Case Title: Sahara India v. Shri Nandkishor Vishnupant Deshpande and Another
The NCLAT bench, comprising Justices M. Venugopal and Dr Ashok Kumar Mishra, adjudicating in the case held that the NCLT lacks the jurisdiction to classify a transaction under the provisions of the Code.
In this case, Sahara India executed a memorandum of understanding (MOU) with Royal Refinery Private Limited, through which Sahara India advanced a sum of INR 39.95 crores for the supply of future goods in the form of gold coins. The advanced payments, as per the terms of the MOU, made by the appellant did not attract any interest. Thereafter, the appellant requested that the corporate debtor supply 10 kg of gold coins, to which the latter defaulted.
Thereafter, the amount advanced to the corporate debtor was converted into an unsecured loan bearing a 10% p.a. rate of interest, and thereby the MOU was substituted with a loan agreement. However, on November 13, 2019, CIRP was initiated against the corporate debtor.
Subsequently, the appellants in the capacity of a financial creditor submitted the claims amounting to $42,613,333/-, but the same was not considered a financial debt by the RP. As a result of the aforementioned, the appellant challenged the decision of Resolution Professional before the NCLT.
However, the NCLT decided to refuse the aforementioned transaction to be considered financial debt but also suo moto considered the transaction to fall under section 43(2)(a) of the code, which is well within the two-year look-back period as prescribed under the code and which was challenged before the NCLAT. One of the primary issues for consideration before the Hon'ble Court was to examine whether the NCLT has the power to classify certain transactions as preferential transactions under the provisions of the Code.
The appellant contended that the dues paid were financial debt, and the NCLT does not have the jurisdiction to consider a transaction a suo motu transaction without an avoidance application being filed by the Resolution Professional under Section 44 of the Code.
Also, it was contended by the appellant that the loan agreement amounted to a novation of the earlier agreement as per Section 62 of the Indian Contract Act. Furthermore, the Appellant contended that Section 43 (Preferential Transactions) of the Code specifically deals with transactions pertaining to the transfer of property or an interest therein of a corporate debtor for the benefit of a creditor. Further, the appellant relied on the Anuj Jain Interim Resolution v. Axis Bank Limited for a transaction to fall under the purview of Section 43 of the Code, both the twin requirements of 43(a) and 43(b) of the Code.
Thus, the NCLAT came to the conclusion that the NCLT exceeded its jurisdiction in recording the finding that the appellant and corporate debtor are related parties. Also, it held that the classification of the related parties, done by the NCLT, is beyond the provisions of the IBC.