Preferential transactions and transaction audit findings uphold recovery against directors and legal representatives, appeal dismissed and payments directed.

Preferential transactions were examined based on a transaction auditor report, with the report deemed diligent despite disclaimers and limited cooperation from suspended directors; consequences followed under Section 44 permitting recovery of benefits and restitution, and the transactions were characterized as preferential based on bank records. The directors bore the onus to prove the transfers were in the ordinary course of business under Section 43(3) and failed to do so, so the challenged transfers were ordered to be deposited back into the corporate estate. The deceased proprietor's heir as legal representative was held liable to the extent of inherited benefit.

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Issues: Whether the impugned order of the Adjudicating Authority allowing the Resolution Professional's application under Sections 43, 44, 66 and 60(5) of the Insolvency and Bankruptcy Code, 2016 to avoid preferential and fraudulent transactions and to direct contributors should be upheld.

Analysis: The Tribunal examined the transaction audit report, the documentary material available (primarily bank statements and third-party sources), and the conduct of the suspended directors including their non-cooperation in providing books and facilitating retrieval of seized records. The legal framework centred on Sections 43 and 44 of the Code, as explained in Anuj Jain v. Axis Bank: (i) Sections 43(2) and 43(4) create a deeming fiction such that transfers to related parties within the prescribed look-back period are treated as preferential; (ii) once the twin conditions are satisfied the statutory presumption applies and the burden shifts to recipients to prove the transactions were in the ordinary course of business; and (iii) Section 44 permits reversal or directions to restore benefits to the corporate debtor. The Tribunal found the transaction auditor performed a cautious exercise based on available bank records and third-party documents; the appellants did not supply documents or explanations demonstrating the transactions were in the ordinary course of business; and the appellants were, inter alia, legal heirs/representatives of the proprietorship that benefited. The Tribunal also addressed typographical errors in pleaded amounts and held that unchallenged findings against non-appealing parties stand final.

Conclusion: The findings of the Adjudicating Authority that specified transactions were preferential/fraudulent and the consequent directions under Section 44 are affirmed. The appeal is dismissed. In favour of Respondent.

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