NCLT Ahd. (2026.01.12) in Sunil Kumar Kabra (Liquidator) Vs. Chandrashekhar B. Panchal and Ors. [(2026) ibclaw.in 146 NCLT, IA No. 329 (AHM) 2022 in CP (IB) No. 211 of 2020] held that;-
# 8. We have heard Ld. Counsel for the Applicant, Ld. Counsel for the Respondent No.1 to 7 and have carefully examined the pleadings, affidavits, rejoinders, written submissions, annexures, transaction audit report and the oral arguments advanced by both sides. On the basis of pleadings and submissions, the following issues arise for determination: –
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(B) Issue No. (2); Whether advancement of unsecured loans and advances to related parties constitutes preferential transactions under Section 43(2) of the Code?
# 10.6. Considering the admitted advancement of unsecured funds to related parties being repayments of their loans and excess money during the relevant period, this Adjudicating Authority holds that the impugned transactions satisfy the requirements of preferential transactions under Section 43(2) of the Insolvency and Bankruptcy Code, 2016.
# 13. In view of the above analysis and findings the following order is passed: –
(i) The transactions involving advancement of unsecured loans and advances by the Corporate Debtor to Respondent Nos. 1 to 7 during FY 2020-21 and FY 2021-22 are declared as preferential transactions under Section 43 of the Insolvency and Bankruptcy Code, 2016.
Blogger’s Comments; The principal attribute of the preferential transaction is that there is transfer of property for or on account of an antecedent financial debt or operational debt or other liability………
# 43 (2) A corporate debtor shall be deemed to have given a preference, if–
(a) there is a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and
Thus, unsecured loans and advances by the Corporate Debtor, does not fall under the purview of the provisions of preferential transactions under section 43 of IBC. However unsecured loans and advances by CD to related parties can be considered under the purview of wrongful trading under section 66(2), provided however the CD was doing/operating the business on creditor’s funds (i.e. having negative net-worth at the time of providing unsecured loans and advances by CD to related parties}.
Excerpts of the Order;
# 1. The IA No.329 of 2022 was filed on 29.03.2022 by the Applicant, Sunil Kumar Kabra, being Resolution Professional of Archon Engicon Limited, under Section 43 and 44 of the Insolvency and Bankruptcy Code, 2016 and is continued by the Applicant in his capacity as Liquidator pursuant to order dated 20.02qA.2023, seeking following reliefs: –
a. This Hon’ble Adjudicating Authority be pleased to allow this Application;
b. This Hon’ble Adjudicating Authority be pleased to direct the respondent no.1 to appropriate a sum of Rs. 8,41,500/- in the account of Corporate Debtor maintained by the applicant, in the interest of justice;
c. This Hon’ble Adjudicating Authority be pleased to direct the respondent no.2 to appropriate a sum of Rs. 1,35,000/- in the account of Corporate Debtor maintained by the applicant, in the interest of justice;
d. This Hon’ble Adjudicating Authority be pleased to direct the respondent no.3 to appropriate a sum of Rs. 19,87,500/- in the account of Corporate Debtor maintained by the applicant, in the interest justice;
e. This Hon’ble Adjudicating Authority be pleased to direct the respondent no.4 to appropriate a sum of Rs. 14,94,710/- in the account of Corporate Debtor maintained by the applicant, in the interest of justice;
f. This Hon’ble Adjudicating Authority be pleased to direct the respondent no.5 to appropriate a sum of Rs. 4,36,000/- in the account of Corporate Debtor maintained by the applicant, in the interest of justice;
g. This Hon’ble Adjudicating Authority be pleased to direct the respondent no.6 to appropriate a sum of Rs. 16,57,500/- in the account of Corporate Debtor maintained by the applicant, in the interest of justice;
h. This Hon’ble Adjudicating Authority be pleased to direct the respondent no.7 to appropriate a sum of Rs. 7,42,700/- in the account of Corporate Debtor maintained by the applicant, in the interest of justice;
i. This Hon’ble Adjudicating Authority may be pleased to pass any other order which this Hon’ble Tribunal may deem fit in the facts and circumstances of the case.;
# 2. The Applicant has placed the facts through this I.A. in the following manner: –
2.1. The Applicant submits that State Bank of India filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor namely Archon Engicon Limited. This Hon’ble Adjudicating Authority, vide order dated 07.09.2021 passed in CP (IB) No. 211 of 2020, admitted the said application, initiated CIRP against the Corporate Debtor and appointed Shri Parthiv Parikh as the Interim Resolution Professional (“IRP”). A copy of the order dated 07.09.2021 is annexed herewith and marked as Annexure-A.
