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 transaction occurred more than two years prior to CIRP commencement date, relief under Section 43 was not available, citing SC precedent in Anuj Jain case. The lookback period for related parties is two years versus one year for non-related parties. The respondent was granted liberty to pursue alternative legal remedies including Section 66 of the Code. Appeal was disposed of.

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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.

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