INDIA Law and Practice Contributed by: Anish Mashruwala, Utsav Johri, Megha Upadhyaya and Sahil Unadkat, JSA
(a) that 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 the property as a security interest and used by the corpo- rate debtor to acquire that property; and (b) the transfer was registered with an infor- mation utility on or before 30 days after the corporate debtor received possession of the property. The claw-back period in relation to a related par- ty (other than being an employee) is two years preceding the insolvency commencement date (ICD) and for a non-related party is one year pre- ceding the ICD. Undervalued Transaction A transaction (other than a transaction in the ordi- nary course of business of the corporate debtor) is considered undervalued where the corporate debtor makes a gift to a person or enters into a transaction with a person that 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 considera- tion provided by the corporate debtor. However, the following transactions are not con- sidered undervalued: • any interest in property that was acquired from a person other than the debtor and that was acquired in good faith, for value and without notice of the relevant circumstances; and • where a person received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances, unless they were a party to the transaction.
The claw-back period in relation to a related party is two years preceding the ICD, and, for a non-related party, one year preceding the ICD. Undervalued Transaction Defrauding Creditors An undervalued transaction (as previously dis- cussed) entered into by a corporate debtor is considered to be entered into for defrauding the creditor if the NCLT is satisfied that the corporate debtor deliberately entered into the transaction to keep the assets of the corporate debtor away from any person entitled to make a claim against the corporate debtor, or to adversely affect the interest of that person in relation to the claim. No specific claw-back period is specified for such transactions. Extortionate Credit Transaction Extortionate credit transactions are transac- tions where the corporate debtor is a party to a transaction involving the receipt of financial or operational debt during the period within two years preceding the ICD, and where the terms of the transaction: • require the corporate debtor to make exorbi- tant payments in respect of the credit pro- vided; or • are unconscionable under the principles of law relating to contracts. However, any debt extended by any person pro- viding financial services that comply with the law is not considered an extortionate credit transac- tion.
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