2.2. The Applicant submits that the Committee of Creditors (“CoC”), in its 3rd meeting held on 18.11.2021, resolved to appoint Pipara & Co. LLP, Chartered Accountants, to conduct a transaction audit of the Corporate Debtor for the period from 01.04.2019 to 07.09.2021. Pursuant to the resolution passed by the CoC, Shri Parthiv Parikh appointed Pipara & Co. LLP as the Transaction Auditor of the Corporate Debtor to carry out the said transaction audit for the aforesaid period.
2.3. The CoC, in its 1st meeting held on 12.10.2021, resolved to replace Shri Parthiv Parikh with the present Applicant as the Resolution Professional. This Hon’ble Adjudicating Authority, vide order dated 24.11.2021 passed in IA No. 781 of 2021, appointed the present Applicant as the Resolution Professional which is annexed herewith and marked as Annexure-B.
2.4. Pursuant to the appointment of the Transaction Auditor, Pipara & Co. LLP submitted its Transaction Audit Report dated 07.03.2022. A copy of the Transaction Audit Report is annexed herewith and marked as Annexure-C
2.5. The Applicant submits that from the Transaction Audit Report, it is revealed that during Financial Year 2020- 21, the Corporate Debtor advanced unsecured loans and advances to its Directors, Key Managerial Personnel and relatives of Directors, as detailed below: –
From the above, it is evident that against total advances of Rs. 1,13,05,710/-, only Rs. 43,31,300/- was received back by the Corporate Debtor.
2.6. The Applicant further submits that during Financial Year 2021-22, the Corporate Debtor continued to advance unsecured loans and advances to related parties, as detailed below:
Thus, against total advances of Rs. 3,21,500/-, only Rs. 1,000/- was recovered by the Corporate Debtor.
2.7. The Applicant submits that the aforesaid transactions fall squarely within the ambit of preferential transactions under Section 43 of the IBC. The Corporate Debtor transferred its funds to related parties during the relevant period, thereby placing such related parties in a more beneficial position than they would have been in the event of liquidation under Section 53 of the IBC, and prior to discharging the dues of secured creditors.
2.8. The Applicant submits that under Section 44(1)(d) of the IBC, this Hon’ble Adjudicating Authority is empowered to direct any person to repay sums received by way of preferential transactions. In view thereof, the Applicant prays that this Hon’ble Adjudicating Authority may be pleased to direct the Respondents, jointly and severally, to deposit a sum of Rs. 72,94,910/- being the amount of benefit wrongfully received.
2.9. In view of the aforesaid facts and circumstances, the Applicant is constrained to approach this Hon’ble Adjudicating Authority seeking appropriate directions to restore the said amount to the account of the Corporate Debtor in the interest of justice and in furtherance of the objectives of the Insolvency and Bankruptcy Code, 2016.
# 3. After issuance notice, the Respondent No.1 to 7 Appeared and filed their separate Replies; R-1 on 01.07.2024 (Diary No. 4911); R-2 on 01.07.2024 (Diary No. 4910); R-3 on 01.07.2024 (Diary No. 4912); R-4 on 01.07.2024 (Diary No. 4913); R-S on 01.07.2024 (Diary No. 4914); R-6 on 01.07.2024 (Diary No. 4915); R-7 on 01.07.2024 (Diary No. 4916). The replies are similar except the fact of transaction value. The Respondent No.1 to 7 has placed the facts through his Reply in the following manner: –
3.1. The Respondents have stated that the Application alleges that loans and advances were given by the Corporate Debtor to Respondent Nos. 1 to 7. The amounts alleged against each Respondent have been listed in the Application. It is alleged that Respondent No. 1 received Rs. 7,65,500 and Respondent No. 2 received Rs. 1,35,500. It is alleged that Respondent No. 3 received Rs. 18,37,500 for FY 2020-21 and Rs. 1,50,000 for FY 2021-22. It is further alleged that Respondent No. 4 received Rs. 14,94,710 for FY 2020-21.
