2024 (10) TMI 832 - AT - IBC

NCLAT sets aside related party transaction claim under Section 43 IBC due to two-year lookback period violation

The NCLAT set aside the NCLT order regarding a related party transaction claim under Section 43 of IBC. The tribunal held that since the outstanding ... Commencement of look back period beyond two years u/s 43 of IBC - related party transaction - HELD THAT:- In Anuj Jain, Interim Resolution Professional for Jaypee Infratech Ltd Vs Axis Bank Ltd and Others, [2020 (2) TMI 1259 - SUPREME COURT], the Hon’ble Supreme Court held 'The extent of ‘relevant time’ is different with reference to the relationship of the beneficiary with the corporate debtor inasmuch as, for the persons falling within the expression ‘related party’ within the meaning of Section 5 (24) of the Code, such period is of two years before the insolvency commencement date whereas it is one year in relation to the person other than a related party. The conceptions of, and rationale behind, such provisions could be noticed in the excerpts from the interim report of Law Reforms Committee, as referred on behalf of the appellants.' The outstanding being of more than 2 years prior to CIRP commencement date, the relief under Section 43 of the Code would not be available. The respondent, however, shall be at liberty to take alternative action(s) as may be allowed under the Law (inclusive of Section 66 of the Code). The impugned order passed by Ld. NCLT is set aside - appeal disposed off. Issues:1. Interpretation of Section 43 of the Insolvency and Bankruptcy Code.2. Application of the look-back period under Section 43.3. Validity of the impugned order passed by the National Company Law Tribunal (NCLT).Analysis:The judgment revolves around the interpretation and application of Section 43 of the Insolvency and Bankruptcy Code. The appellant contested an order allowing an application under Section 43, which pertains to preferences given to related parties before the insolvency commencement date. The appellant argued that the look-back period cannot exceed two years as specified in the Code. The NCLT had directed respondents to deposit a specific amount related to transactions with a related party, finding them in violation of Section 43.The impugned order was based on the premise that the transactions with the related party fell within the ambit of Section 43, as the goods supplied by the Corporate Debtor to the related party remained unpaid. The NCLT highlighted the wide interpretation of 'property' under the Code, which includes goods. The order emphasized the concealment of data by the management before insolvency and the need to prevent asset stripping. The NCLT allowed the prayers seeking the deposit of the outstanding amount by the respondents within a specified period.The judgment also referenced a Supreme Court ruling that clarified the requirements for a preference to be considered offending under Section 43. It emphasized that the preference must have occurred within the relevant time period preceding the insolvency commencement date. The court held that since the outstanding amount was beyond two years before the CIRP commencement date, relief under Section 43 was not applicable. The impugned order was set aside, granting liberty for alternative actions under the law, including Section 66 of the Code.In conclusion, the appeal was disposed of by setting aside the NCLT's order, allowing the appellant the opportunity to pursue alternative legal actions. The judgment provides a detailed analysis of the interpretation and application of Section 43 of the Insolvency and Bankruptcy Code, emphasizing the significance of the look-back period and the requirements for preferences to be considered avoidable under the Code.