The NCLAT (National Company Law Appellate Tribunal), consisting of Justice Rakesh Kumar as the Judicial Member and Dr. Alok Srivastava as the Technical Member, based in New Delhi, heard the appeals filed by the respective Appellants against the Respondent. The NCLAT determined that the preferential transactions in question could not be considered as part of the regular business operations. The Appellate Bench identified these two transactions as preferential transactions and directed the Appellants to refund the respective amounts to the corporate debtor.
Brief Facts:
Sahyog Infrastructures, the appellant, paid a security deposit of Rs.2,90,00,000/- to the corporate debtor based on an agreement from 12.11.2015. Between 30.1.2017 and 29.10.2018, the corporate debtor made repayments totaling Rs.2,16,75,000/- to Sahyog Infrastructures. However, these repayments were considered preferential repayment of an unsecured loan. Out of the amount paid by the corporate debtor, Rs.2,08,25,000/- was a refund of the security deposit, and Rs.8,50,000/- was a partial payment for construction-related services provided by Sahyog Infrastructures. Sahyog Infrastructures maintains that the security deposit was to be refunded after two years as per the agreement, which expired on 12.7.2017. As a result, a significant portion of the security deposit was refunded, but an outstanding amount of Rs.82,75,000/- was still owed by the corporate debtor.
In Appeal-I, the Appellant challenged the misclassification of a security deposit refund as repayment of an unsecured loan. This classification led to the reversal of the transaction and a directive for the Appellant to return the received funds to the corporate debtor.
In Appeal-II, the Appellants explained that Gem Marketing and Mrs. Vidushi Agarwal received refunds for canceled bookings. They argued that these refunds were regular business transactions and should not be considered preferential.
Despite their arguments, the Impugned Order classified these transactions as preferential and mandated the Appellants to refund the respective amounts to the corporate debtor. Dissatisfied, the aggrieved Appellants filed Appeal-II. Therefore, the NCLAT heard the appeals together.
Contentions of the Appellant:
The Appellant's Counsel argued that M/s. IP Constructions Pvt. Ltd., the corporate debtor, was admitted to the Corporate Insolvency Resolution Process (CIRP) on 11.1.2019 after an application by Union Bank of India under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). Mrs. Anju Agarwal, the respondent, was appointed as the Interim Resolution Professional.
Following a Transaction Record Analysis (TRA) of the corporate debtor, the Respondent identified transactions falling under section 43 of the IBC. The Appellant was asked to provide clarification regarding these transactions. Additionally, Mr. Arvind Agarwal, a suspended director of the corporate debtor, sent an email on 18.6.2019 to the Resolution Professional, explaining that Sahyog Infrastructures was appointed as an Exclusive Selling Agent based on an agreement dated 12.11.2015. The Appellant deposited Rs.2,90,00,000/- as a performance deposit, as specified in the agreement.
The Counsel for the Appellant argued that due to unfavorable conditions, the Appellant couldn't fulfill its obligations as the Exclusive Selling Agent. As a result, the Appellant demanded a refund of the security deposit with interest from the corporate debtor. The corporate debtor refunded a partial amount of Rs.2,60,75,000/- but not the full amount.
Contentions of the Respondent:
The Respondent/RP's Counsel argued that transactions worth Rs. 2,16,75,000/- are identified as 'preferential transactions' under section 43 of the IBC, based on the Transaction Record Analysis by Transaction Auditor Mehrotra and Company. These transactions occurred within a two-year look-back period from the initiation of CIRP, which violates section 43. The Counsel also claimed that the refunded amount of Rs. 2,16,75,000/- between 30.1.2017 and 30.8.2018 should be classified as repayment of an 'unsecured loan' rather than a security deposit. Regarding its appearance in the audited balance sheet for the year ending 31.3.2019, the Counsel asserted that the Independent Auditor's Report acknowledges the repayment of Rs. 2,08,25,000/- to the Appellant, as mentioned in Note 5 of the Financial Statement, as a preferential transaction falling under sections 43 and 45 of the IBC.
Observations of the Court:
The Appellate Tribunal in this case noted that the transactions in question did not align with the normal business operations, as there was no evidence of any letter or communication requesting the cancellation of the unit booking or a refund of the booking amount, which is not the situation in this particular matter. The Appellate Authority agreed with the respondent's argument that these transactions are considered preferential transactions, supporting the contention that the term 'ordinary course of business' should refer to the regular flow of transactions.
The Appellate Authority recognized that preferential transactions cannot be considered part of the normal course of business. The Appellate Bench specifically identified these two transactions as preferential transactions and mandated that the Appellants refund the respective amounts to the corporate debtor.
The Appellate Tribunal noted that there were no issues with the Impugned Order regarding the reversal of the amounts repaid to the Appellants back into the corporate debtor's account. Consequently, the respondent has been appropriately instructed to recover the mentioned amounts from the Appellants.
The decision by the Court:
The appeals filled in NCDRC were dismissed.
Case Title: Sahyog Infrastructures Pvt. Ltd. & Ors. vs. Anju Agarwal & Ors. Company Appeal (AT)
Coram: Justice Rakesh Kumar (Judicial Member), Judicial Member and Dr. Alok Srivastava, Technical Member
Case No.: Company Appeal (AT)(Ins) No.1367 of 2022
Advocate for the Applicant: Mr Abhishek Naik, Mr. Aishvary Vikram, Mr. Mayur Punjabi, Advocates
Advocate for the Respondent: Mr Abhishek Anand, Mr Karan Kohli, Mr. Vaibhav Mendiratta, Advocates.
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