3.2. It is alleged that Respondent No. 5 received Rs. 3,94,000 for FY 2020-21 and Rs. 42,000 for FY 2021-22. It is alleged that Respondent No. 6 received Rs. 16,05,000 for FY 2020-21 and Rs. 52,500 for FY 2021-22. It is alleged that Respondent No. 7 received Rs. 7,42,700 for FY 2020-21.
3.3. The Respondents have stated that such transactions are reflected as loans and advances. These amounts include sums allegedly paid during FY 2020-21 and FY 2021-22. The Respondents have denied that these transactions constitute preferential transactions. The Respondents have disputed the basis of such allegations.
3.4. The Respondents have raised objections to the transaction audit report relied upon by the Applicant. It is stated that the audit includes the period from 01.04.2019 to 07.09.2019, which is outside the look-back period under Section 43. The audit is stated to be incomplete and conducted without complete records. The report is stated to be based on assumptions and presumptions. Serious limitations disclosed by the auditor have also been pointed out. On this basis, reliance on the audit report has been denied.
3.5. The Respondents have stated that basic accounting principles have not been applied. The Application has been filed without essential documents such as balance sheets, profit and loss accounts, bank statements, and accounting backups. It is stated that without such records, conclusions under Section 43 cannot be drawn. The Application lacks financial foundation. The Application is stated to be defective.
3.6. The Respondents have stated that the tables provided are vague. Only inflow and outflow of funds have been mentioned without opening and closing balances. It is stated that such data cannot establish preferential transactions. The loans and advances are assets in the books of the Corporate Debtor. Such transactions do not amount to payments towards liabilities. Therefore, Section 43 is stated to be inapplicable.
3.7. Section 43 applies only to payments made to creditors. Without prejudice, it is stated that even if Section 43(2) is assumed to be applicable, the transactions fall within exceptions under Sections 43(3)(a) and 43(3)(b). Therefore, no order under Section 44 can be passed.
3.8. The Application under Sections 43 read with 44 is not maintainable. The grounds include reliance on an incorrect period, incomplete records, admitted audit limitations, and absence of accounting documents. The loans and advances fall outside the scope of preferential transactions.
3.9. The Respondents have sought that the Reply be taken on record. The Respondents have further sought dismissal of I.A. No. 329(AHM) of 2022 in CP(IB) No. 211(AHM) of 2020.
4. That Vide order dated 21.03.2023, this Adjudicating Authority granted liberty to the Applicant to amend the cause title upon commencement of liquidation. Pursuant thereto, necessary amendments were carried out on 28.06.2023, substituting the Resolution Professional with the Liquidator in I.A. No, 329(AHM) of 2022 in CP(IB) No. 211(AHM) of 2020.
5. Thereafter, the Applicant/Liquidator filed the Rejoinder on 21.10.2024, vide Inward No. D-7780, in response to the replies of Respondents 1 to 7, denying each and every averment made in the reply, stating following: –
5.1. The Applicant denies all averments, statements, and contentions made by Respondents No.1 to 7 except those specifically admitted. The Applicant reiterates the contents of the application. The Applicant maintains that the replies do not disprove the allegations made in the application.
5.2. The Applicant states that the present application is filed in respect of preferential transactions entered into during the relevant look-back period of CIRP. The Respondents have siphoned amounts from the Corporate Debtor by such transactions. The Applicant seeks appropriation of such amounts back to the account of the Corporate Debtor. The transactions place the Respondents in a beneficial position. Such benefit is contrary to Section 53 of the Insolvency and Bankruptcy Code, 2016.
5.3. The Applicant states that the Respondents have admitted the existence of preferential transactions in their replies. During FY 2020-21 the Corporate Debtor advanced unsecured loans and advances to Directors and their relatives. Such transactions fall within the relevant period. The admissions support the case of preference. The application deserves consideration on this ground.
5.4. The Applicant states that extension of the look-back period by six months by the Transaction Auditor does not make the audit report illegal. All impugned transactions fall within the statutory look-back period. The Applicant denies that the audit report is incomplete. The Applicant denies that the audit was conducted without documents.
