Case Note & Summary
The case involves an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, filed by H.P. Arun Kumar, C.M. Nagaraj, and Usha (Appellants) against Addanki Haresh, the Resolution Professional of M/s. Right Engineers and Equipments Pvt. Ltd. (Corporate Debtor). The dispute arose from an order dated 02.02.2022 passed by the National Company Law Tribunal (NCLT), Bengaluru, in IA No. 482/2020 in Company Petition (IB) No. 320/BB/2019. The Resolution Professional had filed the application under Section 43 of the IBC, alleging that two transactions identified in a draft forensic audit report dated 09.11.2020, amounting to Rs.81.33 lakhs and Rs.78.81 lakhs, were preferential and fraudulent. The NCLT allowed the application, declaring the transactions as preferential and directing their reversal. The Appellants challenged this order before the National Company Law Appellate Tribunal (NCLAT), Chennai. The core legal issue was whether the two transactions fell within the ambit of Section 43 of the IBC as preferential transactions. The Appellants argued that the transactions were not preferential and that the forensic audit report was not conclusive. The Respondent contended that the transactions were made to related parties during the look-back period and were preferential. The NCLAT, after considering the submissions and the evidence, upheld the NCLT's order, finding that the transactions were indeed preferential under Section 43 IBC. The Tribunal emphasized that the burden of proof was on the Appellants to show that the transactions were not preferential, which they failed to discharge. The appeal was dismissed, and the impugned order was affirmed.
Headnote
A) Insolvency Law - Preferential Transaction - Section 43 of Insolvency and Bankruptcy Code, 2016 - The issue was whether two transactions identified in the Committee of Creditors report dated 09.11.2020, amounting to Rs.81.33 lakhs and Rs.78.81 lakhs, were preferential transactions under Section 43 IBC. The Tribunal held that the transactions were preferential and directed reversal. (Paras 1-2)
B) Insolvency Law - Forensic Audit Report - Evidentiary Value - The Tribunal relied on the draft forensic audit report dated 09.11.2020 and the Committee of Creditors report to conclude that the transactions were preferential and fraudulent. (Para 2)
Issue of Consideration
Whether the two identified preferential transactions as per the report of Committee of Creditors of 09.11.2020 would fall to be a preferential transaction so as to be within the ambit of Section 43 of the I & B Code, 2016.
Final Decision
The appeal is dismissed. The impugned order dated 02.02.2022 passed by NCLT, Bengaluru, in IA No. 482/2020 in CP (IB) No. 320/BB/2019 is affirmed. The transactions are held to be preferential under Section 43 of IBC, 2016.
Law Points
- Preferential transaction
- Section 43 IBC
- look-back period
- related party
- forensic audit report
- Committee of Creditors report
- voidable transaction
- burden of proof
- reversal of transaction
Case Details
2024 LawText (NCLAT) (01) 93
Comp. App. (AT) (CH) (Ins.) No. 184/2022
Justice Sharad Kumar Sharma (Member Judicial)
Mr. Manu Kulkarni, Mr. Manoj Raikar, Mr. Skanda Kumar (for Appellants); Mr. Addanki Haresh (Liquidator, for Respondent)
H.P. Arun Kumar, C.M. Nagaraj, Usha
Addanki Haresh, Resolution Professional of M/s. Right Engineers and Equipments Pvt. Ltd.
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Nature of Litigation
Appeal under Section 61 of IBC against NCLT order declaring transactions as preferential under Section 43 IBC.
Remedy Sought
Appellants sought to set aside the NCLT order dated 02.02.2022 which declared two transactions as preferential and directed reversal.
Filing Reason
The Resolution Professional filed IA No. 482/2020 under Section 43 IBC alleging that two transactions were preferential and fraudulent based on a draft forensic audit report.
Previous Decisions
NCLT, Bengaluru, by order dated 02.02.2022 in IA No. 482/2020 in CP (IB) No. 320/BB/2019, allowed the application and declared the transactions as preferential.
Issues
Whether the two transactions identified in the Committee of Creditors report dated 09.11.2020 are preferential transactions under Section 43 of IBC, 2016.
Submissions/Arguments
Appellants argued that the transactions were not preferential and the forensic audit report was not conclusive.
Respondent contended that the transactions were made to related parties during the look-back period and were preferential under Section 43 IBC.
Ratio Decidendi
The Tribunal held that the two transactions identified in the Committee of Creditors report dated 09.11.2020, amounting to Rs.81.33 lakhs and Rs.78.81 lakhs, were preferential transactions under Section 43 of the IBC, 2016, as they were made to related parties during the look-back period and the Appellants failed to rebut the presumption.
Judgment Excerpts
The question, which would be the subject matter of consideration in the instant Company Appeal preferred under section 61 of the Insolvency and Bankruptcy Code, 2016 would be, 'As to whether, the identified two preferential transactions as per the report of Committee of Creditors of 09.11.2020, would fall to be a preferential transaction so as to be within the ambit of Section 43 of the I & B Code, 2016'.
The grievance, which has caused the Appellants to prefer this appeal, was as to the consequence of passing of an order on IA No. 482/2020, which was preferred by Respondent No.1, invoking Section 43 of I & B Code, 2016, contending thereof that two transactions, which is apparent from the draft Forensic Audit report of 09.11.2020 amounting to Rs.81.33 lakhs and Rs.78.81 lakhs, were ultimately found to be preferential and fraudulent transaction respectively.
Procedural History
The Resolution Professional filed IA No. 482/2020 under Section 43 IBC before NCLT, Bengaluru, in CP (IB) No. 320/BB/2019. The NCLT allowed the application by order dated 02.02.2022. The Appellants appealed to NCLAT, Chennai, under Section 61 IBC, which dismissed the appeal.
Acts & Sections
- Insolvency and Bankruptcy Code, 2016: Section 43, Section 61
