Overviews of Principles of Avoidable Preferential Transactions: IBC 2016

Elements of Avoidable Preferential Specified Transactions under IBC 2016

As per the 2016 Insolvency and Bankruptcy Code, Section 43 to 51 deals with avoidable transactions. These transactions are also kept referring to as vulnerable transactions. As per the code, there are three types of avoidable transactions. These are preferential transactions, undervalued transactions and extortionate credit transactions that the corporate debtor must avoid during the relevant period.

Section 43: Preferential Transaction  

To the advantage of the borrower, a sale of the assets or property of the corporate debtor shall be made on account of the previous financial obligation or other liabilities. Such a move has the effect of placing the borrower in a place of profit rather than the allocation of the properties referred to in section 53

Not considered as preferential transactions

  1. Transfer made in the ordinary course of business of the corporate debtor or the transferee
  2. Any transfer creating a security interest in the property acquired by the corporate debtor to the extent that,
  3. Such security interest secures “new value” and was given at the time of or after the signing of a security agreement that contains a description of such property as a security interest and was used by corporate debtor to acquire such property
  4. Such transfer was registered with an information utility on or before thirty days after the corporate debtor receives possession of such property
  5. Provided that any transfer made in pursuance of the order of a court shall not, preclude such transfer to be deemed as giving of preference by the corporate debtor

New Value: means money or its worth in goods, services, or new credit, or release by the transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the liquidator or the resolution professional under this Code, including proceeds of such property, but does not include a financial debt or operational debt substituted for existing financial debt or operational debt.

Relevant Time: it is given to a related party (other than by reason only of being an employee), during the period of two years preceding the insolvency commencement date; or

A preference is given to a person other than a related party during the period of one year preceding the insolvency commencement date.

Section 44: Orders in case of Preferential Transactions

The Adjudicating Authority may on application made by the resolution professional or liquidator, by an order

  1. require any property transferred in connection with the giving of the preference to be vested in the corporate debtor
  2. require any property to be so vested if it represents the application either of the proceeds of sale of property so transferred or of money so transferred;
  3. release or discharge (in whole or in part) of any security interest created by the corporate debtor;
  4. require any person to pay such sums in respect of benefits received by him from the corporate debtor, such sums to the liquidator or the resolution professional, as the Adjudicating Authority may direct;
  5. direct any guarantor, whose financial debts or operational debts owed to any person were released or discharged (in whole or in part) by the giving of the preference, to be under such new or revived financial debts or operational debts to that person as the Adjudicating Authority deems appropriate;
  6. direct for providing security or charge on any property for the discharge of any financial debt or operational debt under the order, and such security or charge to have the same priority as a security or charge released or discharged wholly or in part by the giving of the preference; and
  7. direct for providing the extent to which any person whose property is so vested in the corporate debtor, or on whom financial debts or operational debts are imposed by the order, are to be proved in the liquidation or the corporate insolvency resolution process for financial debts or operational debts which arose from, or were released or discharged wholly or in part by the giving of the preference:

Provided that an order under this section shall not—

  1. affect any interest in property which was acquired from a person other than the corporate debtor or any interest derived from such interest and was acquired in good faith and for value;
  2. require a person, who received a benefit from the preferential transaction in good faith and for value to pay a sum to the liquidator or the resolution professional.

Section 45: Undervalued Transactions

If, as the case may be, the liquidator or the resolution professional finds, after reviewing the transactions of the corporate debtor, that such transactions have been made within the applicable time under section 46 which have been undervalued, he shall make an appeal to the adjudicating authority to declare certain transactions null and void and to reverse the effect of such transactions in compliance with that clause.

A transaction shall be considered undervalued where the corporate debtor

  1. makes a gift to a person; or
  2. enters into a transaction with a person which involves the transfer of one or more assets by the corporate debtor for a consideration the value of which is significantly less than the value of the consideration provided by the corporate debtor,
  3. and such transaction has not taken place in the ordinary course of business of the corporate debtor.

Section 46: Relevant period for avoidable transactions

In an application for avoiding a transaction at undervalue, the liquidator or the resolution professional, as the case may be, shall demonstrate that—

  1. such transaction was made with any person within the period of one year preceding the insolvency commencement date; or
  2. such a transaction was made with a related party within the period of two years preceding the insolvency commencement date.

Section 47: Application by creditor in case of undervalued transactions

Where an undervalued transaction has taken place and the liquidator or resolution professional, as the case may be, has not informed the adjudicator, the borrower, the employee or the spouse of the corporate debtor, as the case may be, the appeal to the adjudicator to render those transactions null and void in compliance with this Clause.

