National Company Law Appellate Tribunal, Principal Bench, New Delhi

NATIONAL COMPANY LAW APPELLATE TRIBUNAL,
PRINCIPAL BENCH, NEW DELHI

Company Appeal (AT) (Insolvency) No. 405 of 2022
[Arising out of order dated 02.03.2022 passed by the National Company

Law Tribunal, New Delhi in IA No. 5768 of 2020 in CP (IB) 814/ND/2019]
IN THE MATTER OF:
1. GVR Consulting Services Pvt. Ltd.

A-58, Sector 65, Noida Vihar,
Gautam Buddha Nagar, Uttar Pradesh-201301
Email: atulprga@gmail.com … Appellant No. 1.
2. GVR Electronics Pvt. Ltd.
A-58, Sector 65, Noida Vihar,
Gautam Buddha Nagar, Uttar Pradesh-201301
Email: atulprga@gmail.com ... Appellant No. 2.
Versus
1. Pooja Bahry
(Earstwhile Resolution Professional of NTL
Electronics India Pvt. Ltd.)
59/27, Prabhat Road, New Rohtak Road,
New Delhi-110005.
Email: pujabahry@yahoo.com … Respondent No. 1.
2. Praveen Gupta
Flat No. H-1001, Vrinda City, Plot No. GH-02,
Sector PHI-IV, Greater Noida, Uttar Pradesh-
201308
Email: pgntl8@gmail.com … Respondent No. 2.
3. Arun Gupta
Flat No. 6012, ATS One Hamlet, Sector-104,
Noida, Uttar Pradesh-201301
Email: arungupta.feedback@gmail.com …Respondent No. 3.
4. Udal Singh
Cont’d…/
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567, Sector 37, Arun Vihar, Noida,

Uttar Pradesh-201303 …Respondent No. 4.
Present:
For Appellants: Mr. Abhijeet Sinha, Ms. Aditi Sharma,
Advocates
For Respondents: Ms. Pooja Mahajan, Advocate with Ms. Pooja
Bahry (erstwhile RP).
Ms. Mehak Nayak, Advocate
Mr. Milan Singh Negi, Mr. Nikhil Jha,
Advocates for R-2-4.
WITH

IN THE MATTER OF:
Dyna Rasayan Ydyog Pvt. Ltd.

Having its registered office at
G-66/2 First Floor, Gautam Nagar,
New delhi-110049
Through its Director/Authorised Signatory
Mr. Santosh Kumar Maheshwari
Email: maheshwari sk@yahoo.com
Mob: 7827658301 ... Appellant.
Versus
1. Pooja Bahry
Ex-Resolution Professional for Respondent No. 2
New Delhi-110005.
Email: ercon@ercon-india.com
Mob: 9811071716 …Respondent No. 1.
2. NTL Electronics India Ltd.
Company Appeal (AT) (Insolvency) No. 405, 369 and 412 of 2022
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Now Known as Narayan Industries Global Limited,

Having its registered office at
504-A, Nagarjuna Apartment Chilla Regulator,
Mayur Vihar, New Delhi-110096
Email: narayan47@narayanhome.com …Respondent No. 2.
Present:
For Appellant: Mr. Abhijeet Sinha, Mr. Gurcharan Singh
Advocates.
For Respondents: Ms. Pooja Mahajan, Advocate with Ms. Pooja
Mr. Gurcharan Singh, Ms. Mehak Nayak,
Advocates
WITH

IN THE MATTER OF
1. Praveen Gupta
Flat No. H-1001, Vrinda City, Plot No. GH-02,
Sector PHI-IV, Greater Noida, Uttar Pradesh-
201308. Appellant No. 1.
2. Arun Gupta
Flat No. 6012, ATS One Hamlet, Sector-104,
Noida, Uttar Pradesh-201301. Appellant No. 2.
3. Keshika Exports Pvt. Ltd.