5.5. The Applicant states that the audit was conducted after examination of balance sheets, profit and loss accounts, GST returns, challans, and bank statements of the Corporate Debtor. The Applicant denies that accounting principles were ignored. The Applicant states that sufficient material was provided to the auditor. The audit establishes preferential transactions. The Respondents are liable to return the amounts.
5.6. The Applicant states that loans and advances to related parties constitute preference under Section 43 of the Insolvency and Bankruptcy Code, 2016. The Respondents have admitted such loans. The Applicant denies the contention that such transactions do not amount to preference. The Applicant reiterates statutory violation by the Respondents.
5.7. The Applicant states that the impugned transactions do not fall under the exemptions provided under Section 43(3)(a) and Section 43(3)(b) of the Insolvency and Bankruptcy Code, 2016. The nature and timing of transactions exclude such protection. The Respondents have failed to establish exemption. The transactions remain voidable. Hence, the Applicant reiterates the relief sought.
5.8. In view of the above narrated facts, admissions, statutory provisions, and findings of the audit, the Applicant has sought directions against Respondents No.1 to 7 to appropriate and restore the amounts siphoned off through preferential transactions to the account of the Corporate Debtor and to pass appropriate orders under the Insolvency and Bankruptcy Code, 2016 as prayed in the application.
# 6. Vide order dated 03.12.2024, both appearing sides were given an opportunity to file their written synopsis. The Applicant filed written synopsis on 24.01.2025 (Diary No. D446). The major contentions of the Applicant are as follows: –
6.1. The Applicant-Liquidator stated that CIRP against the Corporate Debtor was initiated on 07.09.2021. The Transaction Auditor conducted an audit covering 01.04.2019 to 07.09.2021 and identified unsecured loans advanced to the Respondents as preferential transactions under Section 43 of the Code, which required reversal to restore assets for distribution among creditors.
6.2. During FY 2020-21 and FY 2021-22, the Corporate Debtor advanced unsecured loans amounting to Rs. 72,94,910 to the Respondents. The Respondents included Directors, relatives of Directors, and a Key Managerial Personnel, while the dues of secured creditors remained unpaid, placing the Respondents in a beneficial position contrary to the provisions of the Code.
6.3. The subject transactions were executed within the statutory look-back period of two years prior to the initiation of CIRP. These transactions resulted in preferential benefit to the Respondents over other creditors and attracted the provisions of Section 43(2) of the Insolvency and Bankruptcy Code, 2016 as they altered the distribution of assets.
6.4. The Applicant has relied upon the judgment of the Hon’ble Supreme Court Anuj Jain, IRP for Jaypee Infratech Limited v. Axis Bank Limited, (2020) 8 SCC 401, in which held that transactions made to related parties outside the ordinary course of business constitute preferential transactions under Section 43 and can be avoided by the Adjudicating Authority.
6.5. The Applicant has also relied upon the judgment of the Hon’ble Supreme Court Phoenix ARC Private Limited v. Spade Financial Services Limited, (2021) 3 SCC 475, wherein it was held that the Code permits identification and reversal of avoidable transactions to prevent any person from deriving undue benefit to the detriment of legitimate creditors and ensures equitable distribution of assets.
6.6. Further reliance is placed on the judgment of the Hon’ble NCLAT in Tridhaatu Kirti Developers LLP v. Arihant Nenawati & Ors., Company Appeal (AT) (Insolvency) No. 95 of 2021, which held that preferential and fraudulent transactions undertaken by a Corporate Debtor must be reversed to restore the rights of creditors under the Code. Additional reliance is on Mr. Arun Chadha v. Ramesh Kumar Suneja, Company Appeal (AT) (Insolvency) No. 747 of 2021, which held that advancing loans to directors or related parties without safeguards disadvantages creditors and falls within avoidable transactions.
6.7. In view of the above narrated facts, statutory provisions, and judicial pronouncements, the Applicant has sought directions against the Respondents for reversal and repayment of Rs. 72,94,910 to the assets of the Corporate Debtor under Section 44 of the Insolvency and Bankruptcy Code, 2016.
# 7. The Respondent No.1 to 7 also filed Written Synopsis on 07.04.2025 vide Inward No. D-2319. The major contentions of the Respondent No.1 to 7 in their defence are as follows:-
7.1. The application filed seeks relief under Section 44 of the Code for alleged preferential transactions by the Respondents under Section 43 based on a transaction review report prepared by M/s Pipara & Co., Ahmedabad, for the period from 01.04.2019 to 07.09.2021.
