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Issues: (i) Whether payments amounting to Rs. 19,66,698.77 made to the director-appellant during the two-year look-back period constitute preferential transactions under Section 43 of the Insolvency and Bankruptcy Code, 2016; (ii) Whether the impugned order dated 28.08.2024 suffers from procedural illegality, denial of natural justice, or jurisdictional error warranting interference under Section 61 of the Insolvency and Bankruptcy Code, 2016.
Issue (i): Whether the transactions of Rs. 19,66,698.77 are preferential transactions under Section 43 of the Insolvency and Bankruptcy Code, 2016.
Analysis: The Appellant contended the amounts were third party funds routed through a common loan account and automatically appropriated by the Financial Creditor, amounting to transactions in the ordinary course of business exempt under Section 43(3)(a). The Respondent relied on ledger and accounting records showing repayments to a related party within two years prior to the insolvency commencement date, thereby meeting the ingredients of Section 43(2) and Section 43(4)(a). The Tribunal examined that the appellant was an admitted related party and unsecured creditor, that the insolvency commencement date and the look back period were established, and that repayments reduced the Corporate Debtor's liability to the appellant. The Tribunal found absence of documentary evidence establishing these payments as routine commercial transactions or justified ordinary course transactions and held that the effect of the transactions - reduction of the Corporate Debtor's liability in favour of a related party within the look back period - is determinative.
Conclusion: Issue (i) is decided against the Appellant and in favour of the Respondent; the payments of Rs. 19,66,698.77 are held to be preferential transactions under Section 43 of the Insolvency and Bankruptcy Code, 2016.
Issue (ii): Whether the impugned order dated 28.08.2024 is vitiated by procedural illegality, denial of reasonable opportunity, or jurisdictional error.
Analysis: The Appellant alleged he was proceeded ex parte and was unaware of the final hearing date. The Tribunal noted the Appellant had filed a substantive reply and that the Adjudicating Authority had considered the replies on record. The Tribunal applied precedent holding internal counsel miscommunication or mistaken noting of dates is not sufficient cause to set aside ex parte proceedings where material on record supports the order. The Tribunal also addressed the contention on Regulation 35A timelines, following binding authority that Regulation 35A is directory; Section 35(1)(l) and Section 43 empower avoidance proceedings in liquidation. The recall application was found belated and akin to a review, not warranting relief under the NCLT Rules.
Conclusion: Issue (ii) is decided against the Appellant and in favour of the Respondent; no procedural illegality, denial of natural justice, or jurisdictional error is found to warrant interference.
Final Conclusion: The Adjudicating Authority's orders dated 28.08.2024 and 01.04.2025 stand upheld; both appeals are dismissed and pending applications, if any, are closed.
Ratio Decidendi: A transaction that results in reduction of the corporate debtor's liability to a related party within the statutory look back period amounts to a preferential transaction under Section 43 of the Insolvency and Bankruptcy Code, 2016, unless contemporaneous and substantiated evidence shows it was made in the ordinary course of business; timelines in Regulation 35A are directory and do not bar avoidance proceedings pursuant to Section 35(1)(l) and Section 43.
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