305, Guru Amar Dass Bhawan,
78, Nehru Place, New Delhi. Appellant No. 3.
Versus
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Pooja Bahry
(Earstwhile Resolution Professional of NTL
Electronics India Ltd.)
New Delhi-110005.
Email: pujabahry@yahoo.com ..Respondent.
Present:
For Appellant: Mr. Gaurav Mitra, Mr. Milan Singh Negi, Mr.
Nikhil Jha, Advocates
For Respondent:- Ms. Pooja Mahajan, Advocate with Ms. Pooja
Ms. Mehak Nayak, Advocate
JUDGMENT
ASHOK BHUSHAN, J.
1. These three Appeals have been filed against the same Order dated
02nd March, 2022 passed by the National Company Law Tribunal, New
Delhi, Bench-V (hereinafter referred to as “The Adjudicating Authority”)
allowing I.A. No. 5768 of 2020 in Company Petition (IB) No.
814/ND/2019 filed by the Resolution Professional (RP in short) under
Section 43 of the Insolvency and Bankruptcy Code, 2016 (Hereinafter
referred to as “The Code”). The Adjudicating Authority by the Impugned
Order held the transactions by the Corporate Debtor in favour of the
Appellants as preferential transactions and directed to refund the
respective amount. Aggrieved by this Order, these Appeals have been
filed.
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2. Company Appeal (AT) Ins. No. 405 of 2022 have been filed by the
two Appellants namely GVR Consulting Services Pvt. Ltd. and GVR
Electronics Pvt. Ltd. who were Respondent No. 4 and Respondent No. 7 to
the I.A. No. 5768 of 2020. The Appellants are not related parties to the
Corporate Debtor. The Resolution Professional filed the Application
claiming transaction amounting to Rs. 1 Crore which were claimed to be
repayment of unsecured loan on 04.09.2018, 11.09.2018, 24.09.2018,
25.09.2018 and 12.10.2018 totaling Rs. 1 Crore. Similarly, the total
amount regarding Appellant No. 2 was Rs. 75 Lacs. Resolution
Professional has pleaded in the Application that antecedent liability was
discharged by the Corporate Debtor under the above transaction which
was a preferential transaction.
3. Company Appeal (AT) Ins. No. 369 of 2022 has been filed by the
Dyna Rasayan Udyog Pvt. Ltd. who was Respondent No. 6 to the I.A. No.
5768 of 2020. Resolution Professional in the Application has pleaded that
Corporate Debtor had entered into a Loan Agreement dated 05.12.2015
with Respondent No. 6. As per ledger of Dyna Rasayan Udyog Pvt. Ltd.
Corporate Debtor had payable balance of INR 2,04,48,767 as on
27.08.2017 which was discharged on 27.08.2018, 28.08.2018,
29.08.2018 and 29.08.2018 totaling Rs. 1,57,29,987/- which was
claimed to be preferential transaction and has been held so by the
Adjudicating Authority directing refund of the amount.
4. Company Appeal (AT) Ins. No. 412 of 2022 has been filed by the
Praveen Gupta, Arun Gupta and Keshika Exports Pvt. Ltd. who were
Respondent No. 1, 2 and 5 to the I.A. No. 5768 of 2020. Praveen Gupta
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and Arun Gupta were managing directors of the Corporate Debtor till the
commencement of the Corporate Insolvency Resolution Process (CIRP in
short) and wherein the control of the Corporate Debtor and day to day
actions for the entire period of the transaction. Keshika Exports Pvt Ltd –
Appellant No. 3 was related party to the Corporate Debtor. The
antecedent liability of the corporate debtor towards Respondent No. 1 Mr.
Praveen Gupta was discharged making payment from 19.12.2017 to
02.03.2019 totaling to Rs. 1,97,50,000/- with respect to Appellant No. 2
Arun Gupta towards antecedent liability of the corporate debtor was
discharged by making payment from 06.09.2017 to 05.12.2017 totaling
Rs. 90,00,000/-. With regard to Appellant No. 3-Keshika Exports Pvt.
Ltd., antecedent liability of the corporate debtor towards Appellant No. 3
was discharged on 31.08.2018 of amount of Rs. 2,49,338/-.
5. We may notice brief facts giving rise to these Appeals.
(i) CIRP against the Corporate Debtor commenced by Order dated
27.08.2019. On 16.09.2019 and 27.09.2019 public announcement
was made. In CoC meeting dated 30.10.2019, Pooja Bahry was
appointed as Resolution Professional of the Corporate Debtor.
(ii) On 09.09.2020, Resolution Professional appointed a Transaction
Auditor i.e. Pipara & Co. to conduct the audit of the Corporate
Debtor for the period 01.04.2016 to 27.08.2019. Transaction
Auditor submitted its final report to the Resolution Professional.
Resolution Professional has published Form-G. Resolution Plan was
approved on 21.09.2020 by the CoC and on 28.09.2020, an
Application being I.A. No. 4588 of 2020 under Section 30(6) of the
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Code was filed by the RP seeking approval of the plan and on
28.01.2021, Resolution Plan was approved by the Adjudicating
Authority.
(iii)Transaction Auditor has submitted a report on 09.09.2020
containing findings regarding certain transaction undertaken by
the Corporate Debtor which report was placed before the CoC. On
the Avoidance Application filed by the RP for avoiding various
transactions in favour of the Respondents 1 to 7 to the Application
I.A. No. 5768 of 2020. Notices were issued by the Adjudicating
Authority on 16.02.2021. The Adjudicating Authority heard the
arguments in avoidance application and reserved the order on 05th
August 2021. The Order was delivered on 2nd March, 2022 by the
Adjudicating Authority holding the transactions by the Corporate
Debtor entered into with Respondent No. 1 to 7 as preferential
transactions within Section 43 of the Code.
(iv) In the avoidance application, the RP has also prayed for declaring
certain transaction undervalued and fraudulent. The Adjudicating
Authority in so far as prayers made in Application under Section 45
and 66 did not accept the prayers and allowed the application only
in so far as Section 43 prayers were concerned and declared the
transaction in favour of the Respondent No. 1 to 7 as preferential
transactions and directed to refund the amount.
(v) Aggrieved by the said order, these Appeals have been filed.
6. We have heard Mr. Abhijeet Sinha appearing for Appellant in
Company Appeal (AT) Ins. No. 405 and 369 of 2022 and Mr. Gaurav Mitra
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appearing for the Appellant in Company Appeal (AT) Ins. No. 412 of 2022.
Learned Counsel - Ms. Puja Mahajan has appeared for Resolution
Professional.
7. Mr. Abhijeet Sinha, Learned Counsel for the Appellant in support of
the Appeal submits that Appellants in Company Appeal (AT) Ins. No. 405
of 2022 as well as Company Appeal (AT) Ins. No. 369 of 2022 are not
related party to the Corporate Debtor and the transactions which have
been held to be preferential transactions by the Adjudicating Authority
were transactions which were entered into ordinary course of business of
the Corporate Debtor. The Appellants had extended loan facility to the
Corporate Debtor and the antecedent liability towards the Appellants’ is
admitted; The Corporate Debtor on various dates occurring into look back
period repaid the amount of loan. The loan was taken by the Corporate
Debtor from the appellants for the purposes of running the corporate
debtor as a going concern and the amount which was received from the
Appellant was utilized by the corporate debtor for running its business
and meeting its liabilities. The repayments by the Corporate Debtor was
in ordinary course of business and were towards financial affairs of the
corporate debtor which are clearly exempted from the preferential
transactions within the meaning of Section 43 of the Code. It is further
submitted that composite application filed by the RP under Section 43,
44, 45, 46, 66, 67 and 60(5) of the Code raising allegations against
several party under different provisions of the Code was not maintainable
in view of the law laid down by the Hon’ble Supreme Court in “Anuj Jain,
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IRP for Jaypee Infratech Limited Vs. Axis Bank Ltd. & Ors.”, (2020) 8
SCC 401.
8. Mr. Gaurav Mitra, Learned Counsel for the Appellant submitted
that the Resolution Professional had no authority to pursue the avoidance
application in view of the position of law as declared by Delhi High Court
in its Judgement “M/s. Venus Recruiters Pvt. Ltd. Vs. Union of India
& Ors.”, 2020 SCC OnLine DL 1479. In the present case, Resolution Plan
does not authorize the Resolution Professional to pursue the Application.
It is further submitted that alleged withdrawal of the payments are less
than the money deposited by the Appellant in the account of the
Corporate Debtor. The Appellant during the period in question has
deposited monies to the tune of Rs. 28 Crores. Payments made to the
related parties was actually infused by the Appellant in account of the
Corporate Debtor. Payments made to the related parties were clearly in
ordinary course of business while Corporate Debtor was also honoring
payments to its secured creditors as well as Operational Creditors.
9. Ms. Pooja Mahajan, Learned Counsel for the Erstwhile Resolution
Professional submits that after report was received from Transaction
Auditor, Resolution Professional examined the Report and other materials
on record and after being satisfied with several transactions of the
Corporate Debtor falling within preferential, undervalued and fraudulent
transactions, the Application was filed before the Adjudicating Authority
for avoiding said transactions. It is submitted that in the Resolution Plan,
there was specific stipulation that any application filed by the RP under
Section 43, 45, 50 and 66, any amount realized by the Corporate Debtor
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in future shall be distributed among the financial creditors in order of
priority as per Section 53 of the Code. Details regarding the avoidance
transactions were duly placed before the CoC at the time of consideration
of the Resolution Plan. CoC specifically directed the RP to include the
above provision in the Resolution Plan. Resolution Professional has filed
the avoidance application on 24th September, 2020 that is prior to the
Application for approval of the plan was filed. The transaction auditor
report was placed before the CoC in the meeting dated 13th August, 2020.
In the avoidance application, ingredients of Section 43, 45, 50 and 66
were separately dealt with and pleaded. There was no overlapping in the
pleadings of different nature of allegations. As per provision of Section 43,
the transaction in question were preferential transaction. Ingredients of
Section 43 were present. The payments made in favour of the related
parties and non-related parties had effect of putting the Appellants in a
more beneficial position than they would have been in the event of
distribution of assets of the corporate debtor in accordance with Section
53 of the Code. Payments made to the Appellants did not fall under any of
the exceptions under Section 43(3) of the Code. Giving of loan to the
Corporate Debtor was not part of ordinary course of business. Learned
Counsel for the RP relied upon the Judgement of the Hon’ble Supreme
Court in “Anuj Jain” (supra). In support of her submission, she
submitted that present transactions do not fall in ordinary course of
business. The Adjudicating Authority has rightly declared the transaction
as preferential transactions.
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10. We have considered the submissions of Learned Counsel for the
parties and have perused the record.
11. The Adjudicating Authority having accepted the claim of Resolution
Professional with respect to preferential transactions and having not
accepted case of the RP with regard to other transactions, consideration
in these Appeals are only with regard to preferential transactions within
the meaning of Section 43 of the Code.
12. Section 43 of the Code deals with preferential transactions and
relevant time. Section 43 of the Code is as follows:
“43: Preferential transactions and relevant time.-

(1) Where the liquidator or the resolution professional,
as the case may be, is of the opinion that the corporate
debtor has at a relevant time given a preference in
such transactions and in such manner as laid down in
sub-section (2) to any persons as referred to in sub-
section (4), he shall apply to the Adjudicating Authority
for avoidance of preferential transactions and for, one
or more of the orders referred to in section 44.
(2) A corporate debtor shall be deemed to have given a

preference, if—
(a) there is a transfer of property or an interest

thereof of the corporate debtor for the benefit of a
creditor or a surety or a guarantor for or on account
of an antecedent financial debt or operational debt
or other liabilities owed by the corporate debtor; and
(b) the transfer under clause (a) has the effect of

putting such creditor or a surety or a guarantor in a
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beneficial position than it would have been in the

event of a distribution of assets being made in
accordance with section 53.
(3) For the purposes of sub-section (2), a preference

shall not include the following transfers —
(a) transfer made in the ordinary course of the

business or financial affairs of the corporate debtor
or the transferee;
(b) any transfer creating a security interest in

property acquired by the corporate debtor to the
extent that—
(i) such security interest secures new value and

was given at the time of or after the signing of a
security agreement that contains a description of
such property as security interest and was used
by corporate debtor to acquire such property; and
(ii) such transfer was registered with an

information utility on or before thirty days after
the corporate debtor receives possession of such
property:
Provided that any transfer made in pursuance of the

order of a court shall not, preclude such transfer to be
deemed as giving of preference by the corporate debtor.
Explanation.—For the purpose of sub-section (3) of this

section, “new value” means money or its worth in
goods, services, or new credit, or release by the
transferee of property previously transferred to such
transferee in a transaction that is neither void nor
voidable by the liquidator or the resolution professional
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under this Code, including proceeds of such property,

but does not include a financial debt or operational
debt substituted for existing financial debt or
operational debt.
(4) A preference shall be deemed to be given at a

relevant time, if—
(a) it is given to a related party (other than by reason

only of being an employee), during the period of two
years preceding the insolvency commencement date;
or
(b) a preference is given to a person other than a

related party during the period of one year
preceding the insolvency commencement date.”
13. Section 44 deals with Order in case of preferential transactions.
14. The Adjudicating Authority in the Impugned Order has noted in
detail the facts and transactions which have been questioned by the
Resolution Professional in the avoidance application. In paragraph 8(vii)
of the Order, repayment to related parties and repayment to non-related
parties have been separately noticed by the Adjudicating Authority. It is
relevant to notice the paragraph 8(vii) which is to be following effect:
“vii. TAR highlighted that during the relevant

period provided in Section 43(4) of the Code, the
following repayment/transfer were made by the
Corporate Debtor to its related parties from 27.08.2017
to 27.08.2019 and to non-related parties from
27.08.2018 to 27.08.2019 to discharge its antecedent
liability:
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Date Name of the Amount (INR) Purpose

party
Repayment to Related Parties
A. Arun Gupta
Unsecured Loan 20,00,000 Repayment of

