Preferential transaction analysis under insolvency law confirms a security created for antecedent debt can be avoided despite asserted intent.

A share pledge created to secure an antecedent liability may be treated as a preferential transaction where it falls outside the ordinary course of the corporate debtor's business or financial affairs and satisfies the statutory ingredients of preference. The analysis emphasises that asserted intent is not decisive if the objective requirements under the Insolvency and Bankruptcy Code are met. The later pledge instrument was treated as the operative transaction, and an earlier pledge was not accepted on the facts as a defence to avoidance. On that basis, the challenge to recall dismissal failed and the avoidance order with consequential directions was upheld.

---

---

Issues: Whether the share pledge created in 2016 was a preferential transaction under Section 43 of the Insolvency and Bankruptcy Code, 2016 and whether the order dismissing the recall application called for interference.

Analysis: The pledge was examined in the context of the corporate debtor's financial position, the relationship between the parties, and the surrounding circumstances of the transaction. The Tribunal found that the pledge was created to secure an antecedent liability, did not form part of the ordinary course of business or financial affairs of the corporate debtor, and did not satisfy the exception applicable to preferential transactions. The contention that an earlier 2014 pledge insulated the 2016 pledge was not accepted on the facts, as the 2016 instrument was treated as the operative transaction and the record did not reliably establish the earlier arrangement as a defence to avoidance. The Tribunal also applied the principle that intention is not decisive where the statutory ingredients of preference are otherwise met.

Conclusion: The 2016 pledge was rightly treated as a preferential transaction under Section 43, and the challenge to the order refusing recall failed.

Final Conclusion: The avoidance order and the consequential directions were upheld, leaving the liquidator free to proceed in accordance with the Code.

Ratio Decidendi: A transaction creating security for an antecedent debt, outside the ordinary course of the corporate debtor's business or financial affairs, is avoidable as a preferential transaction once the statutory ingredients are satisfied, irrespective of asserted intent or later explanatory defences.

---