NCLT Ahmedabad Refuses To Reverse Debtor's Transfer As Preferential Transaction, Says It Was Bank's Unilateral Act

The Ahmedabad bench of the National Company Law Tribunal (NCLT) has dismissed an application by Bank of Baroda, acting on behalf of the lenders of Sintex Prefab & Infra Ltd (SPIL), seeking reversal of a ₹26.79 crore transfer from the company's account as a preferential transaction.

The tribunal found that the transfer was not shown to have been initiated, authorised or directed by the corporate debtor and was instead a unilateral act of IDBI Bank.

A bench of Judicial Member Shammi Khan and Technical Member Sanjeev Sharma held that the requirements for treating the transaction as a preferential transaction had not been established.

The tribunal observed, "The avoidance jurisdiction under Section 43 is attracted when the Corporate Debtor has given a preference. The provision is intended to undo transactions whereby the Corporate Debtor, during the relevant period, prefers one creditor over others. In the facts of the present case, the transaction complained of is not shown to be an act attributable to the Corporate Debtor. Rather, it is alleged to be an independent action undertaken by Respondent No. 2 in exercise of what it perceived to be its rights arising from the Forensic Audit Report.”

SPIL entered the corporate insolvency resolution process on February 24, 2021. The application was originally filed by Resolution Professional Chandra Prakash Jain and was later pursued by Bank of Baroda on behalf of the lenders. It sought restoration of ₹26.79 crore to the company's account.

According to the application, IDBI Bank transferred ₹19.35 crore from SPIL's bank account to the account of Sintex Industries Ltd (SIL) on November 2, 2020. A further ₹7.44 crore was adjusted towards the creation of a fixed deposit against a bank guarantee.

The lenders contended that IDBI Bank had diverted the funds without obtaining a court order and had acted solely on the basis of a forensic audit report concerning SIL. They also alleged collusion between the bank, SIL and SPIL's suspended management.

SIL denied any role in the transaction. It maintained that it had not instructed IDBI Bank to transfer the funds and that the transaction had been carried out solely at the bank's discretion.

IDBI Bank opposed the plea. It argued that a preferential transaction requires a transfer by the corporate debtor itself. The bank maintained that the impugned transfer was an independent action undertaken on the basis of findings in a forensic audit report that recorded diversion of funds from SIL to SPIL.

While considering the matter, the tribunal noted that the transfer and adjustment of funds were not disputed. The question, it observed, was whether the transaction satisfied the ingredients of a preferential transaction.

After examining the record, the tribunal found that there was no material showing that SPIL had resolved, directed, authorised or otherwise effected the transfer.

The tribunal observed, “Thus, the common thread running through the pleadings of all parties is that the impugned transfer was not initiated by the Corporate Debtor. There is no material on record to demonstrate that the Corporate Debtor resolved, directed, authorised or otherwise effected the transfer of the aforesaid amounts in favour of Respondent No. 1 or Respondent No. 2."

The tribunal further found that no sufficient material had been placed before it to establish that SIL was a beneficiary creditor in respect of an antecedent debt owed by the corporate debtor.

It held that the foundational requirement for treating the transaction as preferential had not been met because there was no material demonstrating that the corporate debtor itself had given the alleged preference.

The tribunal also noted that no correspondence, instruction, authorisation, banking mandate, board resolution, or other documentary evidence had been produced to establish participation, authorisation or collusion on the part of SIL or the suspended management.

Observing that mere suspicion could not substitute proof, the tribunal rejected the allegations of collusion against SIL and the suspended management.