Preferential transfer rules and avoidance powers: resolution professional actions upheld, with one related-party payment treated as preferential

A resolution professional may appoint a transaction auditor and file an avoidance application without prior committee approval, and non-joinder of the transferee companies did not vitiate the summary proceedings. On preferential transfers, Section 43 requires a transfer to a creditor, surety or guarantor for antecedent debt or liability that places the recipient in a better position than under liquidation; for related parties, the longer look-back period applies. On the material recorded, the transfer to one related party was not shown to meet the statutory ingredients, while the transfer to another related party was treated as preferential because it was linked to admitted creditor status and was not established to be in the ordinary course of business.

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Issues: (i) Whether the resolution professional could appoint a transaction auditor and file an avoidance application without approval of the committee of creditors, and whether non-joinder of the transferee companies vitiated the proceedings; (ii) Whether the transfers of Rs. 39,00,000/- to M/s K Sera Sera Miniplex Ltd. and Rs. 8,92,646/- to M/s K Sera Sera Digital Cinema Ltd. were preferential transactions, or were protected by the ordinary course of business exception.

Issue (i): Whether the resolution professional could appoint a transaction auditor and file an avoidance application without approval of the committee of creditors, and whether non-joinder of the transferee companies vitiated the proceedings?

Analysis: The statutory duties of the resolution professional include appointing professionals and filing avoidance applications. The governing regulations permit appointment of professionals by the resolution professional when such services are required, and the Code does not require prior approval of the committee of creditors for either appointment of a transaction auditor or filing of an application under the avoidance provisions. As to non-joinder, the proceedings under the Code are summary in nature and are based on the corporate debtor's records for identifying avoidable transactions. The absence of the transferee companies did not prevent effective adjudication, and the objection was also not raised before the adjudicating authority.

Conclusion: The objections based on lack of committee approval and non-joinder were rejected.

Issue (ii): Whether the transfers of Rs. 39,00,000/- to M/s K Sera Sera Miniplex Ltd. and Rs. 8,92,646/- to M/s K Sera Sera Digital Cinema Ltd. were preferential transactions, or were protected by the ordinary course of business exception?

Analysis: A preferential transaction under Section 43 requires a transfer for the benefit of a creditor, surety, or guarantor on account of antecedent debt or liability, with the effect of placing that person in a better position than under Section 53. For related parties, the look-back period is two years. The transfer to M/s K Sera Sera Digital Cinema Ltd. was made to a related party that had admitted creditor status, within the relevant period, and on the material before the tribunal it was not shown to be in the ordinary course of business. The transfer to M/s K Sera Sera Miniplex Ltd., though made to a related party, was not shown to be a payment to a creditor, surety, or guarantor for antecedent debt or liability, and therefore did not satisfy the essential ingredients of Section 43(2).

Conclusion: The Rs. 8,92,646/- transfer was held preferential, while the Rs. 39,00,000/- transfer was not.

Final Conclusion: The appeal succeeded only in part: the finding of preference was confined to one transfer, and the refund direction was reduced accordingly.

Ratio Decidendi: For a related-party transfer to be avoided as preferential, all ingredients of Section 43 must be satisfied, including the existence of a creditor, surety, or guarantor relationship tied to antecedent debt or liability, and the ordinary course of business exception must be established on record; a resolution professional may appoint professionals and pursue avoidance applications without committee approval.

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