06.09.2017 – Arun Gupta unsecured loan
A/c of directors

A/c of directors

A/c of directors

A/c of directors

A/c of directors
Total (A) 90,00,000
B. Praveen Gupta

19.12.2017 – Praveen Gupta unsecured loan
A/c of directors

A/c of directors

A/c of directors

A/c
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of directors

A/c of directors

A/c of directors

A/c of directors

A/c of directors
Total (B) 1,97,50,000
C. Keshika Exports Private Limited
Keshika Exports 2,49,338 Payment of

31.08.2018 Private Limited interest on
unsecured loan
Total (C) 2,49,338
Total (A+B+C) 2,80,99,338
Repayment to Non-Related Parties
D. Dyna Rasayan Udyog Private Limited
Dyna Rasayan 40,00,000 Repayment of

27.08.2018 Udyog Private unsecured loan
Limited
28.08.2018 Udyog Private unsecured loan
Limited
29.08.2018 Udyog Private interest on
Limited unsecured loan

29.08.2018 Udyog Private
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Limited unsecured loan
Total (D) 1,57,29,987
E. GVR Electronics Private Limited
GVR Electronics 25,00,000 Repayment of

27.08.2018 Private Limited unsecured loan



Total (E) 90,00,000
F. GVR Consulting Services Ltd.
GVR Consulting 10,00,000 Repayment of

04.09.2018 Services Ltd. unsecured loan




Total (F) 1,00,00,000
Total (D+E+F) 3,56,29,987
Grand Total 6,37,29,325

(A+B+C+D+E+F)
15. There is no dispute between the parties that repayment to related
parties and repayment to the non-related parties were within the lookout
period.
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16. The avoidance transaction in Insolvency Proceedings has been dealt
with in the legislative schemes under several enactments relating to
subject. We may have a look over the legislative scheme with regard to
avoidance transaction prior to enforcement of IBC to appreciate the
changes in the legislative scheme which has been brought by the IBC.
The Provincial Insolvency Act, 1920, Section 54 deals with avoidance of
preference. Section 54 of the Act is as follows:
“54. (1) Every transfer of property, every payment

made, every obligation incurred, and every judicial
proceeding taken or suffered by any person unable to
pay his debts as they become due from his own money
in favour of any creditor, with a view of giving that
creditor a preference over the other creditors, shall, if
such person is adjudged insolvent on a petition
presented within three months after the date thereof, be
deemed fraudulent and void as against the receiver,
and shall be annulled by the Court.
(2) This section shall not affect the rights of any person
who in good faith and for valuable consideration has
acquired a title through or under a creditor of the
insolvent.”
17. The Companies Act, 1956 also contained provisions regarding
Preferential Payments. Section 531 is as follows:
“531(1) Any transfer of property, movable or

immovable, delivery of goods, payment, execution or
other act relating to property made, taken or done by or
against a company within six months before the
commencement of its winding up which, had it been
made, taken or done by or against an individual within
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three months before the presentation of an insolvency

petition on which he is adjudged insolvent, would be
deemed in his insolvency a fraudulent preference, shall
in the event of the company being wound up, be deemed
a fraudulent preference of its creditors and be invalid
accordingly:
Provided that, in relation to things made, taken or
done before the commencement of this Act, this sub-
section shall have effect with the substitution, for the
reference to six months, of a reference to three months.
(2) For the purposes of sub-section (1), the presentation
of a petition for winding up in the case of a winding up
by the Tribunal, and the passing of a resolution for
winding up in the case of a voluntary winding up, shall
be deemed to correspond to the act of insolvency in the
case of an individual.”
18. Section 531A deals with Avoidance of Voluntary Transfer. Section
531A is as follows:
“Any transfer of property, movable or immovable, or any

delivery of goods, made by a company, not being a
transfer or delivery made in the ordinary course of its
business or in favour of a purchaser or encumbrancer in
good faith and for valuable consideration, if made
within a period of one year before the presentation of a
petition for winding up by the Tribunal or the passing of
a resolution for voluntary winding up of the company,
shall be void against the liquidator.”
19. Learned Counsel for the Appellant has also referred to Uncitral
Legislative Guide on Insolvency Law where under Part II, F, Avoidance
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Proceedings have been dealt with. Paragraphs 151, 152 and 153 are as
follows:
“151. It is a generally accepted principle of insolvency

law that collective action is more efficient in maximizing
the assets available to creditors than a system that
leaves creditors free to pursue their individual remedies
and that it requires all like creditors to receive the same
treatment. Provisions dealing with avoidance powers
are designed to support these collective goals, ensuring
that creditors receive a fair allocation of an insolvent
debtor’s assets consistent with established priorities
and preserving the integrity of the insolvency estate.
Avoidance provisions may also have a deterrent effect,
discouraging creditors from pursuing individual
remedies in the period leading up to insolvency if they
know that these may be reversed or their effects
nullified on commencement. Transactions are typically
made avoidable in insolvency to prevent fraud (e.g.
transactions designed to hide assets for the later benefit
of the debtor or to benefit the officers, owners or
directors of the debtor); to uphold the general
enforcement of creditors’ rights; to ensure equitable
treatment of all creditors by preventing favouritism
where the debtor wishes to advantage certain creditors
at the expense of the rest; to prevent a sudden loss of
value from the business entity just before the
supervision of the insolvency proceedings is imposed;
and, in some States, to create a framework for
encouraging out-of-court settlement—creditors will know
that last-minute transactions or seizures of assets can
be set aside and therefore will be more likely to work
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with debtors to arrive at workable settlements without

court intervention.
152. Avoidance provisions can be important to an
insolvency law not only because the policy upon which
they are based is sound, but also because they may
result in recovery of assets or their value for the benefit
of creditors generally and because provisions of this
nature help to create a code of fair commercial conduct
that is part of appropriate standards for the governance
of commercial entities. It should be noted that, in the
cross-border context, jurisdictions with insolvency laws
that do not provide for avoidance of certain types of
transaction, may encounter difficulties with recognition
of proceedings and cooperation with courts and
insolvency officials of jurisdictions where those
transactions are subject to avoidance.
153. Notwithstanding the generally accepted rationale
of avoidance provisions, it is important to bear in mind
that many of the transactions that may be subject to
avoidance in insolvency are perfectly normal and
acceptable when they occur outside that context, but
become suspect only when they occur in proximity to the
commencement of insolvency proceedings. Avoidance
powers are not intended to replace or otherwise affect
other devices for the protection of the interests of
creditors that would be available under general civil or
commercial law.”
20. The ordinary course of business has also been dealt with in
Paragraph 164-165 which are as follows:
“(d) Ordinary course of business
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164. Many insolvency laws use the concept of the

“ordinary course of business” in defining their
avoidance criteria, so that an extraordinary payment, as
noted above, may be subject to avoidance. The concept
has wider relevance to an insolvency regime as it may
also be used, for example, to draw a distinction between
the exercise of powers regarding the use and disposition
of assets during the insolvency proceedings in the
“ordinary course of business” and in other
circumstances, both in terms of who may exercise such
powers and the protections that are required (see above,
paras. 75 and 76).
165. States define the “ordinary course of business”
with varying emphasis on different elements. However,
in most jurisdictions a common purpose of the definition
is to determine what constitutes routine conduct of
business and allow a business to make routine
payments and enter into routine contracts, without
subjecting those transactions to possible avoidance in
insolvency. Those routine payments might include the
payment of rent, utilities such as electricity and
telephone and possibly also payment for trade
supplies.”
21. On defences, Paragraph 169 lays down following:
“Defences
169. Where an insolvency law provides defences to
avoidance for individual counterparties, those defences
may have the potential to dilute the efficacy of
avoidance provisions. Defences that involve elements
that may be subject to dispute, such as whether the
transaction occurred in the ordinary course of business,
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or the counterparty acted in good faith, or involving the

state of the counterparty’s actual or implied knowledge,
can create uncertainty for all parties and will require
determination by the court. The likelihood of such
uncertainty occurring has been increased in some
jurisdictions by the courts adopting a wide
interpretation of such defences in favour of
counterparties. Insolvency representatives may be
reluctant to use avoidance provisions as an effective tool
in an insolvency, because of associated costs or because
the procedures are inefficient and unpredictable. These
potential difficulties underscore the desirability of an
insolvency law adopting clear and predictable
avoidance criteria and defences that will enable all
parties to assess potential risks and avoid disputes, for
example objective criteria focusing on the effect or result
of transactions rather than on the intent of the parties.
Where elements such as “ordinary course of business”
are included they should be clearly defined and
circumscribed by an insolvency law.”
22. Paragraph 177 is as follows:
“177. Preferential transactions may be subject to

avoidance where: (a) the transaction took place within
the specified suspect period; (b) the transaction involved
a transfer to a creditor on account of a pre-existing debt;
and (c) as a result of the transaction, the creditor
received a larger percentage of its claim from the
debtor’s assets than other creditors of the same rank or
class (in other words, a preference). Many insolvency
laws also require that the debtor was insolvent or close
to insolvent when the transaction took place and some
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further require that the debtor have an intention to