7.2. The period from 01.04.2019 to 07.09.2019 included in the audit falls outside the scope of Section 43. Despite this, the report has considered this period, which is beyond the legal framework of preferential transaction provisions, making conclusions drawn for this period legally irrelevant.
7.3. The audit report was conducted without obtaining all necessary documents and is based on assumptions, presumptions, and surmises. The auditor disclosed limitations that make it impossible to reasonably conclude the existence of preferential transactions as defined under Section 43 of the Code.
7.4. The application does not follow basic accounting principles and fails to consider critical documents such as balance sheets, profit & loss accounts, bank statements, and Tally backups. The review relies only on inflow and outflow of funds, without considering opening and closing balances, which are essential to determine preferential transactions.
7.5. The application refers to loans and advances given to related parties. Loans and advances are assets and do not fall under Section 43, which applies to payments to creditors or liabilities of the Corporate Debtor. Reliance is placed on Jaypee Infratech Ltd. IRP vs. Axis Bank Ltd., 2020 SCC 401 (Paras 21-24) where the Supreme Court held that advances to parties are not preferential transactions and GVR Consulting Services (P) Ltd. vs. Pooja Bahry, 2023 SCC Online NCLAT 220 (Paras 27-30) where NCLAT confirmed that asset transfers are outside Section 43.
7.6. Even if allegations under Section 43(2) are accepted, the transactions fall within exceptions under Section 43(3)(a) and 43(3)(b), which provide for payments or transactions that are not preferential. Therefore, no order can be passed against the Respondents under Section 44.
7.7. The application is not maintainable as it is based on incomplete records, assumptions, conjectures, and audit limitations. The lack of documentary evidence and reliance on unverified information prevents any reasonable conclusion of preferential transactions.
7.8. The allegations are vague and fail to follow principles of accounting and auditing. The application does not provide a proper basis for concluding preferential transactions or applying Section 44 of the Code to the Respondents.
7.9. In view of the above facts, the Respondents have sought that the application under Section 43 read with Section 44 of the Insolvency & Bankruptcy Code, 2016, be dismissed.
# 8. We have heard Ld. Counsel for the Applicant, Ld. Counsel for the Respondent No.1 to 7 and have carefully examined the pleadings, affidavits, rejoinders, written submissions, annexures, transaction audit report and the oral arguments advanced by both sides. On the basis of pleadings and submissions, the following issues arise for determination: –
(A) Issue No. (1); Whether the impugned transactions fall within the relevant look-back period under Section 43(4) of the Insolvency and Bankruptcy Code, 2016?
(B) Issue No. (2); Whether advancement of unsecured loans and advances to related parties constitutes preferential transactions under Section 43(2) of the Code?
(C) Issue No. (3); Whether the impugned transactions are protected under the exceptions provided under Section 43(3) of the Code?
(D) Issue No. (4); Whether the Applicant is entitled to relief under Section 44 of the Code?
# 9. Finding on Issue No.(1): Whether the impugned transactions fall within the relevant look-back period under Section 43(4) of the Insolvency and Bankruptcy Code, 2016?
9.1. The Corporate Insolvency Resolution Process of the Corporate Debtor commenced on 07.09.2021 pursuant to the order passed under Section 7 of the Insolvency and Bankruptcy Code, 2016, annexed with the Interlocutory Application as Annexure-A. The Applicant has relied upon the Transaction Audit Report dated 07.03.2022 annexed as Annexure-C to identify the impugned transactions.
9.2. Section 43(4)(a) of the Code prescribes a look-back period of two years preceding the insolvency commencement date where the transactions are with related parties. The Replies and Written Submissions filed by Respondent Nos. 1 to 7 admit their status as Directors, relatives of Directors, Key Managerial Personnel, or a related entity of the Corporate Debtor.
9.3. The Respondents have contended that the audit period commencing from 01.04.2019 is beyond the scope of Section 43. The insolvency commencement date is 07.09.2021. Therefore, any transaction carried out after 08.09.2019 will be covered in the period of two years. The Applicant has confined the reliefs sought to transactions undertaken during FY 2020-21 and FY 2021-22, which fall within the period prescribed under Section 43(4). Therefore, there is no substance in the contention of the Respondents.
