NCLT Mumbai: Admission Of Claim By RP No Defence To Preferential Transaction Under Section 43 Of IBC
Pranav B Prem
The National Company Law Tribunal (NCLT), Mumbai Bench, comprising K.R. Saji Kumar (Judicial Member) and Anil Raj Chellan (Technical Member), has held that admission of a creditor’s claim by the Resolution Professional (RP) does not shield the creditor from liability under Section 43 of the Insolvency and Bankruptcy Code, 2016 (IBC) if the transaction in question is found to be preferential in nature. The Tribunal observed that the mere submission or admission of a claim cannot be treated as a defence against proceedings for preferential transactions. It clarified:“Submission of a claim by a person with the Resolution Professional or admission of its claim as an unsecured financial creditor by the Resolution Professional is no defence in an application for preferential transaction under Section 43 of the IBC.”
Background
The application under Section 43 of the IBC was filed by Mr. Jayanti Lal Jain, the Interim Resolution Professional (IRP) of Windals Auto Pvt. Ltd., against Divyagyan Trading Pvt. Ltd. (Respondent No. 3) and the company’s suspended directors, Mr. Abdulla Sahebkhan Dalwai and Mr. Asif Dalwai, alleging that a payment made to the third respondent amounted to a preferential transaction within the look-back period.
The Corporate Insolvency Resolution Process (CIRP) of Windals Auto Pvt. Ltd. was initiated by the NCLT on 28.04.2023, and the applicant was appointed as IRP. A Transaction Audit Report dated 15.03.2024 revealed that a payment of ₹1.10 crore was made by the suspended directors to an unsecured creditor, Divyagyan Trading Pvt. Ltd., on 24.02.2023, within one year preceding the insolvency commencement date. The IRP contended that the payment was made after the company’s secured creditors’ accounts were frozen, and that it conferred undue benefit upon the unsecured creditor at the expense of secured creditors such as Union Bank of India and HDFC Bank, thereby violating the priority mechanism under Section 53 of the IBC.
Respondents’ Submissions
The suspended directors (Respondents 1 & 2) argued that the payment of ₹1.10 crore was made in the ordinary course of business, being a partial repayment of an on-call loan of ₹2 crore taken from Divyagyan Trading Pvt. Ltd. They claimed that the repayment was made to avoid criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881.
Divyagyan Trading Pvt. Ltd., in its reply, stated that it merely received repayment of its loan and had no obligation to verify the company’s internal financial position. It further contended that it had filed a claim with the IRP for ₹1.86 crore, which had been admitted as an unsecured financial debt, and thus, it could not be faulted under Section 43.
Tribunal’s Findings
After reviewing the audit report, bank statements, and parties’ submissions, the Tribunal noted that the payment was indeed made within the look-back period and that there was no evidence of any contemporaneous business relationship between the corporate debtor and the unsecured creditor to justify the transfer as being made in the ordinary course of business. The Bench observed:“The only probable inference that can be arrived at is that the transaction in question is not in the ordinary course of business and that there was no occasion for the Corporate Debtor to make any repayment of loan to Respondent No. 3.” Rejecting the contention that the admission of claim by the RP negated the preferential nature of the transaction, the Tribunal held that acceptance of a claim does not preclude an investigation into whether the transaction giving rise to that claim was preferential.
The NCLT relied on the Supreme Court’s ruling in Anuj Jain, IRP of Jaypee Infratech Ltd. v. Axis Bank Ltd. [(2020) ibclaw.in 06 SC], which clarified that it is not necessary to prove fraudulent intent for a transaction to be deemed preferential. What matters is whether the transaction puts one creditor in a better position than others in the event of asset distribution under Section 53 of the Code. The Bench observed:“Since sub-sections (4) and (2) of Section 43 are deeming provisions, the legal fiction would come into play, and the transaction entered into by the Corporate Debtor should be regarded as preferential with attendant consequences under Section 44 of the IBC.”
Finding the transaction to be preferential, the Tribunal directed Respondent No. 3 (Divyagyan Trading Pvt. Ltd.) to deposit ₹1.10 crore into the liquidation account of Windals Auto Pvt. Ltd. within 30 days of the order, to enable distribution in accordance with Section 53 of the IBC. The Bench also permitted the applicant to refer the matter to the Insolvency and Bankruptcy Board of India (IBBI) or the Central Government for further proceedings under Section 236 of the IBC, if deemed appropriate.
The NCLT Mumbai reaffirmed that the admission of a creditor’s claim does not immunize transactions from scrutiny under Section 43. Even without fraudulent intent, any transaction conferring undue advantage to one creditor over others within the look-back period constitutes a preferential transaction under the IBC and is liable to be reversed.
Appearance
For Applicant: Adv. Mitali Bhatt i/b. AKR Legal
For Respondents 1 & : Adv. Jhalak Kaji i/b. Adv. Sarosh Damania
For Respondent 3: Adv. Jugal Anjana Bhatia
Cause Title: Jayanti Lal Jain (IRP) v. Abdulla Sahebkhan Dalwai & Ors.
Case No: I.A. No.3099 of 2023 IN C.P. (IB) No. 503/MB/2021
Coram: K.R. Saji Kumar (Judicial Member), Anil Raj Chellan (Technical Member)
