Case Note & Summary
The appeal was filed by suspended members of the Board of Directors of M/s KSS Ltd. against an order of the National Company Law Tribunal, which directed them to refund Rs. 47,92,646 to the Corporate Debtor, identifying the amount as preferential transactions under Section 43 of the Insolvency and Bankruptcy Code, 2016. The Corporate Debtor was admitted into Corporate Insolvency Resolution Process (CIRP) on 24.01.2023, and the Resolution Professional filed an application alleging that the transfers to two sister concerns were preferential. The Appellants contended that the transactions were not preferential as they were made in the ordinary course of business and argued that necessary parties were not joined in the proceedings. The Respondent maintained that the transactions were indeed preferential as they favored related parties during a period of financial distress. The Tribunal found that the Appellants had admitted to the transactions and failed to provide sufficient evidence to support their claims that the transactions were in the ordinary course of business. The Tribunal upheld the order of the NCLT, confirming the Appellants' joint liability for the repayment of the amount to the Corporate Debtor.
Headnote
A) Insolvency Law - Preferential Transactions - Definition and Criteria - Insolvency and Bankruptcy Code, 2016, Section 43 - The court examined whether the transactions made by the Corporate Debtor to its sister concerns were preferential and met the criteria under Section 43. It held that the transactions were indeed preferential as they were made during a period of financial distress and favored related parties, thus making the Appellants jointly liable for repayment (Paras 6-16).
Issue of Consideration
Whether the transactions identified by the Resolution Professional were preferential under Section 43 of the Insolvency and Bankruptcy Code, 2016.
Final Decision
The Tribunal upheld the NCLT's order, confirming the Appellants' joint liability to repay Rs. 8,92,646 to the Corporate Debtor, as the transactions were deemed preferential under Section 43 of the Insolvency and Bankruptcy Code, 2016.
Law Points
- Insolvency
- Bankruptcy
- Preferential Transactions
- Joint Liability
- Corporate Debtor
Case Details
2026 LawText (NCLAT) (05) 129
Company Appeal (AT) (Ins.) No. 1522 of 2025
Mr. Mohak Sharma, Ms. Pooja Singh, Ms. Honey Satpal, Mr. Akash Agarwala, Mr. Aman, Mr. Akash Chatterjee
Dharamveer Singh Magan Singh Shekhawat, Harsh Upadhyay, Sandip Joshi
Mr. Dharmendra Dhelariya, Jayashree Vilas Gangurde, Monika Meena, Bhargav Vishalbhai Ahir
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Nature of Litigation
Appeal against the order of the National Company Law Tribunal regarding preferential transactions.
Remedy Sought
Appellants sought to set aside the order directing repayment of funds.
Filing Reason
The Appellants were aggrieved by the NCLT's order identifying certain transactions as preferential.
Previous Decisions
The NCLT had previously ordered the Appellants to repay the amount to the Corporate Debtor.
Issues
Whether the transactions were preferential under Section 43 of the Insolvency and Bankruptcy Code, 2016.
Whether the Appellants were liable to repay the amount to the Corporate Debtor.
Submissions/Arguments
Appellants argued that the transactions were made in the ordinary course of business and that necessary parties were not joined.
Respondent contended that the transactions were preferential and favored related parties during financial distress.
Ratio Decidendi
The Tribunal established that transactions made to related parties during a period of financial distress are preferential under Section 43 of the Insolvency and Bankruptcy Code, 2016, and that the Appellants were jointly liable for repayment.
Judgment Excerpts
The Appellants are aggrieved by the order dated 01.08.2025 passed by the Ld. National Company Law Tribunal.
The Adjudicating Authority vide the impugned order allowed the Application filed by Respondent No. 1.
The Appellants assert that the Respondent No.1/RP failed in his duties by alleging these transactions as avoidable.
The Tribunal examined the issues raised by the appellant.
The Tribunal upheld the order of the NCLT, confirming the Appellants' joint liability.
Procedural History
The appeal was filed against the order of the NCLT which directed the Appellants to refund a total of Rs. 47,92,646 to the Corporate Debtor, identifying the transactions as preferential.
Acts & Sections
- Insolvency and Bankruptcy Code, 2016: Section 25, Section 43, Section 44
