2025 (7) TMI 1082 - AT - IBC

NCLAT overturns reversal of bank payment finding no preferential transaction under Section 43 IBC

The NCLAT Principal Bench allowed an appeal challenging a direction to reverse payment of Rs.8,92,980/- made to a bank. The corporate debtor was under ... Preferential transactions - Applicability of moratorium u/s 14 of the IBC - Section 19(2) read with Sections 14, 43 & 74(2) of the Insolvency and Bankruptcy Code, 2016 (IBC) read with Rule 11 of the NCLT Rules, 2016 - HELD THAT:- It is well settled that after enforcement of moratorium financial creditors cannot enforce any security or realise any amount from the corporate debtor. The amount of Rs.8,92,980/- which was paid to the ICICI Bank in loan account was not paid from the account of the corporate debtor or by the corporate debtor. Amount was paid on behalf of the co-applicant from different account details of which are mentioned in paragraph 4 of the reply of bank. The pre-condition for applicability of Section 43 is that corporate debtor has at relevant time given preference in such transaction in a transaction to any person. Present is not a case where transaction has been made of depositing of the amount by the corporate debtor rather the amount has been deposited by co-applicant from a different account. This is not a case u/s 43 to which suggestion is being made by the adjudicating authority. The direction of the reversal issued by the adjudicating authority is neither supported by Section 14 of the IBC nor by Section 43 of the IBC. There is no prohibition from taking steps to take possession of the assets of the corporate debtor by authorised persons - the direction of the adjudicating authority directing the appellant to reverse the aforesaid amount of Rs.8,92,980/- cannot be sustained. Appeal allowed. ISSUES: Whether the payment of Rs. 8,92,980/- made to a financial creditor during the moratorium period under the Insolvency and Bankruptcy Code, 2016 (IBC) from an account other than that of the corporate debtor violates Section 14 of the IBC.Whether such payment constitutes a preferential transaction under Section 43 of the IBC requiring reversal to the corporate debtor's account.Whether the moratorium under Section 14 of the IBC prohibits receipt of payments by financial creditors from third parties or co-applicants during the Corporate Insolvency Resolution Process (CIRP).Whether the release of charge by the financial creditor upon receipt of such payment during the moratorium period causes loss to the corporate debtor or its assets. RULINGS / HOLDINGS: Payment of Rs. 8,92,980/- made by the co-applicant from an account other than that of the corporate debtor does not violate Section 14 of the IBC moratorium provisions, as the amount was not received from the corporate debtor. The moratorium 'prohibiting ... any action to foreclose, recover or enforce any security interest created by the corporate debtor' does not extend to payments made by third parties or co-applicants.The payment does not constitute a 'preferential transaction' under Section 43 of the IBC because the corporate debtor did not itself make the payment; the amount was paid by a co-applicant from a separate account, thus the pre-condition for applicability of Section 43 is not satisfied.The moratorium under Section 14 of the IBC applies only to actions against the corporate debtor's assets and does not extend to individual assets of directors or third parties; hence, receipt of payment by the financial creditor from a co-applicant's account is not prohibited.The release of charge by the financial creditor upon receipt of the payment does not cause loss to the corporate debtor or its assets; rather, it may increase the value of the assets, and there is no evidence of detriment to the corporate debtor.The direction of the adjudicating authority to reverse the amount paid is 'neither supported by Section 14 of the IBC nor by Section 43 of the IBC' and is therefore unsustainable. RATIONALE: The Court applied the statutory framework of the Insolvency and Bankruptcy Code, 2016, specifically Sections 14 (Moratorium), 43 (Preferential Transactions), and 74(2), alongside Rule 11 of the NCLT Rules, 2016.Section 14(1) moratorium prohibits actions against the corporate debtor's assets but does not prohibit payments made by third parties or co-applicants; the moratorium's scope is limited to the corporate debtor's legal rights and assets.Section 43 requires that the corporate debtor itself must have given preference at the relevant time for a transaction to be avoidable as preferential; here, the payment was made by a co-applicant, not the corporate debtor.Precedent was considered distinguishing between assets of the corporate debtor and personal assets of directors or third parties, reaffirming that the moratorium does not extend to individual assets unrelated to the corporate debtor.The Court rejected reliance on judgments concerning enforcement of security interests against the corporate debtor's assets during moratorium, noting those facts were materially different.No doctrinal shift or dissent was noted; the Court's reasoning aligns with established interpretations that moratorium protects only the corporate debtor's assets and rights, not third-party transactions.