Case Note & Summary
The appeal was filed by Suraksha Realty Limited against an order of the National Company Law Tribunal (NCLT) which declared a mortgage executed in favor of the Appellant as a preferential transaction under the Insolvency and Bankruptcy Code, 2016. The Corporate Debtor, Radius Estate Projects Private Limited, had entered into a Debenture Subscription Agreement in December 2014, providing for the creation of a security interest. However, the Corporate Debtor failed to perfect this security until the execution of the Mortgage Deed in July 2021, shortly before the initiation of insolvency proceedings. The Appellant argued that the mortgage merely formalized an existing security arrangement and should not be classified as preferential. The Respondent, the Resolution Professional, contended that the mortgage was executed to secure pre-existing liabilities and improved the Appellant's position as a creditor. The NCLT found that the mortgage transaction was not in the ordinary course of business and constituted a preferential transaction, leading to the appeal. The Appellate Tribunal upheld the NCLT's findings, emphasizing that the mortgage altered the Appellant's status within the look-back period and did not meet the criteria for ordinary business transactions.
Headnote
A) Insolvency Law - Preferential Transactions - Definition and Criteria - Insolvency and Bankruptcy Code, 2016, Section 43 - The court examined whether the Mortgage Deed constituted a preferential transaction under the Code, concluding that it did, as it altered the creditor's status from unsecured to secured within the look-back period. Held that the transaction did not fall within the ordinary course of business and was executed to secure antecedent debts (Paras 50-52).
Issue of Consideration
Whether the registered Deed of Mortgage dated 29.07.2021 executed by the Corporate Debtor in favour of the Appellant amounts to a 'preferential transaction' under Section 43 of the Insolvency and Bankruptcy Code, 2016?
Final Decision
The Appellate Tribunal upheld the NCLT's order, declaring the mortgage as a preferential transaction and directing the release of the security interest created in favor of the Appellant.
Law Points
- preferential transaction
- insolvency proceedings
- security interest
- ordinary course of business
- antecedent debt
