43 (1)

Recovery of tax from buyer/third party who holds money of Corporate Debtor, in case tax not deposited by Corporate Debtor, does not constitute a violation of the moratorium under Section 14 of the IBC and cannot be treated as a Preferential Transaction within the meaning of Section 43 of the Code – Commercial Tax Department Vs. Mr. Mangesh Vitthal Kekre RP of Bhagwan Motors Pvt. Ltd. and Ors. – NCLAT New Delhi

Hon’ble NCLAT held that:

(i) The condition precedent for attracting Section 43(1) is whether the Corporate Debtor has at any relevant time given a preference in transaction. The present is a case where no transaction was made by the Corporate Debtor which was questioned in Application filed by the RP.
(ii) There was no applicability of Section 14, the transaction in question under which the party deposited the amount before the Commercial Tax Department in response of statutory Notice cannot be said to be in violation of Section 14 of the IBC.

Recovery of tax from buyer/third party who holds money of Corporate Debtor, in case tax not deposited by Corporate Debtor, does not constitute a violation of the moratorium under Section 14 of the IBC and cannot be treated as a Preferential Transaction within the meaning of Section 43 of the Code – Commercial Tax Department Vs. Mr. Mangesh Vitthal Kekre RP of Bhagwan Motors Pvt. Ltd. and Ors. – NCLAT New Delhi Read Post »

Any payment made voluntarily by Corporate Debtor towards electricity dues after insolvency commencement date/ during moratorium under Section 14 of IBC cannot be appropriated towards pre-CIRP electricity charges – Uttarakhand Power Corporation Ltd. Vs. Shirdi Industries Ltd. and Anr. – NCLAT New Delhi

In this important judgment, Hon’ble NCLAT held that:

(i) Merely because the Corporate Debtor had paid the pre-CIRP dues, the Appellant cannot insist that this payment has to be accounted only towards payment of pre-CIRP dues and that this amount cannot be subjected to adjustment against current CIRP electricity dues.
(ii) Once moratorium had been declared, it was not open to the Corporate Debtor to appropriate any amount from its account not even to clear pre-CIRP dues as it did not fall within the definition of the “insolvency resolution process costs” as defined under Section 5(13) of the IBC.
(iii) Even if the electricity dues of the pre-CIRP period had been paid voluntarily by the Corporate Debtor, since the amount was paid after the commencement of the CIRP, Section 14 which provides for moratorium would have come into play and no pre-CIRP payments could have been made out of the assets of the Corporate Debtor during CIRP.
(iv) If the sum which had been paid voluntarily not been reappropriated towards assets of the Corporate Debtor, it would have amounted to preferential treatment to the Appellant and attracted Section 43 of the IBC vitiating the resolution process.

Any payment made voluntarily by Corporate Debtor towards electricity dues after insolvency commencement date/ during moratorium under Section 14 of IBC cannot be appropriated towards pre-CIRP electricity charges – Uttarakhand Power Corporation Ltd. Vs. Shirdi Industries Ltd. and Anr. – NCLAT New Delhi Read Post »

Transaction of set off receivables from wholly owned subsidiary of stepdown subsidiaries of Corporate Debtor with payable to stepdown subsidiaries in the books of Corporate Debtor does not fall in section 43 of IBC as Preferential Transactions – Dr. Mamta Binani RP Vs. Rolta Middle East FZ LLC and Others – NCLT Mumbai Bench

Hon’ble NCLT Mumbai Bench observes that in this case, the Rolta Saudi Arabia is a wholly owned subsidiary of Rolta Middle East and Rolta Middle East is a stepdown subsidiary of the Corporate Debtor (Rolta India Ltd.). The receivables from Rolta Saudi Arabia which is the wholly owned subsidiary of the Rolta Middle East has been set off against the payable to Rolta Middle East. In other words, the set off has resulted into NIL impact on the considered basis qua corporate debtor which is the ultimate holding company. Accordingly, we do not find any case of preference having been given to third party by way of such adjustment because the liability and assets of subsidiary and further stepdown subsidiaries are reflected in the value of investments held by the Corporate Debtor of the asset side.

Transaction of set off receivables from wholly owned subsidiary of stepdown subsidiaries of Corporate Debtor with payable to stepdown subsidiaries in the books of Corporate Debtor does not fall in section 43 of IBC as Preferential Transactions – Dr. Mamta Binani RP Vs. Rolta Middle East FZ LLC and Others – NCLT Mumbai Bench Read Post »

Interpretation of Preferential & Undervalued Transactions under Section 43 of IBC| Whether the lender of Holding Company could be recognized as Financial Creditors of the Corporate Debtor (Subsidiary Company/Guarantor) on the strength of the mortgage created by the Corporate Debtor, as collateral security of the debt of its Holding Company – Anuj Jain IRP for Jaypee Infratech Ltd. Vs. Axis Bank Ltd. etc. – Supreme Court

This judgment covers:
A.1 PUFE transactions comes into full effect in CIRP too.
A.2 The concept of Preferential Transactions.
A.3 Charging parts of the Section 43 of IBC.
A.4 Section 43 of IBC is deeming provision.
A.5 Look-back period.
A.6 Exclusion Part: Interpretation of Section 43(3) of IBC.
A.6.a. Meaning of “new value” Explanation to Section 43(3).
A.6.b. Transfer made in the ordinary course of the business or financial affairs.
A.6.c. The expression “or”, appearing as disjunctive between the expressions “corporate debtor” and “transferee”, ought to be read as “and”.
A.6.d. The expression ‘ordinary course of business’.
A.7. Net concentrate of Section 43 of IBC.
A.8 Checklist/Test whether a transaction falls squarely within the ambit of Section 43 of the Code.
A.9 To do: Steps follow by a Resolution Professional to find out whether a Transaction falls under Section 43 of IBC.
A.10. Can RP file one composite application under Sections 43, 45 and 66 of the Code and AA decide?
B. Whether transactions in the present case are preferential, falling within the ambit of sub-section (2) of Section 43 IBC.
C. Interpretation of definition of Financial Debt and Financial Creditor.
C.1 The expressions “means and includes” in the definition of Financial Creditor.
C.2 The essentials for financial debt and financial creditor.
C.3 Every secured creditor may not be a financial creditor.
C.4 A person having only security interest over the assets of corporate debtor cannot partake the character of a Financial Debt within the meaning of Section 5(8) of IBC.
C.5 Secured creditors indicated by this Court in Essar Steel and Swiss Ribbons, as being subsumed in financial creditors.
D. Whether Lenders of JAL could be categorised as Financial Creditors of JIL.

Interpretation of Preferential & Undervalued Transactions under Section 43 of IBC| Whether the lender of Holding Company could be recognized as Financial Creditors of the Corporate Debtor (Subsidiary Company/Guarantor) on the strength of the mortgage created by the Corporate Debtor, as collateral security of the debt of its Holding Company – Anuj Jain IRP for Jaypee Infratech Ltd. Vs. Axis Bank Ltd. etc. – Supreme Court Read Post »

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