9.4. The Hon’ble Supreme Court in Anuj Jain, IRP for Jaypee Infratech Limited v. Axis Bank Limited, (2020) 8 SCC 401 held that only those transactions falling within the statutory look-back period are required to be examined for avoidance under Section 43 of the Code.
9.5. The Transaction Audit Report annexed as Annexure-C specifies the dates and amounts of disbursement to each Respondent. The information on the inflow of funds to the Corporate Debtor and outflow of funds from the Corporate Debtor to each of the Respondents is given on pages 27 and 28 of the Report (Pages 49 and 50 of the Application). The Respondents have not disputed the dates or payments made and receipt of funds in their Replies or Written Submissions.
9.6. In view of the insolvency commencement date being 07.09.2021 and the admitted timing of the transactions, this Adjudicating Authority holds that the impugned transactions fall within the relevant look-back period under Section 43(4) (a) of the Insolvency and Bankruptcy Code, 2016.
# 10. Findings on Issue No.(2): Whether advancement of unsecured loans and advances to related parties constitutes preferential transactions under Section 43(2) of the Code?
10.1. The Applicant has pleaded that the Corporate Debtor advanced unsecured loans and advances to Respondent Nos. 1 to 7 during FY 2020-21 and FY 2021-22, as reflected in the Transaction Audit Report annexed as Annexure-C. The information provided in the application and available in the Transaction Audit Report shows that the Corporate Debtor has received loans from the Respondents and have repaid also. These transactions have not been denied by the Respondents in their Replies. The Application under section 7 of the IBC, 2016 for initiation of the CIRP was filed in the month of May 2020 and the CD had defaulted in the payments to the Financial Creditor SBI. The Corporate Debtor not only repaid the money received from the Respondents but also paid extra money to them which is termed as loans and advances.
10.2. Section 43(2) of the Code provides that a transaction is preferential if there is a transfer of property or interest thereof for the benefit of a creditor or related party for the benefit of a creditor or related party, resulting in such person being placed in a beneficial position than it would have been under Section 53 of the Code. There is no doubt that the payments have been made to the Respondents but the financial creditors are not paid. Such payments are made in preference to the other creditors including the financial creditors and such transfer of money has the effect of putting such Respondents/creditors in a beneficial position than these would have been in the event of distribution of assets being made in accordance with section 53 of the IBC, 2016.
10.3. The Respondents have argued that loans and advances are reflected on the asset side of the books of the Corporate Debtor and therefore do not attract Section 43. This contention is not sustainable, as the applicability of Section 43 depends on the effect of the transaction and not on its accounting treatment. Further, the Respondents have not disputed that they have also advanced money to the CD and these are repaid. The CD has made payment of money to the Respondents which they had advanced, and the CD paid more than what it had received.
10.4. The Hon’ble Supreme Court in Anuj Jain, IRP for Jaypee Infratech Limited v. Axis Bank Limited, (2020) 8 SCC 401 held that transactions which result in benefit to related parties during the relevant period and disturb the order of priority are covered under Section 43 of the Code.
10.5. The Applicant has also relied upon the judgment of the Hon’ble NCLAT in Arun Chadha v. Ramesh Kumar Suneja, Company Appeal (AT) (Insolvency) No. 747 of 2021, wherein it was held that advancement of unsecured financial benefits to directors without safeguards places creditors at a disadvantage.
10.6. Considering the admitted advancement of unsecured funds to related parties being repayments of their loans and excess money during the relevant period, this Adjudicating Authority holds that the impugned transactions satisfy the requirements of preferential transactions under Section 43(2) of the Insolvency and Bankruptcy Code, 2016.
# 11. Findings on Issue No.(3): Whether the impugned transactions are protected under the exceptions provided under Section 43(3) of the Code?
11.1. The Respondents have contended in their Replies and Written Submissions that the transactions are protected under Section 43(3)(a) and Section 43(3)(b) of the Code, claiming that the transactions were undertaken in the ordinary course of business of the Corporate Debtor.
11.2. The burden to establish the applicability of the exceptions under Section 43(3) lies upon the Respondents. The Respondents have not specified which of the sub-clause (a) or (b) applies. No material documents such as board approvals, business justification, orproof of new value have been produced along with the Replies to substantiate such claim.
