Preferential transaction avoidance under insolvency law depends on proof from relevant audit and financial material.

Transfers identified from audited financial statements, bank records and the auditor's report were treated as preferential transactions under Section 43 of the Insolvency and Bankruptcy Code, 2016 because the liquidator established the statutory ingredients on relevant material. The tribunal noted that the adjudicating authority confined its finding to preferential avoidance and did not proceed on the other avoidance grounds criticised by the appellants. It also indicated that a challenge based only on the manner in which the audit material was collected or presented will not displace the finding unless legal infirmity is shown.

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Issues: Whether the transactions of Rs.42,50,397 and Rs.6,28,000 were preferential transactions warranting avoidance under the Insolvency and Bankruptcy Code, 2016, and whether the impugned order suffered from legal infirmity for relying on audit material and for entertaining the liquidator's application.

Analysis: The application was founded on the liquidator's powers to seek avoidance of vulnerable transactions and on the transaction audit and forensic audit conducted during liquidation. The record showed that the liquidator had sought information from the appellants, had obtained no effective cooperation, and had relied on audited financial statements, bank statements and the auditor's report to identify the impugned payments. The tribunal noted that the adjudicating authority restricted its finding to preferential transactions under Section 43 and did not proceed on the other avoidance grounds in the same manner as criticised by the appellants. It also distinguished the decision on composite applications, holding that the present matter turned on separately identified transactions and on material sufficient to support the preferential-transaction finding.

Conclusion: The transactions were rightly treated as preferential transactions and the challenge to the impugned order failed.

Ratio Decidendi: Where the liquidator establishes, on relevant audit and financial material, that a transfer satisfies the ingredients of Section 43 of the Insolvency and Bankruptcy Code, 2016, the transaction is avoidable as preferential, and a challenge based merely on the manner of collection or presentation of that material will not displace the finding in the absence of legal infirmity.

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