create a preference. The rationale for including these
types of transaction within the scope of avoidance
provisions is that, when they occur very close to the
commencement of proceedings, a state of insolvency is
likely to exist and they breach the key objective of
equitable treatment of similarly situated creditors by
giving one member of a class more than they would
otherwise legally be entitled to receive.”
23. Hon’ble Supreme Court had occasion to elaborately consider the
scope and ambit of preferential transaction in IBC in “Anuj Jain Vs. Axis
Bank Limited & Ors” (supra). Before we come to the treatment of law by
the Supreme Court in “Anuj Jain”, a look into the legislative scheme
from Provincial Insolvency Act, 1920 till the IBC Code indicate that
legislative requirements under the different enactments were not identical
and ingredients for avoidance of a transaction under the different
enactments has been separately dealt. The Companies Act, 1956 dealt
with fraudulent transaction. In the IBC, preferential transaction and
fraudulent transaction has been separately dealt, ingredients to prove are
different for preferential transaction. There is no need to prove any
fraudulent intent for a preferential transaction. When we look into the
scheme of Section 43 of the Code, sub-section (2), a clear statutory
provision is that a corporate debtor shall be deemed to have given a
preference if conditions as mentioned in paragraph ‘a’ and ‘b’ are fulfilled.
When a provision provides for deeming fiction, ‘deeming fiction’ come into
play on fulfilment of the requirement even if in fact it may not be so. In
-24-
sub-section (3) of Section 43, certain exception has been provided. Thus
those transactions which fall as exception under Sub-Section (3) can be
taken out of sub-section 2 of Section 43, rest shall be covered by deeming
fiction.
24. Anuj Jain (supra) was a case where the Hon’ble Supreme Court was
considering a case where IRP filed an Application for avoidance of certain
transactions as preferential transactions where the Corporate Debtor had
created security interest by way of mortgage in favour of lenders of third
party that is “JAL” on the unencumbered land of the Corporate Debtor
which transaction were sought to be avoided by RP by filing an
application. The Adjudicating Authority has declared the said transaction
as preferential transaction. In paragraph 13.3, Hon’ble Supreme Court
has quoted the conclusion of the Adjudicating Authority which paragraph
13.3 is as follows:
“13.3. The Tribunal concluded in its order as follows:
“On the above basis, it is clear that the company

application filed by the Resolution Applicant deserves to
be allowed. Hence, is allowed.
ORDER
The company application filed by the

Resolution Professional under Sec. 66, 43 & 45 of the
Insolvency and Bankruptcy 2016 is allowed. The
impugned transactions, details of which are given in
the schedule of the judgment are declared as
fraudulent, preferential and undervalued
-25-
transactions as defined under section 66, 43 and 45

of the Code respectively.
Transactions given in the following schedule of

property have been found as preferential,
undervalued and fraudulent, therefore, we pass the
order for release and discharge of the security
interest created by the Corporate Debtor in favour of
lenders of the Jaiprakash Associates Ltd. under the
provision of Section 44(c) of the Insolvency and
Bankruptcy Code 2016. We also pass an order under
Section 48(a) of the Code that the properties
mortgaged by way of preferential and undervalued
transactions shall from now on be deemed to be
vested in the Corporate Debtor.”
25. NCLAT has upturned the Order of the Adjudicating Authority.
Aggrieved against which order, the Corporate Debtor through IRP and
certain other parties had filed the Appeal before the Hon’ble Supreme
Court. In the above background, the Hon’ble Supreme Court had
occasion to examine the concept of preferential transaction and
exposition of law as contained in IBC. Hon’ble Supreme Court has also in
its Judgement noticed paragraph 177 to 179 of Uncitral Legislative Guide
as has been noticed in foregoing paragraph of the Judgment. The
distinctive feature of the Companies Act, 2013 and the IBC have been
noted in paragraph 20.4 and following has been laid down by the Hon’ble
Supreme in paragraph 20.4:
“20.4. Noteworthy distinctive features, in the scheme of

the Companies Act, 2013 and Insolvency and
-26-
Bankruptcy Code, 2016, as regards preferences in

relation to the corporate personalities, are that
while Section 328 of the Act of 2013 deals with
fraudulent preference and Section 329 thereof deals
with transfers not in good faith but, on the other hand,
in the Code, separate provisions are made as regards
the transactions intended at defrauding the creditors
(Section 49 IBC) as also for fraudulent trading or
wrongful trading (Section 66 IBC). The provisions
contained in Section 43 of the Code, however, indicate
the intention of legislature that when a transaction falls
within the coordinates defined therein, the same shall
be deemed to be a preference given at a relevant time
and shall not be countenanced. Therefore, intent may
not be of a defence or support of any preferential
transaction that falls within the ambit of Section 43 of
the Code.”
26. In paragraph 21, 21.1, 21.2., 21.3 and 21.4, the Hon’ble Supreme
Court while analyzing section 43 of the Code made following observations:
“21. In the backdrop of the foregoing, we may now

scrutinise Sections 43 and 44 of the Code. Section 44
provides for the consequences of an offending35
preferential transaction i.e., when the preference is
given at a relevant time. Under Section 44, the
Adjudicating Authority may pass such orders as to
reverse the effect of an offending preferential
transaction. Amongst others, the Adjudicating Authority
may require any property transferred in connection with
giving of preference to be vested in the corporate debtor;
it may also release or discharge (wholly or in part) any
security interest created by the corporate debtor. The
-27-
consequences of offending preferential transaction are,

obviously, drastic and practically operate towards
annulling the effect of such transaction. Looking to the
contents, context and consequences, we are at one with
the contentions urged on behalf of the respondents with
reference to the decisions in Devinder Singh and other
cited cases, that these provisions need to be strictly
construed. However, even if we proceed on strict
construction of Section 43 of the Code, the underlying
principles and the object cannot be lost sight of. In other
words, the construction has to be such that leads
towards achieving the object of these provisions.
21.1. Looking at the broad features of Section 43 of the

Code, it is noticed that as per sub-section (1) thereof,
when the liquidator or the resolution professional, as the
case may be, is of the opinion that the corporate debtor
has, at a relevant time, given a preference in such
transactions and in such manner as specified in sub-
section (2), to any person/persons as referred to in sub-
section (4), he is required to apply to the Adjudicating
Authority for avoidance of preferential transactions and
for one or more of the orders referred to in Section 44. If
twin conditions specified in sub-section (2) of Section 43
are satisfied, the transaction would be deemed to be of
preference. As per clause (a) of sub-section (2) of Section
43, the transaction, of transfer of property or an interest
thereof of the corporate debtor, ought to be for the
benefit36 of a creditor or a surety or a guarantor for or
on account of an antecedent financial debt or
operational debt or other liabilities owed by the
corporate debtor; and as per clause (b) thereof, such
transfer ought to be of the effect of putting such creditor
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or surety or guarantor in beneficial position than it

would have been in the event of distribution of assets
under Section 53.
21.2. However, merely giving of the preference and

putting the beneficiary in a better position is not enough.
For a preference to become an offending one for the
purpose of Section 43 of the Code, another essential and
rather prime requirement is to be satisfied that such
event, of giving preference, ought to have happened
within and during the specified time, referred to as
“relevant time”. The relevant time is reckoned, as per
sub-section (4) of Section 43 of the Code, in two ways:
(a) if the preference is given to a related party (other
than an employee), the relevant time is a period of two
years preceding the insolvency commencement date;
and (b) if the preference is given to a person other than a
related party, the relevant time is a period of one year
preceding such commencement date. In other words, for
a transaction to fall within the mischief sought to be
remedied by Sections 43 and 44 of the Code, it ought to
be a preferential one answering to the requirements of
sub-section (2) of Section 43; and the preference ought to
have been given at a relevant time, as specified in sub-
section (4) of Section 43.
21.3. However, even if a transaction of transfer

otherwise answers to and comes within the scope of
sub-sections (4) and (2) of Section 43 of the Code, it may
yet remain outside the ambit of sub-section (2) because
of the exclusion provided in sub-section (3) of Section 43.
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21.4. Sub-section (3) of Section 43 specifically excludes

some of the transfers from the ambit of sub-section (2).
Such exclusion is provided to: (a) a transfer made in the
ordinary course of business or financial affairs of the
corporate debtor or transferee; (b) a transfer creating
security interest in a property acquired by the corporate
debtor to the extent that such security interest secures
new value and was given at the time specified in sub-
clause (i) of clause (b) of Section 43(3) and subject to
fulfilment of other requirements of sub-clause (ii) thereof.
The meaning of the expression “new value” has also
been explained in this provision.”
27. In paragraph 22 and 22.1 while dealing with Sub-Section (2) and
Sub-Section (4) of Section 43, following has been observed by the Hon’ble
Supreme Court:
“22. In order to understand and imbibe the provisions

concerning preference at a relevant time, it is necessary
to notice that as per the charging parts of Section 43 of
the Code i.e., sub-sections (4) and (2) thereof, a
corporate debtor shall be deemed to have given
preference at a relevant time if the twin requirements of
clauses (a) and (b) of sub-section (2) coupled with the
applicable requirements of either clause (a) or clause (b)
of sub-section (4), as the case may be, are satisfied.
22.1. To put it more explicit, the sum total of sub-