11.3. The Transaction Audit Report annexed as Annexure-C records that the loans were unsecured and were advanced without any corresponding benefit or value addition to the Corporate Debtor. The Applicant has denied the applicability of the exceptions in the Rejoinder.
11.4. The Hon’ble Supreme Court in Anuj Jain (supra) held that the expression “ordinary course of business” must be examined from the perspective of the Corporate Debtor and not merely from the standpoint of the transferee.
11.5. The Hon’ble NCLAT in Tridhaatu Kirti Developers LLP v. Arihant Nenawati, Company Appeal (AT) (Insolvency) No. 95 of 2021 held that transactions which diminish the value of the Corporate Debtor during the look-back period are not protected under Section 43(3) of the Code.
11.6. The contentions of the Respondents on the quality of transaction audit report due to incomplete documents, no-opening and closing balance, no balance sheet, profit and loss account and tally data has no basis because the Report has identified the transactions based on the records available with him including the bank statements and tally data for FY 2020-2021 and 2021-2022 as clearly stated in the Report. The Respondents did not dispute the correctness of the identified transactions and did not provide any documents to support their bald claims. In fact, the same Respondents were in control of the documents and reports and they should have provided to the transaction auditor allowing him to carry out the assignment properly.
11.7. In absence of evidence establishing ordinary course of business or new value, this Adjudicating Authority holds that the impugned transactions are not protected under the exceptions contained in Section 43(3) of the Insolvency and Bankruptcy Code, 2016.
# 12. Findings on Issue No.(4): Whether the Applicant is entitled to relief under Section 44 of the Code?
12.1. Section 44 of the Insolvency and Bankruptcy Code, 2016 empowers the Adjudicating Authority to pass appropriate orders for avoidance of preferential transactions, including directing repayment of benefits received.
12.2. The Applicant has relied upon the Transaction Audit Report annexed as Annexure-C to quantify the total unrecovered amount of Rs. 72,94,910 (being difference of Rs 1,13,05,710 paid less Rs 43,31,300 for FY 2020-2021 and difference of Rs 3,21,500 paid less Rs 1,000 received for FY 2021-2022) advanced to Respondent Nos. 1 to 7 during the relevant period.
12.3. The Respondents have not disputed the quantum of amounts paid and received but have challenged the maintainability of the application. Such objections have already been considered and rejected under Issue Nos. (i) to (iii).
12.4. The Hon’ble NCLAT in Tridhaatu Kirti Developers LLP v. Arihant Nenawati (supra) held that Section 44 is intended to restore the value lost by the Corporate Debtor due to avoidable transactions.
12.5. The Applicant has also relied upon Phoenix ARC Pvt. Ltd. v. Spade Financial Services Ltd., (2021) 3 SCC 475, wherein the Hon’ble Supreme Court held that avoidance provisions are meant to protect the interests of legitimate creditors.
12.6. In view of the findings that the transactions are preferential and not protected under Section 43(3), and considering the material placed on record including Annexure-C, this Adjudicating Authority holds that the Applicant is entitled to relief under Section 44 of the Insolvency and Bankruptcy Code, 2016.
# 13. In view of the above analysis and findings the following order is passed: –
(i) The transactions involving advancement of unsecured loans and advances by the Corporate Debtor to Respondent Nos. 1 to 7 during FY 2020-21 and FY 2021-22 are declared as preferential transactions under Section 43 of the Insolvency and Bankruptcy Code, 2016.
(ii) The Respondent Nos. 1 to 7 are directed to individually deposit the respective amounts received by them, aggregating to Rs.72,94,910/-, into the account of the Corporate Debtor, to be maintained by the Applicant/Liquidator, within 45 days from the date of this order.
(iii) The aforesaid amounts (in (ii) above) shall carry simple interest @ 12.00% p.a. from 07.09.2021 (i.e. w.e.f. order of CIRP) till actual payment/realisation.
(iv) In the event of non-compliance, the Applicant/Liquidator shall be at liberty to initiate appropriate execution proceedings in accordance with law, including attachment of assets of the defaulting Respondents.
# 14. Accordingly, I.A. No. 329(AHM) of 2022 in CP(IB) No. 211(AHM) of 2020 is allowed in terms of above directions. No order as to costs.
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