Bankrupt's Jewellery Handover To Son Not Preferential Merely Because It Occurred Within Look-Back Period: NCLT Jaipur

The Jaipur bench of the National Company Law Tribunal (NCLT) has recently held that a bankrupt handing over jewellery to her son within the two-year look-back period does not, by itself, make the transaction preferential under the Insolvency and Bankruptcy Code, 2016 (IBC).

“The mere fact that the beneficiary is an associate and that the transaction occurred within two years preceding the bankruptcy application cannot cure this fundamental deficiency,” the bench of Judicial Member Reeta Kohli and Technical Member Kavita Bhatnagar observed.

The tribunal was dealing with an application filed by Sandeep Mahajan, Bankruptcy Trustee of Kanak Biyani, a personal guarantor of Saga Automotive India Private Limited.

The Trustee sought to have the handing over of jewellery weighing 192.49 grams by Biyani to her son, Mridul Maheshwari, declared void as a preferential transaction under Section 165 of the IBC. He also sought an order vesting the jewellery in the bankruptcy estate.

The tribunal initiated bankruptcy proceedings against Biyani on May 26, 2025, following a petition filed by State Bank of India under Section 121(1)(b) of the IBC.

The Trustee alleged that Biyani handed over the jewellery to her son in 2023, within the two-year look-back period under Section 165(2). He pointed out that Maheshwari subsequently pledged the jewellery with IIFL Finance to obtain a gold loan of ₹11.32 lakh.

The Trustee argued that the transaction was intended to defeat the bankruptcy process. He also relied on Sections 128 and 154 of the IBC to contend that the bankrupt's estate vested in him as the Bankruptcy Trustee.

Biyani opposed the application, maintaining that she had gifted the jewellery to her son in 2023, before bankruptcy proceedings began. She argued that no legal restriction prevented the transfer at the time and that it was voluntary and bona fide.

She further contended that Section 165 applies only where a preference is given to a creditor, surety or guarantor in respect of a debt owed by the bankrupt. Her son did not fall into any of these categories, she argued, and the statutory requirements were therefore not met.

Biyani also claimed that much of the jewellery was ancestral or belonged to other family members, who had entrusted it to her for safekeeping. According to her, some of the gold had previously been pledged with IIFL Finance, with the owners' consent, to meet family expenses and educational costs.

She relied on Section 79(14)(c) of the IBC, which covers certain unencumbered personal ornaments held in accordance with religious usage, up to the prescribed value of ₹1 lakh. She also invoked Section 79(15)(d), arguing that the loan was for educational purposes and constituted an excluded debt.

Why the tribunal rejected the Trustee's plea

The tribunal found no material establishing that Maheshwari was a creditor, surety or guarantor in respect of any debt owed by Biyani. Nor was it the Trustee's case that the jewellery had been handed over to him to settle an existing liability.

According to Biyani's version, the jewellery was handed over to enable her son to raise funds for higher education, with an understanding that it would be returned.

The bench observed that Section 165(8) requires the beneficiary to be a creditor, surety or guarantor for a debt of the bankrupt. The provision also requires the transaction to place that person in a better position in the event of bankruptcy than they would otherwise have occupied.

The fact that Maheshwari was Biyani's son brought him within the category of an associate under Section 79(2). However, the two-year look-back period under Section 165(2) could not, by itself, establish that the transaction was preferential.

The tribunal also found that the Trustee had not established the requirement under Section 165(4) that the transaction must have caused the bankruptcy process to be triggered.

The bankruptcy application followed the rejection of Biyani's repayment plan. The bench found no evidence linking the handing over of the jewellery to the initiation of bankruptcy proceedings.

The tribunal questions Biyani's ownership claim

The bench also examined Biyani's contention that the jewellery belonged to other family members and had been entrusted to her for safekeeping.

It noted that earlier correspondence described the transaction as a gift to Maheshwari in 2023. Her reply, however, maintained that she had never held absolute beneficial ownership of the jewellery and had merely handed it over to enable her son to obtain finance, subject to its return.

The tribunal observed that an outright gift and an arrangement involving the handing over of property for a limited purpose were legally distinct. These inconsistencies prevented it from accepting, solely on Biyani's assertion, that the entire jewellery was third-party property held in trust.

However, the bench clarified that weaknesses in Biyani's explanation could not make up for the Trustee's failure to establish the statutory requirements of Section 165.

“Even if the jewellery were assumed to be the Respondent's property, its transfer to her son would not constitute a preference under Section 165 unless the requirements of that provision, particularly subsections (4) and (8), are satisfied,” the bench observed.

The tribunal also addressed Biyani's reliance on the exclusion for personal ornaments under Section 79(14)(c). It noted that the provision covers qualifying unencumbered personal ornaments held in accordance with religious usage, up to the prescribed value of ₹1 lakh.

Since the jewellery had been pledged with IIFL Finance, its encumbered status was relevant to the claim for exclusion. However, the bench clarified that it did not need to determine whether the jewellery qualified as an excluded asset in the present application, which concerned the requirements of Section 165.

The tribunal further observed that the disclosure of immediate family members' assets in Form E did not, by itself, establish that those assets beneficially belonged to Biyani. It also held that the Trustee's earlier statement to creditors that the bankrupt had no assets did not prevent him from investigating property that subsequently came to his knowledge.

The bench clarified that dismissal of the application did not establish ownership in favour of Maheshwari or other family members. It also did not finally decide whether any portion of the jewellery was held in trust under Section 155(2)(b) or qualified as an excluded asset under Section 79(14).

Finding that the Trustee had failed to establish the requirements of Section 165, the tribunal dismissed the application insofar as it sought to declare the handover a preferential transaction and vest the jewellery in the bankruptcy estate on that basis.

For Applicants: Advocate Himanshu Lilani

For Respondents: Advocate Prateek Kushwaha