sections (2) and (4) is that a corporate debtor shall be
deemed to have given a preference at a relevant time if:
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(i) the transaction is of transfer of property or the

interest thereof of the corporate debtor, for the
benefit of a creditor or surety or guarantor for or on
account of an antecedent financial debt or
operational debt or other liability;
(ii) such transfer has the effect of putting such
creditor or surety or guarantor in a beneficial
position than it would have been in the event of
distribution of assets in accordance with Section
53; and
(iii) preference is given, either during the period of
two years preceding the insolvency commencement
date when the beneficiary is a related party (other
than an employee), or during the period of one year
preceding the insolvency commencement date
when the beneficiary is an unrelated party.”
28. Hon’ble Supreme Court has categorically held in the above case
that if the requirement made in sub-section (2) of Section 43 are satisfied
legal fiction comes into play. In paragraph 22.3, Hon’ble Supreme Court
has held that when the deeming provisions come into existence the
transaction entered into between the corporate debtor would be regarded
as preferential transaction with attendant consequences irrespective
whether the transaction was in fact intended or even anticipated to be so.
In paragraph 22.3, following has been laid down:
“19.3. On a conspectus of the principles so enunciated,

it is clear that although the word ‘deemed’ is employed
for different purposes in different contexts but one of its
principal purpose, in essence, is to deem what may or
may not be in reality, thereby requiring the subject-
-31-
matter to be treated as if real. Applying the principles to

the provision at hand i.e., Section 43 of the Code, it
could reasonably be concluded that any transaction
that answers to the descriptions contained in sub-
sections (4) and (2) is presumed to be a preferential
transaction at a relevant time, even though it may not be
so in reality. In other words, since sub-sections (4) and
(2) are deeming provisions, upon existence of the
ingredients stated therein, the legal fiction would come
into play; and such transaction entered into by a
corporate debtor would be regarded as preferential
transaction with the attendant consequences as per
Section 44 of the Code, irrespective whether the
transaction was in fact intended or even anticipated to
be so.”
29. Hon’ble Supreme Court after analyzing the provision of Section 43
noted net consequences of Section 43 in Paragraph 22.5. In paragraph
23, 23.1, 23.2, 23.3, 23.4 and 23.5 laid down following:
“23. The analysis foregoing leads to the position that in

order to find as to whether a transaction, of transfer of
property or an interest thereof of the corporate debtor,
falls squarely within the ambit of Section 43 of the Code,
ordinarily, the following questions shall have to be
examined in a given case:
23.1. As to whether such transfer is for the benefit of a
creditor or a surety or a guarantor?
23.2. As to whether such transfer is for or on account of
an antecedent financial debt or operational debt or other
liabilities owed by the corporate debtor?
23.3. As to whether such transfer has the effect of
putting such creditor or surety or guarantor in a
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beneficial position than it would have been in the event

of distribution of assets being made in accordance with
Section 53?
23.4. If such transfer had been for the benefit of a
related party (other than an employee), as to whether
the same was made during the period of two years
preceding the insolvency commencement date; and if
such transfer had been for the benefit of an unrelated
party, as to whether the same was made during the
period of one year preceding the insolvency
commencement date?
23.5. As to whether such transfer is not an excluded
transaction in terms of sub-section (3) of Section 43?”
30. Hon’ble Supreme Court has analyzed the facts of that case and
returned a finding in paragraph 25.4 that Corporate Debtor by giving
preference by way of mortgage transaction for the benefit of related party
falls within preferential transaction. In paragraph 25.4, following was
held:
“25.4. In the scenario taken into comprehension

hereinabove, there is nothing to doubt that the corporate
debtor JIL has given a preference by way of the
mortgage transactions in question for the benefit of its
related person JAL (who has been the creditor as also
surety for JIL) for and on account of antecedent financial
debts, operational debts and other liabilities owed to
such related person. In the given fact situation, it is
plain and clear that the transactions in question meet
with all the requirements of clause (a) of sub-section (2)
of Section 43.”
-33-
31. The Hon’ble Supreme Court had also occasion to consider the
concept of ordinary course of business in paragraph 28, 28.1, 28.2 and
28.3. Observations made by the Hon’ble Supreme Court in 28.3 and 28.5
are relevant which are to the following effect:
“28.3. Needless to reiterate that if the transfer is

examined with reference to the ordinary course of
business or financial affairs of the transferee alone, it
may conveniently get excluded from the rigour of sub-
section (2) of Section 43, even if not standing within the
scope of ordinary course of business or financial affairs
of the corporate debtor. Such had never been the
scheme of the Code nor the intent of Section 43 thereof.
It has rightly been contended on behalf of the appellants
that for the purpose of exception under clause (a) of sub-
section (3) of Section 43, the intent of legislature is
required to be kept in view. If the ordinary course of
business or financial affairs of the transferee (lenders of
JAL in the present case) would itself be decisive for
exclusion, almost every transfer made to the transferees
like the lender-banks/financial institutions would be
taken out of the net, which would practically result in
frustrating the provision itself.
…..
28.5. Looking to the scheme and intent of the provisions

in question and applying the principles aforesaid, we
have no hesitation in accepting the submissions made
on behalf of the appellants that the said contents of
clause (a) of sub-section (3) of Section 43 call for
purposive interpretation so as to ensure that the
provision operates in sync with the intention of
legislature and achieves the avowed objectives.
-34-
Therefore, the expression “or”, appearing as disjunctive

between the expressions “corporate debtor” and
“transferee”, ought to be read as “and”; so as to be
conjunctive of the two expressions i.e., “corporate
debtor” and “transferee”. Thus read, clause (a) of sub-
section (3) of Section 43 shall mean that, for the
purposes of sub-section (2), a preference shall not
include the transfer made in the ordinary course of the
business or financial affairs of the corporate debtor and
the transferee. Only by way of such reading of “or” as
“and”, it could be ensured that the principal focus of the
enquiry on dealings and affairs of the corporate debtor
is not distracted and remains on its trajectory, so as to
reach to the final answer of the core question as to
whether corporate debtor has done anything which falls
foul of its corporate responsibilities.”
32. In observations made in paragraph 28.3 as noted above, Hon’ble
Supreme Court has held that if the ordinary course of business or
financial affairs of the transferee that is lenders of JAL would itself be
decisive for exclusion, almost every transfer made to the transferees like
the lender-banks/financial institutions would be taken out of the net,
which would practically result in frustrating the provision itself. Thus
while finding out whether a transaction is ordinary course of business,
the object and purpose of Section 43 and the legislative scheme have to
be kept in mind. In paragraph 28.5 in sub-section (3) of Section 43 the
expression “or”, appearing as disjunctive between the expressions
“corporate debtor” and “transferee” ought to be read as “and”. Relying on
-35-
a judgement of the High Court of Australia in Downs Distributing
Company following has been observed in paragraph 28.6.1:
“28.6.1. Thus, the enquiry now boils down to the

question as to whether the impugned transfers were
made in the ordinary course of business or financial
affairs of the corporate debtor JIL. It remains trite that
an activity could be regarded as ‘business’ if there is a
course of dealings, which are either actually continued
or contemplated to be continued with a profit motive.43
As regards the meaning and essence of the expression
‘ordinary course of business’, reference made by the
appellants to the decision of the High Court of Australia
in Downs Distributing Co., could be usefully recounted
as under:-
“As was pointed out in Burns v. McFarlane the issues

in sub-s. 2(b) of s. 95 of the Bankruptcy Act 1924-
1933 are “(1) good faith; (2) valuable consideration;
and (3) ordinary course of business.” This last
expression it was said “does not require an
investigation of the course pursued in any particular
trade or vocation and it does not refer to what is
normal or usual in the business of the debtor or that
of the creditor.” It is an additional requirement and is
cumulative upon good faith and valuable
consideration. It is, therefore, not so much a question
of fairness and absence of symptoms of bankruptcy
as of the everyday usual or normal character of the
transaction. The provision does not require that the
transaction shall be in the course of any particular
trade, vocation or business. It speaks of the course of
business in general. But it does suppose that
-36-
according to the ordinary and common flow of

transactions in affairs of business there is a course,
an ordinary course. It means that the transaction
must fall into place as part of the undistinguished
common flow of business done, that it should form
part of the ordinary course of business as carried on,
calling for no remark and arising out of no special or
particular situation.”
33. In the above judgement, last part of the judgement of High Court of
Australia was highlighted by the Hon’ble Supreme Court which may be
quoted here to find out the purpose of emphasis:
“It means that the transaction must fall into place as

part of the undistinguished common flow of business
done, that it should form part of the ordinary course
of business as carried on, calling for no remark and
arising out of no special or particular situation.”
34. In paragraph 28.6.2, Hon’ble Supreme Court further laid down as
follows:
“28.6.2. Taking up the transactions in question, we are

clearly of the view that even when furnishing a security
may be one of normal business practices, it would
become a part of ‘ordinary course of business’ of a
particular corporate entity only if it falls in place as part
of ‘the undistinguished common flow of business done’;
and is not arising out of ‘any special or particular
situation’, as rightly expressed in Downs Distributing
Co. Though we may assume that the transactions in
question were entered in the ordinary course of
business of bankers and financial institutions like the
-37-
present respondents but on the given set of facts, we

