Undervalued related-party transfers and preferential payments under insolvency law were set aside, with repayment and restraint ordered.

A lease deed in favour of a related party was treated as grossly undervalued and fraudulent because it appeared to transfer the corporate debtor's business, was executed after notice under the SARFAESI Act, and lacked a lawful basis; it was set aside. Related-party payments made within the relevant look-back period were also found to be preferential, as the respondents gave no credible justification, and repayment to the corporate debtor was directed. The Tribunal declined to decide the trademark dispute as such, but restrained unauthorised use of the corporate debtor's property in the absence of a valid assignment.

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Issues: (i) Whether the lease deed executed in favour of a related party was an undervalued and fraudulent transaction liable to be set aside; (ii) Whether the related party payments made to certain respondents were preferential transactions requiring repayment to the corporate debtor; (iii) Whether the relief sought in relation to trademark use could be granted in the present proceedings.

Issue (i): Whether the lease deed executed in favour of a related party was an undervalued and fraudulent transaction liable to be set aside.

Analysis: The lease deed was found to be grossly undervalued, executed in favour of a related party, and reflective of transfer of the corporate debtor's business to that party. The Tribunal also accepted that the lease was executed after issuance of notice under Section 13(2) of the SARFAESI Act, 2002, rendering the arrangement fraudulent, illegal and void ab initio. On that basis, the transaction was held to attract the provisions relating to undervalued and fraudulent conduct under the Insolvency and Bankruptcy Code, 2016.

Conclusion: The lease deed was set aside in favour of the petitioner.

Issue (ii): Whether the related party payments made to certain respondents were preferential transactions requiring repayment to the corporate debtor.

Analysis: The Tribunal found that the respondents failed to justify the transactions entered into within the look-back period and that the payments were made to related parties without credible explanation. In the absence of any rebuttal, the transactions were treated as preferential transactions under the insolvency framework and the corresponding sums were directed to be restored to the corporate debtor.

Conclusion: The related party payments were held to be preferential and repayment was directed in favour of the petitioner.

Issue (iii): Whether the relief sought in relation to trademark use could be granted in the present proceedings.

Analysis: The Tribunal declined to interfere with the dispute so far as it related to intellectual property rights, but observed that in the absence of any valid assignment in favour of the related respondent, use of the corporate debtor's property could not continue. Relief was therefore confined to restraining use of the corporate debtor's property, without adjudicating the intellectual property dispute as such.

Conclusion: No substantive relief was granted on the trademark dispute, but restraint was ordered against unauthorised use of the corporate debtor's property.

Final Conclusion: The application was allowed, the impugned lease transaction was annulled, preferential related party payments were ordered to be restored, and possession-related reliefs were granted for the benefit of the corporate debtor.

Ratio Decidendi: A transaction that is grossly undervalued, executed to defeat creditors, and entered into with related parties may be set aside as fraudulent and preferential under the Insolvency and Bankruptcy Code, while unsupported related party payments within the relevant period can be directed to be repaid to the corporate debtor.

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