020 to 31.12.2021) as specified in Section 43(4)(a), giving preference to 2^nd Respondent over other creditors have put them into beneficial position as specified in Section 43(2)(b). Therefore, the admission of the outstanding amount on 31.03.2020 by the 2^nd Respondent that there is an antecedent debt of Rs 6,49,17,041/- and placing the 2^nd Respondent in a beneficial position over other creditors of Corporate Debtor squarely falls within the ambit of Preferential transactions as provided in Section 43 of the IBC 2016.

It is stated that the 2^nd Respondent has invested in the Corporate Debtor and the said investments still continue essentially proving the relationship between the Corporate Debtor and 2^nd Respondent. The transactions contemplated in the application clearly falls under the ambit of Section 43(a) and (b) and being the related company, complies with Section 43(4)(a) of IBC where the transactions were done within the look-out period of two (2) years (01.01.2020 to 31.12.2021). It is stated that the Corporate Debtor by paying Rs. 40,000/- to the 2^nd Respondent within the look-out period from 01.01.2020 to 31.12.2021, by giving preference over other creditors essentially proves that the said transactions are preferential transactions, which is covered in Section 43 of IBC.

Whether the respondents indulged in preferential Transactions?

The Respondents 1 & 2 are companies related to the corporate debtor. The respondents 3 & 4 are directors of Respondents companies and erstwhile directors of the corporate debtor. The fact that the corporate debtor borrowed certain amounts from the 1^st and 2^nd respondent companies for the use of corporate debtor is admitted by the respondents. According to the counter filed by the respondents the amounts were received to discharge the loan availed by corporate debtor and to pay the Bank dues etc. Thus, the antecedent debt of corporate debtor is admitted by the respondents.

The corporate debtor was admitted into CIRP by order dated 31.12. 2021. From the Transaction Audit report reveals that from 16.03.2020 to 19.07.2020, thirty of transactions were made, by which a total sum of Rs.16,08,221/- was paid to the 1^st respondent and on 28.12.2020 a sum of Rs.40,000/- was paid to the second respondent.

The transactions audit report discloses that above 30 transactions were taken place during the relevant period i.e. within two years look back period from the date of admission of corporate debtor into CIRP on 31.12.2020. Thus, on the applicant side proved that that the total amount of Rs.16,48,221/- was paid by the corporate debtor to the 1 & 2 respondents during the relevant period and it amounts to preferential transactions. Now the burden of proof lies upon the respondents that the transactions stated above does not fall under the preferential transactions. On the respondent side taken a defense that the transactions stated in the Transaction Audit report are arises out of the ordinary course of the business, hence they are not preferential transactions. On the respondent side not elaborated how the payments were made in the ordinary course of business. On the respondent side stated that on 28.09.2020 a sum of Rs.40,000/- was paid to the second respondent for ROC filing charges and taken plea that this transaction has made in the ordinary course of business. The amount was paid towards ROC filing on behalf of second respondent by the corporate debtor. If the amount is paid for ROC filing charges of corporate debtor was, then it comes under the ordinary course of business, but when the amount was paid by the corporate debtor on behalf of second respondent towards ROC filing charges then it will come under the ordinary course of business. By the payments made by the corporate debtor to the 1^st and 2^nd respondents as mentioned in the transactions Audit report, put the 1^st and 2^nd respondents in beneficial positions then other creditors of the corporate debtor.

For the reasons discussed above it is answered that the respondents indulged in preferential transactions, in consequence the 1^st and 2^nd respondents are liable to return the amounts to applicant/resolution professional as provided under section 44(d) of IBC 2016. In the result: -

Thus, this application is ALLOWED.

The registry is directed to communicate this order to the respective parties through email.

Certified copy of the order be issued on request of the parties as per the procedure.