Where the Adjudicating Authority, after examination of the application made under sub-section (1), is satisfied that—

  1. undervalued transactions had occurred; and
  2. the liquidator or the resolution professional, as the case may be, after having sufficient information or opportunity to avail information of such transactions did not report such transaction to the Adjudicating Authority,

It shall pass an order—

  1. restoring the position as it existed before such transactions and reversing the effects thereof in the manner as laid down in section 45 and section 48;
  2. requiring the Board to initiate disciplinary proceedings against the liquidator or the resolution professional as the case may be.

Section 48: Order in case of undervalued transactions

The order of the Adjudicating Authority under sub-section (1) of section 45 may provide for the following:

  1. require any property transferred as part of the transaction, to be vested in the corporate debtor;
  2. release or discharge (in whole or in part) any security interest granted by the corporate debtor;
  3. require any person to pay such sums, in respect of benefits received by such person, to the liquidator or the resolution professional as the case may be, as the Adjudicating Authority may direct; or
  4. require the payment of such consideration for the transaction as may be determined by an independent expert.

Section 49: Transactions defrauding creditors

Where the corporate debtor has entered into an undervalued transaction and the Adjudicating Authority is satisfied that such transaction was deliberately entered into by such corporate debtor—

  1. for keeping assets of the corporate debtor beyond the reach of any person who is entitled to make a claim against the corporate debtor; or
  2. in order to adversely affect the interests of such a person in relation to the claim,
  3. the Adjudicating Authority shall make an order—
  4. restoring the position as it existed before such transaction as if the transaction had not been entered into; and
  5. protecting the interests of persons who are victims of such transactions:

Provided that an order under this section—

  1. shall not affect any interest in property which was acquired from a person other than the corporate debtor and was acquired in good faith, for value and without notice of the relevant circumstances, or affect any interest deriving from such an interest, and
  2. shall not require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum unless he was a party to the transaction.

Section 50: Extortionate credit transactions

Where a corporate debtor has been a party to an extortionate credit facility involving the acquisition of financial or operational liability for a period of two years before the date of commencement of insolvency, the liquidator or the resolution professional may, as the case may be, make an appeal to the Adjudicating Authority to prevent such an agreement if the terms of that transaction are met.

Section 51: Orders of Adjudicating Authority in respect of extortionate credit transactions

Where the Adjudicating Authority after examining the application made under sub-section (1) of section 50 is satisfied that the terms of a credit transaction required exorbitant payments to be made by the corporate debtor, it shall, by an order—

  1. restore the position as it existed prior to such transaction;
  2. set aside the whole or part of the debt created on account of the extortionate credit transaction;
  3. modify the terms of the transaction;
  4. require any person who is, or was, a party to the transaction to repay any amount received by such person; or
  5. require any security interest that was created as part of the extortionate credit transaction to be relinquished in favor of the liquidator or the resolution professional, as the case may be.

Therefore, the rules for the prohibition of transactions ensure that transactions that have no other business intent and which have been conducted solely to the benefit of certain creditors or to obstruct the insolvency or liquidation process are put aside. The laws aim to remedy the condition when a certain transfer of assets is made merely to hold the property away from the pool of assets to be shared by creditors. However, the principles of deterrence must be strictly followed to ensure that legal activities conducted in the usual course of business are not overturned.

GOVERNMENT OF INDIA PLANS FIVE MODIFICATION IN THE EDUCATION SYSTEM FOR CHILDREN DURATION OF COVID-19

GOVERNMENT OF INDIA PLANS FIVE MODIFICATION IN THE EDUCATION SYSTEM FOR CHILDREN DURATION OF COVID-19

COVID-19: Press Releases and Updates by the Government of India ...

Union Finance & Corporate Affairs Minister of the Group Smt. Nirmala Sitharaman announced a variety of measures to improve the education sector in New Delhi on 17 May. The Minister said that investing in human capital is equivalent to investing in the productivity and prosperity of the nation. The current pandemic situation has presented new challenges and a number of opportunities for our education system.

The Minister pointed out that the education sector has taken the opportunity to plan a number of interventions, in particular in the field of the adoption of innovative curricula and pedagogy, focusing energy on gap areas, being more inclusive and integrating technology at all stages, to usher in a new era of targeted investment in human capital.

