Intent of corporate debtor irrelevant in establishing existence of preferential transaction: NCLAT
Can money arranged from relative by a corporate debtor be held as preferential transaction? The National Company Law Appellate Tribunal believes so.
In an order passed recently in the matter between GVR Consulting Vs Pooja Bahry (Erstwhile Resolution Professional of NTL Electronics India Pvt. Ltd.), the NCLAT opined that money arranged from relative and other parties by a corporate debtor cannot be held to be part of ordinary course of business or part of financial affairs.
“Undistinguished common flow of the business of the corporate debtor does not contemplate any such or particular situation where the corporate debtor’s claim that its financial position became unstable due to market condition and had started arranging money from their relatives and other parties,” the tribunal said in an order while deciding on the question of preferential transactions within the meaning of Section 43 of the Code.
The appellant in this case – creditors and erstwhile promoters of the corporate debtor (NTL Electronics) – had contested the NCLT order pronouncing certain transactions as preferential and asked them to return amounts involved in those transactions. Resolution professional Pooja Bahry had filed the plea in NCLT declaring certain payments made to the appellant as preferential.
The Counsel of the erstwhile RP argued in the NCLAT that the payments made in favour of the related parties and non-related parties had effect of putting the Appellants in a more beneficial position than they would have been in the event of distribution of assets of the corporate debt.
“Giving of loan to the Corporate Debtor was not part of ordinary course of business,” contended the counsel of the RP.
The NCLAT held that the intent of the Corporate Debtor is not relevant (to establish if a transaction is preferential in nature or not) since the Section 43 envisages statutory fiction… Whether the Act is voluntary or not has no relevance while coming to the conclusion whether transaction is preferential or not.
It also said that any transaction under any notice, demand or threat shall not lose its character of preferential transaction merely on the above reason.
While relying on the Supreme Court verdict in Anuj Jain Vs. Axis Bank Limited & Ors, the appellate tribunal said that the transaction entered into between the corporate debtor would be regarded as preferential transaction with attendant consequences irrespective whether the transaction was in fact intended or even anticipated to be so.
Also see: Landmark Judgements
