If the XYZ ltd. requests to borrow from an existing unsecured creditor Mr.A a fresh sum of amount over his existing loan, Mr.A agrees to the loan provided he is converted into a secured creditor for the total amount owed to him by the company, will this transaction come under section 43 or will it be considered as a valid transaction?

Considering provisions of section it can be concluded that this transaction will come under section 43 to the extent of existing loan amount because section 43 states that preference shall not include any transfer creating a security interest in property acquired by the corporate debtor to the extent that—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 security interest and was used by corporate debtor to acquire such property. Please check if there is any case law on the same facts.

Answer given by Shubhamm Sir at 27-Jan-2023 05:06 PM

Devank Mahajan ( Mumbai )

Section 43