The Ministry of Finance of the Union has announced an urgent series of steps in this direction, including: 

  1. An extensive initiative called PM e-VIDYA will be launched to unify all efforts related to digital/online/on-air education. This will allow multi-mode access to education, including DIKSHA (one nation-one digital platform) which will now become the nation’s digital infrastructure for providing high-quality e-content in school education to all states / UTs; TV (one class-one channel) where one dedicated channel per grade for each of classes 1 to 12 can provide access to high-quality educational material: SWAYAM online courses in MOOCS format for school and higher education; IITPAL for IITJEE / NEET preparation; Air via Community radio and CBSE Shiksha Vani podcast; and materials for studies produced differently on Digitally Accessible Data This will benefit nearly 25 crore children’s schools across the country.
  2. At this time of the global pandemic, it is vital that we provide psychosocial support to students, teachers, and families for mental health and emotional well-being. The Mandarin initiative is being launched to provide such assistance through a website, a toll-free helpline, a national directory of consultants, an open chat channel, etc. This policy would help all school-going children in the region, along with their parents, teachers, and the school education community.
  3. The government is increasing e-learning in higher education – by liberalizing the regulatory system for free, distance, and online education. Top 100 colleges should launch their online courses. In addition, the online component of conventional universities and ODL programs will also be increased from currently 20 % to 40%. This will provide expanded learning opportunities for approximately 7 core students from various colleges and universities.
  4. Clear reasoning, imaginative and cognitive skills, along with experiential and positive learning for students focused on learning outcomes, need to be encouraged. The curriculum must be rooted in the Indian ethos and must be integrated with global skills requirements. To this final moment, teacher capacity building, a robust curricular framework, engaging learning materials – online and offline, learning outcomes and their measuring indices, assessment techniques, learning progress tracking, etc. – will be designed to take them forward in a systematic way. This project will address the learning needs of nearly four Crore children aged between 3 and 11 years.
  5. A National Foundational Literacy and Numeracy Mission will be initiated to ensure that every child in the country automatically achieves basic literacy and numeracy in Grade 3 by 202 Teacher capacity building, a comprehensive curricular structure, engaging learning resources – both online and offline, learning results and assessing indexes, appraisal strategies, learning to monitor, etc. This project will address the learning needs of nearly four Crore children aged between 3 and 11 years.

    Post by Rajput Jain & Associates

    Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

Operations prohibited in the nation as per central government in Lockdown4

Operations prohibited in the nation as per central government in Lockdown4

Lockdown 4.0 Guidelines News State Wise LIVE: Lockdown 4 ...

