Undervalued Transactions Under IBC: One-year look-back applies from insolvency commencement date, and unrelated third parties may be proceeded against.

Undervalued transactions under the Insolvency and Bankruptcy Code are assessed by reference to the insolvency commencement date, and for unrelated parties the look-back period is one year preceding that date; amounts outside that window cannot be included. The tribunal found the impugned dealings were purchase returns, not fresh purchases, because the corporate debtor's records, forensic audit material, and lack of supporting invoices or GST documentation supported undervaluation at heavily discounted values. It also held the transactions were not in the ordinary course of business and that Section 45 is not limited to related parties, so unrelated third parties may also be proceeded against. The only relief was revised computation within the correct period.

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Issues: (i) Whether the impugned dealings were purchase returns or fresh purchases; (ii) what is the correct look-back period for an undervalued transaction under Section 45 of the Insolvency and Bankruptcy Code, 2016 and whether the calculations required reworking; (iii) whether alleged misconduct by the liquidator and the absence of adjudicating authority approval for the forensic auditor affected the appeals; (iv) whether the impugned dealings were in the ordinary course of business; and (v) whether third parties or unrelated parties can be proceeded against under Section 45 of the Insolvency and Bankruptcy Code, 2016.

Issue (i): Whether the impugned dealings were purchase returns or fresh purchases.

Analysis: The transactions were tested against the corporate debtor's books, tally data, balance sheets, and the forensic audit report. The appellate tribunal found no corroboration for the appellants' version that the goods were fresh purchases, while the record consistently showed earlier purchases followed by return at heavily discounted values. The absence of supporting invoices or GST-related documentation further weakened the appellants' case.

Conclusion: The dealings were held to be purchase returns and not fresh purchases.

Issue (ii): What is the correct look-back period for an undervalued transaction under Section 45 of the Insolvency and Bankruptcy Code, 2016 and whether the calculations required reworking.

Analysis: The relevant period for unrelated parties was held to be one year preceding the insolvency commencement date. Since the insolvency commencement date was 28.04.2017, the relevant window was 28.04.2016 to 28.04.2017. Transactions beyond that period could not be included. On reworked figures submitted by the liquidator, the tribunal accepted the revised calculations and reduced the recoverable amounts accordingly.

Conclusion: The look-back period was held to run from the insolvency commencement date, and the calculations were directed to be confined to the corrected one-year period.

Issue (iii): Whether alleged misconduct by the liquidator and the absence of adjudicating authority approval for the forensic auditor affected the appeals.

Analysis: The tribunal held that appointment of accountants and other professionals, including forensic auditors, falls within the statutory domain of the resolution professional. It found no requirement in the Code for prior approval of the adjudicating authority. Allegations concerning the liquidator in other matters were treated as having no bearing on the present controversy.

Conclusion: The alleged misconduct and lack of prior approval did not affect the appeals.

Issue (iv): Whether the impugned dealings were in the ordinary course of business.

Analysis: Ordinary course of business was assessed by reference to the nature, frequency, and commercial justification of the transactions. The tribunal found that the goods were non-perishable, the steep discounts were unexplained, and the alleged fresh purchases were not supported by the corporate debtor's records. The commercial pattern disclosed undervaluation rather than routine trade.

Conclusion: The impugned dealings were held not to be in the ordinary course of business.

Issue (v): Whether third parties or unrelated parties can be proceeded against under Section 45 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The tribunal held that Section 45 is not confined to related parties. An undervalued transaction may involve any beneficiary, including an unrelated third party, because the focus is on the transfer of value at significantly less than market consideration and the need to restore value to the corporate debtor's estate.

Conclusion: Third parties and unrelated parties can be proceeded against under Section 45.

Final Conclusion: The appeals succeeded only to the limited extent of requiring revised computation within the correct look-back period, while the core finding of undervalued purchase returns was sustained and the impugned order stood modified accordingly.

Ratio Decidendi: For an undervalued transaction, the relevant look-back period is counted backward from the insolvency commencement date, and a transaction transferring value for significantly less than market consideration outside the ordinary course of business may be avoided even when the beneficiary is an unrelated third party.

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