have not an iota of doubt that the impugned
transactions do not fall within the ordinary course of
business of the corporate debtor JIL. As noticed, the
corporate debtor has been promoted as a special
purpose vehicle by JAL for construction and operation of
Yamuna Expressway and for development of the parcels
of land along with the expressway for residential,
commercial and other use. It is difficult to even surmise
that the business of JIL, of ensuring execution of the
works assigned to its holding company and for
execution of housing/building projects, in its ordinary
course, had inflated itself to the extent of routinely
mortgaging its assets and/or inventories to secure the
debts of its holding company. It had also not been the
ordinary course of financial affairs of JIL that it would
create encumbrances over its properties to secure the
debts of its holding company. In other words, we are
clearly of the view that the ordinary course of business
or financial affairs of the corporate debtor JIL cannot be
taken to be that of providing mortgages to secure the
loans and facilities obtained by its holding company;
and that too at the cost of its own financial health. As
noticed, JIL was already reeling under debts with its
accounts with some of the lenders having been declared
NPA; and it was also under heavy pressure to honour its
commitment to the home buyers. In the given
circumstances, we have no hesitation in concluding that
the transfers in questions were not made in ordinary
course of business or financial affairs of the corporate
debtor JIL.”
-38-
35. After noticing the law laid down by the Hon’ble Supreme Court in
the above case, we need to apply the ratio of the judgement in the facts of
the present case to find out as to whether defence taken by the Appellant
in their submissions that the repayment of loan which was given to the
Corporate Debtor was in ordinary course of business and was financial
affairs of the corporate debtor or not.
36. The Corporate Debtor-NTL Electronics India Ltd. was engaged in
the business of manufacturing and electronics component and projects.
In paragraph 7.1 of the Company Appeal (AT) Ins. No. 412 of 2022,
following has been stated about the business of the Corporate Debtor:
“7.1 That the corporate debtor was incorporated on

26.04.2022 with the appellant no.1 and 2 as promoters
and was being managed by them. The corporate debtor
was engaged in the business of manufacturing of
electronics components and products and as such it
required financial assistance from time to time, being so
certain financial assistance was sought from and
accordingly extended by Axis Bank, ICICI Bank and
Karnataka Bank.”
37. Taking financial assistance from related and non-related parties
which transactions are subject of enquiry in the present Appeal can not
be held to be ordinary course of business of the Corporate Debtor. The
expression “ordinary course of business” or “financial affairs of the
Corporate Debtor” has to be read “ejusdem generis”. The expression
“financial affairs of the Corporate Debtor” cannot be given an extended
meaning as contended by Learned Counsel for the Appellants that all
financial transactions done by the Corporate Debtor is covered within
-39-
expression “financial affairs’ hence the loan taken by the corporate debtor
from different related and non-related parties is part of the financial
affairs cannot be accepted. The Judgement of the Hon’ble Supreme Court
in “Anuj Jain” (Supra), the emphasis has been given that transaction
must fall into place as part of the undistinguished common flow of the
business done. Undistinguished common flow of the business of the
Corporate Debtor does not contemplate any such or particular situation
where the Corporate Debtor’s claim that its financial position became
unstable due to market condition and had started arranging money from
their relatives and other parties. Money arranged from relative and other
parties by the Corporate Debtor thus cannot be held to be part of
ordinary course of business or part of financial affairs.
38. The Adjudicating Authority has in detail considered the
submissions of both the parties and has gone through and examined the
transactions in question and has returned the finding that the
transaction come under the preferential transaction and in paragraph 65
and 66 following directions were issued:
“65. So far section 43 IBC 2016 is concerned, as we

held transactions made with the respondent no.
1,2,4,5,6 and 7 come under the preferential transactions
under Section 43 of the IBC,2016. Therefore,
Respondent No. 1 is directed to refund the amount of Rs.
1,97,50,000/- is directed to refund the amount of Rs.
90,00,000/- and Respondent No. 5 is directed to refund
the amount of Rs. 2,49,338/-. Similarly, the
Respondents No. 4, 6 and 7 are directed to refund the
amount of Rs. 1,00,00,000, Rs. 1,57,29,987 and Rs
-40-
90,00,000/- respectively. The amounts so received shall

be distributed among the creditors, who are entitled to
get it, in accordance with provision of law and it shall
not be paid to the successful resolution applicant.
66. Accordingly, the respondents no. 1,2,4,5,6 and
7 are directed to refund the amount within three months
from the date of order and the applicant is directed to
take steps to distribute the said amounts among the
Financial Creditor/Creditors, who are entitled to get it,
in accordance with provision of law within a month from
the date of receipt of the said amount and submit the
compliance report soon thereafter. And if the
respondents no. 1,2,4,5,6 and 7 failed to deposit the
said amount within the period then same shall be
recovered in accordance with the provision of law.”
39. In so far as the Judgement of the Delhi High Court in “M/s Venus
Recruiters Pvt. Ltd. Vs. Union of India & Ors.” as relied upon by
Learned Counsel for the Respondent, the judgement of Venus Recruiters
has already been overruled by the Division Bench of the Delhi High Court
in “Tata Steel BSL Ltd. Vs. Venus Recruiters Pvt. Ltd.” decided on
13.01.2023 hence no more applicable.
40. We may also notice one more submission advanced by Learned
Counsel for the Appellant-Mr. Abhijeet Sinha. It is submitted that the
transaction in question were undertaken due to the pressure on behalf of
Lenders. Corporate Debtor has issued certain security cheque and notices
were issued and demands were issued from Lenders for payment of their
dues. When the payments were made under the pressure of notice and
demand including threat of initiating proceeding under Section 138 of the
-41-
Negotiable and Instrument Act, the transaction cannot be said to be a
preferential transaction. Preferential Transaction is a transaction which is
voluntary transaction when the Corporate Debtor was to enter into
transaction due to pressure and threat the same is clearly not preferential
transaction. In support of the submission, Learned Counsel for the
Appellant has placed reliance on few judgements of the High Courts
which need to be noticed.
41. The first judgment relied upon by Learned Counsel for the
Appellant is judgement of the Gujarat High Court in “Re Maneckchowk
and Ahmedabad Co. Ltd”. (1969) SCC OnLine Guj 22. In the above case,
the Gujarat High Court was considering a petition under Section 391(2) of
the Companies Act, 1956 for sanctioning a scheme and compromise
between the creditors and members of the Maneckchowk and Ahmedabad
Co Ltd. While considering the said petition, High Court had occasion to
consider certain allegations regarding the fraudulent preferences given by
the Company. Reference was made to one of the deed of mortgage
executed by the Company in favour of the Central Board of Trustee for
the Provident Fund which was alleged to be fraudulent preference. In
paragraph 18 of the Judgment, following observations have been made:
“18……………If, therefore, it could be shown that the

debtor acted under an apprehension that he would be
prosecuted or under a threat of prosecution, the transfer
of property by him could not be said to be a free
volitional act of the debtor disclosing an intention to
prefer the creditor but it would a pear that he has acted
under the compulsion of the circumstances, may be of
-42-
his own creation' Reference in this connection may be

made to Sharp (Official Receiver) v. Jackson. In that
case it was found that the trustee had committed
breaches of trust and was insolvent. and, on the eve of
his bankruptcy, he conveyed an estate to make good the
breaches of trust, this transfer was sought to be avoided
as fraudulent preference in a bankruptcy proceeding
against a trustee. It was held that the transfer cannot
be avoided as fraudulent preference because it was
found that the trustee made the conveyance not with the
intention or view or object whatever it may be called
preferring any person in whose favour the transfer was
made but for the sole purpose of shielding himself. In
order to find out whether a transfer of property would
amount to fraudulent preference, the question should be
addressed whether it was done to prefer one of the
creditors to the exclusion of others. If it was done not
with a view to prefer one of the creditors but to save
one's own skin, say a threat of prosecution looming
large or to avoid prosecution, certainly the transfer
could. not in such circumstances be fraudulent
preference. This decision has been followed in In re M. L
G. Trust Ltd. Reference may also be made to In re F. L.
E. Holdings Ltd. In that case a passage from Buckley on
the Companies Acts, 13th Edition (1957), is quoted
which shows that as preference implies selection and
selection implies freedom of choice, a payment must in
order to constitute a preference be voluntarily made,
and that a payment made under pressure, e.g., in the
shape of proceedings actual or threatened by the
creditor concerned, or fear of such proceedings, is not for
this purpose a voluntary payment. Viewed from this
angle, the transfer by way of mortgage by directors in
-43-
favour of the Central Board of Trustees would not prima

facie appear to be fraudulent preference as it appears
that it was done under the threat of imminent
prosecution.”
42. Gujarat High Court in Paragraph 19 however had observed that
fraudulent preferences given by the Company would not go unchallenged
and uninvestigated, if the scheme is sanctioned. Observation in
paragraph 19 are as follows:
“18. Recalling now the submission of Mr. Vakil that the