  1. The following practices will continue to be prohibited in the Delhi NCT:
  • Metro Rail Services;
  • All schools, universities, educational / training / coaching institutions, etc. shall remain closed. Online / distance learning is also allowed and supported.
  • Hotels and other Hospitality facilities, except for accommodation services for health / police / government officials / health workers / staffed people, including visitors and others used for quarantine services; and the operation of canteens at bus depots, train stations and airports.
  • All movie centers, shopping centres, gymnasiums, swimming pools, amusement parks, restaurants , bars and auditoriums, assembly halls and related venues.
  • All social / political / sports / entertainment / academic / cultural / religious functions / other meetings and large congregations.
  • All religious places / places of worship shall be closed to the public. Religious congregations shall be officially forbidden.
  • Barber shops, spas and lounges 
  1. Evaluates for the well-being and safety of the people:
  • The mobility of persons between 7.00 p.m. shall remain strictly prohibited. Around 7.00 a.m., with the exception of important tasks.
  • Persons over 65 years of age, persons with co-morbidities, pregnant women and children under 10 years of age shall stay at home, except for necessary and surgical reasons.
  • 3. The following practices are allowed subject to limitations as stated. No authorisation is needed by any authority to perform the following approved activities:
  • fast food chains can run kitchens for home delivery of food products.
  • Sports centers and arenas will be allowed to open, but fans will not be able to enter.
  • Movement of vehicles, rather than busses, shall be regulated as follows:
Mode of Transport Maximum Passengers allowed
A Auto rickshaws/ e-rickshaws/cycle-rickshaws 01
B Taxis / Cabs (including cab aggregators)/ School Cabs 02
C Grahmin Sewa/ Phat Phat Sewa/ Eco Friendly Sewa 02
D Maxi Cab 05
E RTV 11
  • Car-pooling / car-sharing by aggregators is not allowed.
  • The driver shall clean the passenger seating area after the disembarkation of each passenger.
  • Bus transport: Intra-State (within NCT of Delhi) Bus transport (DTC as well as Cluster) is permitted provided that no more than 20 passengers are allowed inside the bus at one time. In the case of busses, boarding is allowed only from the rear entrance, while de-boarding is allowed only from the front entrance. Before boarding the bus, each passenger shall be screened ‘best effort’ by means of a thermal device. In fact, it is compulsory to have 2 marshals within each bus at all hours, at the entry and exit doors respectively, to preserve the physical space inside the bus and to restrict the number of passengers to 20.
  • Social distances shall be maintained by the Transport Department at all bus stops / depots by the deployment of an appropriate number of marshals.
  • Transit of people and automobiles is allowed. In addition to the truck owner, four wheeler vehicles can have a limit of two passengers. Pillion driver is not permitted for two wheelers.
  • All private agencies and government departments shall be required to work in full power. However, the tradition of operating from home will be practiced for private employees as far as possible.
  • MARKETS AND SHOPS:
  • All marketplaces and market complexes shall remain open on an odd-even basis. Shops would open on alternate days depending on their number of stores. This means that only 50% of shops (excluding those selling essential goods) will be opened. Nonetheless, shops selling basic items, including books and stationery stores, fan stores in markets and market centers, are permitted to open all days. Business alliances & DDMA (District-level) and the Deputy Labor Commissioner will be responsible for enforcing this rule.
  • All (single) shops, neighborhood (colony) shops and shops in residential complexes may remain open without any distinction of essential or non-essential.
  • Social distance (2 Gaz ki doori) must be preserved in all situations. If the shop retains a social isolation, the shop may be closed due to the public safety danger involved in the dissemination of the COVID-19 pandemic and the shopkeeper will also be responsible for punishment under the applicable regulations.
    1. Manufacturing enterprises shall be required to run in staggered operating hours in order to ensure the stunning of work / business hours. Industrial firms whose registered name begins with M/s A to M/s L may operate from 7:30 a.m. to 5:30 p.m., while firms whose registered name begins with M/s M to M/s Z will operate from 8:30 a.m. to 6:30 p.m.
    2. Building operations shall be allowed anywhere workers are accessible on-site or may be transported from inside the Delhi NCT to the site.
    3. Marriage-related meeting subject to social distancing (maximum 50 guests allowed)
    4. ceremony / last associated gatherings subject to social distancing (maximum 20 persons allowed).
    5. RWAs shall not prohibit any person from performing the services and duties allowed under these Guidelines.

No passes / e-passes for movement of any permitted operation from any authority shall be required.

  1. Containment Zones

(a) Only critical operations shall be allowed in the containment areas. Strict boundary checks shall be in place to ensure that there is no movement of persons inside or beyond these areas, except for emergency emergencies and for the protection of the delivery of vital goods and services. Of the aforementioned reasons, the recommendations of the MoHFW shall be taken into account.

(b) Extensive touch monitoring, house-to – house surveillance and other clinical procedures as needed shall take place in the containment zones.

  1. All other operations (industrial / commercial) should be allowed, except those which are expressly banned.

Moreover, only critical operations are allowed in containment areas, as alluded to in paragraph 4(a) above.

  1. Clear guidelines for ensuring the flow of people and objects in some situations

(i) Inter-State and intra-State movement of medical practitioners, nurses and paramedical workers, sanitation services and ambulances shall be approved without limit.

(ii) Continental transport of all forms of goods / cargo, including empty trucks, is allowed.

(iii) Transit of any form of goods / cargo for cross-border trade under the Treaties with neighboring countries shall not be prohibited by the authorities of the NCT of Delhi.

  1. National Guidelines for COVID-19 Management as set out in Annex-II shall be implemented in the NCT of Delhi.
  2. Usage of Setu Aarogya

(i) Aarogya Setu allows early detection of the possible danger of contamination and thus serves as a protection for individuals and the group.

(ii) In order to ensure health in offices and workplaces, workers should make utmost efforts to ensure that Aarogya Setu is activated by all employees with compliant cell phones.

(iii) Local authorities may urge individuals to install the Aarogya Setu application on compatible mobile phones and update their health status on an app on a regular basis. This would encourage prompt delivery of medical care to all persons at risk.

  1. Penal provisions

Any person breaching these steps is liable to be brought under the provisions of Sections 51 to 60 of the Disaster Management Act of 2005, in addition to legal proceedings under Section 188 of the IPC and other legal provisions as applicable. The extracts of these penal provisions are set out in above. In fact, the violation proceeding alluded to in point (vii)(a) of subsection 3 shall be taken under the Shops & Establishments Act and other applicable statutes.

Post by Rajput Jain & Associates

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)