NCLT rules transactions as preferential under Insolvency & Bankruptcy Code, directs refund

The National Company Law Tribunal (NCLT) held that the transactions by the Corporate Debtor were preferential under Section 43 of the Insolvency and Bankruptcy Code, 2016, involving repayments of unsecured loans within the specified look-back period. The Tribunal ruled that the transactions were not in the ordinary course of business, maintaining the composite application under multiple sections of the Code. Despite arguments of pressure from lenders, the Tribunal deemed the transactions preferential, directing the Appellants to refund the amounts within three months. The appeals were dismissed, granting an additional three months for compliance.

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Issues Involved:
1. Whether the transactions in question were preferential transactions under Section 43 of the Insolvency and Bankruptcy Code, 2016.
2. Whether the transactions were made in the ordinary course of business or financial affairs of the Corporate Debtor.
3. Whether the composite application filed by the Resolution Professional under multiple sections of the Code was maintainable.
4. Whether the transactions made under pressure or threat could be considered as preferential transactions.

Summary:

Issue 1: Preferential Transactions
The National Company Law Tribunal (NCLT) held that the transactions by the Corporate Debtor in favor of the Appellants were preferential transactions under Section 43 of the Insolvency and Bankruptcy Code, 2016. The transactions involved repayments of unsecured loans to both related and non-related parties within the look-back period specified under the Code. The Appellants were directed to refund the respective amounts.

Issue 2: Ordinary Course of Business
The Appellants argued that the transactions were in the ordinary course of business and financial affairs of the Corporate Debtor. However, the Tribunal, relying on the Supreme Court's judgment in "Anuj Jain, IRP for Jaypee Infratech Limited Vs. Axis Bank Ltd. & Ors.," held that the transactions did not fall within the ordinary course of business or financial affairs. The Tribunal emphasized that the transactions must be part of the undistinguished common flow of business, which was not the case here.

Issue 3: Composite Application
The Appellants contended that a composite application under Sections 43, 44, 45, 46, 66, 67, and 60(5) of the Code was not maintainable. The Tribunal referred to the Supreme Court's observation in "Anuj Jain" that the parameters and requisite inquiries for different sections are distinct. However, since the Resolution Professional had separately dealt with different heads of allegations in the application, the composite application was deemed maintainable.

Issue 4: Transactions Under Pressure
The Appellants argued that the transactions were made under pressure from lenders, including threats of legal action, and thus should not be considered preferential. The Tribunal rejected this argument, stating that the intent or pressure behind the transactions is irrelevant under Section 43. The proviso to Section 43(3) clarifies that even transfers made pursuant to court orders can be deemed preferential.

Conclusion:
The Tribunal upheld the NCLT's decision, confirming that the transactions were preferential and directing the Appellants to refund the amounts within three months. The appeals were dismissed, and the Tribunal granted an additional three months for compliance.

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