company has been guilty of giving a number of
fraudulent preferences they could not be investigated
except in a winding up proceedings and, therefore, the
scheme is not a proper alternative to winding up, does
not carry conviction. The charges created by the
decrees in favour of the five aforementioned creditors,
which certainly call for investigation, have been set
aside without having taken recourse to the proceeding
in winding up and two mortgages one in favour of the
Union Bank of India and the other in favour of the
Central Board of Trustees of Provident Fund have
prima facie no tinge of fraudulent preference.
Therefore, it is not possible to accept the - submission
of Mr. Vakil that the fraudulent preferences given by
the company would go unchallenged and
uninvestigated if the scheme is sanctioned.”
43. From the above judgment, it is clear that the High Court has not
given any concluded opinion with regard to fraudulent preference as was
claimed in the said case and has observed that if the scheme is
-44-
sanctioned the allegation may call for an investigation. The above
judgement of the Gujarat High Court was followed by Bombay High Court
in “M/s Monark Enterprises Vs. Kishan Tulpule”, (1991) SCC OnLine
Bom 461. In which in paragraph 31 and 32, following has been observed:
“31. The next question which arises is as to whether

the company had entered into the transaction dated
February 18, 1987, with Monark Enterprises with a
view to preferring one creditor to another creditor and
that too fraudulently. The question which arises for
consideration of the court is whether the company
entered into the said transaction as a result of lawful
pressure exercised by Monark Enterprises to recover its
legitimate dues forthwith. It is well-settled that, if the
transaction was entered into as a result of lawful
pressure of a bona fide creditor to recover his dues, the
transaction of transfer could not be treated as a
fraudulent preference. Another connected aspect of the
same question is as to whether the company entered
into the said transaction to save its own skin for its
own benefit in the circumstances then prevailing or
whether the dominant motive of the company in
effecting the said transaction was to favour one
creditor to another.
32. By its letter dated August 3, 1985, Bank of

Maharashtra had already threatened in writing to the
effect that it would adopt legal proceedings both
against Monark Enterprises as well as against "the
company" if the sum of Rs. 14.63 lakhs with overdue
interest remained unpaid. The threat of legal
proceedings was an imminent threat. It is an admitted
-45-
fact that the company did not pay the decretal

instalments which had fallen due from November 1,
1986. By reason of the default clause provided in the
consent terms, Monark Enterprises were entitled to
execute the decree or present a winding-up petition
against the company or resort to such other legal
remedies as were available to them under the law. The
prospect of further legal proceedings by Monark
Enterprises against the company to recover the
decretal dues was too obvious. Reasonable inferences
can be easily drawn if required. The court must
endeavor to take a view consistent with common sense
and the ordinary course of human conduct. It is
obvious to me that the impugned transaction dated
February 18, 1987, was entered into by and between
the company with Monark Enterprises after hard
bargaining not with a view to preferring one creditor to
another creditor but in view of the lawful pressure
exercised by Monark Enterprises on the company.
Learned counsel for Monark Enterprises filed a
compilation of judgment and passages from various
text books on the subject. I do not propose to deal with
all the cases included in the compilation though I have
considered all the cases cited by learned counsel for all
the parties. I propose to refer to only one case to justify
the approach of the court to the problem under
consideration. (In re Maneck chowk and Ahmedabad
Mfg. Co. Ltd.) [1970] 40 Comp Case, 819 at 847, D. A.
Desai J. (as His Lordship then was) of the High Court
of Gujarat summed up the legal principle applicable in
such a situation in his own inimitable style, after
referring to the judgment of the House of Lords in
(Sharp Official Liquidator V. Jackson) [1899] A.C. 419.
-46-
The High Court of Gujarat observed that, if the

transaction was done not with a view to prefer one of
the creditors but to save one's own skin, the transfer
could not, in such circumstances, be treated as a
fraudulent preference. After referring to a passage from
Buckley on the Companies Acts, 13th edition (1957),
the learned judge observed that the expression
"preference" implied selection and selection implied
freedom of choice. The learned judge observed that a
payment, in order to constitute a preference, must be
voluntarily made, and that a payment made under
pressure, e.g., in the context of proceedings, actual or
threatened, by the creditor concerned, or fear of such
proceedings, could not be considered as a fraudulent
preference under the company law. In the instant case,
the facts are quite eloquent. Learned counsel for the
official liquidator and the petitioners have submitted
that Monark Enterprises had not issued any notice to
the company to the effect that it would execute the
decree in view of the default committed. No such notice
need be actually issued. Since Monark Enterprises
were receiving threatening letters from the Bank of
Maharashtra, Monark Enterprises must have
threatened the company to pay its dues as the primary
liability in respect of unpaid hundis executed by the
company for the price of goods sold and delivered by
Monark Enterprises were facing threats from the Bank
of Maharashtra mainly because of the company having
defaulted in respect of its obligation to discharge its
liability to pay the amount in question.”
-47-
44. Bombay High Court has referred to Judgment of the Gujarat High
Court and further noticed the Halsbury’s Laws of England. Paragraph 33
are as follows:
“36. Paragraphs 908, 909, 913, 915, 918 and 920 of

the Halsbury's Laws of England, Volume 2, 4th edition,
set out the statement of law on the subject of
fraudulent preference neatly and clearly. The principles
of law operating in the field of bankruptcy/insolvency
law are imported into the Companies Act. In order that
a transaction may be set aside as a fraudulent
preference, it is necessary to prove that it was carried
out with the view, that is to say, the principal or ???
view, of giving the creditor a preference over the other
creditors. Paragraph 914 of the said volume formulates
the statement of law on the subject of test to be applied
in the following words:
“914. Test to be applied. - In order to ascertain whether
the giving of a preference was the principal or
dominant view in the debtor's mind, the test to be
applied is: was the act done voluntarily ? ...””
45. We may observe that the provision which is under consideration in
the present case is Section 43 of the IBC which statutory scheme is
clearly not the same as was enunciated in Halsbury’s Laws of England
noted in paragraph 33 of the Bombay High Court. The intent of the
Corporate Debtor is not relevant since the Section 43 envisages statutory
fiction as has been noted above. Whether the Act is voluntary or not has
no relevance while coming to the conclusion whether transaction is
preferential or not. Learned Counsel for the Resolution Professional has
-48-
rightly referred to Section 43, sub-section (3) proviso. We may notice that
sub-section (3) of Section 43 provides for exception to preferential
transaction and the proviso of Section 3 reads as under:
“Provided that any transfer made in pursuance of the

order of a court shall not, preclude such transfer to be
deemed as giving of preference by the corporate
debtor.”
46. When the law mandates that any transfer made in pursuance of
order of Court can not preclude such transfer to be deemed to be giving a
preference there is no occasion for not accepting any transaction made in
pursuance to a notice or demand issued by the Lender or by threat
extended by lender for initiating any legal proceeding as preferential
transaction. The legislative scheme which is clarified by the above proviso
clearly leads to the conclusion that any transaction under any notice,
demand or threat shall not lose its character of preferential transaction
merely on the above reason.
47. Learned Counsel for the Appellant has also relied on Judgement of
the Madras High Court reported in “P.G. Vivekanandan & Ors. Vs.
R.P.S. Benefit Fund Ltd.”, 2002 SCC OnLine Mad 917. Madras High
Court in paragraph 39 made following observations:
“39. Any transaction of this nature and such magnitude,

if it is not made in the ordinary course of business and it
was not made in good faith and for valuable
consideration, then it cannot be sustained. It is equally
well settled that if the transaction was entered into as a
result of lawful pressure of a bona fide creditor to
-49-
recover his dues the transaction or transfer could not be

