Liquidator's petition for preferential fraudulent undervalued transactions dismissed under IBC sections 43 45 66 for exceeding lookback periods

NCLT Cuttack dismissed liquidator's petition alleging preferential, fraudulent, and undervalued transactions under IBC sections 43, 45, and 66. Court held preferential transaction claims failed as disputed transactions occurred beyond one-year lookback period. Fraudulent transaction allegations were unproven due to lack of material evidence showing directors' knowledge of inevitable insolvency, absence of deceit elements, non-joinder of necessary parties including vendors, and failure to distinguish between debt write-offs versus waivers. Undervalued transaction claims failed as transactions exceeded two-year lookback period for related parties. Application dismissed for failure to establish statutory requirements.

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Issues Involved:
1. Preferential Transactions
2. Fraudulent Transactions
3. Undervalued Transactions

Issue-wise Detailed Analysis:

1. Preferential Transactions:
The application contends that the erstwhile directors of the corporate debtor engaged in preferential transactions by paying old debts to the 4th respondent preferentially. The disputed transaction occurred in the financial year 2014-2015, three years before the commencement of insolvency on 26.04.2018. As per Section 43(4)(b) of IBC 2016, preferential transactions are those made within one year prior to the insolvency commencement date. Since the transaction happened outside this look-back period, it is not considered a preferential transaction.

2. Fraudulent Transactions:
The applicant alleged several fraudulent transactions under Section 66 of IBC 2016. The respondents argued that the liquidator is not authorized to file such an application, but the tribunal interpreted Section 66 to allow the liquidator to file during the liquidation process.

- Purchase of Rice Husk at High Prices: The applicant claimed that the corporate debtor purchased rice husk from related parties at inflated prices. The tribunal found no evidence to support the claim that the purchases were not in the ordinary course of business or that the directors acted with fraudulent intent. The vendors were not made parties to the application, leading to the conclusion that the fraudulent transaction was not proved.

- Interest-free Advances: The applicant alleged interest-free advances to certain companies. The tribunal noted that these transactions were not related party transactions and occurred before the look-back period. The companies involved were not made parties to the application, and there was no evidence of fraudulent intent by the directors. Thus, the transactions were not proved as fraudulent.

- Write-off of Debts: The applicant argued that the directors fraudulently wrote off debts owed by Om Astha Construction Private Limited. The tribunal clarified that writing off debts does not extinguish the creditor's right to recover them. The write-off was an internal accounting procedure and did not amount to fraudulent transactions.

- Advance Payment to Fatehpur East Coal Pvt. Ltd.: The applicant claimed that payments made to this potentially related party were later adjusted by purchasing shares, which were then written off. The tribunal found that the write-off was due to the cancellation of coal allotment orders by the Supreme Court, an unforeseen event. There was no evidence of fraudulent intent, and the transaction was not proved as fraudulent.

- Excess Payments to Suppliers: The applicant alleged excess payments to various suppliers without receiving goods or services. The tribunal noted that the suppliers were not made parties to the application, and there was no evidence of fraudulent intent. The transactions were not proved as fraudulent.

3. Undervalued Transactions:
The applicant claimed that two cars were sold at undervalued prices to the 5th respondent. The tribunal found that the transactions occurred more than two years before the commencement of insolvency, exceeding the look-back period defined in Section 46(1)(ii) of IBC 2016. Additionally, the cars were sold at or above the valuation price provided by a competent valuer. Therefore, the transactions were not considered undervalued.

Conclusion:
The tribunal concluded that the transactions alleged as preferential, fraudulent, and undervalued were not proved. Consequently, the application was dismissed. The registry was directed to send email copies of the order to all parties and their counsel, and certified copies were to be issued upon compliance with requisite formalities.

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