treated as a fraudulent preference. Merely because it
was entered into within a period of six months prior to
the commencement of winding up, but if the transaction
was entered into as a result of a design by directors to
give preference to certain creditors and to siphon off the
funds, definitely the court is not helpless. The test would
be whether the company entered into such transaction
to save its own skin for its own benefit in the
circumstances then prevailing or whether the dominant
motive of the company is to favour one creditor over
another. This is not a case where the transferee could
contend that he is not aware of the infirmity in the
resolution or designs or motive behind the transaction.
With full knowledge of what is going on in the company
the transferee entered into the transaction with designs
with the active assistance of the persons in the
management of the company.”
48. In the above judgement, the Madras High Court has given weight to
the dominant motive of the Company in transaction. We have already
observed that question of intent and motive is not relevant while
examining as to whether transaction is a preferential transaction.
Judgement of the Hon’ble Supreme Court in “Anuj Jain” (supra) has
clearly laid down about the irrelevance of the motive in such transaction.
49. Learned Counsel for the Appellant has also relied on certain
Foreign Judgments in support of his submissions. We in the present case
are examining the statutory scheme under Section 43 of the Code which
statutory scheme has been delineated and explained by the Hon’ble
-50-
Supreme Court in “Anuj Jain” (supra) case. We are of the view that the
decision of the Foreign Courts relied on by the Learned Counsel for the
Appellant dealing with particular statutory scheme under consideration
cannot extend any help while interpreting Section 43 when the clear
interpretation has already been made by the Hon’ble Supreme Court in
“Anuj Jain” (supra) case.
50. Reliance on the Judgment of United States Court of Appeals in “In
re Fulghum Const. Corp.” as well as Judgment of House of Lords in
“Barclays Bank Ltd. vs. Quistclose Investments Ltd.” can have no
relevance and are not helpful in the present case.
51. Learned Counsel for the Appellant has also referred to Judgment of
the Hon’ble Supreme Court in “Canbank Financial Services Ltd. Vs.
Custodian & Ors.”, 2004 8 SCC 355. The above judgement of the Hon’ble
Supreme Court was not dealing with the provision pertaining to
fraudulent preference or preferential transactions and the Court was
dealing with the Benami Transaction Provision Act, 1988 and the
Provisions of the Transfer of Property Act, 1882 as well as Trust Act,
1882. Paragraph 15 and 16 of the Judgment which has been relied by
Learned Counsel for the Appellant is not helpful in the present case. In
the above case noticing the Judgment of the House of Lords it was
observed that even monies advanced as a loan can be treated as impress
with trust, when the monies are advanced for specific purpose. In the
present case no issue has arisen to treat the money advanced to the
Corporate Debtor to be money in trust. The above Judgment of the
Hon’ble Supreme Court has no application.
-51-
52. We thus are of the view that the submissions of the Appellant on
the ground that the transaction was entered into by the Corporate Debtor
due to pressure put on it has no relevance and shall not change the
nature of transaction from preferential transaction.
53. Now coming to the submission of Learned Counsel for the Appellant
that composite application under Section 43, 44, 45, 46, 66, 67 and 60(5)
of the Code could not have been filed by the RP as per law laid down by
the Hon’ble Supreme Court, we may first notice the law as has been laid
down by the Hon’ble Supreme in paragraph 32.1 in “Anuj Jain” (supra).
In paragraph 32.1, observations of the Hon’ble Supreme Court are as
follows:
“32.1. However, we are impelled to make one comment

as regards the application made by IRP. It is noticed
that in the present case, the IRP moved one composite
application purportedly under Sections 43, 45 and 66 of
the Code while alleging that the transactions in question
were preferential as also undervalued and fraudulent.
In our view, in the scheme of the Code, the parameters
and the requisite enquiries as also the consequences in
relation to these aspects are different and such
difference is explicit in the related provisions. As
noticed, the question of intent is not involved in Section
43 and by virtue of legal fiction, upon existence of the
given ingredients, a transaction is deemed to be of
giving preference at a relevant time. However, whether a
transaction is undervalued requires a different enquiry
as per Sections 45 and 46 of the Code and significantly,
such application can also be made by the creditor under
Section 47 of the Code. The consequences of
-52-
undervaluation are contained in Sections 48 and 49.

Per Section 49, if the undervalued transaction is
referable to sub-section (2) of Section 45, the
Adjudicating Authority may look at the intent to examine
if such undervaluation was to defraud the creditors. On
the other hand, the provisions of Section 66 related to
fraudulent trading and wrongful trading entail the
liabilities on the persons responsible therefor. We are
not elaborating on all these aspects for being not
necessary as the transactions in question are already
held preferential and hence, the order for their
avoidance is required to be approved; but it appears
expedient to observe that the arena and scope of the
requisite enquiries, to find if the transaction is
undervalued or is intended to defraud the creditors or
had been of wrongful/fraudulent trading are entirely
different. Specific material facts are required to be
pleaded if a transaction is sought to be brought under
the mischief sought to be remedied by Sections
45/46/47 or Section 66 of the Code. As noticed, the
scope of enquiry in relation to the questions as to
whether a transaction is of giving preference at a
relevant time, is entirely different. Hence, it would be
expected of any resolution professional to keep such
requirements in view while making a motion to the
Adjudicating Authority.”
54. What has been emphasized by the Hon’ble Supreme Court is that
ingredients of Section 43, 45 and 66 are different and Resolution
Professional is expected to keep such requirement in view while making
motion to the Adjudicating Authority. When we look into the Application
-53-
which has been filed in the present case the Resolution Professional has
in the avoidance application in his application has dealt with preferential
transaction undertaken by the Corporate Debtor and undervalued
transaction undertaken by the Corporate Debtor as well as fraudulent
transaction in different heads i.e. ‘i’, ‘ii’ and ‘iii’ thus allegations and
averments were separately made and filing of composite application does
not lead to any infirmity in the Application. We are not persuaded to
accept the submission of the Appellant that since the composite
Application was filed it ought to have been rejected.
55. In view of the foregoing discussions, we are of the view that the
Adjudicating Authority has rightly allowed the Application filed by the
Resolution Professional and declared the preferential transactions
undertaken in favour of the Appellants and directed the Appellants to
refund the amount within three months. We having entertained the
Appeal and also passed an Interim Order on 19th April, 2022, we grant
further three months to Appellants to refund the amount as directed by
the Adjudicating Authority in paragraph 65 and 66. Subject to above, all
the Appeals are dismissed.
[Justice Ashok Bhushan]

Chairperson
[Barun Mitra]
Member (Technical)
NEW DELHI
24th April, 2023
Basant B.

National Company Law Appellate Tribunal, Principal Bench, New Delhi

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NATIONAL COMPANY LAW APPELLATE TRIBUNAL,

PRINCIPAL BENCH, NEW DELHI

[Arising out of order dated 02.03.2022 passed by the National Company

IN THE MATTER OF:

1. GVR Consulting Services Pvt. Ltd.

567, Sector 37, Arun Vihar, Noida,

[Arising out of order dated 02.03.2022 passed by the National Company

IN THE MATTER OF:

Dyna Rasayan Ydyog Pvt. Ltd.

Now Known as Narayan Industries Global Limited,

[Arising out of order dated 02.03.2022 passed by the National Company

3. Keshika Exports Pvt. Ltd.

Delhi, Bench-V (hereinafter referred to as “The Adjudicating Authority”)

allowing I.A. No. 5768 of 2020 in Company Petition (IB) No.

814/ND/2019 filed by the Resolution Professional (RP in short) under

Section 43 of the Insolvency and Bankruptcy Code, 2016 (Hereinafter

referred to as “The Code”). The Adjudicating Authority by the Impugned

Order held the transactions by the Corporate Debtor in favour of the

Appellants as preferential transactions and directed to refund the

respective amount. Aggrieved by this Order, these Appeals have been

Corporate Debtor. The Resolution Professional filed the Application

claiming transaction amounting to Rs. 1 Crore which were claimed to be

repayment of unsecured loan on 04.09.2018, 11.09.2018, 24.09.2018,

25.09.2018 and 12.10.2018 totaling Rs. 1 Crore. Similarly, the total

amount regarding Appellant No. 2 was Rs. 75 Lacs. Resolution

Professional has pleaded in the Application that antecedent liability was

discharged by the Corporate Debtor under the above transaction which

was a preferential transaction.

5768 of 2020. Resolution Professional in the Application has pleaded that

Corporate Debtor had entered into a Loan Agreement dated 05.12.2015

Corporate Debtor had payable balance of INR 2,04,48,767 as on

27.08.2017 which was discharged on 27.08.2018, 28.08.2018,

29.08.2018 and 29.08.2018 totaling Rs. 1,57,29,987/- which was

claimed to be preferential transaction and has been held so by the

Adjudicating Authority directing refund of the amount.

commencement of the Corporate Insolvency Resolution Process (CIRP in

Appellant No. 3 was related party to the Corporate Debtor. The

antecedent liability of the corporate debtor towards Respondent No. 1 Mr.

Praveen Gupta was discharged making payment from 19.12.2017 to

02.03.2019 totaling to Rs. 1,97,50,000/- with respect to Appellant No. 2

Arun Gupta towards antecedent liability of the corporate debtor was

discharged by making payment from 06.09.2017 to 05.12.2017 totaling

Rs. 90,00,000/-. With regard to Appellant No. 3-Keshika Exports Pvt.

Ltd., antecedent liability of the corporate debtor towards Appellant No. 3

was discharged on 31.08.2018 of amount of Rs. 2,49,338/-.

5. We may notice brief facts giving rise to these Appeals.

(i) CIRP against the Corporate Debtor commenced by Order dated

27.08.2019. On 16.09.2019 and 27.09.2019 public announcement

was made. In CoC meeting dated 30.10.2019, Pooja Bahry was

appointed as Resolution Professional of the Corporate Debtor.

(ii) On 09.09.2020, Resolution Professional appointed a Transaction

Debtor for the period 01.04.2016 to 27.08.2019. Transaction

Auditor submitted its final report to the Resolution Professional.

Resolution Professional has published Form-G. Resolution Plan was

approved on 21.09.2020 by the CoC and on 28.09.2020, an

Code was filed by the RP seeking approval of the plan and on

28.01.2021, Resolution Plan was approved by the Adjudicating

(iii)Transaction Auditor has submitted a report on 09.09.2020

containing findings regarding certain transaction undertaken by